<PAGE>
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, 1996
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 .
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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, 1996
and December 31, 1995. . . . . . . . . . . . . . . . . . . . 4
Consolidated Statements of Operations for the
six months ended June 30, 1996 and 1995. . . . . . . . . . . 5
Consolidated Statements of Operations for the three
months ended June 30, 1996 and 1995. . . . . . . . . . . . . 6
Consolidated Statements of Partners' Capital for
the periods January 1, 1995 to June 30, 1996 . . . . . . . . 7
Consolidated Statements of Cash Flows for the six
months ended June 30, 1996 and 1995. . . . . . . . . . . . . 8
Notes to Consolidated Financial Statements . . . . . . . . . 9
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations. . . . . . . . . . . . . 17
PART II Other Information
Item 1. Legal Proceedings. . . . . . . . . . . . . . . . . . . . . . 25
Item 2. Changes in Securities. . . . . . . . . . . . . . . . . . . . 25
Item 3. Defaults Upon Senior Securities. . . . . . . . . . . . . . . 25
Item 4. Submissions of Matters to a Vote of Security
Holders. . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Item 5. Other Information. . . . . . . . . . . . . . . . . . . . . . 25
Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . . . . 25
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. Consolidated Financial Statements
Except for the December 31, 1995 Consolidated Balance Sheet, the
following Consolidated Balance Sheet as of June 30, 1996, Consolidated
Statements of Operations for the six months ended June 30, 1996 and
1995, Consolidated Statements of Operations for the three months ended
June 30, 1996 and 1995, Consolidated Statements of Partners' Capital for
the periods January 1, 1995 to June 30, 1996 and Consolidated Statements
of Cash Flows for the six months ended June 30, 1996 and 1995 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 1995 Annual Report on Form 10-K.
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BRAUVIN HIGH YIELD FUND L.P. II
(a Delaware limited partnership)
CONSOLIDATED BALANCE SHEETS
June 30, December 31,
1996 1995
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 (4,996,428) (4,635,384)
Net investment in real estate 30,954,736 31,315,780
Cash and cash equivalents 1,326,953 1,374,779
Rent receivable 40,031 56,975
Deferred rent receivable 308,759 274,978
Due from General Partners (Note 4) 140,000 150,175
Other assets 31,201 34,321
Total Assets $32,801,680 $33,207,008
LIABILITIES AND PARTNERS' CAPITAL
LIABILITIES:
Accounts payable and accrued
expenses $ 91,085 $ 61,759
Rent received in advance 61,062 58,344
Total Liabilities 152,147 120,103
MINORITY INTEREST IN
BRAUVIN HIGH YIELD VENTURE 33,045 33,746
MINORITY INTEREST IN
BRAUVIN FUNDS JOINT VENTURE 2,461,117 2,472,647
PARTNERS' CAPITAL:
General Partners 319,429 319,429
Limited Partners 29,835,942 30,261,083
Total Partners' Capital 30,155,371 30,580,512
Total Liabilities and
Partners' Capital $32,801,680 $33,207,008
See accompanying notes to consolidated financial statements.
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BRAUVIN HIGH YIELD FUND L.P. II
(a Delaware limited partnership)
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Six Months Ended June 30,
1996 1995
INCOME:
Rental $2,088,877 $2,082,798
Interest 40,515 27,934
Other 388 2,282
Total income 2,129,780 2,113,014
EXPENSES:
General and administrative 222,829 88,522
Management fees (Note 3) 21,620 20,846
Amortization of other assets 1,897 2,164
Depreciation 361,044 366,638
Total expenses 607,390 478,170
Income before minority interests 1,522,390 1,634,844
MINORITY INTEREST'S SHARE OF NET INCOME:
Brauvin High Yield Venture (2,899) (2,858)
Brauvin Funds Joint Venture (145,270) (145,941)
Net income $1,374,221 $1,486,045
Net income allocated to the
Limited Partners $1,374,221 $1,486,045
Net income per Unit outstanding (a) $ 34.07 $ 37.20
(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 distribution
reinvestment plan (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,
1996 1995
INCOME:
Rental $1,048,481 $1,044,937
Interest 19,831 18,108
Other 234 --
Total income 1,068,546 1,063,045
EXPENSES:
General and administrative 124,309 56,371
Management fees (Note 3) 10,833 10,511
Amortization of other assets 515 1,082
Depreciation 180,522 183,319
Total expenses 316,179 251,283
Income before minority interests 752,367 811,762
MINORITY INTEREST'S SHARE OF NET INCOME:
Brauvin High Yield Venture (1,480) (1,444)
Brauvin Funds Joint Venture (72,279) (72,971)
Net income $ 678,608 $ 737,347
Net income allocated to the
Limited Partners $ 678,608 $ 737,347
Net income per Unit outstanding (a) $ 16.83 $ 18.46
(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, 1995 to June 30, 1996
General Limited
Partners Partners* Total
Balance, January 1, 1995 $ 319,429 $30,417,672 $30,737,101
Contributions, net -- 446,338 446,338
Selling commissions and other
offering costs (Note 1) -- (60,173) (60,173)
Net income -- 3,039,738 3,039,738
Cash distributions -- (3,582,492) (3,582,492)
Balance, December 31, 1995 319,429 30,261,083 30,580,512
Contributions, net -- 30,965 30,965
Selling commissions and other
offering costs (Note 1) -- (15,203) (15,203)
Net income -- 1,374,221 1,374,221
Cash distributions -- (1,815,124) (1,815,124)
Balance, June 30, 1996 $ 319,429 $29,835,942 $30,155,371
* Total Units outstanding at June 30, 1996 and December 31, 1995 were
40,347 and 40,316, respectively. Cash distributions to Limited Partners
per Unit were $45.00 and $89.36 for the six months ended June 30, 1996
and the year ended December 31, 1995, respectively. Cash distributions
to Limited Partners per Unit are based on the average Units outstanding
during the year 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 CASH FLOWS
For the Six Months Ended June 30,
1996 1995
Cash flows from operating activities:
Net income $1,374,221 $1,486,045
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 362,941 368,802
Minority interest's share of income
from Brauvin High Yield Venture 2,899 2,858
Minority interest's share of income
from Brauvin Funds Joint Venture 145,270 145,941
Decrease in rent receivable 16,944 23,312
Increase in deferred rent receivable (33,781) (33,781)
Increase in other assets (1,673) (1,202)
Increase (decrease) in accounts payable
and accrued expenses 29,326 (51,667)
Increase (decrease)in rent received
in advance 2,718 (198,473)
Increase in due to affiliates -- 12,029
Net cash provided by operating activities 1,898,865 1,753,864
Cash flows from financing activities:
Sale of Units, net of selling commissions
and other offering costs 18,658 129,959
Cash distributions to Limited Partners (1,815,124) (1,787,109)
Cash distribution to minority interest-
Brauvin High Yield Venture (3,600) (2,900)
Cash distribution to minority interest-
Brauvin Funds Joint Venture (156,800) (156,800)
Decrease (increase) in due from affiliates 10,175 (364)
Net cash used in financing activities (1,946,691) (1,817,214)
Net decrease in cash and cash equivalents (47,826) (63,350)
Cash and cash equivalents at
beginning of period 1,374,779 1,106,917
Cash and cash equivalents at end of period $1,326,953 $1,043,567
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 (beneficially) (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. Through June
30, 1996 and December 31, 1995 the Partnership has sold $42,982,178
and $42,837,384 of Units, respectively. These totals include
$4,059,178 and $3,914,384 of Units, respectively, purchased by
Limited Partners who utilized their distributions of Operating Cash
Flow to purchase Units through the distribution reinvestment plan
(the "Plan"). Units valued at $2,886,915 and $2,773,086 have been
purchased by the Partnership from Limited Partners liquidating
their investment in the Partnership and have been retired as of
June 30, 1996 and December 31, 1995, respectively. As of June 30,
1996, the Participants have acquired Units under the Plan which
approximate 9% 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,
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
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
Management's Use of Estimates
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting
period. Actual results could differ from these estimates.
Accounting Method
The accompanying 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
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
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 an allowance for
impairment. Depreciation expense is computed on a straight-line
basis over approximately 35 years.
Prior to 1995, the Partnership provided an allowance for
impairment to reduce the cost basis of real estate to its estimated
net realizable value when the real estate was judged to have
suffered an impairment in value that is other than temporary. For
purposes of this analysis, the cost basis of real estate included
deferred rent receivable and accumulated depreciation. Net
realizable value is inherently subjective and is based on
management's best estimate of current conditions and assumptions
about expected future conditions. Estimated net realizable value
was calculated based on undiscounted estimated operating cash flows
of the property over an expected holding period, with a sales price
at the end of the holding period calculated by applying an expected
capitalization rate to the stabilized net operating income of the
property, less associated sales costs.
In 1995 the Partnership adopted Statement of Financial Accounting
Standards No. 121, "Accounting for the Impairment of Long-Lived
Assets" (SFAS 121). In conjunction with the adoption of SFAS 121,
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
the Partnership performed an analysis of its long-lived assets, and
the Partnership's management determined that there were no events
or changes in circumstances that indicated that the carrying amount
of the assets may not be recoverable at June 30, 1996 and December
31, 1995. Accordingly, no impairment loss has been recorded in the
accompanying financial statements for the six months ended June 30,
1996 and the year ended December 31, 1995.
Cash and Cash Equivalents
Cash and cash equivalents include all highly liquid debt
instruments with an original maturity within three months of
purchase.
Estimated Fair Value of Financial Instruments
Disclosure of the estimated fair value of financial instruments
is made in accordance with the requirements of Statement of
Financial Accounting Standards No. 107, "Disclosures About Fair
Value of Financial Instruments." The estimated fair value amounts
have been determined by using available market information and
appropriate valuation methodologies. However, considerable
judgement is necessarily required in interpreting market data to
develop estimates of fair value.
The fair value estimates presented herein are based on
information available to management as of June 30, 1996 and
December 31, 1995, but may not necessarily be indicative of the
amounts that the Partnership could realize in a current market
exchange. The use of different assumptions and/or estimation
methodologies may have a material effect on the estimated fair
value amounts. Although management is not aware of any factors
that would significantly affect the estimated fair value amounts,
such amounts have not been comprehensively revalued for purposes
of these financial statements since that date, and current
estimates of fair value may differ significantly from amounts
presented herein.
The carrying amounts of the following items are a reasonable
estimate of fair value: cash and cash equivalents; due from General
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
Partners; accounts payable and accrued expenses; and rent received
in advance.
Reclassifications
Certain reclassifications have been made to the 1995 financial
statements to conform to classifications adopted in 1996.
(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.
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
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
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
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
property management fee is subordinated, annually, to receipt by
the Limited Partners of a 9% non-cumulative, non-compounded return
on their Adjusted Investment.
The General Partners currently owe the Partnership approximately
$140,000 relating to the Distribution Guaranty Reserve.
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, 1996 and 1995 were as follows:
1996 1995
Selling commissions $12,307 $24,375
Management fees 21,620 20,846
Reimbursable operating expenses 61,174 36,000
Legal fees 285 4,341
(4) WORKING CAPITAL RESERVES
The Partnership has made distributions to Limited Partners for
calendar years 1993, 1994, 1995 and the first quarter of 1996 (the
final payment for each year from 1993-1995 is 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
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
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, 1996
and December 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 $0 at
December 31, 1995, as Operating Cash Flow has exceeded
distributions since December 31, 1990.
<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 $4,059,178 through June 30, 1996 from
Limited Partners investing their distributions of Operating Cash
Flow in additional Units. As of June 30, 1996, Units valued at
$2,886,915, 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 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.
As previously discussed in the December 31, 1995 10-K,
beginning in September 1990, the Partnership did not receive rental
payments from the tenant at the Hardee's Albion, Michigan and St.
Johns, Michigan properties (the "Properties"). During the period
from March 1991 to April 1992, the Partnership operated the
Properties through an affiliated lessee. During that period the
operating expenses and management fees exceeded the revenues
generated from the restaurant by $398,915, which deficit was funded
by the Partnership. The Partnership's receivable from the
affiliated lessee was written off in 1994. The Partnership re-
leased these Properties to Jasaza, Inc., in January 1994, which
terminated its lease at the Properties in April, 1994. In 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 real estate for the Properties. In the fourth
quarter of 1994 the Partnership executed a lease with a Dairy Queen
franchisee to lease the St. Johns property at a monthly amount
lower than rent from the previous tenant. The Partnership
continues to actively market the Albion property.
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. 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 expired. 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 the previous rent.
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 change within the Partnership's Ponderosa
portfolio. Ponderosa Unit #728 in Orchard Park, New York was
"swapped" with a Tony Roma's restaurant in Mesquite, Texas.
Metromedia Steakhouses will remain liable under the 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 Partnership has made distributions to Limited Partners for
calendar years 1993, 1994, 1995 and the first quarter of 1996 (the
final payment for each year from 1993-1995 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, 1996,
$140,000 was due from the General Partners related to the
Distribution Guaranty.
Below is a table summarizing the historical data for
distribution per Unit invested:
Distribution
Date 1996 1995 1994 1993 1992 1991
February 15 $22.3597 $22.3597 $22.3597 $22.3597 $21.7386 $22.9808
May 15 22.3597 22.3597 22.3597 22.3597 21.7386 22.9808
August 15 22.3597 22.3597 22.3597 21.7386 21.7386
November 15 22.3597 26.1121 22.3597 21.7386 21.7386
The Partnership has entered into an agreement and plan of
merger dated as of June 14, 1996 (the "Merger Agreement") with
Brauvin Real Estate Funds L.L.C., a Delaware limited liability
company (the "Purchaser"). Pursuant to the terms of the Merger
Agreement, the Partnership proposes to merge with and into the
Purchaser through a merger (the "Merger") of its limited
partnership interests. In connection with the Merger, the
beneficial owners (the "Limited Partners") of the limited
partnership interests of the Partnership (the "Units") will receive
approximately $779.22 per Unit in cash. Promptly upon consummation
of the Merger, the Partnership will cease to exist and the
Purchaser, as the surviving entity will succeed to all of the
assets and liabilities of the Partnership. The affirmative vote of
the Limited Partners holding a majority of the Units is necessary
to approve the Merger.
The Partnership is currently in the process of drafting a
proxy statement, which will require prior review and comment by the
Securities and Exchange Commission (the "Commission"), to solicit
proxies for use at a special meeting of the Limited Partners (the
"Special Meeting") to be held at the offices of the Partnership at
a date in the near future. The purpose of the Special Meeting is
to vote upon the Merger and certain other matters as described
herein. The preliminary proxy materials of the Partnership has
been filed with the Commission and is substantially identical to
the proxy materials filed by Brauvin High Yield Fund L.P., a
Delaware limited partnership that is affiliated with the
Partnership.
By approving the Merger, the Limited Partners will also be
approving an amendment of the Restated Limited Partnership
Agreement of the Partnership, as amended (the "Partnership
Agreement") allowing the Partnership to sell or lease property to
affiliates (this amendment, together with the Merger shall be
referred to herein as the "Transaction"). In addition, the
Delaware Revised Uniform Limited Partnership Act (the "Act")
provides that a merger must also be approved by the general
partners of a partnership, unless the limited partnership agreement
provides otherwise. The Partnership Agreement does not address
this matter. Therefore, the Limited Partners will be asked to
adopt an amendment (the "Amendment") to the Partnership Agreement
which specifically provides that the general partners of the
Partnership (the "General Partners") will not be required to
approve the Transaction. If the Amendment is approved, the vote of
the Limited Partners holding a majority of the Units will be the
only vote necessary to approve the Transaction. Neither the Act
nor the Partnership Agreement provide the Limited Partners not
voting in favor of the Transaction with dissenters' appraisal
rights.
The actual redemption price will be based on the fair market
value of the properties of the Partnership (the "Assets") as
determined by an independent appraiser at such time as is specified
in the certificate of merger (the "Effective Time"), plus all
remaining cash of the Partnership (which will include earnings only
through July 31, 1996), less the Partnership's actual costs
incurred and accrued through the Effective Time, including
reasonable reserves in connection with: (i) the proxy
solicitation; (ii) the Transaction (as detailed in the Merger
Agreement); and (iii) the winding up of the Partnership, including
preparation of the final audit, tax return and K-1s (collectively,
the "Transaction Costs") and less all other Partnership
obligations.
Cushman & Wakefield Valuation Advisory Services ("Cushman &
Wakefield"), the largest real estate valuation and consulting
organization in the United States, was engaged by the Partnership
to prepare an appraisal of the Assets. Cushman & Wakefield was
subsequently engaged to provide an opinion as to the fairness of
the Transaction to the Limited Partners from a financial point of
view. Cushman & Wakefield has preliminarily determined that the
fair market value of the Assets of the Partnership is $30,183,300,
which is approximately $748.09 per Unit. In addition, Cushman &
Wakefield is finalizing its opinion as to the fairness of the
Transaction to the Limited Partners from a financial point of view.
The General Partners are Jerome J. Brault, the managing
general partner of the Partnership (the "Managing General
Partner"), Brauvin Realty Advisors II, Inc., the corporate general
partner of the Partnership (the "Corporate General Partner"), Cezar
M. Froelich and David M. Strosberg. Mr. Froelich gave notice of
his intent to resign as a General Partner of the Partnership on May
23, 1996. Pursuant to the terms of the Partnership Agreement, Mr.
Froelich's resignation will become effective on the 90th day
following notice to the Limited Partners. The General Partners
will not receive any payment in exchange for the redemption of
their general partnership interests nor will they receive any fees
from the Partnership in connection with the Transaction.
The Managing General Partner and his son, James L. Brault, an
executive officer of the Corporate General Partner, will have a
minority ownership interest in the Purchaser. Therefore, the
Braults have an indirect economic interest in consummating the
Transaction that is in conflict with the economic interests of the
Limited Partners. Messrs. Froelich and Strosberg have no
affiliation with the Purchaser.
The Transaction is one of a series of related transactions
whereby the Purchaser seeks to acquire the Assets of the
Partnership and the assets, through purchase or merger, of Brauvin
High Yield Fund L.P., Brauvin Income Plus L.P. III and Brauvin
Corporate Lease Program IV L.P., Delaware limited partnerships
affiliated with the Partnership.
The General Partners have temporarily suspended all
distributions to Limited Partners and liquidations until there is
a vote on the Transaction.
Results of Operations - Six months ended June 30, 1996 and 1995
Results of operations for the six months ended June 30, 1996
reflected net income of $1,374,221 compared to net income of
$1,486,045 for the six months ended June 30, 1995, a decrease of
approximately $111,800. The decrease in net income is a result of
an increase in general and administrative expense, which was
partially offset by an increase in interest income.
Total income for the six months ended June 30, 1996 was
$2,129,780 as compared to $2,113,014 for the period ended June 30,
1995, an increase of approximately $16,800. The increase in total
income is primarily due to the increase in interest income, which
was the result of higher cash balances during 1996.
Total expenses for the six months ended June 30, 1996 were
$607,390 as compared to $478,170 for the period ended June 30,
1995, an increase of approximately $129,200. The increase in
expenses is primarily the result of an increase in general and
administrative expense due to the Partnership hiring an independent
real estate company to conduct property valuations. General and
administrative expense also increased in 1996 compared to 1995 as
a result of legal and other professional fees paid as a result of
the Transaction.
Results of Operations - Three months ended June 30, 1996 and 1995
Results of operations for the three months ended June 30, 1996
reflected net income of $678,608 compared to net income of $737,347
for the three months ended June 30, 1995, a decrease of
approximately $58,700. The decrease in net income is a result of
an increase in general and administrative expense
Total income for the three months ended June 30, 1996 was
$1,068,546 as compared to $1,063,045 for the period ended June 30,
1995, an increase of approximately $5,500. The increase in total
income is primarily due to the increase in rental income, which was
the result of increased percentage rent earned at certain of the
Partnerships properties.
Total expenses for the three months ended June 30, 1996 were
$316,179 as compared to $251,283 for the period ended June 30,
1995, an increase of approximately $64,900. The increase in
expenses is primarily the result of an increase in general and
administrative expense due to the Partnership hiring an independent
real estate company to conduct property valuations. General and
administrative expense also increased in 1996 compared to 1995 as
a result of legal and other professional fees paid as a result of
the Transaction.
<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
Form 8-K. Notificaction to the partners of the
resignation of Mr. Cezar M.Froelich as a
General Partner of the Parntership and the
resignation of Mr. Thomas Coorsh as
Treasurer and Chief Financial Officer.
This Form 8-K was dated May 23, 1996 and
filed on June 21, 1996 and amended on July
24, 1996.
<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 15, 1996
BY: /s/ B. Allen Aynessazian
B. Allen Aynessazian
Chief Financial Officer and Treasurer
DATE: August 15, 1996
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> JUN-30-1996
<CASH> 1,326,953
<SECURITIES> 0
<RECEIVABLES> 348,790
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 35,951,164 <F1>
<DEPRECIATION> 4,996,428
<TOTAL-ASSETS> 32,801,680
<CURRENT-LIABILITIES> 0
<BONDS> 2,494,162 <F2>
0
0
<COMMON> 30,155,371 <F3>
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 32,801,680
<SALES> 0
<TOTAL-REVENUES> 2,129,780 <F4>
<CGS> 0
<TOTAL-COSTS> 607,390 <F5>
<OTHER-EXPENSES> 148,169 <F6>
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,374,221
<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>
