<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 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 .
<PAGE>
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
<PAGE>
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.
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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
<PAGE>
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
<PAGE>
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
<PAGE>
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.
<PAGE>
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.
<PAGE>
(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.
<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
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.
<PAGE>
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. 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
<PAGE>
