-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Qj7k7L1UAaGAzdVCnKcmAC2S48Jb9rzDoJba6Zu7eseKkOMTJAPk2fn4ZqFPDtR3 S0KCi1vdg50INUGFKM0/9Q== /in/edgar/work/20000814/0000913762-00-000007/0000913762-00-000007.txt : 20000921 0000913762-00-000007.hdr.sgml : 20000921 ACCESSION NUMBER: 0000913762-00-000007 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20000630 FILED AS OF DATE: 20000814 FILER: COMPANY DATA: COMPANY CONFORMED NAME: BRAUVIN REAL ESTATE FUND LP 5 CENTRAL INDEX KEY: 0000762848 STANDARD INDUSTRIAL CLASSIFICATION: [6500 ] IRS NUMBER: 363432071 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10QSB SEC ACT: SEC FILE NUMBER: 000-14481 FILM NUMBER: 699992 BUSINESS ADDRESS: STREET 1: BRAUVIN REAL ESTATE FUNDS STREET 2: 30 N LASALLE FUNDS CITY: CHICAGO STATE: IL ZIP: 60602 BUSINESS PHONE: 3127597660 MAIL ADDRESS: STREET 1: BRAUVIN REAL ESTATE FUNDS STREET 2: 30 N LASALLE ST STE 3100 CITY: CHICAGO STATE: IL ZIP: 60602 10QSB 1 0001.txt UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-QSB [X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934. For the six months ended June 30, 2000 or [ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the transition period from to Commission File Number 0-14481 Brauvin Real Estate Fund L.P. 5 (Name of small business issuer as specified in its charter) Delaware 36-3432071 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 30 North LaSalle Street, Chicago, Illinois 60602 (Address of principal executive offices) (Zip Code) (312)759-7660 (Issuer's telephone number) Securities registered pursuant to Section 12(b) of the Act: Title of each class Name of each exchange on which registered None None Securities registered pursuant to Section 12(g) of the Act: Limited Partnership Interests (Title of class) Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filling requirements for the past 90 days. Yes X No . BRAUVIN REAL ESTATE FUND L.P. 5 (a Delaware limited partnership) INDEX PART I Page Item 1. Consolidated Financial Statements. . . . . . . . . . . . . . 3 Consolidated Statement of Net Assets in Liquidation as of June 30, 2000 (Liquidation Basis). . . . . . . . . . . 4 Consolidated Statement of Changes in Net Assets in Liquidation for the period January 1, 2000 to June 30, 2000 (Liquidation Basis). . . . . . . . . . . . . . 5 Consolidated Statements of Operations for the six months ended June 30, 2000 (Liquidation Basis) and the six months ended June 30, 1999 (Going Concern Basis). . . . . . . . . . . . . . . . . . . . 6 Consolidated Statements of Operations for the three months ended June 30, 2000 (Liquidation Basis) and the three months ended June 30, 1999 (Going Concern Basis). . . . . . . . . . . . . . . . . . . . 7 Consolidated Statement of Cash Flows for the six months ended June 30, 1999 (Going Concern Basis) . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 Notes to Consolidated Financial Statements . . . . . . . . . 9 Item 2. Management's Discussion and Analysis or Plan of Operation . . . . . . . . . . . . . . . . . . . . . . . .19 PART II Item 1. Legal Proceedings. . . . . . . . . . . . . . . . . . . . . .27 Item 2. Changes in Securities. . . . . . . . . . . . . . . . . . . .27 Item 3. Defaults Upon Senior Securities. . . . . . . . . . . . . . .27 Item 4. Submission of Matters to a Vote of Security Holders. . . . . . . . . . . . . . . . . . . . . . . . . . .27 Item 5. Other Information. . . . . . . . . . . . . . . . . . . . . .27 Item 6. Exhibits, and Reports on Form 8-K. . . . . . . . . . . . . .27 Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . . .28 PART I - FINANCIAL INFORMATION ITEM 1. Consolidated Financial Statements The following Consolidated Statement of Net Assets in Liquidation as of June 30, 2000 (Liquidation Basis), Consolidated Statement of Changes in Net Assets in Liquidation for the period January 1, 2000 to June 30, 2000 (Liquidation Basis), Consolidated Statements of Operations for the six months ended June 30, 2000 (Liquidation Basis) and 1999 (Going Concern Basis), Consolidated Statements of Operations for the three months ended June 30, 2000 (Liquidation Basis) and the three months ended June 30, 1999 (Going Concern Basis) and Consolidated Statements of Cash Flows for the six months ended June 30, 1999 for Brauvin Real Estate Fund L.P. 5 (the "Partnership") are unaudited but reflect, in the opinion of the management, all adjustments necessary to present fairly the information required. All such adjustments are of a normal recurring nature. These financial statements should be read in conjunction with the financial statements and notes thereto included in the Partnership's 1999 Annual Report on Form 10-KSB. CONSOLIDATED STATEMENT OF NET ASSETS IN LIQUIDATION AS OF June 30, 2000 (LIQUIDATION BASIS) (Unaudited) ASSETS Real estate held for sale $ 8,963,762 Cash and cash equivalents 733,725 Tenant receivable (net of an allowance of $166,000) 44,150 Escrow deposits 289,169 Due from affiliates 35,700 Total Assets $10,066,506 LIABILITIES Mortgage notes payable (Note 4) $ 5,995,578 Accounts payable and accrued expenses 155,298 Deferred gain on sale of real estate (Note 2) 1,707,775 Reserve for estimated costs during the period of liquidation (Note 2) 190,315 Tenant security deposits 28,206 Due to affiliates (Note 5) 6,883 Total Liabilities 8,084,055 MINORITY INTEREST IN SABAL PALM JOINT VENTURE 38,648 SHARE OF ACCUMULATED LOSSES IN EXCESS OF INVESTMENT IN STRAWBERRY FIELDS JOINT VENTURE 245,309 Net Assets in Liquidation $ 1,698,494 See accompanying notes to consolidated financial statements CONSOLIDATED STATEMENT OF CHANGES IN NET ASSETS IN LIQUIDATION (LIQUIDATION BASIS) FOR THE PERIOD JANUARY 1, 2000 TO June 30, 2000 (Unaudited) Net assets at January 1, 2000 (Liquidation Basis) $1,544,831 Income from operations 153,663 Net assets in liquidation at June 30, 2000 $1,698,494 See accompanying notes to consolidated financial statements CONSOLIDATED STATEMENTS OF OPERATIONS For the six months ended June 30, (Unaudited) (Liquidation (Going Concern Basis) Basis) 2000 1999 INCOME Rental $606,744 $691,216 Interest 21,881 16,493 Other, primarily tenant expense reimbursements 33,204 98,208 Total income 661,829 805,917 EXPENSES Interest 250,308 269,858 Depreciation -- 116,615 Real estate taxes 67,655 68,754 Repairs and maintenance 16,355 14,707 Management fees (Note 5) 44,063 44,935 Other property operating 42,132 44,116 Bad debt expense (1,000) 92,600 General and administrative 102,234 97,048 Total expenses 521,747 748,633 Income before minority and equity interests 140,082 57,284 Minority interest's share of Sabal Palm's net income (37,590) (32,118) Equity interest in Strawberry Fields Joint Venture's net income 51,171 26,776 Net income $153,663 $ 51,942 Net income allocated to the General Partners $ 1,537 $ 519 Net income allocated to the Limited Partners $152,126 $ 51,423 Net income Per Limited Partnership Interest (9,914.5 Units) $ 15.34 $ 5.19 See accompanying notes to consolidated financial statements CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE THREE MONTHS ENDED JUNE 30, (Unaudited) (Liquidation (Going Concern Basis) Basis) 2000 1999 INCOME Rental $240,060 $276,752 Interest 13,311 8,148 Other, primarily tenant expense reimbursements 13,986 47,509 Total income 267,357 332,409 EXPENSES Interest 124,794 134,992 Depreciation -- 58,232 Real estate taxes 33,828 34,377 Repairs and maintenance 3,169 3,805 Management fees (Note 5) 18,347 18,577 Other property operating 17,558 23,379 Bad debt expense (7,600) 43,138 General and administrative 61,916 52,097 Total expenses 252,012 368,597 Income (loss) before minority and equity interests 15,345 (36,188) Minority interest's share of Sabal Palm's net loss 8,914 12,970 Equity interest in Strawberry Fields Joint Venture's net income 23,801 17,112 Net income (loss) $ 48,060 $ (6,106) Net income (loss) allocated to the General Partners $ 481 $ (61) Net income (loss) allocated to the Limited Partners $ 47,579 $ (6,045) Net income (loss) Per Limited Partnership Interest (9,914.5 Units) $ 4.80 $ (0.61) See accompanying notes to consolidated financial statements. CONSOLIDATED STATEMENT OF CASH FLOWS FOR THE SIX MONTHS ENDED JUNE 30, 1999 (GOING CONCERN BASIS) (Unaudited) Cash Flows From Operating Activities: Net income (loss) $ 51,942 Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation 116,615 Provision for doubtful accounts 92,600 Equity interest in Strawberry Fields Joint Venture's net (income) loss (26,776) Minority Interest's share of Sabal Palm Joint Venture's net income 32,118 Changes in: Rent receivables (90,899) Other assets (9,759) Escrow deposits (64,426) Due from affiliates (9,816) Accounts payable and accrued expenses 39,478 Due to affiliates 1,069 Tenant security deposits (6,288) Net cash provided by operating activities 125,858 Cash Flows From Investing Activities: Cash distribution to Minority Partner of Sabal Palm Joint Venture (70,500) Cash used in investing activities (70,500) Cash Flows From Financing Activities: Repayment of mortgage notes payable (63,165) Net cash used in financing activities (63,165) Net (decrease)increase in cash and cash equivalents (7,807) Cash and cash equivalents at beginning of period 803,207 Cash and cash equivalents at end of period $ 795,400 Supplemental disclosure of cash flow information: Cash paid for interest $ 255,942 See accompanying notes to consolidated financial statements. (1) ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES ORGANIZATION Brauvin Real Estate Fund L.P. 5 (the "Partnership") was organized on June 28, 1985. The General Partners of the Partnership are Brauvin Ventures, Inc. and Jerome J. Brault. On August 8, 1997, Mr. Cezar M. Froelich resigned as an Individual General Partner effective 90 days from August 14, 1997. Brauvin Ventures Inc. is owned by A.G.E. Realty Corporation Inc. (50%) and by Messrs. Brault (beneficially) (25%) and Froelich (25%). A. G. Edwards & Sons, Inc. and Brauvin Securities, Inc., affiliates of the General Partners, were the selling agents of the Partnership. The Partnership is managed by an affiliate of the General Partners. The Partnership was formed on June 28, 1985 and filed a Registration Statement on Form S-11 with the Securities and Exchange Commission which became effective on March 1, 1985. The sale of the minimum of $1,200,000 of limited partnership interests of the Partnership (the "Units") necessary for the Partnership to commence operations was achieved on June 28, 1985. The Partnership's offering closed on February 28, 1986. A total of $9,914,500 of Units were subscribed for and issued between March 1, 1985 and February 28, 1986 pursuant to the Partnership's public offering. The Partnership has acquired directly or through joint ventures the land and buildings underlying Crown Point, Strawberry Fields and Sabal Palm shopping centers. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Management's Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Basis of Presentation As a result of the July 12, 1999 authorization by a majority of the Limited Partners to sell the Partnership's properties the Partnership has begun the liquidation process and, in accordance with generally accepted accounting principles, the Partnership's financial statements for periods subsequent to July 12, 1999 have been prepared on a liquidation basis. Accordingly, the carrying value of the assets is presented at estimated net realizable amounts and all liabilities are presented at estimated settlement amounts, including estimated costs associated with carrying out the liquidation. Preparation of the financial statements on a liquidation basis requires significant assumptions by management, including the estimate of liquidation costs and the resolution of any contingent liabilities. There may be differences between the assumptions and the actual results because events and circumstances frequently do not occur as expected. Those differences, if any, could result in a change in the net assets recorded in the statement of net assets as of June 30, 2000. Accounting Method The accompanying consolidated financial statements have been prepared using the accrual method of accounting. Rental Income Prior to the preparation of the financial statements on the liquidation basis, rental income was recognized on a straight line basis over the life of the related leases. Differences between rental income earned and amounts due per the respective lease agreements were credited or charged, as applicable, to deferred rent receivable. Federal Income Taxes Under the provisions of the Internal Revenue Code, the Partnership's income and losses are reportable by the partners on their respective income tax returns. Accordingly, no provision is made for Federal income taxes in the financial statements. Consolidation of Special Purpose Entity The Partnership has one special purpose entity ("SPE"), Brauvin/Crown Point L.P., which is owned 99% by the Partnership and 1% by an affiliate of the General Partners. Distributions from the SPE are subordinated to the Partnership which effectively precludes any distributions from the SPE to affiliates of the General Partners. The creation of the SPE did not affect the Partnership's economic ownership of the property. Furthermore, this change in ownership structure had no material effect on the financial statements of the Partnership. Consolidation of Joint Venture Partnership The Partnership owns a 53% interest in the Sabal Palm Joint Venture which owns Sabal Palm Shopping Center. The accompanying financial statements have consolidated 100% of the assets, liabilities, operations and partners' capital of Sabal Palm Joint Venture. The minority interests of the consolidated joint venture is adjusted for the respective joint venture partner's share of income or loss and any cash contributions from or distributions to the joint venture partner, if any. All intercompany items and transactions have been eliminated. Investment in Joint Venture Partnership The Partnership owns a 42% equity interest in a Strawberry Fields Joint Venture (Note 6). Strawberry Fields is reported as an investment in an affiliated joint venture. The accompanying financial statements include the investment in Strawberry Fields Joint Venture at estimated net realizable value using the equity method of accounting on a liquidation basis. Investment in Real Estate Prior to the preparation of the financial statements on the liquidation basis, the operating properties acquired by the Partnership were stated at cost including acquisition costs, leasing commissions, tenant improvements and net of impairment. Depreciation and amortization expense was computed on a straight-line basis over approximately 31.5 years and the term of the applicable leases, respectively. All of the Partnership's properties are subject to liens under first mortgages (see Note 4). The Partnership records impairment to reduce the cost basis of real estate to its estimated fair value when the real estate is judged to have suffered an impairment that is other than temporary. The Partnership has performed an analysis of its long-lived assets, and the Partnership's management determined that there were no events or changes in circumstances that indicated that the carrying amount of the assets may not be recoverable at June 30, 2000, except as disclosed below. In the fourth quarter of 1998, the Partnership recorded impairment of $1,499,958 related to an other than temporary decline in the value of real estate for the Sabal Palm Joint Venture. This impairment has been allocated to land and building based on the original acquisition percentages. Cash and Cash Equivalents Cash and cash equivalents include all highly liquid debt instruments with an original maturity within three months from date of purchase. Estimated Fair Value of Financial Instruments Disclosure of the estimated fair value of financial instruments is made in accordance with the requirements of Statement of Financial Accounting Standards No. 107, "Disclosures About Fair Value of Financial Instruments". The estimated fair value amounts have been determined by using available market information and appropriate valuation methodologies. However, considerable judgement is necessarily required in interpreting market data to develop estimates of fair value. The fair value estimates presented herein are based on information available to management as of June 30, 2000, but may not necessarily be indicative of the amounts that the Partnership could realize in a current market exchange. The use of different assumptions and/or estimation methodologies may have a material effect on the estimated fair value amounts. In connection with the adoption of the liquidation basis of accounting, assets were adjusted to net realizable value and liabilities were adjusted to estimated settlement amounts, which approximates their fair value at June 30, 2000. (2) ADJUSTMENT TO LIQUIDATION BASIS On July 12, 1999, in accordance with the liquidation basis of accounting, assets were adjusted to estimated net realizable value and liabilities were adjusted to estimated settlement amounts, including estimated costs associated with carrying out the liquidation. The net adjustment required to convert from the going concern (historical cost) basis to the liquidation basis of accounting was a decrease in assets of $300,940 which was included in the December 31, 1999 statement of changes in net assets in liquidation. Significant changes in the carrying value of assets and liabilities are summarized as follows: Increase in real estate held for sale (a) $1,738,537 Reduction to investment in real estate (12,414) Write-off of deferred rent receivable (5,984) Write-off of mortgage costs (92,227) Increase in deferred gain on sale of real estate (1,707,775) Estimated liquidation costs (190,315) Total adjustment to liquidation basis $ (270,178) (a) Net of estimated closing costs. In 2000, the Partnership decided, in an effort to attract more buyers for the Crown Point Shopping Center, to build out certain vacant space. The cost of approximately $30,762 increased real estate held for sale, duringthe second quarter of 2000. (3) PARTNERSHIP AGREEMENT The Partnership Agreement (the "Agreement") provides that 99% of the net profits and losses from operations of the Partnership for each fiscal year shall be allocated to the Limited Partners and 1% of net profits and losses from operations shall be allocated to the General Partners. The net profit of the Partnership from the sale or other disposition of a Partnership property shall be allocated as follows: first, there shall be allocated to the General Partners the greater of: (i) 1% of such net profits; or (ii) the amount distributable to the General Partners as Net Sale Proceeds from such sale or other disposition, as defined in the Partnership Agreement; and second, all remaining profits shall be allocated to the Limited Partners. The net loss of the Partnership from any sale or other disposition of a Partnership property shall be allocated as follows: 99% of such net loss shall be allocated to the Limited Partners and 1% of such net loss shall be allocated to the General Partners. The Agreement provides that distributions of Operating Cash Flow, as defined in the Agreement, shall be distributed 99% to the Limited Partners and 1% to the General Partners. The receipt by the General Partners of such 1% of Operating Cash Flow shall be subordinated to the receipt by the Limited Partners of Operating Cash Flow equal to a 10% per annum, cumulative, non-compounded return on Adjusted Investment, as such term is defined in the Agreement (the "Preferential Distribution"). In the event the full Preferential Distribution is not made in any year (herein referred to as a "Preferential Distribution Deficiency") and Operating Cash Flow is available in following years in excess of the Preferential Distribution for said years, then the Limited Partners shall be paid such excess Operating Cash Flow until they have paid any unpaid Preferential Distribution Deficiency from prior years. Net Sale Proceeds, as defined in the Agreement, received by the Partnership shall be distributed as follows: (a) first, to the Limited Partners until such time as the Limited Partners have been paid an amount equal to the amount of their Adjusted Investment; (b) second, to the Limited Partners until such time as the Limited Partners have been paid an amount equal to any unpaid Preferential Distribution Deficiency; and (c) third, 85% of any remaining Net Sale Proceeds to the Limited Partners, and the remaining 15% of the Net Sale Proceeds to the General Partners. The Preferential Distribution Deficiency at June 30, 2000 equaled $12,565,149. (4) MORTGAGE NOTES PAYABLE Mortgage notes payable at June 30, 2000 consist of the following: Interest Date 2000 Rate Due Crown Point Shopping Center (a) $2,906,586 7.55% 1/03 Sabal Palm Square Shopping Center (b) 3,088,992 8.93% 4/02 $5,995,578 Each shopping center serves as collateral under its respective nonrecourse debt obligation. Maturities of the mortgage notes payable are as follows: 2000 $ 70,303 2001 150,124 2002 3,138,251 2003 2,636,900 $5,995,578 (a) On December 28, 1995, the acquisition loan balance was paid in full when Crown Point was refinanced by NationsBanc Mortgage Capital Corporation. The refinancing resulted in a $3,275,000 non- recourse loan with a fixed interest rate of 7.55%, and amortization based on a twenty year term with a maturity of January 1, 2003. As a precondition to the new financing, the Successor Lender required that ownership of the property reside in a single purpose entity ("SPE"). To accommodate the lender's requirements, ownership of the property was transferred to the SPE, Brauvin/Crown Point L.P., which is owned 99% by the Partnership and 1% by an affiliate of the General Partners. Distributions of Brauvin/Crown Point L.P. are subordinated to the Partnership which effectively precludes any distributions from the SPE to affiliates of the General Partners. The creation of Brauvin/Crown Point L.P. did not affect the Partnership's economic ownership of the Crown Point property. Furthermore, this change in ownership structure had no material effect on the financial statements of the Partnership. The carrying value of Crown Point at June 30, 2000 was approximately $5,813,500. (b) On February 19, 1987, the Partnership and its joint venture partner obtained a first mortgage loan in the amount of $3,200,000 from an unaffiliated lender. The loan was payable with interest only at 9.5% per annum until February 1992 and then required payments of principal and interest based on a 30-year amortization schedule. Sabal Palm was required to make a balloon mortgage payment in February 1997. Prior to the scheduled maturity of the First Mortgage Loan, the lender granted Sabal Palm an extension until April 1, 1997. On March 31, 1997, Sabal Palm obtained a first mortgage loan in the amount of $3,200,000 (the "First Mortgage Loan") secured by its real estate, from NationsBanc Mortgage Capital Corporation. The First Mortgage Loan bears interest at the rate of 8.93% per annum, is amortized over a 25-year period, requires monthly payments of principal and interest of approximately $26,700 and matures on March 26, 2002. A portion of the proceeds of the First Mortgage Loan, approximately $3,077,000, was used to retire Sabal Palm's existing mortgage from Lincoln National Pension Insurance Company. In the first quarter of 1998, the Partnership became aware that both Winn-Dixie and Walgreens may vacate their respective spaces at Sabal Palm prior to their lease termination dates. In the second quarter of 1998, Winn-Dixie vacated its space at the center. Winn- Dixie remains liable for rental payments under its lease at Sabal Palm until April 2005. On August 7, 2000 the Partnership was given official notice that Walgreens will vacate the space prior to their lease termination of April 30, 2025. The General Partners are working to determine the most beneficial steps to be taken by the Partnership. The carrying value of Sabal Palm approximated $3,150,250 at June 30, 2000. (5) TRANSACTIONS WITH AFFILIATES Fees and other expenses paid or payable to the General Partners or its affiliates for the six months ended June 30, 2000 and 1999 were as follows: 2000 1999 Management fees $44,064 $44,935 Reimbursable office expenses 43,373 36,384 The Partnership believes the amounts paid to affiliates are representative of amounts which would have been paid to independent parties for similar services. As of June 30, 2000, the Partnership had made all payments to affiliates, except for management fees of $6,883. An amount of $35,700 due from affiliates at June 30, 2000 represents an advance made to Strawberry Fields. (6) EQUITY INVESTMENT The Partnership owns a 42% interest in Strawberry Fields Joint Venture, located in West Palm Beach, Florida, and accounts for its investment under the equity method. The following are condensed financial statements for Strawberry Fields Joint Venture: (Liquidation Basis) June 30, 2000 Real estate held for sale $5,197,750 Other assets 192,527 5,390,277 Mortgage note payable 5,208,672 Deferred gain on the sale of real estate 529,110 Other liabilities 234,993 5,972,775 Net liabilities in liquidation $ 582,498 For the six months ended June 30, Liquidation Basis Going Concern Basis 2000 1999 Rental income $409,707 $394,067 Other income 34,800 42,318 444,507 436,385 Mortgage and other interest 183,547 189,292 Depreciation -- 78,816 Operating and administrative expenses 139,126 104,525 322,673 372,633 Net income $121,834 $ 63,752 In the second and fourth quarters of 1998, the joint venture partnership recorded impairments of $1,564,101 and $504,935, respectively, related to other than temporary declines in the value of real estate for the Strawberry Fields property. These impairments were allocated to land and building based on the original acquisition percentages. As of March 31, 2000, the joint venture partnership adjusted its investment in real estate. The effect of this adjustment was a reduction in the real estate held for sale of $80,000, and a reduction in the deferred gain on the sale of real estate of $80,000. We received three bids on this property during the latter part of 1999. After negotiation the joint venture partnership accepted the high bid of $5.43 million and entered into a contract for sale. However, the prospective purchaser terminated its interest in the property during its due diligence period. Subsequent to this deal falling away the joint venture partnership received another offer for $5.35 million, the offer, after transaction costs, is below the current mortgage balance of $5.209 million. The joint venture partnership accepted the initial high bid in part because the property's underlying mortgage loan was coming due; and the lender indicated that it would not extend the maturity. However, in the second quarter of this year, the joint venture partnership was successful in extending the loan for a two year period. This extension will allow us to continue to market the property and seek a greater sales price. We do not anticipate that the ultimate sales price will be significantly different than the offers received to date. Item 2. Management's Discussion and Analysis or Plan of Operation. General Certain statements in this Quarterly Report that are not historical fact constitute "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Without limiting the foregoing, words such as "anticipates", "expects", "intends", "plans" and similar expressions are intended to identify forward-looking statements. These statements are subject to a number of risks and uncertainties. Actual results could differ materially from those projected in the forward-looking statements. The Partnership undertakes no obligation to update these forward-looking statements to reflect future events or circumstances. Year 2000 The "Year 2000" problem concerned the inability of computer technology systems to correctly identify and process date sensitive information beyond December 31, 1999. Many computers automatically add the "19" prefix to the last two digits the computer reads for the year when date information is needed in computer software programs. Thus when a date beginning on January 1, 2000 is entered into a computer, the computer may interpret this date as the year "1900" rather than "2000". The computer information technology systems which support the Partnership consist of a network of personal computers linked to a server built using hardware and software from mainstream suppliers. These systems do not have equipment that contains embedded microprocessors, which may also pose a potential Year 2000 problem. Additionally, there is no internally generated software coding to correct as all of the software is purchased and licensed from external providers. The Partnership utilizes two main software packages that contain date sensitive information, (i) accounting and (ii) investor relations. In 1997, a program was initiated and completed to convert from the existing accounting software to a new software program that is Year 2000 compliant. In 1998, the investor relations software was also updated to a new software program that is Year 2000 compliant. All costs associated with these conversions were expensed by the Partnership as incurred, and were not material. Management does not believe that any further expenditures will be necessary for the systems to be Year 2000 compliant. However, additional personal computers may be purchased from time to time to replace existing machines. Also in 1997, management of the Partnership initiated formal communications with all of its significant third party vendors, service providers and financial institutions to determine the extent to which the Partnership is vulnerable to those third parties failure to remedy their own Year 2000 issue. There can be no guarantee that the systems of these third parties were converted and will not have an adverse effect on the Partnership. The Partnership has not experienced any material adverse impact on its operations or its relationships with tenants, vendors or others. Liquidity and Capital Resources The Partnership intends to satisfy its short-term liquidity needs through cash flow from the properties. Mortgage notes payable are expected to be satisfied through property sales. The anchor tenant at Crown Point is Food City. The overall occupancy level at Crown Point decreased to 85% at June 30, 2000 when compared to 88% at June 30, 1999. The Partnership is continuing to work to improve the occupancy level of Crown Point. On December 28, 1995, the loan balance of the acquisition financing was paid in full when the Crown Point property was refinanced with NationsBanc Mortgage Capital Corporation. The refinancing resulted in a $3,275,000 non-recourse loan with a fixed interest rate of 7.55% and a maturity of January 1, 2003. The Partnership has received two offers for the Crown Point property. The prices were $4.45 million and $4.6 million. These offers compare to the November, 1998 appraisal of $5.95 million and the current outstanding mortgage of $2.9 million. We have not accepted either of the offers given that they were more than $1.3 million less than our appraised value. We believe that a contributing factor in the low offers we have received is that a significant tenant that occupied approximately 17% of the center vacated during the end of 1999. We believe this drop in occupancy is reflected in the two offers received. In order to combat this development, the Partnership reconfigured the vacated space into three smaller units. One of the units has since been leased and we are currently marketing the other two spaces. Once these have been released, we anticipate we will receive more attractive offers. The Strawberry Fields Joint Venture secured a replacement tenant, Syms, a national discount clothing retailer, to sublease the Kroger space at Strawberry Fields. Syms opened for business in October 1992 and has signed a sublease for the remainder of the original lease term which expires March 31, 2005. Customer traffic at Strawberry Fields has increased with the draw of Syms, making vacant space more marketable. The property has shown an improvement due to the occupancy increase from 85% at June 30, 1999 to 89% at June 30, 2000. The Strawberry Fields Joint Venture is aggressively marketing the vacant space having engaged a prominent local brokerage firm to assist the Strawberry Fields Joint Venture's on-site leasing representative in the marketing of the shopping center. On September 18, 1995, the Strawberry Fields Joint Venture notified the Strawberry Lender that it would exercise its option to extend the term of the Strawberry Fields loan from the original maturity of November 1, 1995 to December 1, 1998. The terms of the extension called for all provisions of the loan to remain the same except for an additional monthly principal payment of $12,500. Effective November 1, 1995, the Strawberry Joint Venture and the Strawberry Lender agreed to modify the loan by reducing the interest rate to 7.5% for November 1, 1995 through October 31, 1997 and by reducing the monthly principal payment to $12,000. As of November 1, 1997, the interest rate reverted to the original 9.0% rate. Effective October 1, 1998, the Strawberry Fields Joint Venture and the Strawberry Lender agreed to modify and extend the first mortgage loan. As of October 1, 1998 and through the extended maturity date, May 1, 2000, the interest rate has been reduced from 9% to 7% with principal amortization changed from a ten year period to an eighteen year period. The outstanding mortgage balance encumbered by the property was $5,208,672 at June 30, 2000. In the second and fourth quarters of 1998, the joint venture partnership recorded impairments of $1,564,101 and $504,935, respectively, related to other than temporary declines in the value of real estate for the Strawberry Fields property. These allowance were allocated to land and building based on the original acquisition percentages. We received three bids on the Strawberry Fields Shopping Center during the latter part of 1999. After negotiation the joint venture partnership accepted the high bid of $5.43 million and entered into a contract for sale. However, the prospective purchaser terminated its interest in the property during its due diligence period. Subsequent to this deal falling away the joint venture partnership received another offer for $5.35 million. However, although the offer exceeds the November, 1998 appraised value of $4.8 million, the offer, after transaction costs, is below the current mortgage balance of $5.209 million. The joint venture partnership accepted the initial high bid in part because the property's underlying mortgage loan was coming due; and the lender indicated that it would not extend the maturity. However, in the second quarter of this year, the joint venture partnership was successful in extending the loan for a two year period. This extension will allow us to continue to market the property and seek a greater sales price. We do not anticipate that the ultimate sales price will be significantly different than the offers received to date. The Partnership owns a 42% joint venture interest in this property. At Sabal Palm, the Partnership and its joint venture partner are working to improve the economic occupancy level of Sabal Palm which stood at 86% as of June 30, 2000. Although the Sabal Palm retail market appears to be overbuilt, the economic occupancy level of the building has stayed relatively constant and it has generated positive cash flow since its acquisition in 1986. In the first quarter of 1998, the Partnership became aware that both Winn-Dixie and Walgreens may vacate their respective spaces at Sabal Palm prior to their lease termination dates. In the second quarter of 1998, Winn-Dixie vacated its space at the center. Winn- Dixie remains liable for rental payments under its lease at Sabal Palm until April 2005. On August 7, 2000 the Partnership was given official notice that Walgreens will vacate the space prior to their lease termination of April 30, 2025. The General Partners are working to determine the most beneficial steps to be taken by the Partnership. Sabal Palm was required to make a balloon mortgage payment in February 1997. Prior to the scheduled maturity of the First Mortgage Loan, the lender granted Sabal Palm an extension until April 1, 1997. On March 31, 1997, Sabal Palm obtained a first mortgage loan in the amount of $3,200,000 (the "First Mortgage Loan"), secured by its real estate, from NationsBanc Mortgage Capital Corporation. The First Mortgage Loan bears interest at the rate of 8.93% per annum, is amortized over a 25-year period, requires monthly payments of principal and interest of approximately $26,700 and matures on March 26, 2002. A portion of the proceeds of the First Mortgage Loan, approximately $3,077,000, was used to retire Sabal Palm's existing mortgage from Lincoln National Pension Insurance Company. In the fourth quarter of 1998, the joint venture recorded an impairment of $1,499,958 related to an other than temporary decline in the value of real estate for Sabal Palm. This allowance has been allocated to the land and building based on the original acquisition percentages. In total, we have received six offers on the Sabal Palm Square property from unaffiliated parties ranging in price from $2.5 million to $3.4 million. After negotiation the Partnership accepted the highest offer and completed negotiating the sale contract in June. The $3.4 million sales price compares to the November, 1998 appraised value of $3.25 million. The current mortgage balance on the property is approximately $3.088 million. The buyer had a 60 day due diligence period. The buyer terminated the contract within the due diligence period. The Partnership owns a 53% joint venture interest in this property. In 1998, the General Partners notified the Limited Partners that they are exploring various alternatives to sell the Partnership's assets. In this regard, the Partnership engaged a nationally known appraisal firm to value the Partnership's assets. Additionally, this firm will assist the General Partners in determining the appropriate method and timing for the disposition of the Partnership's assets. On December 10, 1998, the Partnership received notice that an unsolicited tender offer to purchase up to 25% of the outstanding Units was to commence with a tender price of $80 per Unit. The offer was being made, in part, by an entity that owned a nominal economic interest in the Partnership and was scheduled to terminate on January 15, 1999. As a result of this unsolicited tender offer approximately 609 economic interests in the Partnership were transferred. On May 12, 1999, the Partnership received notice that an unsolicited tender offer to purchase up to 25% of the outstanding Units was to commence with a tender price of $170 per Unit. The offer was being made, in part, by an entity that owned a nominal economic interest in the Partnership and was scheduled to expire on June 25, 1999. As a result of this unsolicited tender offer approximately 777 economic interests in the Partnership were transferred. The General Partners remained neutral as to the particular merits or risks associated with the tender offers to the Limited Partners. The General Partners believed an informed determination of the true value of the Units could be made after the receipt of the appraisals. The General Partners cautioned that the ultimate amount actually received by each Limited Partner will be affected by items including, but not limited to, the timing of the liquidation of the assets, changes in market conditions, necessary Partnership reserves and the sales prices that can be negotiated. The General Partners further informed the Limited Partners that, for those investors who are primarily interested in liquidating their Units immediately, the tender offer provided such an opportunity. The General Partners determined to pursue the disposition of the Partnership's assets. In 1999, the Partnership solicited and received the votes of the Limited Partners to approve a sale of all of the Partnership's properties, either on an individual or group basis, and to subsequently liquidate the Partnership. The solicitation, which was approved by the Limited Partners in the third quarter of 1999, stated that the Partnership's properties may be sold individually or in any combination provided that the total sales price for the properties included in the transaction equals or exceeds 70% of the aggregate appraised value for such properties, which valuation was conducted by an independent third party appraisal firm. The Partnership intends to sell the properties under a closed bid process which will include identification of target buyers with proven financing ability and performance of certain evaluations of the properties, such as environmental testing. Potential buyers will be requested to sign confidentiality agreements to safeguard the Partnership's confidential proprietary information. The General Partners have determined that each bid must be all cash, completely unconditional and accompanied by a substantial deposit. To date over 250 potential purchasers have been contacted regarding the sale of the properties. Of those contacted, approximately 120 potential buyers have registered to receive packages on one or more of the properties. In addition, the properties are listed on the Internet at Loopnet.com, the largest commercial real estate website in the nation. Please be assured that we are seeking to both maximize the value of the assets and to sell them and liquidate the Partnership as soon as possible. As a result of this authorization by a majority of the Limited Partners to sell the Partnership's properties, the Partnership has begun the liquidation process and, in accordance with generally accepted accounting principles, the Partnership's financial statements for periods subsequent to July 12, 1999 have been prepared on a liquidation basis. Accordingly, the carrying value of the assets is presented at estimated net realizable amounts and all liabilities are presented at estimated settlement amounts, including estimated costs associated with carrying out the liquidation. Preparation of the financial statements on a liquidation basis requires significant assumptions by management, including the estimate of liquidation costs and the resolution of any contingent liabilities. There may be differences between the assumptions and the actual results because events and circumstances frequently do not occur as expected. Those differences, if any, could result in a change in the net assets recorded in the statement of net assets as of June 30, 2000. The General Partners expect to distribute proceeds from operating cash flow, if any, and from the sale of real estate to Limited Partners in a manner that is consistent with the investment objectives of the Partnership. Management of the Partnership believes that cash needs may arise from time to time which will have the effect of reducing distributions to Limited Partners to amounts less than would be available from refinancing or sale proceeds. These cash needs include, among other things, maintenance of working capital reserves in compliance with the Agreement as well as payments for major repairs, tenant improvements and leasing commissions in support of real estate operations. Results of Operations - Six Months Ended June 30, 2000 (Liquidation Basis) and the Six Months Ended June 30, 1999 (Going Concern Basis) (Amounts rounded to 000's) The Partnership generated net income of $154,000 for the six months ended June 30, 2000 as compared to net income of $52,000 for the same period in 1999. The $102,000 increase in net income resulted primarily from the net of a $144,000 decrease in total income, a $227,000 decrease in total expenses, a $6,000 increase in Sabal Palm Joint Venture's minority interest in net income and a $24,000 increase in the equity interest in Strawberry Fields Joint Venture net income. Total income for the six months ended June 30, 2000 was $662,000 as compared to $806,000 for the same period in 1999, a decrease of $144,000. The $144,000 decrease in total income is a result of a decrease in rental income of $85,000 and a decrease in other tenant expense reimbursements of $65,000. These decreases primarily relate to the vacancy issues at the Sabal Palm Shopping Center. The occupancy at Sabal Palm decreased to 86% at June 30, 2000 compared to 92% at June 30, 1999. For the six months ended June 30, 2000, total expenses were $522,000 as compared to $749,000 for the same period in 1999, a decrease of $227,000. The $227,000 decrease in total expenses resulted primarily from the Partnership's adoption of the liquidation basis of accounting in July 1999. Prior to the adoption of the liquidation basis of accounting depreciation was recorded on a straight line basis over the estimated economic lives of the properties. Upon the adoption of the liquidation basis of accounting, real estate held for sale was adjusted to estimated net realizable value and no depreciation expense has been recorded. Additionally contributing to the decrease in total expenses was a decrease in bad debt expense of $94,000. Bad debt expense declined primarily as a result of the cessation of billing certain vacated tenants primarily at the Sabal Palm Shopping Center. Results of Operations - Three Months Ended June 30, 2000 (Liquidation Basis) and the Three Months Ended June 30, 1999 (Going Concern Basis) (Amounts rounded to 000's) The Partnership generated net income of $48,000 for the three months ended June 30, 2000 as compared to net loss of $6,000 for the same period in 1999. The $54,000 increase in net income resulted primarily from the net of a $65,000 decrease in total income, a $117,000 decrease in total expenses, a $4,000 decrease in Sabal Palm Joint Venture's minority interest in net loss and a $7,000 increase in the equity interest in Strawberry Fields Joint Venture net income. Total income for the three months ended June 30, 2000 was $267,000 as compared to $332,000 for the same period in 1999, a decrease of $65,000. The $65,000 decrease in total income is a result of a decrease in rental income of $37,000 and a decrease in other tenant expense reimbursements of $34,000. These decreases primarily relate to the vacancy issues at the Sabal Palm Shopping Center. The occupancy at Sabal Palm decreased to 86% at June 30, 2000 compared to 92% at June 30, 1999. For the three months ended June 30, 2000, total expenses were $252,000 as compared to $369,000 for the same period in 1999, a decrease of $117,000. The $117,000 decrease in total expenses resulted primarily from the Partnership's adoption of the liquidation basis of accounting in July 1999. Prior to the adoption of the liquidation basis of accounting depreciation was recorded on a straight line basis over the estimated economic lives of the properties. Upon the adoption of the liquidation basis of accounting, real estate held for sale was adjusted to estimated net realizable value and no depreciation expense has been recorded. Additionally contributing to the decrease in total expenses was a decrease in bad debt expense of $51,000. Bad debt expense declined primarily as a result of the cessation of billing certain vacated tenants primarily at the Sabal Palm Shopping Center. PART II - OTHER INFORMATION ITEM 1. Legal Proceedings. None. ITEM 2. Changes in Securities. None. ITEM 3. Defaults Upon Senior Securities. None. ITEM 4. Submission of Matters To a Vote of Security Holders. None. ITEM 5. Other Information. None. ITEM 6. Exhibits and Reports on Form 8-K. Exhibit 27. Financial Data Schedule SIGNATURES In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. BY: Brauvin Ventures, Inc. Corporate General Partner of Brauvin Real Estate Fund L.P. 5 BY: /s/ Jerome J. Brault Jerome J. Brault Chairman of the Board of Directors and President DATE: August 14, 2000 BY: /s/ Thomas E. Murphy Thomas E. Murphy Chief Financial Officer And Treasurer DATE: August 14, 2000 EX-27 2 0002.txt
5 6-MOS DEC-31-2000 JUN-30-2000 773,725 0 44,150 0 0 0 8,963,762 0 10,066,506 155,298 5,995,578 0 0 0 0 0 0 661,829 0 271,439 13,581 0 250,308 0 0 0 0 0 0 153,663 0 0 "SECURITIES" REPRESENTS INVESTMENT IN JOINT VENTURE "PP&E" REPRESENTS INVESTMENT IN REAL ESTATE [LAND AND BUILDING] "BONDS" REPRESENTS MORTGAGES PAYABLE "COMMON" REPRESENTS TOTAL PARTNERS CAPITAL "TOTAL REVENUES" REPRESENTS RENTAL, INTEREST, AND OTHER INCOME "TOTAL COSTS" REPRESENTS TOTAL EXPENSES LESS INTEREST EXPENSE "OTHER EXPENSES" REPRESENTS INTEREST IN JOINT VENTURES' NET INCOME/LOSS
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