<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
[X]Annual Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the fiscal year ended December 31, 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 0-16857
Brauvin Income Properties L.P. 6
(Name of small business issuer in its charter)
Delaware 36-1276801
(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 preceding 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 .
Check if there is no disclosure of delinquent filers in response to
Item 405 of Regulation S-B is not contained in this form, and no
disclosure will be contained, to the best of issuer's knowledge, in
definitive proxy or information statements incorporated by reference
in Part III of this Form 10-KSB or any amendment to this
Form 10-KSB. [ X ]
State issuer's revenues for its most recent fiscal year $2,213,622.
The aggregate sales price of the limited partnership interests of
the issuer (the "Units") to unaffiliated investors of the issuer was
$7,842,500. This does not reflect market value. This is the price
at which the Units were sold to the public. There is no current
established trading market for these Units, nor have any of the
Units been sold within the last 60 days.
Portions of the Prospectus of the issuer dated May 30, 1986, as
supplemented September 3, 1986, October 28, 1986, December 30, 1986
and May 29, 1987 and filed pursuant to Rule 424(b) under the
Securities Act of 1933, as amended, are incorporated by reference
into Parts II and III of this Annual Report on Form 10-KSB.
BRAUVIN INCOME PROPERTIES L.P. 6
1998 FORM 10-KSB ANNUAL REPORT
INDEX
PART I
Page
Item 1. Description of Business . . . . . . . . . . . . . . . . . . . .3
Item 2. Description of Properties . . . . . . . . . . . . . . . . . . .6
Item 3. Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . 10
Item 4. Submission of Matters to a Vote of Security
Holders . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
PART II
Item 5. Market for the Issuer's Limited Partnership
Interests and Related Security Holder Matters . . . . . . . . 11
Item 6. Management's Discussion and Analysis or Plan
of Operation. . . . . . . . . . . . . . . . . . . . . . . . . 11
Item 7. Consolidated Financial Statements and
Supplementary Data. . . . . . . . . . . . . . . . . . . . . . 18
Item 8. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure . . . . . . . . . . . . . 18
PART III
Item 9. Directors, Executive Officers, Promoters
and Control Persons; in compliance with Section
16(a) of the Exchange Act . . . . . . . . . . . . . . . . . . 19
Item 10. Executive Compensation. . . . . . . . . . . . . . . . . . . . 21
Item 11. Security Ownership of Certain Beneficial Owners
and Management. . . . . . . . . . . . . . . . . . . . . . . . 22
Item 12. Certain Relationships and Related Transactions. . . . . . . . 22
Item 13. Exhibits, Consolidated Financial Statements and
Reports on Form 8-K . . . . . . . . . . . . . . . . . . . . . 24
Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
PART I
Item 1. Description of Business.
Brauvin Income Properties L.P. 6 (the "Partnership") is a
Delaware limited partnership formed in April 1986 whose business
has been devoted exclusively to acquiring, operating, holding for
investment and disposing of existing office buildings, shopping
centers and industrial and retail commercial buildings of a general
purpose nature, all in greater metropolitan areas.
The General Partners originally intended to dispose of the
Partnership's properties approximately six to nine years after
acquisition of each property, with a view toward liquidation of the
Partnership. Due to the past real estate market conditions and
economic trends in the areas where the Partnership's properties are
located, the General Partners believed it to be in the best
interest of the Partnership to retain the properties until such
time as the General Partners reasonably believed it was appropriate
to dispose of the Partnership's properties. In order to make this
determination, the General Partners periodically evaluated market
conditions. 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
nationally known appraisal firms to value the Partnership's assets.
Additionally, these firms will assist the General Partners in
determining the appropriate method and timing for the disposition
of the Partnership's assets.
The General Partners have determined to pursue disposition of the
Partnership's assets, and expect to commence the registration and
solicitation within a few weeks of the date of this Form 10-KSB for
the authorization of the Limited Partners for the sale of all or
substantially all of the Partnership's properties. That
solicitation will be accomplished by written notice directed by
U.S. mail to each Limited Partner at the address shown on the
Partnership's records, in accordance with the rules of the
Securities and Exchange Commission and the requirements of the
Partnership Agreement.
The restated limited partnership agreement (the "Agreement")
provides that the Partnership shall terminate December 31, 2025,
unless sooner terminated. The General Partners shall in no event
dispose of the properties after that date.
On October 15, 1998, the Partnership received notice that an
unsolicited tender offer to purchase up to 10% of the outstanding
limited partnership interests of the Partnership (the "Units") was
to commence with a tender price of $475 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
November 13, 1998. As a result of this proxy 115 economic
interests in the Partnership were transferred.
On October 22, 1998, Limited Partners were mailed, without the
consent or knowledge of the General Partners, an additional tender
offer to purchase up to 4.9% of the outstanding Limited Partnership
Units of the fund for $500 per Unit, less any transfer fees. This
offer was made by an entity that did not own any interests in the
Partnership and was scheduled to expire on December 2, 1998. As a
result of this proxy 382 economic interests in the Partnership were
transferred.
The General Partners remained neutral as to the particular merits
or risks associated with either of 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 stated that the value of the
Units after the receipt of the appraisals may be more or less than
the tender offers.
The General Partners further informed the Limited Partners that,
for those investors who are primarily interested in liquidating
their Units immediately, the tender offers provided such an
opportunity.
As of December 31, 1998, the Partnership had acquired three
rental properties. The Partnership had acquired a 46% interest in
a joint venture (the "Joint Venture") which acquired an additional
rental property. This property was sold in a sheriff's sale on May
15, 1995, and the Joint Venture was terminated and dissolved in
1996. The Partnership will not purchase any additional properties.
Operations currently consist of operating the real estate
properties which have been managed by Brauvin Management Company
(an affiliate of the General Partners). The focus of property
management activities has been improvement in the economic
performance of the properties with the goal of maximizing value to
the Partnership upon disposition.
The Partnership has no employees.
Market Conditions/Competition
The Partnership faces active competition in all aspects of its
business and must compete with entities which own properties
similar in type to those owned by the Partnership. Competition
exists in such areas as attracting and retaining creditworthy
tenants, financing capital improvements and eventually selling
properties. Many of the factors affecting the ability of the
Partnership to compete are beyond the Partnership's control, such
as softened markets caused by an oversupply of similar rental
facilities, declining performance in the local economy in which a
property is located, population shifts, reduced availability and
increased cost of financing, changes in zoning laws or changes in
patterns of the needs of users. The marketability of the
properties may also be affected by prevailing interest rates and
existing tax laws. The Partnership has retained ownership of its
properties for periods longer than anticipated at acquisition.
The Partnership strives to maximize occupancy and, as such, must
adjust rents to attract and retain tenants. One measure of a
market's relative strength or weakness is the current rental rate
demanded by non-anchor tenants. These rates are for tenants who
generally sign leases of three to five years and are an indicator
of the "spot" rental market. Expectations are that due to a stable
local economic environment, rental rates will remain flat or
increase slightly at the Partnership's properties. The average
spot rental rates for tenants at the Shoppes on the Parkway
shopping center in Hilton Head, South Carolina have increased from
approximately $13.00 per square foot in 1993 to approximately
$15.45 per square foot in 1998. The average spot rental rates for
tenants at the Delchamps Plaza North shopping center in Tuscaloosa,
Alabama have increased from approximately $8.36 per square foot in
1993 to approximately $10.78 per square foot in 1998.
The Partnership, by virtue of its ownership of real estate, is
subject to federal and state laws and regulations covering various
environmental issues. Management of the Partnership retains the
services of third parties who hold themselves out to be experts in
the field to assess a wide range of environmental issues and
conduct tests for environmental contamination. Management believes
that all real estate owned by the Partnership is in full compliance
with applicable environmental laws and regulations.
Item 2. Description of Properties.
The following is a discussion of the rental properties owned and
operated by the Partnership during 1998. For the purpose of the
information disclosed in this section, the following terms are
defined as follows:
Occupancy Rate: The occupancy rate is defined as the occupied
square footage at December 31, divided by the total square
footage excluding square footage of outparcels, if any.
Average Annual Base Rent Per Square Foot: The average annual
base rent per square foot is defined as the total effective base
rental income for the year divided by the average square feet
occupied excluding outparcels, if any.
Average Square Feet Occupied: The average square feet occupied
is calculated by averaging the occupied square feet at the
beginning of the year with the occupied square feet at the end
of the year excluding outparcels, if any.
In the opinion of the General Partners, the Partnership has
provided for adequate insurance coverage of its real estate
investment properties.
During the year ended December 31, 1998, the Partnership owned
the properties described below:
(a) Delchamps Plaza North Shopping Center ("Delchamps")
On November 12, 1987, the Partnership acquired Delchamps located
in Tuscaloosa, Alabama, for approximately $4,058,000. The purchase
was funded with approximately $715,000 in cash at closing and by
assuming an existing first mortgage loan from Lincoln National Life
Insurance Company. The mortgage had an original principal balance
of $3,375,000 and a balance of $3,343,000 in November 1987. The
loan bore interest at a rate of 9.375% per annum and matured on
December 1, 1996. Prior to the scheduled maturity of the first
mortgage loan, the Lender granted the Partnership an extension
until February 1, 1997. On January 14, 1997, the Partnership
obtained a first mortgage loan in the amount of $2,925,000 (the
"First Mortgage Loan") secured by Delchamps from NationsBanc
Mortgage Capital Corporation. The First Mortgage Loan bears
interest at the rate of 9.03% per annum, is amortized over a 25-
year period, requires monthly payments of principal and interest of
approximately $24,600 and matures on February 1, 2002. A portion
of the proceeds of the First Mortgage Loan, approximately
$2,809,000, was used to retire the existing mortgage secured by
Delchamps from Lincoln National Life Insurance Company. The
outstanding mortgage balance encumbered by this property was
$2,869,312 at December 31, 1998.
Delchamps is a community shopping center constructed in 1986
with approximately 59,400 rentable square feet on a seven acre
site. Delchamps is anchored by a regional grocer named Delchamps
and Harco Drug, a Tuscaloosa based drug store chain. Delchamps has
eight stores and was 100% occupied at December 31, 1998.
The occupancy rate and average annual base rent per square foot
at December 31 for the last two years were as follows:
1998 1997
Occupancy Rate 100% 100%
Average Annual Base
Rent Per Square Foot $7.92 $7.84
Delchamps has two tenants which individually occupy ten percent
or more of the rentable square footage. The following is a summary
of the tenant rent roll at December 31, 1998:
Annual Lease
Square Base Expiration Renewal Nature of
Tenant Feet Rent Date Options Business
Delchamps 42,057 $315,427 1/2007 4/5 years ea. Grocery
Store
Harco Drugs 9,800 73,500 1/2002 4/5 years ea. Drug
Store
Others 7,532 81,222 Various Various
59,389 $470,149
(b) Shoppes on the Parkway ("Shoppes")
On March 31, 1988, the Partnership purchased Shoppes, a shopping
center located in Hilton Head, South Carolina, for approximately
$7,360,000. The purchase was funded with approximately $2,394,000
cash paid at closing and an existing first mortgage loan from the
Crown Life Insurance Company (the "Lender") with a balance of
approximately $4,966,000. The loan bore interest at a rate of
10.25% per annum and matured on December 1, 1994. Prior to the
scheduled maturity of the first mortgage loan, the Lender granted
the Partnership an extension until April 1, 1995. On April 6,
1995, the Partnership obtained a first mortgage loan in the amount
of $6,100,000 (the "First Mortgage Loan") secured by Shoppes from
Morgan Stanley Mortgage Capital, Inc. The First Mortgage Loan
bears interest at the rate of 9.55% per annum, amortizes over a 25-
year period, requires monthly payments of principal and interest of
approximately $53,500 and matures on May 1, 2002. A portion of the
proceeds of the First Mortgage Loan, approximately $4,675,000, was
used to retire the existing mortgage secured by Shoppes. The
remaining proceeds were used to pay loan closing costs and a
$999,919 return of capital distribution to the Limited Partners.
The outstanding mortgage balance encumbered by this property was
$5,846,777 at December 31, 1998.
Shoppes is a factory outlet retail center constructed in 1986
with approximately 86,900 rentable square feet situated on a 9.43
acre site. Shoppes was 92% occupied at December 31, 1998. To
retain tenants and to attract customers to the Shoppes the
Partnership completed various improvements to the property in 1997.
These improvements included landscaping, benches, canopies,
exterior painting and refurbished restrooms.
The occupancy rate and average annual base rent per square foot
at December 31 for the last two years were as follows:
1998 1997
Occupancy Rate 92% 95%
Average Annual Base
Rent Per Square Foot $15.15 $14.36
Shoppes has no tenants which individually occupy ten percent or
more of the rentable square footage. The following is a summary of
the tenant rent roll at December 31, 1998:
Annual Lease
Square Base Expiration Renewal
Tenant Feet Rent Date Options
All Tenants 79,588 $1,229,379 Various Various
Vacant 7,278 --
86,866 $1,229,379
(c) Ponderosa Restaurant ("Ponderosa")
On September 28, 1988, the Partnership purchased the land and
building occupied by a Ponderosa restaurant located in Garfield
Heights, Ohio. The building was constructed in 1981 and contains
5,400 square feet of space. The cost of the restaurant was
$1,075,000 plus closing costs which were paid in cash.
The restaurant was purchased from Ponderosa, Inc. ("Ponderosa"),
a wholly-owned subsidiary of Metromedia Company. The restaurant is
operated by Ponderosa in accordance with the terms of a triple-net
lease whereby Ponderosa must pay all taxes, insurance premiums and
operating costs. The lease has a base term of 15 lease years (as
defined in the lease), terminates on September 22, 2003 and
contains four five-year renewal options. The Partnership is
landlord only and does not participate in the operations of the
restaurant.
Ponderosa is obligated to pay a minimum base rental amount every
four calendar weeks. In addition to the base rent, percentage rent
is paid based on the average gross sales of the first two lease
years (the "Percentage Base"). The percentage rent is 6.5% of the
amount by which the gross sales in any year exceeds this Percentage
Base.
Ponderosa has the right to repurchase this property at the end
of the tenth lease year (1998) and every five years thereafter at
the fair market value of the real estate at the time of repurchase.
In 1998 Ponderosa declined to exercise its right to repurchase this
property, however, Ponderosa still maintains its ability to
repurchase this property in five years.
The Ponderosa property has been occupied since its purchase and
the average annual base rent per square foot at December 31 for the
last two years are as follows:
1998 1997
Average Annual Base Rent
Per Square Foot $23.64 $24.00
Risks of Ownership
The possibility exists that the tenants of the Partnership's
properties may be unable to fulfill their obligations pursuant to
the terms of the leases, including making base rent payments or
percentage rent payments to the Partnership. Such defaults by one
or more of the tenants could have an adverse effect on the
financial situation of the Partnership. Furthermore, the
Partnership may be unable to replace these tenants due to
competition in the market at the time any vacancy occurs.
Additionally, there are costs to the Partnership when replacing
tenants such as leasing commissions and tenant improvements. Such
improvements may require expenditure of Partnership funds otherwise
available for distribution.
Item 3. Legal Proceedings.
None.
Item 4. Submission of Matters to a Vote of Security Holders.
None.
<PAGE>
PART II
Item 5. Market for the Issuer's Limited Partnership Interests and
Related Security Holder Matters.
At December 31, 1998, there were 565 Limited Partners in the
Partnership. There is currently no established public trading
market for Units and it is not anticipated that a public market for
Units will develop. Bid prices quoted by "partnership exchanges"
vary widely and are not considered a reliable indication of market
value. Neither the Partnership nor Brauvin 6, Inc. (the "Corporate
General Partner") will redeem or repurchase outstanding Units.
Pursuant to the terms of the Agreement, there are restrictions
on the ability of the Limited Partners to transfer their Units. In
all cases, the General Partners must consent to any substitution of
a Limited Partner.
Cash distributions from operations to Limited Partners for 1998
and 1997 were $548,380, and $513,471, respectively.
Item 6. Management's Discussion and Analysis or Plan of Operation.
General
Certain statements in this Annual Report that are not historical
fact constitute "forward-looking statements" within the meaning of
the Private Securities Litigation Reform Act of 1995. Discussions
containing forward-looking statements may be found in this section
and in the section entitled "Description of Business". 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 concerns 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 Partnership's computer information technology systems
consists of a network of personal computers linked to a server
built using hardware and software from mainstream suppliers. The
Partnership does not own any equipment that contains embedded
microprocessors, which may also pose a potential Year 2000 problem.
Additionally, the Partnership has no internally generated software
coding to correct as all of the Partnership's software is purchased
and licensed from external providers. These external providers
have assured management that their systems are, or will be, Year
2000 compliant.
The Partnership has two main software packages that contain date
sensitive information, (i) accounting and (ii) investor relations.
In 1997, the Partnership initiated and completed the conversion
from its 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. Management has determined that the Year 2000 issue
will not pose significant operational problems for its remaining
computer software systems. All costs associated with these
conversions are expensed as incurred, and are not material.
Management does not believe that any further expenditures will be
necessary for the Partnership 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 will be timely
converted and would not have an adverse effect on the Partnership.
The most reasonably likely worst case scenario for the
Partnership with respect to the Year 2000 issue would be the
inability of certain tenants to timely make their rental payments
beginning in January 2000. This could result in the Partnership
temporarily suffering a depletion of the Partnership's cash
reserves as expenses will need to be paid while the cash flows from
revenues are delayed. The Partnership has no formal Year 2000
contingency plan.
Liquidity and Capital Resources
The Partnership intends to satisfy its short-term liquidity needs
through cash reserves and cash flow from the properties. Long-term
needs are expected to be satisfied through mortgage refinancing.
See Item 2 for a description of the mortgage modifications affected
to date.
On April 6, 1995, the Partnership obtained a first mortgage loan
in the amount of $6,100,000 (the "First Mortgage Loan") secured by
Shoppes from Morgan Stanley Mortgage Capital, Inc. The First
Mortgage Loan bears interest at the rate of 9.55% per annum,
amortizes over a 25-year period, requires monthly payments of
principal and interest of approximately $53,000 and matures on May
1, 2002. A portion of the proceeds of the First Mortgage Loan,
approximately $4,675,000, were used to retire an existing mortgage
secured by Shoppes from Crown Life Insurance Company. The
remaining proceeds were used to pay loan closing costs and a
$999,919 return of capital distribution to the Limited Partners.
The Partnership was required to make a balloon mortgage payment
for Delchamps in December 1996 in the amount of $2,823,000. Prior
to the scheduled maturity of the first mortgage loan, the Lender
granted the Partnership an extension until February 1, 1997. On
January 14, 1997, the Partnership obtained a first mortgage loan in
the amount of $2,925,000 (the "First Mortgage Loan") secured by
Delchamps from NationsBanc Mortgage Capital Corporation. The First
Mortgage Loan bears interest at the rate of 9.03% per annum, is
amortized over a 25-year period, requires monthly payments of
principal and interest of approximately $24,600 and matures on
February 1, 2002. A portion of the proceeds of the First Mortgage
Loan, approximately $2,809,000, was used to retire the existing
mortgage secured by Delchamps from Lincoln National Life Insurance
Company.
The Partnership has paid annual cash distributions to Limited
Partners since 1986, as many of the Partnership's properties have
been operating in strong retail markets.
Below is a table summarizing the historical data for distribution
per Limited Partnership Interest for the last two years:
Distribution
Date 1999 1998 1997
February 15 $17.59 $16.49 $15.39
May 15 17.21 16.14
August 15 17.40 16.31
November 15 17.59 17.63
A distribution of Operating Cash Flow for the fourth quarter of
1998 was made to the Limited Partners on February 15, 1999 in the
amount of $137,976. The Preferential Distribution Deficiency
equaled $4,057,904 after this last distribution, a $147,985
increase over 1997.
On October 15, 1998, the Partnership received notice that an
unsolicited tender offer to purchase up to 10% of the outstanding
Units was to commence with a tender price of $475 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 November 13, 1998. As a result of this tender offer 115
economic interests in the Partnership were transferred.
On October 22, 1998, Limited Partners were mailed, without the
consent or knowledge of the General Partners, an additional tender
offer to purchase up to 4.9% of the outstanding Units of the fund
for $500 per Unit, less any transfer fees. This offer was being
made by an entity that did not own any interests in the Partnership
and was scheduled to expire on December 2, 1998. As a result of
this tender offer 382 economic interests in the Partnership were
transferred.
The General Partners remained neutral as to the particular merits
or risks associated with either of the tender offers to the Limited
Partners. However, the General Partners did notify the Limited
Partners that they are exploring various alternatives to sell the
Partnership's assets. In this regard, the Partnership has engaged
nationally known appraisal firms to value the Partnership's assets.
Additionally, these firms will assist the General Partners in
determining the appropriate method and timing for the disposition
of the Partnership's assets. The General Partners believe an
informed determination of the true value of the Units can be made
at that time. The value of the Units after the receipt of the
appraisals may be more or less than the current tender offers.
The General Partners further informed the Limited Partners that,
for those investors who are primarily interested in liquidating
their Units immediately, the tender offers provided such an
opportunity.
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.
The General Partners have determined to pursue disposition of the
Partnership's assets, and expect to commence the registration and
solicitation within a few weeks of the date of this Form 10-KSB for
the authorization of the Limited Partners for the sale of all or
substantially all of the Partnership's properties. That
solicitation will be accomplished by written notice directed by
U.S. mail to each Limited Partner at the address shown on the
Partnership's records, in accordance with the rules of the
Securities and Exchange Commission and the requirements of the
Partnership Agreement.
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
The Partnership's revenue and expenses are affected primarily by
the operations of the properties. Property operations, and in
particular the components of income, demand for space and rental
rates are, to a large extent, determined by local and national
market conditions. These market conditions, all beyond the control
of the Partnership and its General Partners, have affected the real
estate industry since the late 1980's and have combined to cause
severe economic hardships for real estate owners. Some of the
specific market conditions are as follows:
* The savings and loan crisis resulted in the creation of the
Resolution Trust Corp. (RTC). The RTC sponsored auctions
where large blocks of properties were sold at distressed
prices. The low price paid by the new owners enabled them
to reduce asking rental rates resulting in significantly
lower market rents for all competing properties.
* The emergence of "Category Killer" retailers who occupied
large "Box" spaces in new developments known as "Power
Centers" attracted tenants from the smaller and more
traditional "Community Centers" resulting in increased
vacancies and downward pressure on market rental rates.
* The continuing softness in retail sales has resulted in store
closings. This has in turn resulted in increased vacancies
and an overall softness in demand for retail space which
results in downward pressure on market rents.
These conditions have adversely impacted the Partnership's
property economics. The specific impact of these economic
conditions on 1998 and 1997 results are discussed in the section
"Results of Operations - 1998 Compared to 1997", below.
The General Partners conduct an in-depth assessment of each
property's physical condition as well as a demographic analysis to
assess opportunities for increasing occupancy and rental rates and
decreasing operating costs. In all instances, decisions concerning
restructuring of loan terms, reversions and subsequent operation of
the property are made with the intent of maximizing the potential
proceeds to the Partnership and, therefore, return of investment
and income to Limited Partners.
In certain instances and under limited circumstances, management
of the Partnership entered into negotiations with lenders for the
purpose of restructuring the terms of loans to provide for debt
service levels that could be supported by operations of the
properties. When negotiations are unsuccessful, management of the
Partnership considers the possibility of reverting the properties
to the first mortgage lender. Foreclosure proceedings may require
6 to 24 months to conclude.
An affiliate of the Partnership and the General Partners is
assigned responsibility for day-to-day management of the
properties. The affiliate receives a combined management and
leasing fee which cannot exceed 6% of gross revenues generated by
the properties. Management fee rates are determined by the extent
of services provided by the affiliate versus services that may be
provided by third parties, i.e., independent leasing agents. In
all instances, fees paid by the Partnership to the property
management affiliate are, in the General Partners' opinion,
comparable to fees that would be paid to independent third parties.
Results of Operations - 1998 Compared to 1997
(Amounts rounded to nearest $000's)
The Partnership generated net income of $241,000 for the year
ended December 31, 1998 as compared to net income of $391,000 for
the same period in 1997. The $150,000 decrease in net income
resulted primarily from a $188,000 decrease in total income.
Total income for the year ended December 31, 1998 was $2,214,000
as compared to $2,402,000 for the same period in 1997, a decrease
of $188,000. The $188,000 decrease resulted primarily from a
decrease in rental income at Shoppes due to a decrease in the
occupancy to 92% in 1998 from 95% in 1997 and a decrease in
percentage rental income caused by lower sales of several tenants.
Total expenses incurred in 1998 were $1,973,000 as compared to
$2,011,000 in 1997, a decrease of $38,000. The decrease of $38,000
was due primarily to a $17,000 decrease in real estate taxes in
1998 when compared to the same period in 1997. The $17,000 decrease
in real estate taxes is primarily attributable to the Shoppes
property. Also contributing to the decrease in expenses is a
$13,000 decrease in general and administrative expenses, which was
due primarily to a $54,000 decrease in insurance expenses at
Shoppes. The decrease of $54,000 in insurance expenses at Shoppes
was partially offset by an increase of $23,000 in professional
services, which primarily relates to the property appraisals that
were undertaken in 1998.
Results of Operation - 1997 Compared to 1996
(Amounts rounded to nearest 000's)
The Partnership generated net income of $391,000 for the year
ended December 31, 1997 as compared to net income of $245,000 for
the same period in 1996. The $146,000 increase in net income
resulted primarily from a $138,000 increase in total income.
Total income for the year ended December 31, 1997 was $2,402,000
as compared to $2,264,000 for the same period in 1996, an increase
of $138,000. The $138,000 increase resulted primarily from an
increase in rental income at Shoppes due to increased rental rates.
For the year ended December 31, 1997 total expenses were
$2,011,000 as compared to $2,019,000 for the same period in 1996,
a decrease of $8,000. The decrease of $8,000 was due primarily to
a decrease in operating expenses in 1997, which relates to non-
recurring irrigation work done at Shoppes in 1996. The decrease in
operating expenses was offset by an increase in general and
administrative expense, which is a result of increased insurance
expense at Shoppes.
Item 7. Consolidated Financial Statements and Supplementary Data.
See Index to Consolidated Financial Statements on Page F-1 of
this Form 10-KSB for consolidated financial statements where
applicable.
The financial information required in Item 310(b) of Regulation
S-B is not applicable.
Item 8. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure.
None.
<PAGE>
PART III
Item 9. Directors, Executive Officers, Promoters and Control
Persons; Compliance with Section 16 (a) of the Exchange
Act.
The General Partners of the Partnership are:
Brauvin 6, Inc., an Illinois corporation
Mr. Jerome J. Brault, individually
Brauvin 6, Inc. was formed under the laws of the State of
Illinois in 1986, with its issued and outstanding shares being
owned by A.G.E. Realty Corporation, Inc. (50%), and Messrs. Jerome
J. Brault (beneficially) (25%) and Cezar M. Froelich (25%).
The principal officers and directors of the Corporate General
Partner are:
Mr. Jerome J. Brault . . . . . . . . . . . . .Chairman of the Board of
Directors, Director and President
Mr. James L. Brault. . . . . . . . . . . .Vice President and Secretary
Mr. Thomas E. Murphy . . . . . . . . . . . . . . . Treasurer and Chief
Financial Officer
The business experience during the past five years of the General
Partners, officers and directors is as follows:
MR. JEROME J. BRAULT (age 65) chairman of the board of directors,
president and chief executive officer of the Corporate General
Partner, as well as a principal shareholder of the Corporate
General Partner. He is a member and manager of Brauvin Real Estate
Funds, L.L.C. He is a member of Brauvin Capital Trust L.L.C.
Since 1979, he has been a shareholder, president and a director of
Brauvin/Chicago, Ltd. He is an officer, director and one of the
principal shareholders of various Brauvin entities which act as the
general partners of six other publicly registered real estate
programs. He is an officer, director and one of the principal
shareholders of Brauvin Associates, Inc., Brauvin Management
Company, Brauvin Advisory Services, Inc. and Brauvin Securities,
Inc., Illinois companies engaged in the real estate and securities
businesses. He is a director, president and chief executive
officer of Brauvin Net Lease V, Inc. He is the chief executive
officer of Brauvin Capital Trust, Inc. Mr. Brault received a B.S.
in Business from DePaul University, Chicago, Illinois in 1959.
MR. JAMES L. BRAULT (age 38) is a vice president and secretary
and is responsible for the overall operations of the Corporate
General Partner and other affiliates of the Corporate General
Partner. He is an officer of various Brauvin entities which act as
the general partners of six other publicly registered real estate
programs. Mr. Brault is executive vice president and assistant
secretary and is responsible for the overall operations of Brauvin
Management Company. He is also an executive vice president and
secretary of Brauvin Net Lease V, Inc. He is a manager of Brauvin
Real Estate Funds, L.L.C., Brauvin Capital Trust, L.L.C. and
BA/Brauvin L.L.C. He is the president of Brauvin Capital Trust,
Inc. Prior to joining the Brauvin organization in May 1989, he was
a Vice President of the Commercial Real Estate Division of the
First National Bank of Chicago ("First Chicago"), based in their
Washington, D.C. office. Mr. Brault joined First Chicago in 1983
and his responsibilities included the origination and management of
commercial real estate loans, as well as the direct management of
a loan portfolio in excess of $150 million. Mr. Brault received a
B.A. in Economics from Williams College, Williamstown,
Massachusetts in 1983 and an M.B.A. in Finance and Investments from
George Washington University, Washington, D.C. in 1987. Mr. Brault
is the son of Mr. Jerome J. Brault.
MR. THOMAS E. MURPHY (age 32) is the treasurer and chief
financial officer of the Corporate General Partner and other
affiliates of the Corporate General Partner. He is the chief
financial officer of various Brauvin entities which act as the
general partners of six other publicly registered real estate
programs. Mr. Murphy is also the chief financial officer of
Brauvin Associates, Inc., Brauvin Management Company, Brauvin
Financial, Inc., Brauvin Securities, Inc. and Brauvin Net Lease V,
Inc. He is the treasurer, chief financial officer and secretary of
Brauvin Capital Trust, Inc. He is responsible for the Partnership's
accounting and financial reporting to regulatory agencies. He
joined the Brauvin organization in July 1994. Prior to joining the
Brauvin organization he was in the accounting department of
Zell/Merrill Lynch and First Capital Real Estate Funds where he was
responsible for the preparation of the accounting and financial
reporting for several real estate limited partnerships and
corporations. Mr. Murphy received a B.S. in Accounting from
Northern Illinois University in 1988. Mr. Murphy is a Certified
Public Accountant and is a member of the Illinois Certified Public
Accountants Society.
Item 10. Executive Compensation.
(a & b) The Partnership is required to pay certain fees, make
distributions and allocate a share of the profits and losses of the
Partnership to the Corporate General Partner or other affiliates as
described under the caption "Compensation Table" on pages 10 to 12
of the Partnership's Prospectus, as supplemented, and the sections
of the Partnership Agreement entitled "Distribution of Operating
Cash Flow," "Allocation of Profits, Losses and Deductions,"
"Distribution of Net Sale or Refinancing Proceeds" and
"Compensation of General Partners and Their Affiliates" on pages
A-10 to A-15 of the Agreement, attached as Exhibit A to the
Prospectus. The relationship of the Corporate General Partner (and
its directors and officers) to its affiliates is set forth in Item
9. Reference is also made to Notes 2 and 4 of the Notes to
Consolidated Financial Statements filed with this annual report for
a description of such distributions and allocations.
The General Partners received a share of Partnership income for
1998 and 1997.
An affiliate of the General Partners is reimbursed for its direct
expenses relating to the administration of the Partnership.
The Partnership does not have any employees and therefore there
is no compensation paid.
(c) - (h) Not applicable.
<PAGE>
Item 11. Security Ownership of Certain Beneficial Owners and
Management.
(a) No person or group is known by the Partnership to own
beneficially more than 5% of the outstanding Units of the
Partnership.
(b) The officers and directors of the Corporate General
Partner do not, individually or as a group, own any
Units.
(c) The Partnership is not aware of any arrangements, the
operations of which may result in a change of control of
the Partnership.
No officer or director of the Corporate General Partner possesses
a right to acquire beneficial ownership of Units. The General
Partners will share in the profits, losses and distributions of the
Partnership as outlined in Item 10, "Executive Compensation."
Item 12. Certain Relationships and Related Transactions.
(a & b) The Partnership is entitled to engage in various
transactions involving affiliates of the Corporate General Partner,
as described in the sections of the Partnership's Prospectus, as
supplemented, entitled "Compensation Table" and "Conflicts of
Interest" at pages 10 to 15 and the section of the Agreement
entitled "Rights, Duties and Obligations of General Partners" at
pages A-17 to A-20 of the Agreement. The relationship of the
Corporate General Partner to its affiliates is set forth in Item 9.
Cezar M. Froelich resigned as an individual general partner of the
Partnership effective 90 days after August 14, 1997 but remains a
shareholder of the Corporate General Partner. He is a principal of
the law firm of Shefsky & Froelich Ltd., which acted as securities
and real estate counsel to the Partnership. Reference is made to
Note 4 of the Notes to Consolidated Financial Statements filed with
this annual report for a summary of transactions with affiliates.
As a precondition to the new financing on Shoppes, the lender
required that ownership of the property reside in a special purpose
entity ("SPE"). To accommodate the lender's requirements,
ownership of the property was transferred in 1995 to the SPE,
Brauvin/Shoppes on the Parkway L.P., which is owned 99% by the
Partnership and 1% by an affiliate of the General Partners.
Distributions of Brauvin/Shoppes on the Parkway 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/Shoppes on the Parkway L.P. did not affect
the Partnership's economic ownership of the Shoppes property.
Furthermore, this change in ownership structure had no material
effect on the consolidated financial statements of the Partnership.
As a precondition to the new financing on Delchamps, the lender
required that ownership of the property reside in a SPE. To
accommodate the lender's requirements, ownership of the property
was transferred in 1997 to the SPE, Brauvin/Delchamps L.P., which
is owned 99% by the Partnership and 1% by an affiliate of the
General Partners. Distributions of Brauvin/Delchamps 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/Delchamps L.P. did not affect the
Partnership's economic ownership of the Delchamps property.
Furthermore, this change in ownership structure had no material
effect on the consolidated financial statements of the Partnership.
(c) No management persons are indebted to the Partnership.
(d) There have been no transactions with promoters.
<PAGE>
Item 13. Exhibits, Consolidated Financial Statements, and Reports
on Form 8-K.
(a) The following documents are filed as part of this report:
(1) (2) Consolidated Financial Statements (See Index to
Consolidated Financial Statements filed with this
annual report).
(3) Exhibits required by the Securities and Exchange
Commission Regulation S-B Item 601:
Exhibit No. Description
*3.(a) Limited Partnership Agreement
*3.(b) Articles of Incorporation of
Brauvin 6, Inc.
*3.(c) By-Laws of Brauvin 6, Inc.
*3.(d) Certificate of Limited
Partnership of the Partnership
*10.(a) Escrow Agreement
*10.(b)(1) Management Agreement
21. Subsidiaries of the registrant
27. Financial Data Schedule
*28 Pages 9-14 and A-15 to A-18 of
the Partnership's Prospectus and
the Agreement dated May 30, 1986,
as supplemented.
* Incorporated by reference from the exhibits filed with the
Partnership's registration statement (File No. 0-16857) on Form
S-11 filed under the Securities Act of 1933:
(b) No portions of the annual report have been incorporated by
reference in this Form 10-KSB.
(c) Form 8-K.
None.
(d) An annual report for the fiscal year 1998 will be sent to
the Limited Partners subsequent to this filing.
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the
registrant caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
BRAUVIN INCOME PROPERTIES L.P. 6
BY: Brauvin 6, Inc.
Corporate General Partner
By: /s/ Jerome J. Brault
Jerome J. Brault
Chairman of the Board of
Directors and President
By: /s/ James L. Brault
James L. Brault
Vice President and Secretary
By: /s/ Thomas E. Murphy
Thomas E. Murphy
Chief Financial Officer and
Treasurer
INDIVIDUAL GENERAL PARTNER
/s/ Jerome J. Brault
Jerome J. Brault
Dated: March 31, 1999
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page
Independent Auditors' Report. . . . . . . . . . . . . . . F-2
Consolidated Balance Sheet, December 31, 1998 . . . . . . F-3
Consolidated Statements of Operations, for the years
ended December 31, 1998 and 1997 . . . . . . . . . . . . F-4
Consolidated Statements of Partners' Capital, for the
years ended December 31, 1998 and 1997 . . . . . . . . . F-5
Consolidated Statements of Cash Flows, for the years
ended December 31, 1998 and 1997 . . . . . . . . . . . . F-6
Notes to Consolidated Financial Statements. . . . . . . . F-7
All other schedules provided for in Item 13(a) of Form 10-KSB are
either not required, not applicable or immaterial.
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Partners of
Brauvin Income Properties L.P. 6
We have audited the accompanying consolidated balance sheet of
Brauvin Income Properties L.P. 6 and subsidiaries (a limited
partnership) as of December 31, 1998, and the related consolidated
statements of operations, partners' capital, and cash flows for the
years ended December 31, 1998 and 1997. These consolidated
financial statements are the responsibility of the Partnership's
management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statements. An audit also
includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present
fairly, in all material respects, the financial position of Brauvin
Income Properties L.P. 6 and subsidiaries at December 31, 1998, and
the results of their operations and their cash flows for the years
ended December 31, 1998 and 1997 in conformity with generally
accepted accounting principles.
/s/ Deloitte & Touche LLP
Chicago, Illinois
February 16, 1999
<PAGE>
CONSOLIDATED BALANCE SHEET
December 31,
1998
ASSETS
Investment in real estate:
Land $ 2,756,651
Buildings and improvements 10,736,901
13,493,552
Less accumulated depreciation (3,806,865)
Net investment in real estate 9,686,687
Cash and cash equivalents 776,207
Rent receivable (net of
allowances of $44,081) 198,527
Escrow and other deposits 579,082
Other assets 123,637
Total Assets $11,364,140
LIABILITIES AND PARTNERS' CAPITAL
LIABILITIES:
Mortgage notes payable (Note 3) $ 8,716,089
Accounts payable and accrued
expenses 248,020
Due to affiliate 9,803
Tenant security deposits 13,549
Total Liabilities 8,987,461
PARTNERS' CAPITAL:
General Partners 16,128
Limited Partners (7,842.5
limited partnership units
issued and outstanding) 2,360,551
Total Partners' Capital 2,376,679
Total Liabilities and
Partners' Capital $11,364,140
See accompanying notes to consolidated financial statements
<PAGE>
CONSOLIDATED STATEMENTS OF OPERATIONS
For the years ended December 31,
1998 1997
INCOME
Rental (Note 5) $1,772,670 $1,924,981
Interest 53,886 47,312
Other, primarily
expense reimbursements 387,066 429,707
Total income 2,213,622 2,402,000
EXPENSES
Interest 864,778 874,110
Depreciation 360,779 370,295
Real estate taxes 114,194 131,087
Repairs and maintenance 22,193 31,194
Management fees (Note 4) 145,418 148,593
Other property operating 192,116 169,220
General and administrative 272,971 286,098
Total expenses 1,972,449 2,010,597
Net income $ 241,173 $ 391,403
Net income allocated to the
General Partners $ 2,412 $ 3,914
Net income allocated to the
Limited Partners $ 238,761 $ 387,489
Net income per
limited partnership
interest (7,842.5 units) $ 30.44 $ 49.41
See accompanying notes to consolidated financial statements
<PAGE>
CONSOLIDATED STATEMENTS OF PARTNERS' CAPITAL
Years ended December 31, 1998 and 1997
General Limited
Partners Partners* Total
Balance, January 1, 1997 $ 9,802 $2,796,152 $2,805,954
Net income 3,914 387,489 391,403
Cash distributions -- (513,471) (513,471)
Balance, December 31, 1997 13,716 2,670,170 2,683,886
Net income 2,412 238,761 241,173
Cash distributions -- (548,380) (548,380)
Balance, December 31, 1998 $16,128 $2,360,551 $2,376,679
* Cash distributions to Limited Partners per unit were $69.92 and
$65.47 for the years ended December 31, 1998 and 1997,
respectively.
See accompanying notes to consolidated financial statements
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the years ended December 31,
1998 1997
Cash Flows From Operating Activities:
Net income $241,173 $391,403
Adjustments to reconcile net income
to net cash provided by operating activities:
Depreciation 360,779 370,295
Provision for doubtful accounts 24,222 (105)
Changes in:
Rent receivable 70,002 (22,836)
Escrow and other deposits (41,300) (104,523)
Other assets 38,869 71,690
Accounts payable
and accrued expenses 23,374 (19,268)
Due to affiliate (1,661) 10,388
Tenant security deposits -- 8,766
Net cash provided by operating activities 715,458 705,810
Cash Flows From Investing Activities:
Capital expenditures (30,229) (38,845)
Cash used in investing activities (30,229) (38,845)
Cash Flows From Financing Activities:
Repayment of mortgage notes payable (110,588) (2,913,092)
Proceeds from refinancing -- 2,925,000
Payment of loan fees -- (38,543)
Cash distributions to Limited Partners (548,380) (513,471)
Net cash used in financing activities (658,968) (540,106)
Net increase in cash and cash equivalents 26,261 126,859
Cash and cash equivalents at beginning of year 749,946 623,087
Cash and cash equivalents at end of year $ 776,207 $ 749,946
Supplemental disclosure of cash
flow information:
Cash paid for mortgage interest $ 826,784 $ 836,624
See accompanying notes to consolidated financial statements
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 1998 and 1997
(1) ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION
Brauvin Income Properties L.P. 6 (the "Partnership") is a
Delaware limited partnership organized for the purpose of
acquiring, operating, holding for investment and disposing of
commercial properties consisting principally of existing shopping
centers and, to a lesser extent, office and industrial buildings.
The General Partners of the Partnership are Brauvin 6, Inc. and
Jerome J. Brault. On August 8, 1997, Mr. Cezar M. Froelich
resigned as a Individual General Partner effective 90 days from
August 14, 1997. Brauvin 6, Inc. is owned by the 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 in April 1986. The Partnership filed
a Registration Statement on Form S-11 with the Securities and
Exchange Commission which became effective on May 30, 1986. The
offering was terminated on August 31, 1987 having sold $7,842,500
in limited partnership interests.
The Partnership has acquired the land and buildings underlying
Delchamps Shopping Center ("Delchamps"), Shoppes on the Parkway
("Shoppes") and a Ponderosa Restaurant ("Ponderosa").
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 consolidated 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 Special Purpose Entities
The Partnership has two special purpose entities ("SPE"),
Brauvin/Shoppes on the Parkway L.P. and Brauvin/Delchamps L.P.,
which are each owned 99% by the Partnership and 1% by an affiliate
of the General Partners. Distributions from each of the SPE's are
subordinated to the Partnership which effectively precludes any
distributions from an SPE to affiliates of the General Partners.
The creation of each SPE did not affect the Partnership's economic
ownership of the properties. Furthermore, this change in ownership
structure had no material effect on the consolidated financial
statements of the Partnership.
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 31.5 years, and the term of
the applicable leases, respectively. Two of the Partnership's
properties are subject to liens under first mortgages (See Note 3).
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 December
31, 1998 and 1997. Accordingly, no impairment loss has been
recorded in the accompanying consolidated financial statements for
the years ended December 31, 1998 and 1997.
Cash and Cash Equivalents
Cash and cash equivalents include all highly liquid debt
instruments with an original maturity within three months 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 December 31, 1998 and
1997, 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 and other deposits; accounts payable and accrued
expenses and due to affiliate. The mortgage notes payable at
December 31, 1998 have a fair value of approximately $8,867,100
based upon current interest rates offered for debt of similar
instruments in the market.
(2) PARTNERSHIP AGREEMENT
The restated Limited Partnership Agreement (the "Agreement")
provides that 99% of the net profits and losses from operations of
the Partnership for each fiscal year of the Partnership shall be
allocated to the Limited Partners and 1% of the net profits and
losses from operations during each of said fiscal years shall be
allocated to the General Partners.
All Operating Cash Flow, as such term is defined in the
Agreement, during any calendar year 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 been paid any
unpaid Preferential Distribution Deficiency from prior years. For
subscribers who were admitted as Limited Partners during 1986, the
term "Preferential Distribution" shall mean a 12% per annum,
cumulative, non-compounded return on Adjusted Investment.
A cash distribution for the fourth quarter of 1998 was made to
the Limited Partners on February 15, 1999 in the amount of
$137,976. The Preferential Distribution Deficiency equaled
$4,057,904 after this last distribution.
(3) MORTGAGE NOTES PAYABLE
Mortgage notes payable at December 31, 1998, consisted of the
following:
Interest Date
1998 Rate Due
Shoppes on the Parkway(a) $5,846,777 9.55% 5/01/02
Delchamps Plaza
North Shopping Center(b) 2,869,312 9.03% 2/01/02
$8,716,089
The net carrying value of the Delchamps property and the Shoppes
property approximated $3,009,800 and $5,758,200, respectively, at
December 31, 1998. Delchamps and Shoppes serve as collateral under
the respective nonrecourse debt obligations.
Maturities of the mortgages payable are as follows:
1999 121,490
2000 132,707
2001 146,554
2002 8,315,338
$8,716,089
(a) On April 6, 1995, the Partnership obtained a first mortgage
loan in the amount of $6,100,000 (the "First Mortgage Loan")
secured by Shoppes from Morgan Stanley Mortgage Capital, Inc. (the
"Successor Lender"). The First Mortgage Loan bears interest at the
rate of 9.55% per annum, amortizes over a 25-year period, requires
monthly payments of principal and interest of approximately $53,500
and matures on May 1, 2002. A portion of the proceeds of the First
Mortgage Loan, approximately $4,675,000, were used to retire the
existing mortgage secured by Shoppes from Crown Life Insurance
Company. The remaining proceeds were used to pay loan closing
costs and a $999,919 return of capital distribution to the Limited
Partners.
As a precondition to the new financing, the Successor Lender
required that ownership of the property reside in a special purpose
entity ("SPE"). To accommodate the lender's requirements,
ownership of the property was transferred to the SPE,
Brauvin/Shoppes on the Parkway L.P., which is owned 99% by the
Partnership and 1% by an affiliate of the General Partners.
Distributions of Brauvin/Shoppes on the Parkway L.P. are
subordinated to a cumulative return to the Partnership. This
subordination will effectively preclude any distributions from the
SPE to affiliates of the General Partners. The creation of
Brauvin/Shoppes on the Parkway L.P. did not affect the
Partnership's economic ownership of the Shoppes property.
Furthermore, this change in ownership structure had no material
effect on the consolidated financial statements of the Partnership.
(b) The Partnership was required to make a balloon mortgage
payment for Delchamps in the amount of $2,823,249 in December 1996.
Prior to the scheduled maturity of the first mortgage loan, the
Lender granted the Partnership an extension until February 1, 1997.
On January 14, 1997, the Partnership obtained a first mortgage loan
in the amount of $2,925,000(the "First Mortgage Loan") secured by
Delchamps from NationsBanc Mortgage Capital Corporation. The First
Mortgage Loan bears interest at the rate of 9.03% per annum, is
amortized over a 25-year period, requires monthly payments of
principal and interest of approximately $24,600 and matures on
February 1, 2002. A portion of the proceeds of the First Mortgage
Loan, approximately $2,809,000, was used to retire the existing
mortgage secured by Delchamps from Lincoln National Life Insurance
Company.
As a precondition to the new financing on Delchamps, the lender
required that ownership of the property reside in a SPE. To
accommodate the lender's requirements, ownership of the property
was transferred to the SPE, Brauvin/Delchamps L.P., which is owned
99% by the Partnership and 1% by an affiliate of the General
Partners. Distributions of Brauvin/Delchamps 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/Delchamps L.P. did not affect the Partnership's economic
ownership of the Delchamps property. Furthermore, this change in
ownership structure had no material effect on the consolidated
financial statements of the Partnership.
(4) TRANSACTIONS WITH AFFILIATES
Fees and other expenses paid or payable to the General Partners
or their affiliates for the years ended December 31, 1998 and 1997
were as follows:
1998 1997
Management fees $145,418 $137,811
Reimbursable office expenses 154,500 159,282
Legal fees -- 499
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 $9,803 for management fees, as of
December 31, 1998.
(5) OPERATING LEASES
The Partnership is the lessor in operating lease agreements with
tenants at its various properties. The minimum future rental
income to be received on these operating leases (excluding
escalation amounts) is as follows:
1999 $1,728,701
2000 1,378,067
2001 1,084,060
2002 716,399
2003 447,911
Thereafter 972,568
Total $6,327,707
Contingent rental income approximated $33,000 and $130,000 in
1998 and 1997, respectively.
Collection of future rental income under these lease agreements
is subject to the financial stability of the underlying tenants.
Rental income received from the anchor tenant of Delchamps
approximates 18% and 16% of rental income for the Partnership for
the years ended December 31, 1998 and 1997, respectively. Rental
income received from Ponderosa approximates 7.2% and 7.1% of rental
income for the Partnership for the years ended December 31, 1998
and 1997, respectively.
<PAGE>
EXHIBIT INDEX
Exhibit (21) Subsidiaries of the Registrant
Exhibit (27) Financial Data Schedule
<PAGE>
Exhibit 21
Name of Subsidiary State of Formation
Brauvin/Shoppes on the Parkway L.P. Delaware
Brauvin/Delchamps L.P. Delaware
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<CASH> 776,207
<SECURITIES> 0
<RECEIVABLES> 198,527
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 13,493,552 <F1>
<DEPRECIATION> 3,806,865
<TOTAL-ASSETS> 11,364,140
<CURRENT-LIABILITIES> 0
<BONDS> 8,716,089 <F2>
0
0
<COMMON> 2,376,679 <F3>
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 11,364,140
<SALES> 0
<TOTAL-REVENUES> 2,213,622 <F4>
<CGS> 0
<TOTAL-COSTS> 1,107,671 <F5>
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 864,778
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 241,173
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
<FN>
<F1> "PP&E" REPRESENTS INVESTMENT IN REAL ESTATE [LAND AND
BUILDING]
<F2> "BONDS" REPRESENTS MORTGAGES PAYABLE
<F3> "COMMON" REPRESENTS TOTAL PARTNERS CAPITAL
<F4> "TOTAL REVENUES" REPRESENTS RENTAL, INTEREST, AND OTHER
INCOME
<F5> "TOTAL COSTS" REPRESENTS TOTAL EXPENSES
</FN>
</TABLE>
