<PAGE>
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 September 30, 1998
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 0-13402
Brauvin Real Estate Fund L.P. 4
(Name of small business issuer as specified in its charter)
Delaware 36-3304339
(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 issuer was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No .
<PAGE>
INDEX
PART I
Page
Item 1. Consolidated Financial Statements. . . . . . . . . . . . . . 3
Consolidated Balance Sheet at September 30, 1998 . . . . . . 4
Consolidated Statements of Operations for the
nine months ended September 30, 1998 and 1997. . . . . . . 5
Consolidated Statements of Operations for the
three months ended September 30, 1998 and 1997 . . . . . . 6
Consolidated Statements of Cash Flows for the
nine months ended September 30, 1998 and 1997. . . . . . . 7
Notes to Consolidated Financial Statements . . . . . . . . . 8
Item 2. Management's Discussion and Analysis
or Plan of Operation . . . . . . . . . . . . . . . . . . .18
PART II
Item 1. Legal Proceedings. . . . . . . . . . . . . . . . . . . . . .24
Item 2. Changes in Securities. . . . . . . . . . . . . . . . . . . .24
Item 3. Defaults Upon Senior Securities. . . . . . . . . . . . . . .24
Item 4. Submission of Matters to Vote of Security
Holders. . . . . . . . . . . . . . . . . . . . . . . . . .24
Item 5. Other Information. . . . . . . . . . . . . . . . . . . . . .24
Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . . . .24
Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .25
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. Consolidated Financial Statements
The following Consolidated Balance Sheet as of September 30,
1998, Consolidated Statements of Operations for the nine months
ended September 30, 1998 and 1997, Consolidated Statements of
Operations for the three months ended September 30, 1998 and 1997,
and Consolidated Statements of Cash Flows for the nine months ended
September 30, 1998 and 1997 for Brauvin Real Estate Fund L.P. 4
(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 consolidated financial statements should be read in
conjunction with the consolidated financial statements and notes
thereto included in the Partnership's 1997 Annual Report on Form
10-KSB.
<PAGE>
CONSOLIDATED BALANCE SHEET
(Unaudited)
September 30,
1998
ASSETS
Investment in real estate:
Land $ 3,710,168
Buildings and improvements 14,556,229
18,266,397
Less accumulated depreciation (5,615,585)
Net investment in real estate 12,650,812
Investment in Sabal Palm Joint
Venture (Note 5) 814,405
Cash and cash equivalents 790,023
Rent receivable (net of
allowance of $154,000) 259,172
Escrow deposits 41,167
Other assets 44,585
Total Assets $14,600,164
LIABILITIES AND PARTNERS' CAPITAL
LIABILITIES:
Mortgage notes payable (Note 3) $11,075,081
Accounts payable and accrued expenses 294,764
Tenant security deposits 70,693
Due to affiliates 54,590
Total Liabilities 11,495,128
MINORITY INTEREST IN STRAWBERRY
JOINT VENTURE (153,731)
PARTNERS' CAPITAL:
General Partners (27,615)
Limited Partners (9,550 limited
partnership units issued and
outstanding) 3,286,382
Total Partners' Capital 3,258,767
Total Liabilities and
Partners' Capital $14,600,164
See accompanying notes to consolidated financial statements.
<PAGE>
CONSOLIDATED STATEMENTS OF OPERATIONS
For the nine months ended September 30,
(Unaudited)
1998 1997
INCOME
Rental $1,339,388 $1,337,552
Interest 21,199 28,366
Other, primarily tenant
expense reimbursements 261,170 291,717
Total income 1,621,757 1,657,635
EXPENSES
Interest 808,522 733,632
Depreciation 312,527 331,210
Real estate taxes 195,626 186,232
Repairs and maintenance 43,565 80,684
Management fees (Note 4) 91,847 92,894
Other property operating 82,497 83,156
Provision for impairment 1,564,101 --
General and administrative 224,002 240,463
Total expenses 3,322,687 1,748,271
Loss before minority
and equity interests
in joint ventures (1,700,930) (90,636)
Minority interest's
share of Strawberry
Joint Venture's net loss 689,947 21,171
Equity interest in Sabal
Palm Joint Venture's
net income 44,335 17,559
Net loss $(966,648) $ (51,906)
Net loss allocated to:
General Partners $ (9,666) $ (519)
Limited Partners $(956,982) $ (51,387)
Net loss per
Limited Partnership
Interest (9,550 units
outstanding) $ (100.21) $ (5.38)
See accompanying notes to consolidated financial statements.
<PAGE>
CONSOLIDATED STATEMENTS OF OPERATIONS
For the three months ended September 30,
(Unaudited)
1998 1997
INCOME
Rental $463,611 $444,876
Interest 6,811 9,709
Other, primarily tenant
expense reimbursements 86,593 86,962
Total income 557,015 541,547
EXPENSES
Interest 267,684 253,905
Depreciation 101,598 109,852
Real estate taxes 55,232 63,327
Repairs and maintenance 9,032 61,615
Management fees (Note 4) 32,597 25,865
Other property operating 24,114 31,503
General and
administrative 32,369 83,992
Total expenses 522,626 630,059
Income(loss)before minority
and equity interests
in joint ventures 34,389 (88,512)
Minority interest's
share of Strawberry
Joint Venture's net loss 6,031 8,256
Equity interest in Sabal
Palm Joint Venture's
net loss (5,876) (16,658)
Net income (loss) $ 34,544 $(96,914)
Net income(loss)allocated to:
General Partners $ 345 $ (969)
Limited Partners $ 34,199 $(95,945)
Net income (loss)per
Limited Partnership
Interest (9,550 units
outstanding) $ 3.58 $ (10.05)
See accompanying notes to consolidated financial statements.
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the nine months September 30,
(Unaudited)
1998 1997
Cash Flows From Operating Activities:
Net loss $(966,648) $(51,906)
Adjustments to reconcile net
loss to net cash provided by
operating activities:
Depreciation 312,527 331,210
Provision for impairment 1,564,101 --
Provision for doubtful accounts 47,723 43,887
Minority interest's share of
Strawberry Joint Venture's net loss (689,947) (21,171)
Equity interest in Sabal Palm
Joint Venture net income (44,335) (17,559)
Change in rent receivable (107,556) (88,952)
Change in escrow deposits (34,415) (31,935)
Change in other assets (1,648) 863
Change in accounts payable and
accrued expenses 73,259 87,051
Change in due to affiliates 7,849 690
Change in tenant security deposits 28,318 (3,622)
Net cash provided by operating
activities 189,228 248,556
Cash Flows From Investing Activities:
Capital expenditures (58,080) (6,902)
Distribution from
Sabal Palm Venture 79,900 13,160
Net cash provided by
investing activities 21,820 6,258
Cash Flows From Financing Activities:
Repayment of mortgage notes payable (262,255) (1,152,069)
Loan fees -- (33,005)
Proceeds from mortgage note payable -- 875,000
Net cash used in financing activities (262,255) (310,074)
Net decrease in cash
and cash equivalents (51,207) (55,260)
Cash and cash equivalents at
beginning of year 841,230 844,598
Cash and cash equivalents at
end of period $790,023 $ 789,338
Supplemental disclosure of cash flow
information:
Cash paid for interest $791,075 $ 726,310
See accompanying notes to consolidated financial statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(1) ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization
Brauvin Real Estate Fund L.P. 4 (the "Partnership") is a Delaware
limited partnership organized for the purpose of acquiring,
operating, holding for investment and disposing of existing office
buildings, medical office centers, shopping centers and industrial
and retail commercial buildings of a general purpose nature, all in
metropolitan areas. The General Partners of the Partnership are
Brauvin Ventures, Inc. and Jerome J. Brault. Mr. Cezar M. Froelich
resigned as a director of the corporate general partner in December
1994, and 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 April 30, 1984 and filed a
Registration Statement on Form S-11 with the Securities and
Exchange Commission which became effective on February 16, 1984.
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 April 30, 1984.
The Partnership's offering closed on December 31, 1984. A total of
$9,550,000 of Units were subscribed for and issued between February
16, 1984 and December 31, 1984 pursuant to the Partnership's
public offering.
The Partnership has acquired directly or through joint ventures
the land and buildings underlying Fortune Professional Building,
Raleigh Springs Marketplace, Strawberry Fields Shopping Center and
Sabal Palm Shopping Center.
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.
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
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 consolidated financial
statements.
Consolidation of Joint Venture Partnership
The Partnership owns a 58% equity interest in an affiliated joint
venture ("Strawberry Joint Venture") which acquired Strawberry
Fields Shopping Center ("Strawberry Fields"). The accompanying
consolidated financial statements have consolidated 100% of the
assets, liabilities, operations and partners' capital of
Strawberry Joint Venture. The minority interest in the
consolidated joint venture is adjusted for the joint venture
partner's share of income or loss and any cash contributions or
cash disbursements from the joint venture partner, Brauvin Real
Estate Fund L.P. 5 ("BREF 5"). All intercompany items and
transactions have been eliminated.
Investment in Joint Venture Partnership
The Partnership owns a 47% equity interest in the Sabal Palm
Joint Venture (see Note 5). Sabal Palm is reported as an
investment in an affiliated joint venture. The accompanying
financial statements include the investment in Sabal Palm Joint
Venture using the equity method of accounting.
Investment in Real Estate
The Partnership's rental properties are stated at cost including
acquisition costs, leasing commissions, tenant improvements and net
of provision for impairment. Depreciation and amortization are
recorded on a straight-line basis over the estimated economic lives
of the properties, which approximate 38 years, and the term of the
applicable leases, respectively. All of the Partnership's
properties are subject to liens under first mortgages (see Note 3).
In 1995, the Partnership adopted Statement of Financial
Accounting Standards No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of"
(SFAS 121). In conjunction with the adoption of SFAS 121, the
Partnership 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 September 30, 1998 and
December 31, 1997, except as disclosed below.
In the second quarter of 1998, the Partnership recorded an
impairment of $1,564,101 related to an other than temporary decline
in the value of real estate for Strawberry Fields. This allowance
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, "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
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 September 30, 1998, 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.
The carrying amounts of the following items are reasonable
estimates of fair value: cash and cash equivalents; rent
receivable; escrow deposits; accounts payable and accrued expenses;
and due to affiliates.
(2) 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 in accordance with paragraph 2,
SECTION K of the 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 (the "Preferential Distribution"), as
such term is defined in the Agreement. 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 year, then the Limited Partners shall be paid
such excess Operating Cash Flow until they have been 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.
At September 30, 1998, the Preferential Distribution Deficiency
equaled $11,113,815.
(3) MORTGAGE NOTES PAYABLE
Mortgage notes payable at September 30, 1998 consist of the
following:
Interest Date
1998 Rate Due
Raleigh Springs
Marketplace $4,780,325 (a)10% 10/99
Fortune Professional
Building 802,070 (b) 06/99
Strawberry Fields
Shopping Center 5,492,686 (c)9% 12/98
$11,075,081
Maturities of the mortgage notes payable are as follows:
1998 $ 5,523,593
1999 5,551,488
$11,075,081
Raleigh Springs Marketplace ("Raleigh"), Fortune Professional
Building ("Fortune") and Strawberry Fields Shopping Center
("Strawberry Fields") serve as collateral under the respective
nonrecourse debt obligations.
(a) Monthly principal and interest payments are based on a 25-
year amortization schedule.
The carrying value of Raleigh at September 30, 1998 was
approximately $5,714,000.
(b) Prior to June 26, 1997, the Partnership made monthly payments
of interest and principal payments based upon a: (i) 25-year
amortization schedule plus 100% of Available Cash Flow from July 1,
1992 through June 1, 1993; and (ii) 15-year amortization schedule
plus 50% of Available Cash Flow from July 1, 1993 through July 1,
1997.
The lender had the option to accelerate the loan maturity July
1 of each year, if the property was not: (i) in good condition and
repair; (ii) occupied at a rate that was equal to the prevailing
occupancy rate for similar properties in the same locale; and (iii)
leased at rental rates which were at least 90% of the prevailing
rate for similar properties in the same locale. The Partnership was
required to make a balloon mortgage payment in July 1997 of
approximately $934,000.
On June 26, 1997, the Partnership obtained a first mortgage loan
in the amount of $875,000 secured by Fortune, from American
National Bank and Trust Company (the "Replacement Loan"). In
connection with the funding of the Replacement Loan, the
Partnership was required to reduce the principal balance of the
original loan by approximately $59,000, out of cash and cash
equivalents, to release the original mortgage loan and pay loan
fees of approximately $33,000. The Replacement Loan has a floating
interest rate based on American National Bank's prime rate, which
at September 30, 1998 was 8.5%. Principal is being amortized based
on a 15-year amortization period and is payable with interest on a
monthly basis.
The carrying value of Fortune at September 30, 1998 was
approximately $1,632,000.
(c) In February 1993, the Partnership and Strawberry Joint
Venture, finalized a refinancing of the first mortgage loan (the
"Refinancing") on Strawberry Fields with the lender. The
Refinancing became effective retroactive to October 1992. Due to
the Refinancing, the interest rate was reduced to 9% with monthly
payments of interest only from October 1992 through November 1995.
The Strawberry Joint Venture has the option to extend the term of
the loan and make monthly payments of principal and interest from
December 1995 through November 1998, if it is not in default of the
terms of the Refinancing. On September 18, 1995, the Strawberry
Joint Venture notified Lutheran Brotherhood (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. Commencing November 1,
1997 and through the maturity date, December 1, 1998, the interest
rate reverted to the original 9.0% rate.
Effective October 1, 1998, the Strawberry 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, December 1, 1999, 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 carrying value of Strawberry Fields at September 30, 1998 was
approximately $5,305,000.
The Partnership is required to make balloon mortgage payments for
Fortune in the amount of $758,300 on June 30, 1999 and for
Strawberry Fields in the amount of $5,307,000 at December 1, 1999.
(4) TRANSACTIONS WITH AFFILIATES
Fees and other expenses paid or payable to the General Partners
or their affiliates for the nine months ended September 30, 1998
and 1997 were as follows:
1998 1997
Management fees $91,847 $80,785
Reimbursable office expenses 74,175 85,338
Legal fees -- 270
The Partnership believes the amounts paid to affiliates are
representative of amounts which would have been paid to independent
parties for similar services. The Partnership had made all
payments to affiliates, except for $11,981 for management fees and
$6,909 for legal fees, as of September 30, 1998. An amount of
$35,700 was due to an affiliate at September 30, 1998, representing
an advance made from BREF 5.
(5) EQUITY INVESTMENT
The Partnership owns a 47% interest in Sabal Palm Joint Venture
("Sabal Palm") and accounts for its investment under the equity
method. The following are condensed financial statements for Sabal
Palm:
September 30,
1998
Land, building and personal
property, net $4,749,958
Other assets 270,072
$5,020,030
Mortgage note payable $3,154,560
Other liabilities 129,024
3,283,584
Partners' capital 1,736,446
$5,020,030
For the nine months ended
September 30, September 30,
1998 1997
Rental income $548,984 $513,244
Other income 59,450 42,216
608,434 555,460
Mortgage and
other interest 226,535 230,746
Depreciation 102,391 101,946
Operating and
administrative
expenses 185,179 185,407
514,105 518,099
Net income $ 94,329 $ 37,361
Sabal Palm was required to make a balloon mortgage payment in
February 1997. Prior to the scheduled maturity of the then existing
mortgage obligation, the lender granted Sabal Palm an extension
until April 1, 1997. On March 31, 1997, Sabal Palm obtained a new
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. The outstanding mortgage
balance encumbered by the property was $3,154,560 at September 30,
1998.
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.
Walgreens has not given official notice that they will vacate their
space prior to the lease termination, the General Partners,
however, believe that there is a likelihood that this tenant will
vacate. The General Partners are working to determine the most
beneficial steps to be taken by the Partnership. Winn-Dixie
remains liable for rental payments under its lease at Sable Palm
until April 2005.
<PAGE>
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
In 1997, the Partnership initiated the conversion from its
existing accounting software to a program that is year 2000
compliant. Management has determined that the year 2000 issue will
not pose significant operational problems for its computer system.
All costs associated with this conversion are being expensed as
incurred, and are not material.
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 will be timely
converted and would not have an adverse effect on the Partnership.
Liquidity and Capital Resources
The Partnership intends to satisfy its short-term liquidity needs
through cash flow from the properties. Long-term liquidity needs
are expected to be satisfied through refinancing or modification of
the mortgages at more favorable interest rates.
Fortune was required to make a balloon mortgage payment in July
1997 of approximately $934,000. On June 26, 1997, the Partnership
obtained the Replacement Loan in the amount of $875,000 secured by
Fortune, from American National Bank and Trust Company. In
connection with the funding of the Replacement Loan, the
Partnership was required to reduce the outstanding principal
balance of the original mortgage loan by approximately $59,000, out
of cash and cash equivalents, to release the original mortgage loan
and pay loan fees of approximately $24,600. The Replacement Loan
has a floating interest rate based on American National Bank's
prime rate, which at September 30, 1998 was 8.5%. Principal is
being amortized based on a 15-year amortization period and is
payable with interest on a monthly basis. The Replacement Loan
matures on June 30, 1999 at which time a balloon mortgage payment
in the amount of approximately $758,300 will be due.
As a result of a recent decline in the Albuquerque, New Mexico
office market, the General Partners have decided not to continue to
market this property for sale at this time. The occupancy level at
Fortune at September 30, 1998 was 73%, compared to 60% at December
31, 1997 and 77% at September 30, 1997. Fortune had a negative
cash flow for the nine months ended September 30, 1998. The
Partnership is currently working to improve the occupancy rate at
Fortune.
Raleigh Springs has continued to generate a slight positive
operating cash flow despite losing T.J. Maxx, an anchor tenant,
which occupied 21% of the total space. In November 1996, Methodist
Hospital entered into a lease for approximately 9,500 square feet.
The remaining space is currently being marketed both regionally and
nationally. The occupancy level at Raleigh at September 30, 1998
was 95%, compared to 78% at December 31, 1997 and 78% at September
30, 1997.
Toys R US, the major tenant, at Raleigh Springs has indicated to
the General Partners that this store is one of ninety that has been
identified for possible disposition or sublease. The Toys R US
lease expires in October 2017 and in the event that they decide to
vacate the space they will continue to be liable for all rental
charges through the lease expiration. However, Toys R US still
continues to operate this store and is current in all its rental
obligations. Because of the uncertainty of the status, the General
Partners are considering a number of different alternatives for
this space.
The occupancy level at Strawberry Fields at September 30, 1998
was 87%, compared to 89% at December 31, 1997 and 90% at September
30, 1997. Strawberry Fields had a negative cash flow for the nine
months ended September 30, 1998.
On September 18, 1995, the Strawberry 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
and through the maturity date, December 1, 1998, the interest rate
reverted to the original 9.0% rate.
Effective October 1, 1998, the Strawberry 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, December 1, 1999, the interest rate has been reduced from 9%
to 7% with principal amortization changed from a ten year period to
an eighteen year period.
In the second quarter of 1998, the Partnership recorded an
impairment of $1,564,101 related to an other than temporary decline
in the value of real estate for the Strawberry Fields property.
This allowance has been allocated to land and building based on the
original acquisition percentages.
At Sabal Palm, the Partnership and its joint venture partner are
working to improve the occupancy level of the shopping center which
stood at 96% as of September 30, 1998. Although the Sabal Palm
retail market appears to be over built, the occupancy level of the
building has stayed relatively constant and it has generated
positive cash flow since the joint venture acquired the property 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.
Walgreens has not given official notice that they will vacate the
space prior to their lease termination, the General Partners,
however, believe that there is a likelihood that this tenant will
vacate. The General Partners are working to determine the most
beneficial steps to be taken by the Partnership. Winn-Dixie
remains liable for rental payments under its lease at Sable Palm
until April 2005.
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. The outstanding mortgage
balance encumbered by the property was $3,154,560 at September 30,
1998.
The Partnership has 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. The
appraisal of the assets is expected to be completed by the end of
the calendar year.
The General Partners expect to distribute proceeds from
operations, 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 refinancings 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 - Nine months Ended September 30, 1998 and
1997
(Amounts rounded to 000's)
The Partnership generated a net loss of $967,000 for the nine
months ended September 30, 1998 as compared to net loss of $52,000
for the same nine month period in 1997. The $915,000 decrease was
primarily due to a $1,564,000 increase in the provision for
impairment at Strawberry. Partially offsetting this increase was
the minority interest's share of the Strawberry Joint Venture's net
loss associated with the provision for impairment in the amount of
approximately $657,000.
Total income for the nine months ended September 30, 1998 was
$1,622,000 as compared to $1,658,000 for the same nine month period
in 1997, a decrease of $36,000. The $36,000 decrease resulted from
a decrease of $15,000 in deferred rental income at Strawberry, a
decrease of $57,000 in other income (tenant reimbursements) at
Raleigh, and a decrease of $43,000 in rental income at Fortune. The
decrease in rental income at Fortune was the result of a decrease
in the occupancy rate to 73% from 77%, respectively, at September
30, 1998 and 1997. Partially offsetting the decrease in total
income were increases of $31,000 in other income at Strawberry and
$41,000 in rental income at Raleigh. The increase in rental
income at Raleigh resulted from an increase in the occupancy rate
to 95% from 78%, respectively, at September 30, 1998 and 1997.
For the nine months ended September 30, 1998 total expenses were
$3,323,000 as compared to $1,748,000 for the same nine month period
in 1997, an increase of $1,575,000. This increase in total expenses
was primarily a result of increases in the provision for impairment
and interest expense. The provision for impairment at Strawberry
was $1,564,000 for the nine months ended September 30, 1998 as
compared to $0 for the same nine month period in 1997, an increase
of $1,564,000. Interest expense was $809,000 for the nine months
ended September 30, 1998 as compared to $734,000 for the same nine
month period in 1997, an increase of $75,000. This increase was
caused primarily by the increase in the interest rate at Fortune
from 3% in 1997 to 8.5% in 1998. In addition, interest expense
also increased as a result of the interest rate for Strawberry's
mortgage loan reverting to 9.0% from 7.5% in November 1997.
Partially offsetting the increase in total expenses were decreases
of $34,000 in roof repair expense and $39,000 in bad debt expense
at Raleigh.
Results of Operations - Three Months Ended September 30, 1998 and
1997
(Amounts rounded to 000's)
The Partnership generated a net income of $35,000 for the three
months ended September 30, 1998 as compared to net loss of $97,000
for the same three month period in 1997.
Total income for the three months ended September 30, 1998 was
$557,000 as compared to $542,000 for the same three month period in
1997, an increase of $15,000. The $15,000 increase resulted from an
increase of $15,000 in rental income at Raleigh. The increase in
rental income at Raleigh resulted from an increase in the occupancy
rate to 95% from 78%, respectively, at September 30, 1998 and 1997.
For the three months ended September 30, 1998 total expenses were
$523,000 as compared to $630,000 for the same three month period in
1997, a decrease of $107,000. This decrease in total expenses
resulted from decreases of $43,000 in roof repair expense and
$66,000 in bad debt expense at Raleigh.
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.
<PAGE>
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. 4
BY: /s/ Jerome J. Brault
Jerome J. Brault
Chairman of the Board of
Directors and President
DATE: November 13, 1998
BY: /s/ Thomas E. Murphy
Thomas E. Murphy
Chief Financial Officer and
Treasurer
DATE: November 13, 1998
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> SEP-30-1998
<CASH> 790,023
<SECURITIES> 814,405 <F1>
<RECEIVABLES> 259,172
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 18,266,397 <F2>
<DEPRECIATION> 5,615,585
<TOTAL-ASSETS> 14,600,164
<CURRENT-LIABILITIES> 420,047
<BONDS> 11,075,081 <F3>
0
0
<COMMON> 3,258,767 <F4>
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 14,600,164
<SALES> 0
<TOTAL-REVENUES> 1,621,757 <F5>
<CGS> 0
<TOTAL-COSTS> 2,514,165 <F6>
<OTHER-EXPENSES> (734,282) <F7>
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 808,522
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (966,648)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
<FN>
<F1> "SECURITIES" REPRESENTS INVESTMENT IN JOINT VENTURE
<F2> "PP&E" REPRESENTS INVESTMENT IN REAL ESTATE [LAND AND
BUILDING]
<F3> "BONDS" REPRESENTS MORTGAGES PAYABLE
<F4> "COMMON" REPRESENTS TOTAL PARTNERS' CAPITAL
<F5> "TOTAL REVENUES" REPRESENTS RENTAL, INTEREST, AND OTHER
INCOME
<F6> "TOTAL COSTS" REPRESENTS TOTAL EXPENSES LESS INTEREST
EXPENSE
<F7> "OTHER EXPENSES" REPRESENTS EQUITY AND MINORITY INTEREST
IN JOINT VENTURES' NET INCOME/LOSS
</FN>
</TABLE>
