10QSB 1 hy5.txt BRAUVIN NET LEASE V 10QSB 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 quarterly period ended June 30, 2001 [ ] Transition Report Under Section 13 or 15(d) of the Securities Exchange Act of 1934. For the transition period from N/A to N/A Commission File Number 0-28332 BRAUVIN NET LEASE V, INC. (Exact name of small business issuer in its charter) Maryland 36-3913066 (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) 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 filing requirements for the past 90 days. Yes X No . As of August 14, 2001, the registrant had 1,286,163 shares of Common Stock outstanding. Transitional Small Business Disclosure Format(check one) Yes No X . BRAUVIN NET LEASE V, INC. (a Maryland corporation) INDEX PART I - FINANCIAL INFORMATION Page Item 1. Consolidated Financial Statements. . . . . . . . . . . . . . 3 Consolidated Balance Sheet at June 30, 2001. . . . . . . . . 4 Consolidated Statements of Operations, for the six months ended June 30, 2001 and 2000. . . . . . . . . . . 5 Consolidated Statements of Operations, for the three months ended June 30, 2001 and 2000. . . . . . . . . . 6 Consolidated Statements of Cash Flows for the six months ended June 30, 2001 and 2000. . . . . . . . . . . 7 Notes to Consolidated Financial Statements . . . . . . . . . 8 Item 2. Management's Discussion and Analysis or Plan of Operation . . . . . . . . . . . . . . . . . . . . . . . 17 PART II - OTHER INFORMATION Item 1. Legal Proceedings. . . . . . . . . . . . . . . . . . . . . .19 Item 2. Changes in Securities. . . . . . . . . . . . . . . . . . . .19 Item 3. Defaults Upon Senior Securities. . . . . . . . . . . . . . .19 Item 4. Submission of Matters to a Vote of Security Holders. . . . . . . . . . . . . . . . . . . . . . . . . . .19 Item 5. Other Information. . . . . . . . . . . . . . . . . . . . . .19 Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 BRAUVIN NET LEASE V, INC. (a Maryland corporation) PART I - FINANCIAL INFORMATION Item 1. Consolidated Financial Statements The following Consolidated Balance Sheet as of June 30, 2001, Consolidated Statements of Operations for the six months ended June 30, 2001 and 2000, Consolidated Statements of Operations for the three months ended June 30, 2001 and 2000, and Consolidated Statements of Cash Flows for the six months ended June 30, 2001 and 2000 for Brauvin Net Lease V, Inc. (the "Fund") are unaudited but reflect, in the opinion of the management, all adjustments necessary to make the consolidated financial statements not misleading. All such adjustments are of a normal recurring nature. These consolidated financial statements should be read in conjunction with the financial statements and notes thereto included in the Fund's 2000 Annual Report on Form 10-KSB. BRAUVIN NET LEASE V, INC. (a Maryland corporation) CONSOLIDATED BALANCE SHEET (Unaudited) June 30, 2001 ASSETS Investment in real estate, at cost: Land $ 3,979,586 Buildings 7,632,199 11,611,785 Less accumulated depreciation (1,104,542) Net investment in real estate 10,507,243 Cash and cash equivalents 364,217 Tenant receivables 15,981 Deferred rent receivable 390,583 Total Assets $11,278,024 LIABILITIES AND STOCKHOLDERS' EQUITY Liabilities: Accounts payable and accrued expenses $ 13,690 Rents received in advance 29,208 Due to affiliates 42,828 Total Liabilities 85,726 Stockholders' Equity: Preferred stock, $.01 par value, 1,000,000 shares authorized; none issued -- Common stock, $.01 par value, 9,000,000 shares authorized; 1,286,163 shares issued and outstanding 12,862 Additional paid-in capital 11,524,404 Accumulated deficit (344,968) Total Stockholders' Equity 11,192,298 Total Liabilities and Stockholders' Equity $11,278,024 See notes to consolidated financial statements. BRAUVIN NET LEASE V, INC. (a Maryland corporation) CONSOLIDATED STATEMENTS OF OPERATIONS For the six months ended June 30, (Unaudited) 2001 2000 INCOME Rental $678,681 $679,515 Real estate tax reimbursement 15,981 -- Interest and other 8,724 9,341 Total income 703,386 688,856 EXPENSES Directors fees 6,000 7,000 Advisory fees 77,499 87,500 Management fees 6,660 6,962 General and administrative 44,140 40,174 Real estate taxes 15,981 -- Bad debt expense (7,852) 7,852 Depreciation and amortization 96,881 96,881 Total expenses 239,309 246,369 Net Income $464,077 $442,487 Net Income Per Share (based on average shares outstanding of 1,292,900 and 1,291,173, respectively) $ 0.36 $ 0.34 See notes to consolidated financial statements. BRAUVIN NET LEASE V, INC. (a Maryland corporation) CONSOLIDATED STATEMENTS OF OPERATIONS For the three months ended June 30, (Unaudited) 2001 2000 INCOME Rental $338,784 $339,758 Real estate tax reimbursement 15,981 -- Interest and other 3,292 5,094 Total income 358,057 344,852 EXPENSES Directors fees 3,000 3,000 Advisory fees 36,249 43,750 Management fees 3,209 3,673 General and administrative 23,745 21,739 Real estate taxes 15,981 -- Depreciation and amortization 48,440 48,440 Total expenses 130,624 120,602 Net Income $227,433 $224,250 Net Income Per Share (based on average shares outstanding of 1,286,163 and 1,296,841, respectively) $ 0.18 $ 0.17 See notes to consolidated financial statements. BRAUVIN NET LEASE V, INC. (a Maryland corporation) CONSOLIDATED STATEMENTS OF CASH FLOWS For the six months ended June 30,(Unaudited) 2001 2000 Cash Flows From Operating Activities: Net income $ 464,077 $ 442,487 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation 96,881 96,881 Bad debt expense (7,852) 7,852 Changes in: Tenant receivables 4,822 (7,300) Deferred rent receivables (13,078) (13,911) Accounts payable and accrued expenses (3,719) (1,165) Rent received in advance (23,625) 11,375 Due to affiliates (12,001) 14,386 Net cash provided by operating activities 505,505 550,605 Cash Flows From Financing Activities: Liquidations, net of issuance of stock (115,456) (31,767) Selling commissions and other offering costs - (30,010) Dividends (518,662) (471,063) Net cash used in financing activities (634,118) (532,840) Net (decrease) increase in cash and cash equivalents (128,613) 17,765 Cash and cash equivalents at beginning of period 492,830 460,111 Cash and cash equivalents at end of period $364,217 $477,876 See notes to consolidated financial statements. BRAUVIN NET LEASE V, INC. (a Maryland corporation) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (1) ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Organization Brauvin Net Lease V, Inc. (the "Fund") is a Maryland corporation formed on October 14, 1993, which operates as a real estate investment trust ("REIT") under federal tax laws. The Fund has acquired properties that are leased to creditworthy corporate operators of nationally or regionally established businesses primarily in the retail and family restaurant sectors. All of the leases are on a long-term "triple net" basis generally requiring the corporate tenant to pay both base annual rent with mandatory escalation clauses and all operating expenses. The Fund acquired properties subject to leases with a Country Harvest Buffet Restaurant during the year ended December 31, 1994; an On the Border Restaurant, a Blockbuster Video, a Chili's Restaurant, a Just for Feet and a Video Watch during the year ended December 31, 1995; a Pier 1 Imports and a Taylor Rental during the year ended December 31, 1996; and a Jiffy Lube and Firestone facility during the year ended December 31, 1997. The advisory agreement provides for Brauvin Realty Advisors V, L.L.C. (the "Advisor"), an affiliate of the Fund, to be the advisor to the Fund. The Fund registered the sale of up to 5,000,000 shares of common stock at $10.00 per share in an initial public offering filed with the Securities and Exchange Commission ("Registration Statement") and the issuance of 500,000 shares pursuant to the Fund's dividend reinvestment plan. On August 8, 1994, the Fund sold the minimum 120,000 shares required under its Registration Statement and commenced its real estate activities. The offering period for the sale of common stock terminated on February 25, 1996. At June 30, 2001, the Fund had sold 1,286,163 shares and the gross proceeds raised were $12,881,903, net of liquidations of $663,172, including $200,000 invested by the Advisor ("Initial Investment"), before reduction for selling commissions and other offering costs. SIGNIFICANT ACCOUNTING POLICIES Management's Use of Estimates The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America 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 these estimates. Accounting Method The accompanying consolidated financial statements have been prepared using the accrual method of accounting. Rental Income Rental income is 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 are credited or charged, as applicable, to deferred rent receivable. Federal Income Taxes For the year ending December 31, 2001, the Fund intends to be treated as a REIT under Internal Revenue Code Sections 856-860. A REIT will generally not be subject to federal income taxation to the extent that it distributes at least 95% of its taxable income to its shareholders and meets certain asset and income tests as well as other requirements. The Fund continues to qualify as a real estate investment trust and, accordingly, no provision has been made for Federal income taxes in the financial statements. Consolidation of Subsidiary The Fund owns a 100% interest in one qualified REIT subsidiary, Germantown Associates, Inc., which owns one Firestone/JiffyLube property. The accompanying financial statements have consolidated 100% of the assets, liabilities, operations and stockholder's equity of Germantown Associates, Inc. All significant intercompany accounts have been eliminated. Investment in Real Estate The Fund's rental properties are stated at cost including acquisition costs. Depreciation is recorded on a straight-line basis over the estimated economic lives of the properties which approximate 40 years. The Fund has performed an analysis of its long-lived assets, and the Fund'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, 2001. Accordingly, no impairment loss has been recorded in the accompanying financial statements for the six months ended June 30, 2001. Cash and Cash Equivalents Cash and cash equivalents include all highly liquid instruments with an original maturity within three months from date of purchase and approximate their fair value. 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, "Disclosure 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 judgment 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, 2001, but may not necessarily be indicative of the amounts that the Fund 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. The carrying amounts of the following items are reasonable estimates of fair value: cash and cash equivalents; accounts payable and accrued expense; rents received in advance; and due to affiliates. Recent Accounting Pronouncements In June 1998, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities" ("SFAS 133"), which requires that all derivatives be recognized as assets and liabilities in the balance sheet and be measured at fair value. SFAS 133 also requires changes in fair value of derivatives to be recorded each period in current earnings or comprehensive income depending on the intended use of the derivatives. In June, 2000, the FASB issued SFAS 138, which amends the accounting and reporting standards of SFAS 133 for certain derivatives and certain hedging activities. SFAS 133 and SFAS 138 were adopted by the Fund effective January 1, 2001. The adoption of SFAS 133 and SFAS 138 did not have an impact on the financial position, results of operations and cash flows of the Fund. In July 2001, the FASB issued Statement of Financial Accounting Standards No. 141, "Business Combinations" ("SFAS 141"). SFAS 141 requires the purchase method of accounting for business combinations initiated after June 30, 2001 and eliminates the pooling-of-interests method. In July 2001, the FASB issued Statement of Financial Accounting Standards No. 142, "Goodwill and Other Intangible Assets" ("SFAS 142"), which is effective January 1, 2002. SFAS 142 requires, among other things, the discontinuance of goodwill amortization. In addition, the standard includes provisions for the reclassification of certain existing recognized intangibles as goodwill, reassessment of the useful lives of existing recognized intangibles, reclassification of certain intangibles out of previously reported goodwill and the identification of reporting units for purposes of assessing potential future impairments of goodwill. The Fund does not believe that the adoption of SFAS 141 and SFAS 142 will have a significant impact on its financial statements. (2) RELATED PARTY TRANSACTIONS The Fund is required to pay certain fees to the Advisor or its affiliates pursuant to various agreements set forth in the Prospectus and described below. Pursuant to the terms of the Selling Agreement, Brauvin Securities, Inc. ("BSI"), an affiliate of the Advisor, is entitled to placement charges of 5.50% of the gross proceeds of the Fund's offering, all of which will be reallowed to placement agents. In addition, BSI is entitled to a marketing and due diligence expense allowance fee equal to 0.50% of the gross proceeds to reimburse marketing and due diligence expenses, some portion of which may be reallowed to placement agents. Pursuant to the terms of the Advisory Agreement, the Advisor is entitled to a non-accountable expense allowance in an amount equal to 2.5% of the gross proceeds of the offering. Pursuant to the terms of the Advisory Agreement, the Advisor is entitled to receive acquisition fees for services rendered in connection with the selection or acquisition of any property however designated as real estate commissions, selection fees, development fees, or any fees of a similar nature. Such acquisition fees may not exceed the lesser of (a) such compensation as is customarily charged in arm's-length transactions by others rendering similar services as an ongoing business in the same geographic locale and for comparable properties or (b) 3.5% of the gross proceeds of the Fund's offering. The Fund will also reimburse the Advisor an amount estimated to be 0.75% of the gross proceeds of the offering in connection with any expenses attendant to the acquisition of properties whether or not acquired. Pursuant to the terms of the Advisory Agreement, the Advisor is entitled to an annual advisory fee until the fifth anniversary of the termination of the offering, payable monthly, in an amount equal to 0.60% of the gross proceeds during the offering. Following the termination of the offering, the annual advisory fee is an amount equal to the greater of: (i) .60% of gross proceeds, or (ii) $175,000. In February 2001, the independent board of directors reviewed the Advisory Agreement, and modified the annual amount of the advisory fee to $145,000. The $145,000 represents approximately 1.4% of invested assets. The independent board of directors will continue to review the advisory fee amount on an annual basis. Pursuant to the terms of the Management Agreement, Brauvin Management Company ("BMC"), an affiliate of the Advisor, provides leasing and re-leasing services to the Fund in connection with the management of the Fund's properties. The property management fee payable to an affiliate of the Advisor shall not exceed the lesser of: (a) fees which are competitive for similar services in the geographical area where the properties are located; or (b) 1% of the gross revenues of each property. Fees, commissions and other expenses incurred and payable to the Advisor or its affiliates for the six months ended June 30, 2001 and 2000 were as follows: 2001 2000 Advisory fees $77,499 $87,500 Dividend reinvestment fees -- 104 Management fees 6,660 6,962 Nonaccountable fees -- 256 Reimbursable operating expense 5,441 4,368 $89,600 $99,190 As of June 30, 2001 the Fund made all payments to affiliates except for $41,914 for advisory fees and $914 for management fees. (3) DIVIDENDS Below is a table summarizing the dividends declared: Annualized Declaration Record Payment Dividend Date(a) Dates Date Rate Amount 1/28/99 10/1/98-12/31/98 2/15/99 6.9% $224,972 5/6/99 1/1/99-3/31/99 5/15/99 7.0% 223,602 8/5/99 4/1/99-6/30/99 8/15/99 7.0% 226,660 11/4/99 7/1/99-9/30/99 11/15/99 7.25% 236,848 1/27/00 10/1/99-12/31/99 2/15/00 7.25% 237,390 5/4/00 1/1/00-3/31/00 5/15/00 7.25% 233,673 8/10/00 4/1/00-6/30/00 8/15/00 7.75% 250,600 11/9/00 7/1/00-9/30/00 11/15/00 7.75% 253,621 2/15/01 10/1/00-12/31/00 2/15/01 8.0% 262,106 5/10/01 1/1/01-3/31/01 5/15/01 8.0% 256,556 8/09/01 4/1/01-6/30/01 8/15/01 8.0% 256,528 (a) Dividends were declared on a daily basis. The dividend reinvestment plan ("Reinvestment Plan") was available to the stockholders so that stockholders, if they so elected, may have their distributions from the Fund invested in shares. Until the third anniversary of the termination of the offering the price per share purchased through the Reinvestment Plan shall equal $10 per share with the purchase of partial shares allowed. The Fund has registered 200,000 shares for distribution solely in connection with the Reinvestment Plan. Funds raised through the Reinvestment Plan will be utilized to: (i) purchase shares from existing stockholders who have notified the Fund of their desire to sell their shares or held for subsequent redemptions; or (ii) purchase additional properties. The stockholders electing to participate in the Reinvestment Plan were charged a service charge, in an amount equal to 1% of their distributions, which was paid to an affiliate of the Advisor to defray the administrative costs of the Reinvestment Plan. At June 30, 2001, there were approximately 68,797 shares purchased through the Reinvestment Plan and approximately 69,204 shares liquidated. In accordance with the Company's original investment objective, during the first quarter of 2000, the Board of Directors approved a plan to have the Company's shares listed on the OTC Bulletin Board under the symbol "yyBNL". In order to qualify as a REIT, the Fund is required to distribute dividends to its Stockholders in an amount at least equal to 95% of REIT taxable income of the Fund. The Fund intends to make quarterly distributions to satisfy all annual distribution requirements. Effective February 13, 2001, the Board determined it is in the best interest of the Company to discontinue the Dividend Reinvestment Plan at this time. Shareholder participation in the Plan had declined to approximately 3.9% of the total number of investors in the Company. The board concluded that the significant majority of shareholders would benefit from the termination through the elimination of the potential for the dilution of existing shareholders as well as the elimination of the costs associated with the Plan. Accordingly, all future dividends will be paid in cash. Item 2. Management's Discussion and Analysis or Plan of Operations 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, including, without limitation, tenant defaults which could materially decrease the Fund's rental income. Actual results could differ materially from those projected in the forward-looking statements. The Fund undertakes no obligation to update these forward-looking statements to reflect future events or circumstances. Liquidity and Capital Resources As of June 30, 2001, the Fund had received $12,881,903 in connection with the sale of shares, net of selling commissions and other offering costs, including $200,000 paid by the Advisor for a share of stock as disclosed in the Prospectus and liquidations of $663,172. Compliance with 95% REIT taxable income test The Fund is required, under the Code, to make distributions of an amount not less than 95% of its REIT taxable income during the year. In accordance with the Fund's intent to maintain its qualification as a REIT under the Code, the Fund intends to manage its dividend distributions to approximate earnings during the year to which they relate. Results of Operations - 6 months - 2001 Compared to 2000 The Fund generated net income of $464,000 for the six months ended June 30, 2001 as compared to net income of $442,000 for the six months ended June 30, 2000. Total income for the six months ended June 30, 2001 was $703,000 as compared to $689,000 for the same six month period in 2000, an increase of $14,000. The $14,000 increase was due primarily to a $16,000 increase in real estate tax reimbursement income. For the six months ended June 30, 2001, total expenses were $239,000 as compared to $246,000 for the same six month period in 2000, a decrease of $7,000. The decrease is due to a decrease in bad debt expense of $16,000. Bad debt expense decreased as a result of the Fund receiving payment in 2001 that management had estimated in 2000 to be uncollectible. Advisory fees also decreased by $10,000 as a result of the modification by the Board of Directors in February, 2001. Offsetting the decreases in total expenses was an increase in real estate tax expense in the amount of $16,000. Results of Operations - 3 months - 2001 Compared to 2000 The Fund generated net income of $227,000 for the three months ended June 30, 2001 as compared to net income of $224,000 for the three months ended June 30, 2000. Total income for the three months ended June 30, 2001 was $358,000 as compared to $345,000 for the same three month period in 2000, an increase of $13,000. The $13,000 increase was due to an increase in real estate tax reimbursement income of $16,000 offset by a decrease in interest and other income of $2,000. For the three months ended June 30, 2001, total expenses were $131,000 as compared to $121,000 for the same three month period in 2000, an increase of $10,000. The increase is primarily due to an increase in real estate tax expense of $16,000 offset by a decrease of $8,000 of advisory fees expense. 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. 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. BRAUVIN NET LEASE V, INC. BY: /s/ James L. Brault James L. Brault Executive Vice President and Secretary DATE: August 14, 2001 BY: /s/Thomas E. Murphy Thomas E. Murphy Chief Financial Officer DATE: August 14, 2001