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 September 30, 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 September 30, 1995 and
December 31, 1994. . . . . . . . . . . . . . . . . . . . . . 4
Consolidated Statements of Operations for the
nine months ended September 30, 1995 and
September 30, 1994 . . . . . . . . . . . . . . . . . . . . . 5
Consolidated Statements of Operations for the
three months ended September 30, 1995 and
September 30, 1994 . . . . . . . . . . . . . . . . . . . . . 6
Consolidated Statements of Partners' Capital for the
periods January 1, 1992 to September 30, 1995. . . . . . . . 7
Consolidated Statements of Cash Flows for the nine
months ended September 30, 1995 and
September 30, 1994 . . . . . . . . . . . . . . . . . . . . . 8
Notes to Consolidated Financial Statements . . . . . . . . . 9
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations. . . . . . . . . . . . . 16
PART II Other Information
Item 1. Legal Proceedings. . . . . . . . . . . . . . . . . . . . . . 23
Item 2. Changes in Securities. . . . . . . . . . . . . . . . . . . . 23
Item 3. Defaults Upon Senior Securities. . . . . . . . . . . . . . . 23
Item 4. Submissions of Matters to a Vote of Security
Holders. . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Item 5. Other Information. . . . . . . . . . . . . . . . . . . . . . 23
Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . . . . 23
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
<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 September 30, 1995,
Consolidated Statements of Operations for the nine months ended
September 30, 1995 and 1994, Consolidated Statements of Operations for
the three months ended September 30, 1995 and 1994, Consolidated
Statements of Partners' Capital for the periods January 1, 1992 to
September 30, 1995 and Consolidated Statements of Cash Flows for the
nine months ended September 30, 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
September 30, December 31,
1995 1994
ASSETS
Investment in real estate, at cost:
Land $11,126,124 $11,126,124
Buildings 24,825,040 24,825,040
35,951,164 35,951,164
Less: accumulated depreciation (4,454,861) (3,913,295)
Net investment in real estate 31,496,303 32,037,869
Cash and cash equivalents 1,219,193 1,106,917
Rent receivable 13,128 66,614
Deferred rent receivable 258,088 207,417
Due from General Partners (Note 4) 163,052 167,696
Other assets 36,139 43,558
Total Assets $33,185,903 $33,630,071
LIABILITIES AND PARTNERS' CAPITAL
LIABILITIES:
Accounts payable and accrued
expenses $ 79,591 $ 131,504
Due to affiliates (Note 3) 4,729 3,469
Due to General Partners (Note 4) 23,000 23,000
Rent received in advance 8,004 206,477
Total Liabilities 115,324 364,450
MINORITY INTEREST IN
BRAUVIN HIGH YIELD VENTURE 33,826 34,179
MINORITY INTEREST IN
BRAUVIN FUNDS JOINT VENTURE 2,505,759 2,494,341
PARTNERS' CAPITAL:
General Partners 319,429 319,429
Limited Partners 30,211,565 30,417,672
Total Partners' Capital 30,530,994 30,737,101
Total Liabilities and
Partners' Capital $33,185,903 $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 Nine Months Ended September 30,
1995 1994
INCOME:
Rental $3,108,335 $3,147,988
Interest 43,373 15,373
Other 7,530 3,890
Total income 3,159,238 3,167,251
EXPENSES:
General and administrative 146,843 138,974
Management fees (Note 3) 31,496 31,973
Provision for bad debts -- 17,176
Depreciation 541,566 550,710
Total expenses 719,905 738,833
Income before minority interests 2,439,333 2,428,418
MINORITY INTEREST'S SHARE OF NET INCOME:
Brauvin High Yield Venture (4,296) (4,217)
Brauvin Funds Joint Venture (219,668) (217,435)
Income before gain on sale of property
and provision for investment impairment 2,215,369 2,206,766
Gain on sale of property -- 126,743
Provision for investment impairment (Note 6) -- (500,000)
Net income $2,215,369 $1,833,509
Net income allocated to the
General Partners $ -- $ 45,838
Net income allocated to the
Limited Partners $2,215,369 $1,787,671
Net income per Unit outstanding (a) $ 55.36 $ 44.81
(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 OPERATIONS
For the Three Months Ended September 30,
1995 1994
INCOME:
Rental $1,025,537 $ 983,945
Interest 15,439 7,119
Other 5,248 (1,969)
Total income 1,046,224 989,095
EXPENSES:
General and administrative 56,157 42,605
Management fees (Note 3) 10,650 10,331
Depreciation 174,928 183,320
Total expenses 241,735 236,256
Income before minority interests and
provision for investment impairment 804,489 752,839
MINORITY INTEREST'S SHARE OF NET INCOME:
Brauvin High Yield Venture (1,438) (1,411)
Brauvin Funds Joint Venture (73,727) (73,556)
Income before provision for investment
impairment 729,324 677,872
Provision for investment impairment (Note 6) -- (500,000)
Net income $ 729,324 $ 177,872
Net income allocated to the
General Partners $ -- $ 4,447
Net income allocated to the
Limited Partners $ 729,324 $ 173,425
Net income per Unit outstanding (a) $ 18.22 $ 4.36
(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 periods from January 1, 1992 to September 30, 1995
General Limited
Partners Partners* 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 -- 301,631 301,631
Selling commissions and
other offering costs (Note 1) -- (44,979) (44,979)
Net income -- 2,215,369 2,215,369
Cash distributions -- (2,678,128) (2,678,128)
Balance, September 30, 1995 $319,429 $30,211,565 $30,530,994
* Total Units at September 30, 1995, December 31, 1994, 1993 and 1992 were
40,170, 39,866, 39,659, and 39,477, respectively. Cash distributions to
Limited Partners per Unit were $66.67, $87.47, $90.22 and $87.68 for the nine
months ended September 30, 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 nine months ended September 30,
1995 1994
Cash flows from operating activities:
Net income $2,215,369 $1,833,509
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for investment impairment -- 500,000
Depreciation 541,566 550,710
Gain on sale of property -- (126,743)
Provision for bad debts -- 17,176
Minority interest's share of income
from Brauvin High Yield Venture 4,296 4,217
Minority interest's share of income
from Brauvin Funds Joint Venture 219,668 217,435
Decrease in other assets 7,420 10,433
Decrease (increase) in due from General Partners
and affiliates 4,644 (762)
Decrease in rent receivable 53,486 18,278
Increase in deferred rent receivable (50,671) (54,840)
Decrease in rent received in advance (198,473) (203,317)
Decrease in accounts payable and accrued expenses (51,913) (53,207)
Increase (decrease) in due to affiliates 1,260 (9,615)
Total adjustments 531,283 869,765
Net cash provided by operating activities 2,746,652 2,703,274
Cash flows from investing activities:
Cash distribution to minority interest-
Brauvin High Yield Venture (4,650) (5,750)
Cash distribution to minority interest-
Brauvin Funds Joint Venture (208,250) (203,350)
Proceeds from sale of property -- 375,000
Net cash (used in) provided by investing activities (212,900) 165,900
Cash flows from financing activities:
Sale of Units, net of selling commissions
and other offering costs 256,652 101,265
Cash distributions to Limited Partners (2,678,128) (2,678,139)
Net cash used in financing activities (2,421,476) (2,576,874)
Net increase in cash and cash equivalents 112,276 292,300
Cash and cash equivalents at
beginning of period 1,106,917 799,390
Cash and cash equivalents at end of period $1,219,193 $ 1,091,690
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 September 30, 1995 and
December 31, 1994, the Partnership had sold $40,167,847 and $39,866,216 of
Units, respectively. The September 30, 1995 total Units included $3,531,074
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 September 30, 1995 the Participants have acquired Units
under the Plan which approximate 8.8% 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.
<PAGE>
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 third quarter of 1995
will be made on November 15, 1995 in the amount of $904,002.
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 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 had been established on this receivable at
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 nine months ended September 30, 1995 and
1994 were as follows:
1995 1994
Selling commissions $40,737 $40,593
Management fees 31,496 31,973
Reimbursable operating expenses 54,000 56,295
Legal fees 11,543 2,700
(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 September 30, 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 September
30, 1995, respectively, because Operating Cash Flow has exceeded
distributions since December 31, 1990.
<PAGE>
(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
Acumulated 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 $3,531,074 through September 30, 1995 from Limited Partners
investing their distributions of Operating Cash Flow in additional Units. As
of September 30, 1995, Units valued at $2,534,484, inclusive of a return of
capital of $248,257, have been purchased by the Partnership from Limited
Partners liquidating their original 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. 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 third 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. The Dairy Queen has been reporting strong sales and has
already generated percentage rent to the Partnership.
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, TN closed due
to poor sales. During the third quarter of 1995 the Chi-Chi's restaurants in
Charlotte, NC and Richmond, VA were closed. The corporate obligor continues
to make timely and complete lease payments, per the terms of the lease, while
actively seeking subtenants.
In order to enhance the Partnership's diversity and overall financial
performance, the General Partners have recently agreed to the following three
changes within the Partnership's Ponderosa portfolio. First, Unit #129 in
Joliet, Illinois will be converted to a Bennigan's restaurant. Bennigan's is
an affiliate of Ponderosa. Metromedia Steakhouses Company L.P., the current
lease obligor, will remain liable under the existing lease. However, we
believe this conversion will ultimately generate additional percentage rent
to the Partnership and enhance the overall security of the lease. The
conversion is anticipated to be completed by October, 1995. Second,
Ponderosa Unit #728 in Orchard Park, New York will be "swapped" with a Tony
Roma's restaurant in Mesquite, Texas. Metromedia Steakhouses will remain
liable under our current lease and Tony Roma's will sublease the property.
The Partnership will benefit from an immediate base rent increase as well as
future base rent and percentage rent increases not anticipated from the
Orchard Park property. The swap is anticipated to be completed in the fourth
quarter of this year. Finally, Ponderosa Unit #850 in Mansfield, Ohio has
been assigned to the local Ponderosa franchisee. The assignment has
increased base rent by 10% and will increase the likelihood of receiving
percentage rents. Metromedia Steakhouses remains fully liable on the lease.
The General Partners believe these changes within the Partnership's Ponderosa
portfolio will add to both the diversity and underlying quality of the
Partnership's assets.
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 September 30, 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 September 30, 1995, as Operating
Cash Flow has exceeded distributions since December 31, 1990.
<PAGE>
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 9.00 8.75 8.75 9.25 9.25
November 15(a) 9.00 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.
Results of Operations - Nine months ended September 30, 1995 and 1994
Results of operations for the nine months ended September 30, 1995
reflected net income of $2,215,369 compared to net income of $1,833,509 for
the nine months ended September 30, 1994, an increase of approximately
$382,000. The increase in net income was due to September 30, 1994 net
income reflecting a provision for value impairment of $500,000 which was
partially offset by a gain from the sale of a Taco Bell restaurant of
approximately $127,000. Total expenses for the nine months ended September
30, 1995 were $715,905 compared to $738,833 in 1994, a decrease of
approximately $19,000. The decrease in expenses was mainly due to the
decrease in the provision for bad debts.
Results of Operations - Three months ended September 30, 1995 and 1994
Results of operations for the three months ended September 30, 1995
reflected net income of $729,324 compared to net income of $177,872 for the
three months ended September 30, 1994, an increase of approximately $551,000.
The increase in net income was primarily a result of the $500,000 provision
for investment property impairment on the St. John's and Albion properties
that was recognized for the three months ended September 30, 1994. Total
income for the three months ended September 30, 1995 was $1,046,224 as
compared to $989,095 for the period ended September 30, 1994, an increase of
approximately $57,000. The increase in total income is primarily due to the
increase in rental income as a result of an increase in percentage rents.
Total expenses for the three months ended September 30, 1995 were $241,735 as
compared to $236,256 for the period ended September 30, 1994, an increase of
approximately $5,000. The increase in expenses was due to an increase in the
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.
Exhibit 27. Financial Data Schedule
<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: November 14, 1995
BY: /s/ Thomas J. Coorsh
Thomas J. Coorsh
Chief Financial Officer and Treasurer
DATE: November 14, 1995
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> SEP-30-1995
<CASH> 1,219,193
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 35,951,164 <F1>
<DEPRECIATION> 4,454,861
<TOTAL-ASSETS> 33,185,903
<CURRENT-LIABILITIES> 0
<BONDS> 2,539,585 <F2>
0
0
<COMMON> 30,530,994 <F3>
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 33,185,903
<SALES> 0
<TOTAL-REVENUES> 3,159,238 <F4>
<CGS> 0
<TOTAL-COSTS> 719,905 <F5>
<OTHER-EXPENSES> 223,964 <F6>
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,215,369
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
<FN>
<F1> "PP&E" REPRESENTS INVESTMENT IN REAL ESTATE [LAND AND
BUILDING]
<F2> "BONDS" REPRESENTS MINORITY INTEREST IN JOINT VENTURES
<F3> "COMMON" REPRESENTS TOTAL PARTNERS CAPITAL
<F4> "TOTAL REVENUES" REPRESENTS RENTAL, INTEREST, AND OTHER
INCOME
<F5> "TOTAL COSTS" REPRESENTS TOTAL EXPENSES
<F6> "OTHER EXPENSES" REPRESENTS MINORITY INTEREST SHARE OF
NET INCOME
</FN>
</TABLE>
