UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the quarterly period ended March 31, 1995
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 0-17556
Brauvin High Yield Fund L.P. II
(Exact name of registrant as specified in its charter)
Delaware 36-3580153
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
150 South Wacker Drive, Chicago, Illinois 60606
(Address of principal executive offices) (Zip Code)
(312) 443-0922
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period
that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes X No .
<PAGE>
BRAUVIN HIGH YIELD FUND L.P. II
INDEX
Page
PART I Financial Information
Item 1. Consolidated Financial Statements . . . . . . . . . . . . 3
Consolidated Balance Sheets at March 31, 1995 and
December 31, 1994 . . . . . . . . . . . . . . . . . . . . 4
Consolidated Statements of Operations for the period
January 1, 1995 to March 31, 1995 and January 1, 1994 to
March 31, 1994 . . . . . . . . . . . . . . . . . . . . . 5
Consolidated Statements of Partners' Capital for the period
January 1, 1992 to March 31, 1995 . . . . . . . . . . . . 6
Consolidated Statements of Cash Flows for the period
January 1, 1995 to March 31, 1995 and January 1, 1994 to
March 31, 1994. . . . . . . . . . . . . . . . . . . . . . 7
Notes to Consolidated Financial Statements . . . . . . . 8
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations . . . . . . . . . . . . . . . . 14
PART II Other Information
Item 1. Legal Proceedings . . . . . . . . . . . . . . . . . . . . 19
Item 2. Changes in Securities . . . . . . . . . . . . . . . . . . 19
Item 3. Defaults Upon Senior Securities . . . . . . . . . . . . . 19
Item 4. Submissions of Matters to a Vote of Security Holders. . . 19
Item 5. Other Information . . . . . . . . . . . . . . . . . . . . 19
Item 6. Exhibits and Reports on Form 8-K. . . . . . . . . . . . . 19
SIGNATURES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. Consolidated Financial Statements
Except for the December 31, 1994 Consolidated Balance Sheet, the following
Consolidated Balance Sheet as of March 31, 1995, Consolidated Statements of
Operations for the three months ended March 31, 1995 and 1994, Consolidated
Statements of Partners' Capital for the period January 1, 1992 to March 31,
1995 and Consolidated Statements of Cash Flows for the three months ended
March 31, 1995 and 1994 for Brauvin High Yield Fund L.P. II (the "Partnership")
are unaudited and have not been examined by independent public accountants
but reflect, in the opinion of the management, all adjustments necessary to
present fairly the information required. All such adjustments are of a
normal recurring nature.
These consolidated financial statements should be read in conjunction with
the consolidated financial statements and notes thereto included in the
Partnership's 1994 Annual Report on Form 10-K.
<PAGE>
BRAUVIN HIGH YIELD FUND L.P. II
(a Delaware limited partnership)
CONSOLIDATED BALANCE SHEETS
March 31, December 31,
1995 1994
ASSETS
Investment in real estate, at cost:
Land $11,126,124 $11,126,124
Buildings 24,835,990 24,825,040
35,962,114 35,951,164
Less: accumulated depreciation (4,096,614) (3,913,295)
Net investment in real estate 31,865,500 32,037,869
Cash and cash equivalents 1,007,872 1,106,917
Rent receivable 39,810 66,614
Deferred rent receivable 224,307 207,417
Due from General Partners (Note 4) 167,994 167,696
Other assets 34,815 43,558
Total Assets $33,340,298 $33,630,371
LIABILITIES AND PARTNERS' CAPITAL
LIABILITIES:
Accounts payable and accrued
expenses $ 79,401 $ 131,504
Due to affiliates (Note 3) 17,879 3,469
Due to General Partners (Note 4) 23,000 23,000
Rent received in advance 8,004 206,477
Total Liabilities 128,284 364,450
MINORITY INTEREST IN
BRAUVIN HIGH YIELD VENTURE 34,443 34,179
MINORITY INTEREST IN
BRAUVIN FUNDS JOINT VENTURE 2,486,461 2,494,341
PARTNERS' CAPITAL:
General Partners 319,429 319,429
Limited Partners 30,371,681 30,417,672
Total Partners' Capital 30,691,110 30,737,101
Total Liabilities and
Partners' Capital $33,340,298 $33,630,071
See accompanying notes to consolidated financial statements.
<PAGE>
BRAUVIN HIGH YIELD FUND L.P. II
(a Delaware limited partnership)
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Three Months Ended March 31,
1995 1994
INCOME:
Rental $1,037,861 $1,043,220
Interest 9,825 3,590
Other 2,283 2,641
Total income 1,049,969 1,049,451
EXPENSES:
General and administrative 33,233 39,041
Management fees (Note 3) 10,335 9,591
Depreciation 183,319 184,694
Total expenses 226,887 233,326
Income before minority interests 823,082 816,125
MINORITY INTEREST'S SHARE OF NET INCOME:
Brauvin High Yield Venture (1,414) (1,413)
Brauvin Funds Joint Venture (72,970) (71,124)
Income before gain on sale of property 748,698 743,588
Gain on sale of property -- 126,743
Net income $ 748,698 $ 870,331
Net income allocated to the
General Partners $ 0 $ 21,758
Net income allocated to the
Limited Partners $ 748,698 $ 848,573
Net income per Unit outstanding (a) $ 18.75 $ 21.40
(a) Net income per Unit was based on the average Units outstanding during
the period since they were of varying dollar amounts and percentages based
upon the dates Limited Partners were admitted to the Partnership and
additional Units were purchased through the Plan.
See accompanying notes to consolidated financial statements
<PAGE>
BRAUVIN HIGH YIELD FUND L.P. II
(a Delaware limited partnership)
CONSOLIDATED STATEMENTS OF PARTNERS' CAPITAL
For the period from January 1, 1992 to March 31, 1995
General Interest
Partners Holders* Total
Balance, January 1, 1992 $187,365 $33,124,637 $33,312,002
Contributions, net -- 115,882 115,882
Selling commissions and other
offering costs (Note 1) -- (59,761) (59,761)
Net income 73,405 2,862,800 2,936,205
Cash distributions -- (3,456,204) (3,456,204)
Balance, December 31, 1992 260,770 32,587,354 32,848,124
Contributions, net -- 181,294 181,294
Selling commissions and other
offering costs (Note 1) -- (58,314) (58,314)
Net income 58,659 2,287,696 2,346,355
Cash distributions -- (3,569,741) (3,569,741)
Balance, December 31, 1993 319,429 31,428,289 31,747,718
Contributions, net -- 207,446 207,446
Return of Capital -- (248,257) (248,257)
Selling commissions and
other offering costs (Note 1) -- (56,161) (56,161)
Net income -- 2,564,375 2,564,375
Cash distributions -- (3,478,020) (3,478,020)
Balance, December 31, 1994 319,429 30,417,672 30,737,101
Contributions, net -- 118,391 118,391
Selling commissions and
other offering costs (Note 1) -- (15,248) (15,248)
Net income -- 748,698 748,698
Cash distributions -- (897,832) (897,832)
Balance, March 31, 1995 $319,429 $30,371,681 $30,691,110
* Total Units sold at March 31, 1995, December 31, 1994, 1993 and 1992
were 39,986, 39,866, 39,659, and 39,477, respectively. Cash distributions
to Limited Partners per Unit were $22.49, $87.47, $90.22 and $87.68 for the
three months ended March 31, 1995 and the years ended December 31, 1994,
1993 and 1992, respectively. Cash distributions to Limited Partners per Unit
are based on the average Units outstanding during the period since they were
of varying dollar amounts and percentages based upon the dates Limited Partners
were admitted to the Partnership and additional Units were purchased through
the distribution reinvestment plan.
See accompanying notes to consolidated financial statements.
<PAGE>
BRAUVIN HIGH YIELD FUND L.P. II
(a Delaware limited partnership)
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the three months ended March 31, 1995 and 1994
1995 1994
Cash flows from operating activities:
Net income $ 748,698 $ 870,331
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 183,319 184,694
Gain on sale of property -- (126,743)
Minority interest's share of income
from Brauvin High Yield Venture 1,414 1,413
Minority interest's share of income
from Brauvin Funds Joint Venture 72,970 71,124
Decrease in other assets 8,743 3,949
Increase in due from affiliates (298) (340)
Decrease (increase) in rent receivable 26,804 (75,053)
Increase in deferred rent receivable (16,890) (18,280)
(Decrease) increase in rent received
in advance (198,473) 90,351
Decrease in accounts payable and
accrued expenses (52,103) (64,000)
Increase in due to affiliates 14,410 1,098
Total adjustments 39,896 68,213
Net cash provided by operating activities 788,594 938,544
Cash flows from investing activities:
Cash distribution to minority interest-
Brauvin High Yield Venture (1,150) (1,000)
Cash distribution to minority interest-
Brauvin Funds Joint Venture (80,850) (49,000)
Capital Expenditures (10,950)
Proceeds from sale of property -- 375,000
Net cash (used in) provided by
investing activities (92,950) 325,000
Cash flows from financing activities:
Sale of Units, net of selling commissions
and other offering costs 103,143 (17,133)
Cash distributions to Limited Partners (897,832) (898,097)
Net cash used in financing activities (794,689) (915,230)
Net (decrease) increase in cash and
cash equivalents (99,045) 348,314
Cash and cash equivalents at beginning
of period 1,106,917 799,390
Cash and cash equivalents at end of period $1,007,872 $1,147,704
See accompanying notes to consolidated financial statements.
<PAGE>
BRAUVIN HIGH YIELD FUND L.P. II
(a Delaware limited partnership)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION
BRAUVIN HIGH YIELD FUND L.P. II (the "Partnership") is a Delaware limited
partnership organized for the purpose of acquiring debt-free ownership of
existing, free-standing, income-producing retail, office or industrial real
estate properties predominantly all of which will involve "triple-net" leases.
The General Partners of the Partnership are Brauvin Realty Advisors II, Inc.,
Jerome J. Brault, Cezar M. Froelich and David M. Strosberg. Brauvin Realty
Advisors II, Inc. is owned primarily by Messrs. Brault (44%) and Froelich
(44%). Brauvin Securities, Inc., an affiliate of the General Partners, is the
selling agent of the Partnership.
The Partnership was formed on May 3, 1988 and filed a Registration
Statement on Form S-11 with the Securities and Exchange Commission which
became effective on June 17, 1988. 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 July 26, 1988. The
offering was anticipated to close on June 16, 1989 but was extended until and
closed on September 30, 1989. A total of $38,923,000 of Units were subscribed
for and issued between June 17, 1988 and September 30, 1989, pursuant to the
Partnership's public offering. At March 31, 1995 and December 31, 1994, the
Partnership had sold $39,736,351 and $39,866,216 of Units, respectively. The
March 31, 1995 total Units included $3,251,440 of Units purchased by Limited
Partners who utilized their distributions of Operating Cash Flow to purchase
Units through the distribution reinvestment plan (the "Plan") and are net of
Units purchased by the Partnership from Limited Partners liquidating their
investment in the Partnership, which Units were retired. As of March 31, 1995
the Participants have acquired Units under the Plan which approximate 8% of
the total Units outstanding.
The Partnership has acquired the land and buildings underlying 14
Ponderosa restaurants, two Taco Bell restaurants, three Children's World
Learning Centers, three Hardee's restaurants, three Avis Lube Oil Change
Centers, one Blockbuster Video store and three Chi-Chi's restaurants. Also
acquired were 99% and 51% equity interests in two joint ventures with an
affiliated entity which ventures purchased the land and buildings underlying
six Ponderosa restaurants and a Scandinavian Health Spa, respectively. The
Partnership's acquisition process is now completed except to the extent funds
raised through the Plan are sufficient to purchase additional properties.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
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.
Consolidation of Joint Ventures
The Partnership owns a 99% equity interest in a joint venture, Brauvin
High Yield Venture, which owns six Ponderosa restaurants and a 51% equity
interest in another joint venture, Brauvin Funds Joint Venture, which owns a
Scandinavian Health Spa. The accompanying financial statements have
consolidated 100% of the assets, liabilities, operations and partners' capital
of these ventures. All significant intercompany accounts have been eliminated.
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. However, in certain instances, the Partnership has
been required under applicable state law to remit directly to the tax
authorities amounts representing withholding from distributions paid to
partners.
Investment in Real Estate
The operating properties acquired by the Partnership are stated at cost
including acquisition costs net of accumulated depreciation. Depreciation
expense is computed on a straight-line basis over approximately 35 years.
Organization Costs
Organization costs represent costs incurred in connection with the
organization and formation of the Partnership. Organization costs were
amortized over a period of five years using the straight line method.
Cash and Cash Equivalents
Cash and cash equivalents include all highly liquid debt instruments with
an original maturity within three months of purchase.
(2) PARTNERSHIP AGREEMENT
Distributions
All Operating Cash Flow, as defined in the Partnership Agreement (the
"Agreement"), shall be distributed: (a) first, to the Limited Partners until
the Limited Partners receive an amount equal to their 10% Current Preferred
Return, as such term is defined in the Agreement; and (b) thereafter, any
remaining amounts will be distributed 97.5% to the Limited Partners and 2.5%
to the General Partners.
The net proceeds of a sale or refinancing of a Partnership property shall
be distributed as follows:
first, to the Limited Partners until the Limited Partners have received
an amount equal to the 10% Cumulative Preferred Return, as such term is
defined in the Agreement;
second, to the Limited Partners until the Limited Partners have received
an amount equal to the amount of their Adjusted Investment, as such term
is defined in the Agreement; and
third, 95% to the Limited Partners and 5% to the General Partners.
A distribution to Limited Partners for the first quarter of 1995 will be
made on May 15, 1995 in the amount of $880,217.
Profits and Losses
Net profits and losses from operations of the Partnership [computed
without regard to any allowance for depreciation or cost recovery deductions
under the Internal Revenue Code of 1986, as amended (the "Code")] for each
taxable year of the Partnership shall be allocated between the Limited Partners
and the General Partners in accordance with the ratio of aggregate
distributions of Operating Cash Flow attributable to such tax year, although
if no distributions are made in any year, net losses (computed without regard
to any allowance for depreciation or cost recovery deductions under the Code)
shall be allocated 99% to the Limited Partners and 1% to the General Partners.
Notwithstanding the foregoing, all depreciation and cost recovery deductions
allowed under the Code shall be allocated 2.5% to the General Partners and
97.5% to the Taxable Class Limited Partners, as defined in the Agreement.
The net profit of the Partnership from any sale or other disposition of
a Partnership property shall be allocated (with ordinary income being allocated
first) as follows: (a) first, an amount equal to the aggregate deficit
balances of the Partners' Capital Accounts, as such term is defined in the
Agreement, shall be allocated to each Partner who or which has a deficit
Capital Account balance in the same ratio as the deficit balance of such
Partner's Capital Account bears to the aggregate of the deficit balances of
all Partners' Capital Accounts; (b) second, to the Limited Partners until the
Limited Partners have been allocated an amount of profits equal to their 10%
Cumulative Preferred Return as of such date; (c) third, to the Limited Partners
until the Limited Partners have been allocated an amount of profit equal to
the amount of their Adjusted Investment; and (d) thereafter, 95% to the Limited
Partners and 5% to the General Partners. The net loss of the Partnership from
any sale or other disposition of a Partnership property shall be allocated as
follows: (a) first, an amount equal to the aggregate positive balances in the
Partners' Capital Accounts, to each Partner in the same ratio as the positive
balance in such Partner's Capital Account bears to the aggregate of all
Partners' positive Capital Account balances; and (b) thereafter, 95% to the
Limited Partners and 5% to the General Partners.
(3) TRANSACTIONS WITH RELATED PARTIES
An affiliate of the General Partners manages the Partnership's real
estate properties for an annual property management fee equal to up to 1% of
gross revenues derived from the properties. The property management fee is
subordinated, annually, to receipt by the Limited Partners of a 9%
non-cumulative, non-compounded return on their Adjusted Investment
(as defined).
The Partnership has advanced $398,915 to an affiliated lessee relating
the Hardee's transactions as of December 31, 1993. An allowance for doubtful
accounts of $398,915 has been established on this receivable at and December
31, 1993. In 1994, this receivable was determined to be uncollectible and was
written off.
The General Partners currently owe the Partnership approximately $140,000
relating to the Distribution Guaranty Reserve and has committed an additional
$23,000.
The Partnership pays affiliates of the General Partners selling
commissions of 8-1/2% of the capital contributions received for Units sold by
the affiliates.
An affiliate of one of the General Partners provides securities and real
estate counsel to the Partnership.
Fees, commissions and other expenses paid or payable to the General
Partners or its affiliates for the three months ended March 31, 1995 and 1994
were as follows:
1995 1994
Selling commissions $12,344 $12,184
Management fees 10,335 9,591
Reimbursable operating expenses 18,000 18,900
Legal fees 3,206 900
(4) DISTRIBUTION GUARANTEE RESERVE
The Partnership has made distributions to Limited Partners for calendar
years 1992, 1993 and 1994 (the final payment for each year from 1992-1994
being made the following February 15). As contemplated in the Prospectus, the
distributions prior to full property specification exceeded the amount of
Operating Cash Flow, as such term is defined in the Agreement, available for
distribution. The Partnership set aside 1% of the gross proceeds of its
offering in a reserve (the "Distribution Guaranty Reserve"). The Distribution
Guaranty Reserve was structured so as to enable the Partnership to make
quarterly distributions of Operating Cash Flow equal to at least 9.25% per
annum on Adjusted Investment during the period from the Escrow Termination
Date (February 28, 1989), as such term is defined in SECTION H.3 of the
Agreement, through the earlier of: (i) the first anniversary of the Escrow
Termination Date (February 28, 1990); or (ii) the expenditure of 95% of the
proceeds available for investment in properties, which date was July 26, 1989.
The General Partners guaranteed payment of any amounts in excess of the
Distribution Guaranty Reserve and were entitled to receive any amounts of the
Distribution Guaranty Reserve not used to fund distributions.
The Partnership's acquisition process was not completed until March 1991
due to an unusually high number of properties being declined during the due
diligence process because of the General Partners' unwillingness to lower the
Partnership's investment standards. As a result, the Partnership had a
substantial amount of cash invested in short-term investments, as opposed to
properties, and during 1990 did not generate sufficient Operating Cash Flow to
fully support the distributions to Limited Partners.
In order to continue to maintain the 9.25% per annum distribution through
December 31, 1990, the General Partners agreed to continue the Distribution
Guaranty up to the net $140,000 of Distribution Guaranty previously paid to
them. At March 31, 1995 and December 31, 1994, $140,000 was due from the
General Partners related to the Distribution Guaranty.
Furthermore, since at December 31, 1990, the Partnership had not yet
completed its acquisition process and Operating Cash Flow together with the
Distribution Guaranty Reserve was as yet insufficient to fund distributions,
the General Partners committed to advance an additional $136,000 to maintain
the 9.25% per annum distribution through December 31, 1990 and ensure that
distributions would not be paid out of Capital Contributions, as defined in
the Prospectus. The cumulative deficit produced has been reduced from
$136,000, at December 31, 1990, to $23,000 at December 31, 1994 and March 31,
1995, respectively, because Operating Cash Flow has exceeded distributions
since December 31, 1990.
(5) SALE OF PROPERTY
On February 18, 1994, the Partnership sold the Taco Bell located in
Schofield, Wisconsin to an unaffiliated third party. The following is a
calculation of the gain realized on the sale:
Sale proceeds $375,000
Less net book value:
Land 82,856
Building 193,328
Accumulated Depreciation (27,927)
Net book value 248,257
Realized gain $126,743
All amounts receivable on this property were collected at the sale. The
sale proceeds of $375,000 were distributed to the Limited Partners on
November 15, 1994.
(6) PROVISION FOR IMPAIRMENT
During the third quarter of 1994, the Partnership recorded an allowance
for impairment of $500,000 related to an other than temporary decline in the
value of the real estate for the St. Johns, Michigan and Albion, Michigan
properties. This allowance has been recorded as a reduction of the properties'
cost, and allocated to the land and building based on the original acquisition
percentages of 30% (land) and 70% (building).
<PAGE>
Item 2.Management's Discussion and Analysis of Financial Condition and Results
of Operations.
Liquidity and Capital Resources
The Partnership commenced an offering to the public on June 17, 1988 of
25,000 Units (subject to increase to 40,000 units). The offering was
anticipated to close on June 16, 1989 but was extended and closed on
September 30, 1989. A total of $38,923,000 of Units were subscribed and issued
between June 17, 1988 and September 30, 1989, pursuant to the public offering.
The Partnership continues to raise additional funds through the Plan. The
Plan raised $3,251,440 through March 31, 1995 from Limited Partners investing
their distributions of Operating Cash Flow in additional Units. As of March
31, 1995, Units valued at $2,392,258 have been purchased by the Partnership
from Limited Partners liquidating their investment in the Partnership and have
been retired. The Partnership has no funds available to purchase additional
property, excluding those raised through the Plan.
The General Partners adopted an enhancement to the Partnership's
Distribution Reinvestment Plan effective November 15, 1994. (The Management
Letter in the 1994 Annual Report incorrectly reported the date of the
enhancement as August 1995.) This enhancement permits unit holders to
reinvest at a unit price that is adjusted to reflect any return of investor
capital generated through property sales. In addition, any unit liquidations
will also occur at the adjusted unit price.
The Partnership purchased the land and buildings underlying seven Ponderosa
restaurants in 1988, and owns a 99% equity interest in an affiliated joint
venture formed in 1988 which purchased the land and buildings underlying six
Ponderosa restaurants. In 1989, the Partnership purchased the land and
buildings underlying two Taco Bell restaurants, formed a 51% equity interest
in an affiliated joint venture which purchased a Scandinavian Health Spa and
purchased the land and buildings underlying seven additional Ponderosa
restaurants. In 1990, the Partnership purchased the land and buildings
underlying a Children's World Learning Center, three Hardee's restaurants,
three Avis Lubes, a Blockbuster Video store and two Children's World Learning
Centers. The Partnership purchased three Chi-Chi's restaurants in 1991. The
Partnership's acquisition process is now completed with the exception of
acquisitions made with funds raised through the Plan.
Beginning in September 1990, the Partnership did not receive rent payments
on the Hardee's restaurants located in Albion, Michigan and St. Johns, Michigan
(the "Properties"). As a result of eviction proceedings commenced by the
Partnership against the defaulting lessee on January 5, 1991 due to nonpayment
of rent, the Partnership obtained legal possession of the Albion property on
February 25, 1991 and the St. Johns property on March 18, 1991 and the leases
were terminated. Subsequently, Wolverine Fast Food, Inc. ("Wolverine"), the
defaulting lessee, filed a Chapter 11 bankruptcy proceeding. Upon obtaining
possession of the Properties, the Partnership entered into a lease (the
"Interim Lease") with an affiliate of the Partnership (the "Affiliated Lessee")
until a suitable unaffiliated lessee could be found. Simultaneously, the
Partnership entered into negotiations with Hardee's Food Systems, Inc.
("Hardee's"), the franchisor, to manage and operate the Properties until a
new franchisee/tenant for the Properties could be located.
During the period that the properties were operated by the Affiliated
Lessee, the operating expenses and management fees exceeded the revenues
generated by the restaurants. As a result, the Partnership advanced $398,915
to the Affiliated Lessee as of December 31, 1993, which was fully reserved in
1993 and written off in 1994.
After taking possession of the Properties, the Partnership, in conjunction
with Hardee's, had sought replacement operators for the Properties. During
that time, Wolverine approached the Partnership to re-lease the restaurants on
a long-term basis. Because the Partnership had been unable to identify
another long-term tenant for the restaurants and because Hardee's began to
actively support Wolverine and reported substantial improvement in the
performance of the remaining Wolverine restaurants, the Partnership entered
into negotiations with Wolverine to re-lease the Properties.
As a result of discussions with Wolverine, the Partnership agreed to lease
the Properties to Wolverine, Kenneth Schiefelbein, Barbara Schiefelbein and
Jon Guiles, individual principals of Wolverine, for a period of 20 years. The
lease term commenced at the St. Johns property on April 1, 1992 and June 1,
1992 at the Albion property. Beginning February 1993, the St. Johns property
and beginning July 1993 the Albion property became seriously delinquent on
payments of rent to the Partnership. Although the tenant made irregular rent
payments, these delinquencies increased each month throughout the remainder of
1993. In December 1993, Wolverine abandoned the St. Johns property and in
January 1994 the Albion property was vacated. On February 2, 1994, the
Wolverine petition to the Bankruptcy court was modified from a Chapter 11 to
a Chapter 7 filing. In conjunction with the lease negotiations, as well as
with the lawsuits filed by the Partnership against Schiefelbein and Guiles,
Schiefelbein and Guiles executed agreements with the Partnership for non-
dischargeable debt obligations. A non-dischargeable judgement in the amount
of $2.5 million was entered against Schiefelbein and a judgement against
Guiles in the amount of $1.5 million was agreed upon and placed into escrow
pending lease default. The Partnership is in the process of entering the
judgement against Guiles. There has been no change in the status of these
judgements during the first quarter of 1995.
The Partnership entered into a lease with a new tenant, Jasaza, Inc., to
operate the Albion property as a Hardee's restaurant. On April 8, 1994, the
Partnership was notified that Jasaza, Inc., the replacement tenant was
terminating its lease at the Albion Hardee's as of April 12, 1994. The
Partnership continues to actively market this property for a replacement
tenant.
During the third quarter of 1994, the Partnership recorded an allowance for
impairment of $500,000 related to an other than temporary decline in the value
of the real estate for the St. Johns, Michigan and Albion, Michigan properties.
This allowance has been recorded as a reduction of the properties' cost, and
allocated to the land and building based on the original acquisition
percentages of 30% (land) and 70% (building).
During the fourth quarter of 1994, the Partnership executed a lease with a
Dairy Queen franchisee to be the new tenant at the St. Johns, Michigan
property. The lease is for a five year term commencing February 1, 1995.
Base rent is $2,500 per month with monthly percentage rent of 5% due after
monthly sales exceed $37,500. The lease provides an option to renew for one
five year period. The new lease rent is lower than the rent from the previous
tenant.
<PAGE>
On February 18, 1994, the Partnership sold the Taco Bell located in
Schofield, Wisconsin to an unaffiliated third party. The following is a
calculation of the gain realized on the sale:
Sale proceeds $375,000
Less net book value:
Land 82,856
Building 193,328
Accumulated depreciation (27,927)
Net book value 248,257
Realized gain $ 126,743
All amounts receivable on this property were collected at the sale.
The sale proceeds of $375,000 were distributed to the Limited Partners on
November 15, 1994.
In April 1994, the lessee of the Rock Hill, Missouri property defaulted on
its payment obligations and vacated the property. The Partnership has
continued to receive rent payments from the guarantor, Avis Lube, Inc. Avis
Lube, Inc. has subleased the property through March 1996 to an unaffiliated
sublessee, Clarkson Investors II, an auto/oil repair operator. The
Partnership has signed a new lease with the sublessee to operate the property
after the initial lease expires. The lease is for 42 months commencing March
26, 1996 and provides for annual base rent of $55,000. The new lease rent is
lower than current rent.
On October 4, 1994, the Partnership entered into a real estate and lease
exchange agreement with Metromedia Steakhouses Company L.P. ("MSC"), the lessee
of Ponderosa Steakhouse #1055, located at 877 South Orange Blossom Trail,
Apopka, Florida (the "Apopka Premises") and owner of commercial real estate
known as Ponderosa Steakhouse #129, located at 2200 West Jefferson Street,
Joliet, Illinois (the "Joliet Premises") due to the Apopka Premises not
meeting sales expectations and MSC wanting to close the unit. To terminate
the lease, the Partnership and MSC agreed to an exchange of properties. In
December 1994, the agreement was exercised which terminated the Apopka Lease,
conveyed the Apopka Premises to MSC, conveyed the Joliet Premises to the
Partnership and the Partnership and MSC entered into a lease for the Joliet
Premises. The terms of the Apopka lease were adopted for the Joliet lease
except for a change in the percentage rental income calculation which will
increase income to the Partnership if the Joliet premises meets sales
forecasts.
In February 1995, the Chi-Chi's restaurant in Clarksville, Tennessee closed
due to poor sales. The corporate obligor continues to make timely and
complete lease payments, per the terms of the lease, while seeking a subtenant.
The Partnership has made distributions to Limited Partners for calendar years
1992, 1993 and 1994 (the final payment for each year from 1992-1994 being made
the following February 15). As contemplated in the Prospectus, the
distributions prior to full property specification exceeded the amount of
Operating Cash Flow, as such term is defined in the Agreement, available for
distribution. As described in Footnote 8 to the section of the Prospectus on
pages 8 and 9 entitled "Estimated Use of Proceeds of Offering", the Partnership
set aside 1% of the gross proceeds of the Offering in a reserve (the
"Distribution Guaranty Reserve"). The Distribution Guaranty Reserve was
structured so as to enable the Partnership to make quarterly distributions of
Operating Cash Flow equal to at least 9.25% per annum on Adjusted Investment
during the period from the Escrow Termination Date (February 28, 1989), as
such term is defined in Section H.3 of the Agreement, through the earlier of:
(i) the first anniversary of the Escrow Termination Date (February 28, 1990);
or (ii) the expenditure of 95% of the proceeds available for investment in
properties, which date was July 26, 1989. The General Partners guaranteed
payment of any amounts in excess of the Distribution Guaranty Reserve and were
entitled to receive any amounts of the Distribution Guaranty Reserve not used
to fund distributions.
The Partnership's acquisition process was not completed until March 1991 due
to an unusually high number of properties being declined during the due
diligence process because of the General Partners' unwillingness to lower the
Partnership's investment standards. As a result, the Partnership had a
substantial amount of cash invested in short-term investments, as opposed to
properties, and during 1990 did not generate sufficient Operating Cash Flow to
fully support the distributions to Limited Partners.
In order to continue to maintain the 9.25% per annum distribution through
December 31, 1990, the General Partners agreed to continue the Distribution
guaranty up to the net $140,000 of Distribution Guaranty previously paid to
them. At March 31, 1995, $140,000 was due from the General Partners related
to the Distribution Guaranty.
Furthermore, since at December 31, 1990, the Partnership had not yet
completed its acquisition process and Operating Cash Flow together with
the Distribution Guaranty Reserve was as yet insufficient to fund
distributions, the General Partners committed to advance an additional
$136,000 to maintain the 9.25% per annum distribution through December 31,
1990 and ensure that distributions would not be paid out of Capital
Contributions, as defined in the Prospectus. The cumulative deficit produced
has been reduced from $136,000 at December 31, 1990 to $23,000 at March 31,
1995, as Operating Cash Flow has exceeded distributions since December 31,
1990.
Below is a table summarizing the historical data for distribution rates per
annum:
Distribution
Date 1995 1994 1993 1992 1991 1990 1989
February 15 9.00% 9.00% 9.00% 8.75% 9.25% 9.25% 9.25%
May 15 9.00% 9.00 9.00 8.75 9.25 9.25 9.25
August 15 9.00 9.00 8.75 8.75 9.25 9.25
November 15(a) 8.00 9.00 8.75 8.75 9.25 9.25
(a) The November 15, 1994 quarterly distribution rate does not include
the return of capital of $248,257.
Due to the previous defaults under the lease agreements by the two Hardee's
lessees, Operating Cash Flow for 1991 was insufficient to maintain a 9.25% per
annum distribution and was reduced to 8.75%. In order to enable the
Partnership to make distributions entirely from Operating Cash Flow, beginning
August 15, 1991, distributions were reduced to 8.75% per annum for the balance
of 1991 and for the first three quarters of 1992; commencing with the February
15, 1993 distribution the distribution rate was raised to 9.0% per annum.
<PAGE>
Results of Operations - Three months ended March 31, 1995 and 1994
Results of operations for the three months ended March 31, 1995 reflected
net income of $748,698 compared to net income of $870,331 for the three months
ended March 31, 1994, a decrease of approximately $121,600. The decrease in
net income was due to March 31, 1994 net income reflecting a gain from the sale
of a Taco Bell restaurant of approximately $127,000. Income before gain on
sale of property for the three months ended March 31, 1995 reflected an
increase of approximately $5,000 as compared to 1994 as a result of lower
general and administrative expenses.
<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.
None.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
BY: Brauvin Realty Advisors II, Inc.
Corporate General Partner of
Brauvin High Yield Fund L.P. II
BY: /s/ Jerome J. Brault
Jerome J. Brault
Chairman of the Board of
Directors, President and Chief
Executive Officer
DATE: May 12, 1995
BY: /s/ Thomas J. Coorsh
Thomas J. Coorsh
Chief Financial Officer
and Treasurer
DATE: May 12, 1995
