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 June 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 June 30, 1995
and December 31, 1994 . . . . . . . . . . 4
Consolidated Statements of Operations for
the six months ended June 30, 1995
and June 30, 1994. . . . . . . . . . . . . 5
Consolidated Statements of Operations for
the three months ended June 30, 1995
and June 30, 1994. . . . . . . . . . . . . 6
Consolidated Statements of Partners' Capital
for the periods January 1, 1992
to June 30, 1995 . . . . . . . . . . . . . 7
Consolidated Statements of Cash Flows for
the six months ended June 30, 1995
and June 30, 1994. . . . . . . . . . . . . 8
Notes to Consolidated Financial Statements 9
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations. . . . 15
PART II Other Information
Item 1. Legal Proceedings. . . . . . . . . . . . . 20
Item 2. Changes in Securities. . . . . . . . . . . 20
Item 3. Defaults Upon Senior Securities. . . . . . 20
Item 4. Submissions of Matters to a Vote of
Security Holders . . . . . . . . . . . . . 20
Item 5. Other Information. . . . . . . . . . . . . 20
Item 6. Exhibits and Reports on Form 8-K . . . . . 20
SIGNATURES . . . . . . . . . . . . . . . . . . . . 21
<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 June 30, 1995,
Consolidated Statement of Operations for the six months ended
June 30, 1995 and 1994, Consolidated Statements of Operations for
the three months ended June 30, 1995 and 1994, Consolidated
Statements of Partners' Capital for the periods January 1, 1992
to June 30, 1995 and Consolidated Statements of Cash Flows for
the six months ended June 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
June 30, 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
Less: accumulated depreciation (4,279,932) (3,913,295)
Net investment in real estate 31,682,182 32,037,869
Cash and cash equivalents 1,043,567 1,106,917
Rent receivable 43,302 66,614
Deferred rent receivable 241,198 207,417
Due from General Partners (Note 4) 168,060 167,696
Other assets 31,645 43,558
Total Assets $33,209,954 $33,630,071
LIABILITIES AND PARTNERS' CAPITAL
LIABILITIES:
Accounts payable and accrued expenses 79,837 131,504
Due to affiliates (Note 3) 15,498 3,469
Due to General Partners (Note 4) 23,000 23,000
Rent received in advance 8,004 206,477
Total Liabilities 126,339 364,450
MINORITY INTEREST IN
BRAUVIN HIGH YIELD VENTURE 34,137 34,179
MINORITY INTEREST IN
BRAUVIN FUNDS JOINT VENTURE 2,483,482 2,494,341
PARTNERS' CAPITAL:
General Partners 319,429 319,429
Limited Partners 30,246,567 30,417,672
Total Partners' Capital 30,565,996 30,737,101
Total Liabilities and
Partners' Capital $33,209,954 $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 Six Months Ended June 30,
1995 1994
INCOME:
Rental $2,082,798 $2,164,043
Interest 27,934 8,254
Other 2,282 5,859
Total income 2,113,014 2,178,156
EXPENSES:
General and administrative 90,686 96,369
Management fees (Note 3) 20,846 21,642
Provision for bad debts -- 17,176
Depreciation 366,638 367,390
Total expenses 478,170 502,577
Income before minority interests 1,634,844 1,675,579
MINORITY INTEREST'S SHARE
OF NET INCOME:
Brauvin High Yield Venture (2,858) (2,806)
Brauvin Funds Joint Venture (145,941) (143,879)
Income before gain on sale
of property 1,486,045 1,528,894
Gain on sale of property -- 126,743
Net income $1,486,045 $1,655,637
Net income allocated to
the General Partners $ -- $ 41,391
Net income allocated to
the Limited Partners $1,486,045 $1,614,246
Net income per Unit
outstanding (a) $ 37.20 $ 53.18
(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 June 30,
1995 1994
INCOME:
Rental $1,044,937 $1,120,823
Interest 18,108 4,664
Other -- 3,218
Total income 1,063,045 1,128,705
EXPENSES:
General and administrative 57,453 57,328
Management fees (Note 3) 10,511 12,051
Depreciation 183,319 182,696
Provision for bad debts -- 17,176
Total expenses 251,283 269,251
Income before minority interests
and gain on sale of property 811,762 859,454
MINORITY INTEREST'S SHARE
OF NET INCOME:
Brauvin High Yield Venture (1,444) (1,393)
Brauvin Funds Joint Venture (72,971) (72,755)
Net income $ 737,347 $ 785,306
Net income allocated to the
General Partners $ -- $ 19,633
Net income allocated to the
Limited Partners $ 737,347 $ 765,673
Net income per Unit
outstanding (a) $ 18.46 $ 19.31
(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 June 30, 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 -- 160,070 160,070
Selling commissions and other
offering costs (Note 1) -- (30,111) (30,111)
Net income -- 1,486,046 1,486,046
Cash distributions -- (1,787,109) (1,787,109)
Balance, June 30, 1995 $319,429 $30,246,567 $30,565,996
* Total Units sold at June 30, 1995, December 31, 1994, 1993
and 1992 were 40,026, 39,866, 39,659, and 39,477, respectively.
Cash distributions to Limited Partners per Unit were $44.74,
$87.47, $90.22 and $87.68 for the six months ended June 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 six months ended June 30,
1995 1994
Cash flows from operating activities:
Net income $1,486,046 $1,655,637
Adjustments to reconcile net
income to net cash provided by
operating activities:
Depreciation 366,638 367,390
Gain on sale of property -- (126,743)
Provision for bad debts -- 17,176
Minority interest's share of income
from Brauvin High Yield Venture 2,858 2,806
Minority interest's share of income
from Brauvin Funds Joint Venture 145,941 143,879
Decrease in other assets 11,913 7,847
Increase in due from General
Partners and affiliates (364) (42,970)
Decrease in rent receivable 23,312 18,278
Increase in deferred rent receivable (33,781) (36,560)
Decrease in rent received in advance (198,473) (196,271)
Decrease in accounts payable and
accrued expenses (51,667) (49,382)
Increase (decrease) in due to
affiliates 12,029 (11,706)
Total adjustments 278,406 93,744
Net cash provided by operating
activities 1,764,450 1,749,381
Cash flows from investing activities:
Cash distribution to minority interest-
Brauvin High Yield Venture (2,900) (4,150)
Cash distribution to minority interest-
Brauvin Funds Joint Venture (156,800) (149,450)
Capital expenditures (10,950) --
Proceeds from sale of property -- 375,000
Net cash (used in) provided by
investing activities (170,650) 221,400
Cash flows from financing activities:
Sale of Units, net of selling
commissions and other offering costs 129,959 (26,439)
Cash distributions to Limited Partners (1,787,109) (1,791,289)
Net cash used in financing activities (1,657,150) (1,817,728)
Net (decrease) increase in cash and
cash equivalents (63,350) 153,053
Cash and cash equivalents at
beginning of period 1,106,917 799,390
Cash and cash equivalents at
end of period $1,043,567 $ 952,443
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 June 30, 1995 and December 31, 1994, the
Partnership had sold $40,026,287 and $39,866,216 of Units,
respectively. The June 30, 1995 total Units included $3,389,513
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 June 30, 1995 the Participants have acquired
Units under the Plan which approximate 8.5% 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
repared 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 second quarter of 1995
will be made on August 15, 1995 in the amount of $891,108.
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 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 six months ended June
30, 1995 and 1994 were as follows:
1995 1994
Selling commissions $24,375 $24,153
Management fees 20,846 21,642
Reimbursable operating expenses 36,000 37,800
Legal fees 4,341 1,800
(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
June 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 June 30, 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 $3,389,513 through June 30, 1995 from
Limited Partners investing their distributions of Operating Cash
Flow in additional Units. As of June 30, 1995, Units valued at
$2,492,126 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 second 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.
<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 artners 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.
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 third
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 June 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
June 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) 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 - Six months ended June 30, 1995 and 1994
Results of operations for the six months ended June 30, 1995
reflected net income of $1,486,045 compared to net income of
$1,655,637 for the six months ended June 30, 1994, a decrease of
approximately $169,000. The decrease in net income was due to
June 30, 1994 net income reflecting a gain from the sale of a
Taco Bell restaurant of approximately $127,000 and a decrease in
rental income as the result of a decrease in percentage rents.
Total expenses for the six months ended June 30, 1995 were
$478,170 compared to $502,577 in 1994, a decrease of $24,400.
The decrease in expenses was mainly due to the decrease in the
provision for bad debts and general and administrative expenses
due to a decrease in legal expense.
Results of Operations - Three months ended June 30, 1995 and 1994
Results of operations for the three months ended June 30, 1995
reflected net income of $737,347 compared to net income of
$785,306 for the three months ended June 30, 1994, a decrease of
approximately $48,000. The decrease in net income was due to a
decrease in rental income as a result of a decrease in percentage
rents which was slightly offset by a decrease in total expenses.
Total income for the three months ended June 30, 1995 were
$1,063,045 as compared to $1,128,705 for the period of June 30,
1994, a decrease of approximately $66,000. The decrease in total
income is due to the decrease in rental income as a result of a
decrease in percentage rents. Total expenses for the three
months ended June 30, 1995 were $251,283 as compared to $269,251
for the period of June 30, 1994, a decrease of approximately
$18,000. The decrease in expenses was due to the decrease in the
provision for bad debts.
<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: August 14, 1995
BY: /s/ Thomas J. Coorsh
Thomas J. Coorsh
Chief Financial Officer
and Treasurer
DATE: August 14, 1995
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> JUN-30-1995
<CASH> 1,043,567
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 35,962,114 <F1>
<DEPRECIATION> 4,279,932
<TOTAL-ASSETS> 33,209,954
<CURRENT-LIABILITIES> 0
<BONDS> 2,517,619 <F2>
0
0
<COMMON> 30,565,996 <F3>
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 33,209,954
<SALES> 0
<TOTAL-REVENUES> 2,113,014 <F4>
<CGS> 0
<TOTAL-COSTS> 478,170 <F5>
<OTHER-EXPENSES> 148,799 <F6>
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,486,045
<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>
