<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] Annual Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the fiscal year ended December 31, 1997
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 36-358013
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
30 North LaSalle Street, Chicago, Illinois 60602
(Address of principal executive offices) (Zip Code)
(312) 759-7660
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on
which registered
None None
Securities registered pursuant to Section 12(g) of the Act:
Limited Partnership Interests
(Title of class)
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 .
Indicate by check mark if disclosure of delinquent filers pursuant
to Item 405 of Regulation S-K (Section 229.405 of this chapter) is
not contained herein, and will not be contained, to the best of
registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K [ X ]
The aggregate sales price of the limited partnership interests of
the registrant (the "Units") to unaffiliated investors of the
registrant during the initial offering period was $38,923,000.
This does not reflect market value. This is the price at which the
Units were sold to the public during the initial offering period.
There is no current market for the Units nor have any Units been
sold within the last 60 days prior to this filing except for Units
sold to or by the registrant pursuant to the registrant's
distribution reinvestment plan as described in the prospectus of
the registrant dated June 17, 1988, as supplemented (the
"Prospectus").
Portions of the Prospectus of the registrant dated June 17, 1988,
as supplemented July 12, 1988, March 1, 1989, April 28, 1989, and
June 7, 1989 and filed pursuant to Rule 424(b) and Rule 424(c)under
the Securities Act of 1933, as amended, are incorporated by
reference into Parts II, III and IV of this Annual Report on Form
10-K.
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BRAUVIN HIGH YIELD FUND L.P. II
1997 FORM 10-K ANNUAL REPORT
INDEX
PART I
Page
Item 1. Business. . . . . . . . . . . . . . . . . . . . . . . . . . . .3
Item 2. Properties. . . . . . . . . . . . . . . . . . . . . . . . . . .6
Item 3. Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . 19
Item 4. Submission of Matters to a Vote of Security Holders . . . . . 24
PART II
Item 5. Market for the Registrant's Units and Related
Security Holder Matters . . . . . . . . . . . . . . . . . . . 25
Item 6. Selected Financial Data . . . . . . . . . . . . . . . . . . . 26
Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations . . . . . . . . 28
Item 7A. Quantitative and Qualitative Disclosures About
Market Risk . . . . . . . . . . . . . . . . . . . . . . . . . 39
Item 8. Consolidated Financial Statements and Supplementary
Data. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure . . . . . . . . . . . . . 39
PART III
Item 10. Directors and Executive Officers of the Partnership 40
Item 11. Executive Compensation. . . . . . . . . . . . . . . . . . . . 42
Item 12. Security Ownership of Certain Beneficial
Owners and Management . . . . . . . . . . . . . . . . . . . . 44
Item 13. Certain Relationships and Related Transactions. . . . . . . . 44
PART IV
Item 14. Exhibits, Consolidated Financial Statement
Schedules and Reports on Form 8-K . . . . . . . . . . . . . . 46
Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
<PAGE>
BRAUVIN HIGH YIELD FUND L.P. II
(a Delaware limited partnership)
PART I
Item 1. Business.
Brauvin High Yield Fund L.P. II (the "Partnership") is a Delaware
limited partnership formed in May 1988 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 would involve "triple-net" leases. It was anticipated
at the time the Partnership first offered its Units (as defined
below) that a majority of these properties would be leased to
operators of national franchise fast food and sit-down restaurants,
automotive service businesses and convenience stores, as well as
banks and savings and loan branches. The leases would provide for
a base minimum annual rent and increases in rent such as through
participation in gross sales above a stated level, fixed increases
on specific dates or indexation of rent to indices such as the
Consumer Price Index. The Partnership sold $38,923,000 of limited
partnership interests (the "Units") commencing June 17, 1988,
pursuant to a Registration Statement on Form S-11 under the
Securities Act of 1933, as amended, to the public at a price of
$1,000 per Unit (the "Offering"). The Offering closed on September
30, 1989. The investors in the Partnership (the "Limited
Partners") share in the benefits of ownership of the Partnership's
real property investments according to the number of Units each
owns. An additional $4,059,178 of Units have been purchased by
Limited Partners investing their distributions of Operating Cash
Flow in the Partnership's distribution reinvestment plan (the
"Plan") through December 31, 1997. These Units were purchased from
the Units reserved for the Plan after termination of the Offering.
These Units were issued at the Offering price per Unit, less any
amounts per Unit of the Offering price that have been returned to
participants. Of the Units issued under the Plan as of December
31, 1997, $2,886,915 have been repurchased by the Partnership from
investors liquidating their investment and have been retired.
The principal investment objectives of the Partnership are: (i)
distribution of current cash flow from the Partnership's cash flow
attributable to rental income; (ii) capital appreciation; (iii)
preservation and protection of capital; (iv) the potential for
increased income and protection against inflation through
escalation in the base rent or participation and growth in the
sales of the lessees of the Partnership's properties; (v) the
partial shelter of cash distributions for Taxable Class Limited
Partners; and (vi) the production of "passive" income to offset
"passive" losses from other investments.
Some tax shelter of cash distributions by the Partnership will
be available to Taxable Class Limited Partners through depreciation
of the underlying properties. Taxable Class Limited Partners will
benefit from the special allocation of all depreciation to the
Units which they acquired from the Partnership because their
reduced taxable income each year will result in a reduction in
taxes due, although no "spill-over" losses are expected. Taxable
income generated by property operations will likely be considered
passive income for federal income tax purposes because Section
469(c)(2) of the Internal Revenue Code states that a passive
activity includes "any rental activity" and, therefore, is
available to offset losses Taxable Class Limited Partners may have
realized in other passive investments.
It was originally contemplated that the Partnership would dispose
of its properties approximately six to nine years after their
acquisition with a view towards liquidation of the Partnership
within that period.
In accordance therewith, the Partnership entered into an
agreement and plan of merger dated as of June 14, 1996, as amended
March 24, 1997, June 30, 1997, September 30, 1997 and December 31,
1997 (the "Merger Agreement") with Brauvin Real Estate Funds,
L.L.C., a Delaware limited liability company (the "Purchaser")
affiliated with certain General Partners (as defined below) of the
Partnership. 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 Units. In connection with the
Merger, the Limited Partners will receive approximately $779.22 per
Unit in cash (of this original amount approximately $31.13 has been
distributed to the Limited Partners in the December 31, 1997
distribution). 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 General Partners anticipate the Merger Agreement will be
extended beyond March 31, 1998 in the hope that the pending
litigation, as described in Item 3 below, will be resolved.
On November 8, 1996, a special meeting of the Limited Partners
(the "Special Meeting") was held at the office of the Partnership
where a vote of the Limited Partners was taken and the merger of
the Partnership with and into the Purchaser was approved as
described in the Partnership's proxy materials dated August 23,
1996. By approving the Merger, the Limited Partners also approved
an amendment to the Agreement (as defined below) allowing the
Partnership to sell or lease property to affiliates (this
amendment, together with the Merger shall be referred to herein as
the "Transaction"). Further information regarding the Merger, as
supplemented (the "Proxy") is located in Items 3 and 7 below.
The terms of the transactions between the Partnership and
affiliates of the General Partners are set forth in Item 13 below.
Reference is hereby made for a description of such terms and
transactions.
The restated limited partnership agreement of the Partnership
(the "Agreement") provides that the Partnership shall terminate
December 31, 2025, unless sooner terminated pursuant to its terms.
The Partnership has no employees.
Market Conditions/Competition
The Partnership has utilized its proceeds available for
investment towards the acquisition of properties. Since the leases
at certain of the Partnership's properties entitle the Partnership
to participate in gross receipts of lessees above fixed minimum
amounts, the success of the Partnership will depend in part on the
ability of those lessees to compete with similar businesses in
their respective vicinities.
Although management of the Partnership anticipates that the
Merger will be consummated it is unable to predict the timing of
the closing of the Transaction as the Partnership has been unable
to meet the "no material litigation" condition of the Merger.
However, should the Merger not be completed, the General Partners
will have to determine whether to continue the Partnership's
operations or attempt to sell some or all of the properties. The
Partnership has and continues to compete with many other entities
engaged in real estate investment activities. It is not possible
for the General Partners to determine at this time what actions
they will take in connection with the continuation of the
Partnership should the Merger not be completed. The General
Partners will evaluate factors such as the economy, the lease
terms, the financial strength of the existing tenants and the
ability to locate potential purchasers.
Item 2. Properties.
The Partnership is landlord only and does not participate in the
operations of any of the properties discussed herein. All
properties are occupied and all lease payments to the Partnership
are current with the exception of the former Hardee's restaurant
located in Albion, Michigan and the Ponderosa restaurant located in
Sweden, New York; the Ponderosa restaurants in Bloomington,
Illinois and Tipp City, Ohio are unoccupied but continue to pay
rent to the Partnership per the terms of the leases. All
properties were paid for in cash, without any financing. The
General Partners believe that the Partnership's properties are
adequately insured.
On October 31, 1996, the Partnership and three other affiliated
public real estate limited partnerships formed a joint venture,
Brauvin Bay County Venture, to purchase the land and building
underlying a newly constructed Blockbuster Video Store. The
Partnership has a 26% interest in this joint venture.
The following is a summary of the real estate and improvements,
of each of the Ponderosa restaurants, the two Taco Bell
restaurants, the Scandinavian Health Spa, the three Children's
World Learning Centers, the three Avis Lubes, the Hardee's
restaurant, the Blockbuster Video store, the three Chi-Chi's
restaurants, the St. Johns, Michigan property and the Albion,
Michigan property. No property had a cost basis in excess of 10%
of the gross proceeds of the Offering or had rental income in
excess of 10% of the total rental income of the Partnership.
Ponderosas:
Rockford, Illinois
Unit 112 is located at 3725 East State Street. The building,
built in 1969, consists of 5,930 square feet situated on a 31,476
square foot parcel. The building was constructed utilizing wood
siding over concrete block.
In June 1997, Ponderosa closed and vacated this restaurant.
Ponderosa, in accordance with the lease, continued to pay rent and
certain occupancy costs for this property. In September 1997,
Ponderosa and the Partnership agreed to sub-lease this property to
a local tenant. Ponderosa continues to remain responsible to the
Partnership for all rent and certain occupancy expenses through the
original lease term.
Bloomington, Illinois
Unit 128 is located at 1329 East Empire Street. The building,
built in 1970, consists of 4,608 square feet situated on a 60,725
square foot parcel. The building was constructed utilizing wood
siding over concrete block.
Ponderosa closed this facility on May 26, 1997, but continues to
pay rent to the Partnership per the terms of lease.
Orchard Park, New York
Unit 728 is located at 3019 Union Road. The building, built in
1980, consists of 5,600 square feet situated on a 75,000 square
foot parcel. The building was constructed utilizing wood siding
over concrete block.
In July 1995, Metromedia, the parent of Ponderosa, closed the
Orchard Park, New York restaurant. In exchange for the closed
Ponderosa, the Partnership agreed to accept the building and land
underlying a Tony Roma's restaurant. The Tony Roma property is
located at 3780 Towne Crossing Boulevard in Mesquite, Texas. The
building, built in 1984, consists of 5,600 square feet situated on
a 49,810 square foot parcel of land. The Tony Roma's restaurant
provides additional base rent of approximately $2,000 per year plus
percentage rents and future rent escalations upon exercise of lease
renewals.
Oneonta, New York
Unit 740 is located at 333 Chestnut. The building, built in
1979, consists of 5,250 square feet situated on a 61,600 square
foot parcel. The building was constructed utilizing wood siding
over concrete block and facebrick.
Middletown, New York
Unit 779 is located at 163 Dolson Avenue. The building, built
in 1980, consists of 6,120 square feet situated on a 71,708 square
foot parcel. The building was constructed utilizing stained wood
veneer and flagstone.
Joliet, Illinois
Unit 129 is located at 2200 West Jefferson Street. The building,
built in 1970, consists of 4,500 square feet situated on a 57,000
square parcel. The building was constructed utilizing brick and
wood siding. This Ponderosa was received in exchange for Ponderosa
Unit 1055 in Apopka, Florida, an original purchase of the
Partnership, in December 1994.
In June 1995, Metromedia, the parent of Ponderosa, closed the
Joliet, Illinois Ponderosa with the intent of converting the site
into a Bennigan's restaurant. Subsequently, Metromedia changed its
position and with the approval of the Partnership have subleased
this space to Texas Steakhouse, Inc. Ponderosa is still
responsible to the Partnership under the terms of the original
lease.
Franklin, Ohio
Unit 1071 is located at 3320 Village Drive. The building, built
in 1987, consists of 4,550 square feet situated on a 9,242 square
foot parcel. The building was constructed utilizing wood siding
over concrete block.
Herkimer, New York
Unit 665 is located at the corner of State and King Streets. The
building, built in 1979 and remodeled in 1988, consists of 5,817
square feet situated on a 44,932 square foot parcel. The building
was constructed using wood siding over concrete block and face
brick.
Sweden, New York
Unit 876 is located at 6460 Brockport-Spencerport Road. The
building, built in 1981 and remodeled in 1987, consists of 5,400
square feet situated on a 47,500 square foot parcel. The building
was constructed using wood paneling over concrete block.
On October 31, 1996, the Partnership's property located in
Sweden, New York was damaged by a fire. As a result of this
casualty, Ponderosa terminated its lease at this property as of
December 31, 1996. The Partnership is contesting this lease
termination. Subsequent to the lease termination, no rents have
been received by the Partnership for this property.
The Partnership has received approximately $200,000 in initial
insurance proceeds to repair the fire damage to the property. In
addition, upon completion of the repairs to the property, the
Partnership will receive an additional $50,000 of insurance
proceeds.
Appleton, Wisconsin
Unit 182 is located at 130 South Bluemond Road. The building,
built in 1969 and renovated in 1986, is a one-story, 5,400 square
foot building constructed with stucco and painted concrete block
with wood trim over wood frame on an approximately 54,450 square
foot site.
Dublin, Ohio
Unit 347 is located at 1671 East Dublin-Granville Road. The
building, built in 1973 and renovated in 1987, is a one-story,
5,360 square foot building constructed with wood siding over wood
frame on an approximately 47,000 square foot site.
In June 1997, Ponderosa closed and vacated this restaurant.
Ponderosa, in accordance with the lease, continued to pay rent and
certain occupancy costs for this property. In October 1997,
Ponderosa and the Partnership agreed to sub-lease this property to
a local tenant. Ponderosa continues to remain responsible to the
Partnership for all rent and certain occupancy expenses through the
original lease term.
Penfield, New York
Unit 755 is located at 1610 Penfield Road. The building, built
in 1981 and renovated in 1987, is a one-story, 5,400 square foot
building constructed with vinyl siding over wood frame on an
approximately 54,900 square foot site.
Pendleton Pike, Indiana
Unit 816 is located at 8502 Pendleton Pike. The building, built
in 1984 and renovated in 1987, is a one-story, 5,400 square foot
building constructed with a prefab stucco facade with an atrium
front and wood panels on the sides of the building on an
approximately 95,000 square foot site.
Eureka, Missouri
Unit 857 is located at 80 Hilltop Village Center. The building,
built in 1981 and renovated in 1986, is a one-story, 5,360 square
foot building constructed with wood over wood frame on an
approximately 71,400 square foot site.
Joint Venture Ponderosas:
The Partnership has a 99% interest in a Joint Venture with an
affiliated public real estate limited partnership that acquired the
following six Ponderosas:
Louisville, Kentucky
Unit 110 is located at 4801 Dixie Highway. The building, built
in 1969, consists of 5,100 square feet situated on a 62,496 square
foot parcel. The building was constructed utilizing wood siding
over concrete block with flagstone.
Cuyahoga Falls, Ohio
Unit 268 is located at 1641 State Road. The building, built in
1973, consists of 5,587 square feet situated on a 40,228 square
foot parcel. The building was constructed utilizing wood siding
over concrete block.
In September 1997, Ponderosa and the Partnership agreed to sub-
lease this property to a local franchisee. Ponderosa continues to
remain responsible to the Partnership for all rent and certain
occupancy expenses through the original lease term.
Tipp City, Ohio
Unit 785 is located at 135 South Garber. The building, built in
1980, consists of 6,080 square feet situated on a 53,100 square
foot parcel. The building was constructed utilizing wood siding
over concrete block.
Ponderosa closed this facility on June 1, 1997, but continues to
pay rent to the Partnership per the terms of lease.
Mansfield, Ohio
Unit 850 is located at 1075 Ashland Road. The building, built
in 1980, consists of 5,600 square feet situated on a 104,500 square
foot parcel. The building was constructed utilizing wood siding
over concrete block and flagstone.
In January 1998, the joint venture sold this closed property to
an unaffiliated third party for approximately $750,000. This sale
resulted in an immaterial loss to the joint venture partnership.
Tampa, Florida
Unit 1060 is located at 4420 West Gandy. The building, built in
1986, consists of 5,777 square feet situated on a 50,094 square
foot parcel. The building was constructed utilizing wood siding
over concrete block.
Mooresville, Indiana
Unit 1057 is located at 499 South Indiana Street. The building,
built in 1981, consists of 6,770 square feet situated on a 63,525
square foot parcel. The building was constructed utilizing wood
siding over concrete block.
Taco Bell:
Lansing, Michigan
Unit 1848 is located at 4238 West Saginaw on the outskirts of
Lansing, Michigan. The building, built in 1979, consists of 1,566
square feet situated on a 21,186 square foot parcel. The building
was constructed utilizing painted brick on a concrete foundation.
Scandinavian Health Spa
The Partnership has a 51% interest in a joint venture with an
affiliated public real estate limited partnership that purchased
the Scandinavian Health Spa. The Scandinavian Health Spa is a
36,556 square foot health club located on a three-acre parcel in
Glendale, Arizona, a suburb of Phoenix. The Health Spa is a
two-story health and fitness workout facility located within the
195,000 square foot Glendale Galleria Shopping Center.
Children's World Learning Centers:
Livonia, Michigan
The Children's World Learning Center is located at 38880 West Six
Mile Road in Livonia, Michigan, approximately 12 miles west of
downtown Detroit. The 6,095 square foot, single-story building was
built in 1984 utilizing concrete block and has a pitched roof with
asphalt shingles.
Farmington Hills, Michigan
The Children's World Learning Center is located at 29047 13 Mile
Road in Farmington Hills, Michigan, approximately 26 miles
northwest of Detroit. The 6,175 square foot, single-story building
was built in 1989 utilizing a wood frame and has a pitched roof
with asphalt shingles.
Waterford, Michigan
The Children's World Learning Center is located at 3100 Dixie
Highway in Waterford, Michigan, approximately 35 miles northwest of
Detroit. The 6,175 square foot, single-story building was built in
1988 utilizing a wood frame and has a pitched roof with asphalt
shingles.
Avis Lubes:
Orlando, Florida
The Avis Lube is located at 2699 Delaney Street across the street
from a 91,000 square foot shopping center anchored by Publix and
Woolworths. The building, built in 1989, consists of 1,532 square
feet situated on a 12,150 square foot parcel. The building was
constructed using concrete block and has two oil change bays.
Orlando, Florida
The Avis Lube is located at 1625 South Conway Road across the
street from a 123,000 square foot shopping center anchored by
Publix and Eckard Drugs. The building, built in 1989, consists of
1,947 square feet situated on a 24,939 square foot parcel. The
building was constructed using concrete block and has three oil
change bays.
The lessee of the two Orlando Avis Lubes defaulted on its payment
obligations under the lease in 1991 and in January 1992 vacated
the properties. The Partnership continued to receive rent payments
from the lessee, which Avis Lube, Inc. guaranteed to the
Partnership until the lease expired in June 1996. Avis Lube, Inc.
subleased the properties until June 1996 to an unaffiliated
sublessee, Florida Express Lubes, Inc. The Partnership signed new
leases with the sublessee to operate the properties, as lessee,
which commenced on June 1, 1996. The leases are for a 14 year
term. Base annual rent at 2699 Delaney Street is $48,000 and at
1625 South Conway Road is $54,000.
Rock Hill, Missouri
The Avis Lube is located at 9725 Manchester Road, two miles west
of the St. Louis, Missouri city limits. The building, built in
1988, consists of 2,940 square feet situated on a 21,143 square
foot parcel. The building was constructed using brick veneer and
has four oil change bays, two with service pit work access and two
with ground level work access.
The lessee of the Rock Hill, Missouri property defaulted on its
payment obligations and vacated the property in April 1994. The
Partnership had continued to receive rent payments from the
guarantor, Avis Lube, Inc. Avis Lube, Inc. subleased the property
through March 1996 to an unaffiliated sublessee, FOCO, Inc., an
auto/oil repair operator. The Partnership signed a new lease with
the sublessee to operate the property effective March 26, 1996.
The lease is for 42 months and provides for annual base rent of
$55,000.
Hardee's:
Newcastle, Oklahoma
The restaurant is an outparcel of a 67,500 square foot shopping
center located on the 400 & 500 block of N.W. 32nd. The 3,300
square foot, single-story building was built on a 35,200 square
foot parcel in 1990 utilizing a wood frame with brick facing.
St. Johns, Michigan
The restaurant is an outparcel of a 70,000 square foot Wal-Mart
department store located at the corner of U.S. 27 and Townsend
Road. The 3,300 square foot, single-story building was built on a
47,200 square foot parcel in 1990 utilizing a wood frame with brick
facing.
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 and
commenced 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.
Albion, Michigan
The restaurant is located at 118 E. Michigan Avenue. The 3,034
square foot, single-story building was built on a 32,670 square
foot parcel in 1990 utilizing a wood frame with brick facing.
In 1994, the Partnership entered into a lease with Jasaza, Inc.
to operate the Albion property as a Hardee's restaurant. However,
on April 8, 1994, the Partnership was notified that Jasaza, Inc.,
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 a
provision for impairment of $500,000 related to an other than
temporary decline in the value of 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).
In 1996, the Partnership engaged Cushman & Wakefield Valuation
Advisory Services ("Cushman & Wakefield") to prepare an appraisal
of the Partnership's properties. As a result of this appraisal,
the Partnership recorded an additional provision for impairment of
$550,000 related to an other than temporary decline in real estate
for the St. Johns, Michigan and Albion, Michigan properties during
the fourth quarter of 1996. 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).
Blockbuster Video:
South Orange, New Jersey
The video store is located at 57 South Orange Avenue in downtown
South Orange. The 6,705 square foot brick building was completely
renovated in 1990 and consists of a primary level, a mezzanine
level plus a full basement for storage.
Chi-Chi's:
During 1995, Chi-Chi's, the sub-tenant under a master lease with
Foodmaker, closed each of its three restaurants owned by the
Partnership because they were not profitable. Under the terms of
the three leases, Foodmaker, the master tenant and guarantor, is
continuing to pay rent for the properties, while actively seeking
subtenants. In February 1995, the Chi-Chi's restaurant in
Clarksville, Tennessee closed. During the third quarter of 1995
the Chi-Chi's restaurants in Charlotte, North Carolina and
Richmond, Virginia were closed.
Foodmaker owns, operates and franchises Jack In The Box, a chain
of fast-food restaurants located principally in the western and
southwestern United States. Until January 27, 1994, Foodmaker also
owned Chi-Chi's, a chain of full-service, casual Mexican
restaurants located primarily in the Midwestern and Midatlantic
United States.
Richmond, Virginia
Unit 353 is located at 9135 West Broad Street in Richmond and
consists of a 7,270 square foot restaurant with a seating capacity
of 280. The property was built in January 1990 and is situated on
approximately one acre of land.
In April 1996, a sub-tenant executed a second sub-lease with Chi-
Chi's for the Richmond, Virginia property. This new sub-tenant
(Sino-American of Richmond, Virginia) began occupying this facility
in September 1997. Foodmaker continues as the guarantor under the
terms of the second sub-lease.
Charlotte, North Carolina
Unit 373 is located at 2522 Sardis Road North at the intersection
of Independence Boulevard. The property is situated on a 1.5 acre
parcel and consists of a 7,270 square foot restaurant with a
seating capacity for 280. The property opened in May 1990.
In March 1996, a sub-tenant executed a second sub-lease with Chi-
Chi's for the Charlotte, North Carolina property. This new sub-
tenant (Carolina Country BBQ of Charlotte, North Carolina) occupied
the facility in June 1996. Foodmaker continues to be the guarantor
under terms of the second sub-lease.
Clarksville, Tennessee
Unit 366 is located in Governor's Square Shopping Center at 2815
Guthrie Road in Clarksville. The property consists of a 5,678
square foot restaurant with seating for 180 people and is situated
on an approximately 50,000 square foot parcel of land. The
property opened in May 1990.
In October 1996, a sub-tenant executed a second sub-lease with
Chi-Chi's for the Clarksville, Tennessee property. This new sub-
tenant (Loco Lupe of Clarksville, Tennessee) opened to the public
on February 17, 1997. Foodmaker continues as the guarantor under
terms of the second sub-lease.
Joint Venture Blockbuster:
Callaway, Florida
The Partnership owns a 26.0% interest in a joint venture with
affiliated public real estate limited partnerships that acquired
the land and building underlying a Blockbuster Video Store. The
property is located at 123 N. Tydall Parkway on the major arterial
in the Panama City, Florida area. The property contains a 6,466
square foot building located on a 40,075 square foot parcel of
land.
The following table summarizes the operations of the
Partnership's properties.
<PAGE>
<TABLE>
BRAUVIN HIGH YIELD FUND L.P. II
SUMMARY OF OPERATING DATA
DECEMBER 31, 1997
<CAPTION>
1997
PERCENT OF 1997 PERCENT OF LEASE
PURCHASE ORIGINAL RENTAL RENTAL EXPIRATION RENEWAL
PROPERTIES PRICE UNITS SOLD INCOME INCOME DATES OPTIONS
<S> <C> <C> <C> <C> <C> <C>
51% OF 1 SCANDINAVIAN HEALTH SPA $ 2,677,500 6.9% $ 364,440 9.3% 2009 4 FIVE YEAR OPTIONS
99% OF 6 PONDEROSA RESTAURANTS 5,628,150 14.5% 710,049 18.2% 2003 4 FIVE YEAR OPTIONS
TACO BELL RESTAURANT-LANSING, MI 381,200 1.0% 67,467 1.7% 2003 NONE
TACO BELL RESTAURANT-
SCHOFIELD, WI (A) 246,300 0.6% -- -- -- NONE
14 PONDEROSA RESTAURANTS 12,269,992 31.5% 1,581,149 40.4% 2003-2004 2 FIVE YEAR OPTIONS
3 CHILDREN'S WORLD LEARNING CENTERS 2,368,922 6.1% 307,023 7.9% 2004-2009 2 FIVE YEAR OPTIONS
3 AVIS LUBE OIL CHANGE CENTERS 1,539,964 4.0% 157,000 4.0% 2010 2 TEN YEAR OPTIONS
HARDEE'S RESTAURANT-ST. JOHNS, MI(B) 897,348 2.3% 29,842 .8% 2010 NONE
HARDEE'S RESTAURANT -
ALBION, MI PROPERTY (C) 883,477 2.3% -- -- -- NONE
HARDEE'S RESTAURANT -
NEWCASTLE, OK 479,025 1.2% 62,557 1.6% 2010 2 TEN YEAR OPTIONS
BLOCKBUSTER VIDEO RENTAL 1,100,000 2.8% 148,715 3.8% 2010 2 TEN YEAR OPTIONS
3 CHI-CHI'S RESTAURANTS 3,369,000 8.6% 454,353 11.6% 2011 4 FIVE YEAR OPTIONS
26% OF 1 BLOCKBUSTER VIDEO STORE -
CALLAWAY, FL 263,596 0.7% 28,405 0.7% 2006 3 FIVE YEAR OPTIONS
$32,104,474 82.5% $3,911,000 100.0%
<FN>
<F1>
NOTE - THE FORMAT OF THIS SCHEDULE DIFFERS FROM THE INCOME STATEMENT OF THE PARTNERSHIP.
THIS SCHEDULE ALLOCATES THE PARTNERSHIP'S SHARE OF PURCHASE PRICE AND RENTAL INCOME FROM EACH JOINT VENTURE.
(A) SOLD FEBRUARY 18, 1994
(B) RELEASED TO DAIRY QUEEN FRANCHISEE. LEASE COMMENCED FEBRUARY 1, 1995.
(C) FOR LEASE
</FN>
</TABLE>
<PAGE>
Risks of Ownership
The possibility exists that the tenants of the Partnership's
properties may be unable to fulfill their obligations pursuant to
the terms of their leases, including making base rent or percentage
rent payments to the Partnership. Such a default by the tenants or
a premature termination of any one of the leases could have an
adverse effect on the financial position of the Partnership. The
Partnership may be unable to successfully locate a substitute
tenant for the Albion, Michigan property due to the fact that the
building had been designed or built primarily to house a specific
operation. Thus, the Albion, Michigan property and other
Partnership properties may not be readily marketable to a new
tenant without substantial capital improvements or remodeling.
Such improvements may require expenditure of Partnership funds
otherwise available for distribution. In addition, because in
excess of 45% of the Partnership's cash available for investment
has been invested in properties operated as Ponderosa family
restaurants, the Partnership is subject to some risk of loss should
adverse events affect Ponderosa and in turn adversely affect the
Ponderosa lessees' ability to pay rent to the Partnership.
Item 3. Legal Proceedings.
Two legal actions, as hereinafter described, are pending against
the General Partners and affiliates of such General Partners, as
well as against the Partnership on a nominal basis in connection
with the Merger. One additional legal action, which was dismissed
on January 28, 1998, had also been brought against the General
Partners and affiliates of such General Partners, as well as
against the Partnership on a nominal basis in connection with the
Merger. Each of these actions was brought by limited partners of
the Partnership. With respect to the pending actions, the
Partnership, the General Partners and their named affiliates deny
all allegations set forth in the complaints and are vigorously
defending against such claims.
A. The Dismissed Florida Lawsuit
On September 17, 1996, a lawsuit was filed in the Circuit Court
of the Seventeenth Judicial Circuit in and for Broward County,
Florida, styled Rebecca Scialpi and Helen Friedlander v. Jerome J.
Brault, Brauvin Realty Advisors, Inc., Brauvin Realty Advisors II,
Inc., Brauvin Realty Advisors III, Inc., and Brauvin Realty
Advisors IV, Inc., James L. Brault, and Brauvin Real Estate Funds,
L.L.C. and Brauvin High Yield Fund L.P., Brauvin High Yield Fund
L.P. II, Brauvin Income Plus L.P. III, and Brauvin Corporate Lease
Program IV, L.P., Docket No. 96012807. The Plaintiffs, Scialpi and
Friedlander, are limited partners in the Partnership. The
Partnership and the other affiliated partnerships named in this
lawsuit (the "Affiliated Partnerships") that are proposed to be a
party to a merger or sale with the Purchaser, were each named as a
"Nominal Defendant" in this lawsuit. Jerome J. Brault, the
Managing General Partner of the Partnership, and Brauvin Realty
Advisors II, Inc., the Corporate General Partner of the
Partnership, as well as certain corporate general partners of the
Affiliated Partnerships, were named as defendants in this lawsuit.
James L. Brault, an officer of the Corporate General Partner and
the son of Jerome J. Brault, was also named as a defendant. This
lawsuit was dismissed for want of prosecution on January 28, 1998.
B. The Illinois Christman Lawsuit
On September 18, 1996, a class action lawsuit was filed in the
United States District Court for the Northern District of Illinois,
styled M. Barbara Christman, Joseph Forte, Janet M. Toolson, John
Archbold, and Ben O. Carroll v. Brauvin Realty Advisors, Inc.,
Brauvin Realty Advisors II, Inc., Brauvin Realty Advisors III,
Inc., Brauvin Realty Advisors IV, Inc., Jerome J. Brault, Brauvin
Real Estate Funds, L.L.C. and Brauvin High Yield Fund L.P., Brauvin
High Yield Fund L.P. II, Brauvin Income Plus L.P. III, and Brauvin
Corporate Lease Program IV L.P., Docket No. 96C6025. The
Partnership and the Affiliated Partnerships are each named as a
"Nominal Defendant" in the lawsuit. Jerome J. Brault and the
Corporate General Partner of the Partnership, as well as the
corporate general partners of the Affiliated Partnerships, are
named as defendants.
The plaintiffs filed an amended complaint on October 8, 1996,
which alleges claims for breach of fiduciary duties, breaches of
the Agreement, and violation of the Illinois Deceptive Trade
Practices Act. The amended complaint seeks injunctive relief,
as well as compensatory and punitive damages, relating to the
Transaction.
On October 2, 1996, the District Court certified plaintiffs'
proposed class as all of the limited partners of the Partnership
and of the Affiliated Partnerships, and appointed plaintiffs'
counsel, The Mills Law Firm, as counsel for the class. On October
2, 1996, the District Court also conducted a hearing on plaintiffs'
motion to preliminarily enjoin the special meetings of the limited
partners and the Transaction. The District Court denied
plaintiffs' motion for a preliminary injunction at the conclusion
of the October 2, 1996 hearing.
On September 27, 1996, counsel for plaintiffs, The Mills Law
Firm, mailed a solicitation to all of the Limited Partners,
requesting that they revoke their previously-mailed proxies in
favor of the Merger. On October 11, 1996, the General Partners
filed a counterclaim against plaintiffs and their counsel, The
Mills Law Firm, alleging that plaintiffs and The Mills Law Firm
violated the federal securities laws and proxy rules by sending
their September 27, 1996 letter to the Limited Partners. The
plaintiffs and The Mills Law Firm have moved to dismiss this
counterclaim. The District Court has taken this motion under
advisement and has yet to issue a ruling.
On October 10 and 11, 1996, the District Court conducted an
evidentiary hearing on the motion of the General Partners to
invalidate revocations of proxies procured as a result of The Mills
Law Firm's September 27, 1996 letter. In that evidentiary hearing,
The Mills Law Firm admitted that it violated the proxy rules by
sending its September 27, 1996 letter to the Limited Partners
without filing such letter with the Commission in violation of the
Commission's requirements. At the conclusion of the hearing on
October 10 and 11, the District Court found that the General
Partners have a likelihood of succeeding on the merits with respect
to their claim that the September 27, 1996 letter sent to the
Limited Partners by plaintiffs and The Mills Law Firm is false or
misleading in several significant respects.
Notwithstanding this finding, the District Court did not
invalidate the revocations of proxies resulting from The Mills Law
Firm's September 27, 1996 letter because it did not believe it
possessed the authority to do so under present law. This ruling
was appealed to the Seventh Circuit Court of Appeals. The Seventh
Circuit Court of Appeals subsequently dismissed this appeal on the
grounds that the appeal was rendered moot by the Limited Partners'
approval November 8, 1996 of the Merger.
On October 16, 1996 and on November 6, 1996, the parties filed
cross-motions for partial summary judgement addressing the
allegation in plaintiffs' amended complaint that the Agreement does
not allow the Limited Partners to vote in favor of or against the
Transaction by proxy. These cross-motions for partial summary
judgement were taken under advisement by the District Court, and
the District Court has yet to issue a ruling.
On April 2, 1997, the Court granted plaintiffs' leave to again
amend their complaint. In their second amended complaint,
plaintiffs have named the Partnership as a "Nominal Defendant."
Plaintiffs have also added a new claim, alleging that the General
Partners violated certain of the rules of the Securities and
Exchange Commission (the "Commission") by making false and
misleading statements in the Proxy. Plaintiffs also allege that
the General Partners breached their fiduciary duties, breached
various provisions of the Agreement, violated the Illinois
Deceptive Trade Practice Act, and violated section 17-305 of the
Delaware Revised Uniform Limited Partnership Act. The General
Partners deny those allegations and will continue to vigorously
defend against these claims.
On April 2, 1997, plaintiffs again requested that the District
Court enjoin the closing of the Transaction. After conducting a
lengthy hearing on May 1, 1997, the District Court denied
plaintiffs' motion to preliminarily enjoin the closing of the
Transaction with the Purchaser. Plaintiffs filed a notice of
appeal to the Seventh Circuit Court of Appeals from the District
Court's May 1, 1997 order denying plaintiffs' motion to
preliminarily enjoin the closing of the Transaction. This appeal
was dismissed by the Seventh Circuit Court of Appeals on January
23, 1998, based on the appeal court's finding that the District
Courts order of January 16, 1998 (as described below) rendered the
appeal moot.
On January 16, 1998, by agreement of the Partnership and the
General Partners and pursuant to a motion of the General Partners,
the District Court entered an order preventing the Partnership and
the General Partners from completing the Merger, or otherwise
disposing of all or substantially all of the Partnership's assets,
until further order of the court.
On January 28, 1998, the District Court entered an Order of
Reference to Special Master, designating a Special Master and
vesting the Special Master with authority to resolve certain
aspects of the lawsuit subject to the District Court's review and
confirmation.
C. The Scialpi Illinois Lawsuit
On June 20, 1997, another lawsuit was filed in the United States
District Court for the Northern District of Illinois, styled
Benjamin Siegel, Rebecca Scialpi, Helen Friedlander, and BHS &
Associates, Inc. v. Jerome J. Brault, Brauvin Realty Advisors,
Inc., Brauvin Realty Advisors II, Inc., Brauvin Realty Advisors
III, Inc., Brauvin Realty Advisors IV, Inc., James L. Brault,
Brauvin Real Estate Funds LLC, Brauvin High Yield Fund L.P.,
Brauvin High Yield Fund II L.P., Brauvin Income Plus L.P. III, and
Brauvin Corporate Lease Program IV, L.P. docket number 97 C 4450.
The Partnership and the Affiliated Partnerships are each named as
"Nominal Defendant" in the lawsuit, Jerome J. Brault and the
Corporate General Partner of the Partnership, as well as the
corporate general partners of the Affiliated Partnerships, have
been named as defendants in this lawsuit. James L. Brault, an
officer of the Corporate General Partner and the son of Jerome J.
Brault, is also named as a defendant.
Notably, the complaint was filed by two of the same parties,
Scialpi and Friedlander, who were plaintiffs in the Florida
lawsuit, which is described above. As also described above,
Scialpi and Friedlander are limited partners in the Partnership,
but have no relationship with the Affiliated Partnerships. On
August 15, 1997, the plaintiffs filed an amended complaint dropping
Benjamin Siegel as a plaintiff. The plaintiffs are also
represented by the same lawyers that represented them in the
Florida lawsuit.
The complaint alleges a putative class action consisting of
claims that certain Commission rules were violated by making false
and misleading statements in the Proxy, the defendants breached
their fiduciary duties and breached the Agreement. The complaint
was consolidated with the Christman lawsuit, which is described
above, pursuant to General Rule 2.31 of the United States District
Court of the Northern District of Illinois. The General Partners
deny these allegations and intend to vigorously defend these
claims. There have been no material developments with respect to
this lawsuit since it was filed on June 20, 1997.
ITEM 4. Submission of Matters To a Vote of Security Holders.
None.
<PAGE>
PART II
Item 5. Market for the Registrant's Units and Related Security
Holder Matters.
At December 31, 1997, there were approximately 2,641 Limited
Partners in the Partnership. There is no established public
trading market for Units and it is not anticipated that there will
be a public market for Units. Neither the Corporate General
Partner nor the Partnership are obligated, but reserve the right,
to redeem or repurchase the Units. Units may also be purchased by
the Plan. Any Units so redeemed or repurchased shall be retired.
However, there is no intent to redeem or purchase Units pending the
Merger.
Pursuant to the terms of the Agreement, there are restrictions
on the ability of the Limited Partners to transfer their Units. In
all cases, the General Partners must consent to the substitution of
a Limited Partner.
Cash distributions to Limited Partners for 1997, 1996 and 1995
were $4,787,596, $1,814,767 and $3,582,492, respectively. Prior to
the commencement of the Partnership's proxy solicitation in August
1996, distributions were paid four times per year, within 60 days
after the end of each calendar quarter. See Item 7. Pursuant to
the terms of the Merger Agreement, net income after August 1, 1996
accrues to the Purchaser and, therefore, the net income through
July 31, 1996 will be distributed to the Limited Partners at the
time of the closing of the Merger. Since the net income of the
Partnership after August 1, 1996 accrues to the Purchaser, no
distributions of net income were paid to the Limited Partners for
the two months of August and September 1996 and the quarter ended
December 31, 1996. As a result of the delays in closing the
Merger, the Purchaser has agreed to allow periodic distributions
of net income relating to the period from January 1, 1997 until the
Merger is consummated. See Item 7.
The Partnership provided for a reserve in its initial offering
to fund cash distributions in excess of operating cash flow. Such
payments from the reserve represent a return of capital and
represent less than 2% of cumulative distributions through February
15, 1998.
<PAGE>
Item 6. Selected Financial Data.
BRAUVIN HIGH YIELD FUND L.P. II
(a Delaware limited partnership)
(not covered by Independent Auditors' Report)
Years Ended December 31, 1997, 1996 and 1995
1997 1996 1995
Selected Income Statement Data:
Rental Income (a) $4,239,915 $4,130,302 $4,192,243
Interest Income 161,260 93,923 68,435
Net Income 2,677,113 1,824,011 3,039,738
Net Income Per Unit (b) $65.78 $45.23 $75.82
Selected Balance Sheet Data:
Cash and Cash Equivalents $1,198,267 $ 2,413,914 $1,374,779
Land and Buildings 35,401,164 35,401,164 35,951,164
Total Assets 31,464,133 33,290,582 33,207,008
Cash Distributions to
Limited Partners (c) 4,787,596 1,814,767 3,582,492
Cash Distributions to Limited
Partners Per Unit (b) $118.66 $45.00 $89.36
(a) This includes $67,561, $67,561, and $67,561 of non-cash income
related to the change in the deferred rent receivable balance for
1997, 1996 and 1995, respectively.
(b) Net income per Unit and 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.
(c) This includes $5,863, $10,278 and $9,060 paid to various states
for income taxes on behalf of all Limited Partners for the years
1997, 1996 and 1995, respectively.
The above selected financial data should be read in conjunction with
the consolidated financial statements and the related notes appearing
elsewhere in this annual report.
<PAGE>
Item 6. Selected Financial Data - continued.
BRAUVIN HIGH YIELD FUND L.P. II
(a Delaware limited partnership)
(not covered by Independent Auditors' Report)
Years Ended December 31, 1994 and 1993
1994 1993
Selected Income Statement Data:
Rental Income (a) $4,198,955 $4,128,233
Interest Income 31,248 12,876
Net Income 2,564,375 2,346,355
Net Income Per Unit (b) $64.69 $57.82
Selected Balance Sheet Data:
Cash and Cash Equivalents $1,106,917 $ 799,390
Land and Buildings 35,951,164 36,727,348
Total Assets 33,630,071 34,704,875
Cash Distributions to
Limited Partners (b) 3,478,020 3,569,741
Cash Distributions to Limited
Partners Per Unit (b) $87.74 $90.22
(a) This includes $73,122 of non-cash income related to the change in
the deferred rent receivable balance for 1994.
(b) Net income per Unit and 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.
(c) This includes $14,717 and $10,909 paid to various states for income
taxes on behalf of all Limited Partners for the years 1994 and
1993, respectively.
The above selected financial data should be read in conjunction
with the consolidated financial statements and the related notes
appearing elsewhere in this annual report.
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations.
General
Certain statements in this Annual Report that are not
historical fact constitute "forward-looking statements" within the
meaning of the Private Securities Litigation Reform Act of 1995.
Discussions containing forward-looking statements may be found in
this section and in the section entitled "Business." Without
limiting the foregoing, words such as "anticipates," "expects,"
"intends," "plans" and similar expressions are intended to identify
forward-looking statements. These statements are subject to a
number of risks and uncertainties. Actual results could differ
materially from those projected in the forward-looking statements.
The Partnership undertakes no obligation to update these forward
- -looking statements to reflect future events or circumstances.
Year 2000
In 1997, the Partnership initiated the conversion from its
existing accounting software to a program that is year 2000
compliant. Management has determined that the year 2000 issue will
not pose significant operational problems for its computer system.
All costs associated with this conversion are being expensed as
incurred, and are not material.
Also in 1997, management of the Partnership initiated formal
communications with all of its significant third party vendors,
service providers and financial institutions to determine the
extent to which the Partnership is vulnerable to those third
parties failure to remedy their own year 2000 issues. There can be
no guarantee that the systems of these third parties will be timely
converted and would not have an adverse effect on the Partnership.
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.
Until the proxy solicitation process began, the Plan raised
$4,059,178 through December 31, 1997 from Limited Partners
investing their distributions of Operating Cash Flow in additional
Units. As of December 31, 1997, Units valued at $2,886,915 have
been repurchased by the Partnership from Limited Partners
liquidating their investment in the Partnership and have been
retired.
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 three Children's World Learning Centers,
three Hardee's restaurants, one Blockbuster video store and three
Avis Lubes. The Partnership purchased three Chi-Chi's restaurants
in 1991.
On October 31, 1996, the Partnership purchased a 26% equity
interest in a joint venture with affiliated public real estate
limited partnerships (the "Bay County Venture"). The Bay County
Venture purchased real property upon which a newly constructed
Blockbuster Video store is operated. The property contains a 6,466
square foot building located on a 40,075 square foot parcel of
land.
The Partnership's acquisition process is now completed with
the exception of acquisitions made with funds raised through the
Plan.
In January 1994, the Albion property was abandoned by its
tenant.
In 1994, the Partnership entered into a lease with Jasaza,
Inc. to operate the Albion property as a Hardee's restaurant.
However, 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 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.
In 1996, the Partnership engaged Cushman & Wakefield to
prepare an appraisal of the Partnership's properties. As a result
of this appraisal, the Partnership recorded an additional provision
for impairment of $550,000 related to an other than temporary
decline in real estate for the St. Johns, Michigan and Albion,
Michigan properties during the fourth quarter of 1996. 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).
In April 1994, the lessee of the Rock Hill, Missouri property
defaulted on its payment obligations and vacated the property. The
Partnership had continued to receive rent payments from the
guarantor, Avis Lube, Inc. Avis Lube, Inc. subleased the property
through March 1996 to an unaffiliated sublessee, FOCO, Inc., an
auto/oil repair operator. The Partnership signed a new lease with
the sublessee to operate the property effective March 26, 1996.
The lease is for 42 months and provides for annual base rent of
$55,000. The new lease rent is lower than previous rent.
The lessee of the two Orlando Avis Lubes defaulted on its
payment obligations under the lease in 1991 and in January 1992
vacated the properties. The Partnership continued to receive rent
payments from the lessee, which Avis Lube, Inc. guaranteed to the
Partnership until the lease expired in June 1996. Avis Lube, Inc.
subleased the properties until June 1996 to an unaffiliated
sublessee, Florida Express Lubes, Inc. The Partnership signed new
leases with the sublessee to operate the properties, as lessee,
which commenced on June 1, 1996. The leases are for a 14 year
term. Base annual rent at 2699 Delaney Street is $48,000 and at
1625 South Conway Road is $54,000. The new lease rents are lower
than the previous rents.
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 Reserve previously paid to them. At December
31, 1997, 1996 and 1995, $140,000 was due from the original General
Partners related to the Distribution Guaranty.
Below is a table summarizing the four year historical data for
distribution rates per unit:
Distribution
Date 1997 (a) 1996 1995 1994
February 15 $20.1875 $22.3597 $22.3597 $22.3597
May 15 18.8614 22.3597 22.3597 22.3597
August 15 22.8662 -- 22.3597 22.3597
November 15 (b) 56.6001 -- 22.3597 22.3597
(a) The 1997 distributions were made on March 31, 1997, July 15,
1997, October 22, 1997 and December 31, 1997.
(b) The November 15, 1994 distribution rate does not include a
return of capital distribution of $3.7524 per unit.
Per the terms of the Merger, the Partnership's net earnings
from April 1996 through July 1996 were to be distributed to the
Limited Partners in conjunction with the closing of the Merger.
However, because of the lengthy delay and the uncertainty of the
ultimate closing date, the General Partners decided to make a
significant distribution on December 31, 1997 of the Partnership's
earnings. This distribution will not change the effective sales
price being received by the Partnership through the Merger; it will
only adjust the timing of the payout dollar for dollar based on
these earnings being distributed now. In addition, included in the
December 31, 1997 distribution was any prior period earnings
including amounts previously reserved for anticipated closing
costs. These reserves will be re-established by the Partnership as
soon as a definitive closing date is scheduled.
During the years ended December 31, 1997, 1996 and 1995 the
General Partners and their affiliates collected management fees of
$37,668, $42,653 and $42,134, respectively, and did not receive any
Operating Cash Flow distributions. However, in January 1998, the
Partnership paid the General Partners approximately $19,800 as an
Operating Cash Flow distribution for the year ended December 31,
1997.
Should the Merger not occur, future increases in the
Partnership's distributions will largely depend on increased sales
at the Partnership's properties resulting in additional percentage
rent and, to a lesser extent, on rental increases which will occur
due to increases in receipts from certain leases based upon
increases in the Consumer Price Index or scheduled increases of
base rent.
Pursuant to the terms of the Merger Agreement, the Limited
Partners will receive approximately $779.22 per Unit in cash (of
this original amount approximately $31.13 has already been
distributed to the Limited Partners). 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 Limited Partners
holding a majority of the Units approved the Merger on November 8,
1996.
The Partnership drafted a proxy statement, which required
prior review and comment by the Securities and Exchange Commission,
to solicit proxies for use at the Special Meeting originally to be
held at the offices of the Partnership on September 24, 1996. As
a result of the various pending legal issues, as described in Item
3, the Special Meeting was adjourned to November 8, 1996 at 9:30
a.m. The purpose of the Special Meeting was to vote upon the Merger
and certain other matters as described in the Proxy.
By approving the Merger, the Limited Partners also approved an
amendment of the 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"). 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. Because the Agreement did not address this
matter, at the Special Meeting, Limited Partners holding a majority
of the Units were asked to approve the adoption of an amendment to
the Agreement to allow the majority vote of the Limited Partners to
determine the outcome of the transaction with the Purchaser without
the vote of the General Partners. Neither the Act nor the
Agreement provides the Limited Partners not voting in favor of the
Transaction with dissenters' appraisal rights.
The redemption price to be paid to the Limited Partners in
connection with the Merger is based on the fair market value of the
properties of the Partnership (the "Assets"). Cushman & Wakefield,
an independent appraiser, the largest real estate valuation and
consulting organization in the United States, was engaged by the
Partnership to prepare an appraisal of the Assets, to satisfy the
Partnership's requirements under the Employee Retirement Income
Security Act of 1974, as amended. Cushman & Wakefield determined
the fair market value of the Assets to be $30,183,300, or $748.09
per Unit, at April 1, 1996. Subsequently, the Partnership
purchased a 26% interest in Brauvin Bay County Venture. Based on
the terms of the Merger Agreement, the fair market value of the
Assets will be increased by the amount of the investment in Brauvin
Bay County Venture, and correspondingly, the Partnership's cash
holdings were reduced by the same amount and therefore the total
redemption amount remains unchanged. The redemption price of
$779.22 per Unit also includes all remaining cash of the
Partnership, less net earnings of the Partnership from and after
August 1, 1996 through December 31, 1996, less the Partnership's
actual costs incurred and accrued through the effective time at the
filing of the certificate of merger, 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. Of the total
redemption price stated above, approximately $31.13 has already
been distributed to Limited Partners in the December 31, 1997
distribution.
Cushman & Wakefield subsequently provided an opinion as to the
fairness of the Transaction to the Limited Partners from a
financial point of view. In its opinion, Cushman & Wakefield
advised that the price per Unit reflected in the Transaction is
fair, from a financial point of view, to the Limited Partners.
Cushman & Wakefield's determination that a price is "fair" does not
mean that the price is the highest price which might be obtained in
the marketplace, but rather that based on the appraised values of
the Assets, the price reflected in the Transaction is believed by
Cushman & Wakefield to be reasonable.
Mr. Jerome J. Brault is the Managing General Partner of the
Partnership and Brauvin Realty Advisors II, Inc. is the Corporate
General Partner. On April 23, 1997, Mr. David M. Strosberg
resigned as an Individual General Partner of the Partnership. Mr.
Cezar M. Froelich resigned his position as an Individual General
Partner effective as of September 17, 1996. 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
remaining General Partners do not believe that Mr. Strosberg's or
Mr. Froelich's lack of involvement has had an adverse effect, and
should not in the future have any adverse effect, on the operations
of the Partnership.
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
Messrs. Brault 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.
Although the Special Meeting was held and the necessary
approvals received, the Merger has not been completed primarily due
to the lawsuits that are still pending (see Item 3). The General
Partners believe that these lawsuits are without merit and,
therefore, continue to vigorously defend against them.
Following receipt of Limited Partner approval, representatives
of the Purchaser commenced in earnest the finalization of the
Purchaser's financing and its due diligence review of the assets of
the Partnership and those of the Affiliated Partnerships. The due
diligence process revealed certain concerns relating to potential
environmental problems at one of the properties of the Affiliated
Partnerships. The due diligence review has also raised questions
regarding the interpretation of certain terms in the leases
governing some of the Partnership's and the Affiliated
Partnerships' properties. A very significant tenant is
interpreting certain purchase options contained in its leases in a
way that would cause the value of the properties leased by such
tenant to be significantly below the Cushman & Wakefield appraised
value. Members of management of the Partnership and the Affiliated
Partnerships have been working diligently with the Purchaser to
assess these risks and to resolve them in a way that will allow the
Merger and the related transactions to be consummated without any
changes to the terms or the merger price.
In accordance with the terms of the Merger Agreement, the
General Partners suspended all distributions to Limited Partners;
however, as a result of the unforeseen delays brought about by the
litigation and the due diligence issues highlighted above, the
General Partners felt it was appropriate that an earnings
distribution be made to the Limited Partners. Although the terms
of the Merger Agreement provides that the Assets being acquired by
the Purchaser in connection with the Merger include all earnings of
the Partnership from and after August 1, 1996, the Purchaser has
agreed to allow the Partnership to make distributions to the
Limited Partners of net earnings for the period from and after
January 1, 1997 until the Merger is consummated. In exchange, the
Partnership has agreed to extend the termination date of the Merger
Agreement to March 31, 1998 to allow the Purchaser time to complete
its due diligence. It is anticipated that the Merger Agreement
will be extended past March 31, 1998 in the hope that the pending
litigation will be resolved.
Distributions of the Partnership's net earnings for the
periods January 1, 1997 to March 31, 1997, April 1, 1997 to June
30, 1997, July 1, 1997 to September 30, 1997 and October 1, 1997 to
December 31, 1997 were made to the Limited Partners on March 31,
1997, July 15, 1997, October 22, 1997 and December 31, 1997,
respectively in the amounts of approximately $814,500, $761,000,
$922,600 and $2,283,600, respectively. In addition, distributions
of approximately $5,900 were paid to various states for income
taxes on behalf of all Limited Partners. Net earnings accruing
after March 31, 1998 through the closing date will be included with
the final cash distribution to the Limited Partners from the
Merger.
The 1997 distributions are lower than prior distributions
because the Partnership has incurred significant legal costs to
defend against the lawsuit. In addition, the remaining term on the
Partnership's properties' leases continue to shrink. This fact is
causing the Partnership to potentially face the risks and costs of
lease rollover. This heightened degree of risk may also have an
adverse effect on the ultimate value of the Assets. Further, the
Partnership's most significant tenant, Ponderosa, has recently
closed and vacated six of the Partnership's properties. (The
Partnership owns three of them directly and has a majority joint
venture interest in the other three.) The General Partners are
working to remedy this vacancy situation. As of December 31, 1997
two of the closed properties have been sublet to local concept
operators. However, one of the closed properties incurred
significant damage in a fire and this development will affect the
Partnership's earnings in the short term in that Ponderosa is
contesting the lease at the fire damaged property. As a result of
the contesting of the lease by Ponderosa, the Partnership has
commenced a lawsuit against the tenant to recover lost rent and
damages related to the fire. In addition, these recent
developments could materially affect the Assets' long term
prospects. Unfortunately, these recent developments are some of
the exact risks and costs the Partnership was seeking to avoid with
the successful completion of the Merger.
Results of Operations - Years ended December 31, 1997 and 1996
Results of operations for the year ended December 31, 1997
reflected net income of $2,677,113 compared to net income of
$1,824,011 for the year ended December 31, 1996, an increase of
approximately $853,100.
Total income for the year ended December 31, 1997 was
$4,410,859 as compared to $4,227,229 for the year ended December
31, 1996, an increase of approximately $183,600. The increase in
total income was primarily due to a one time settlement of
outstanding issues with a major tenant of the Partnership which
increased rental income. Additionally, total income increased a
result of an increase in interest income, which was the result of
higher cash balances during 1997.
Total expenses for the year ended December 31, 1997 were
$1,459,974 as compared to $2,106,603 for the year ended December
31, 1996, a decrease of approximately $646,600. The decrease in
total expenses was primarily due to the provision for impairment on
an other than a temporary decline in the value of real estate of
approximately $550,000, which was recorded in 1996. Additional
expenses decreasing in 1997 were transaction costs of approximately
$108,000 and a decrease in valuation fees of approximately $90,800.
Partially offsetting the decrease in these expenses was an increase
in general and administrative expenses of approximately $118,100,
which was primarily the result of the Partnership recognizing
certain receivables as uncollectible.
Results of Operations - Years ended December 31, 1996 and 1995
Results of operations for the Partnership for the year ended
December 31, 1996 reflected net income of $1,824,011 compared to
net income of $3,039,738 for the year ended December 31, 1995, a
decrease of approximately $1,215,700. The decrease in net income
resulted from an increase in expense as a result of the
Transaction, the Partnership hiring an independent real estate
company to conduct property valuations and a provision for
impairment on other than a temporary decline in the value of the
real estate. The increase in expenses was partially offset by an
increase in interest income.
Total income for the year ended December 31, 1996 was
$4,227,229 as compared to $4,268,386 for the year ended December
31, 1995, a decrease of approximately $41,200. The decrease in
total income is primarily due to the decreases in rental income.
Interest income increased as a result of the Partnership having
higher cash balances during 1996, however, rental income decreased
due to decreased percentage rent earned at certain of the
Partnership's properties.
Total expenses for the year ended December 31, 1996 were
$2,106,603 as compared to $930,775 for the year ended December 31,
1995, an increase of approximately $1,175,800. The increase in
expenses is primarily the result of an increase in Transaction
costs of $453,013 due to legal and other professional fees paid or
accrued as a result of the Transaction and a provision for
impairment on other than a temporary decline in the value of the
real estate of $550,000 for the St. Johns, Michigan and Albion,
Michigan properties. Total expenses also increased in 1996 as
compared to 1995 as a result of the Partnership hiring an
independent real estate company to conduct property valuations to
provide a valuation of the Units to satisfy the Partnership's
requirements under the Employee Retirement Income Security Act of
1974, as amended.
Results of Operations - Years ended December 31, 1995 and 1994
Results of operations for the year ended December 31, 1995
reflected net income of $3,039,738 compared to $2,564,375 for the
year ended December 31, 1994, an increase of $475,363. The
increase in net income is mainly due to reduced expenses in 1995
compared to 1994 which was a result of the Partnership's 1994
recognition of a provision for impairment on other than a temporary
decline in the value of the real estate of $500,000 for the St.
Johns, Michigan and the Albion, Michigan properties. Additionally,
expenses declined for the year ended December 31, 1995 compared to
1994 as a result of a decline in the provision for bad debts of
approximately $68,000 that was established for the St. Johns,
Michigan and Albion, Michigan properties. Another factor that
caused income to increase for the year ended in 1995 compared to
1994 was an increase in interest income of approximately $37,000,
which was the result of higher cash balances during the year.
Partially offsetting these increases in net income was the
recognition in 1994 of the gain on the sale of the Taco Bell
restaurant of approximately $127,000.
Impact of Inflation
The Partnership anticipates that the operations of the
Partnership will not be significantly impacted by inflation. To
offset any potential adverse effects of inflation, the Partnership
has entered into "triple-net" leases with tenants, making the
tenants responsible for all operating expenses, insurance and real
estate taxes. In addition, several of the leases require
escalations of rent based upon increases in the Consumer Price
Index, scheduled increases in base rents, or tenant sales.
Item 7A. Quantitative and Qualitative Disclosures About Market
Risk.
The Partnership does not engage in any hedge transactions or
derivative financial instruments.
Item 8. Consolidated Financial Statements and Supplementary
Data.
See Index to Consolidated Financial Statements and Schedule on
Page F-1 of this Annual Report on Form 10-K for consolidated
financial statements and financial statement schedule, where
applicable.
The supplemental financial information specified in Item 302
of Regulation S-K is not applicable.
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure.
During the Partnership's two most recent fiscal years, there
have been no changes in, or disagreements with, the accountants.
<PAGE>
PART III
Item 10. Directors and Executive Officers of the Partnership.
The General Partners of the Partnership are:
Brauvin Realty Advisors II, Inc., an Illinois corporation
Mr. Jerome J. Brault, individually
Brauvin Realty Advisors II, Inc. (the "Corporate General
Partner") was formed under the laws of the State of Illinois in
1988, with its issued and outstanding shares being owned by Messrs.
Jerome J. Brault (beneficially)(44%), Cezar M. Froelich (44%) and
David M. Strosberg (12%).
The principal officers and directors of the Corporate General
Partner are:
Mr. Jerome J. Brault . . . . Chairman of the Board of
Directors, President, Chief
Executive Officer and Director
Mr. B. Allen Aynessazian . . Treasurer and Chief Financial
Officer
Mr. James L. Brault . . . . Vice President and Secretary
The business experience during the past five years of the General
Partners and the principal officers and directors of the Corporate
General Partner are as follows:
MR. JEROME J. BRAULT (age 64) chairman of the board of directors,
president and chief executive officer of the Corporate General
Partner, as well as a principal shareholder of the Corporate
General Partner. He is a member and manager of Brauvin Real Estate
Funds, L.L.C. Since 1979, he has been a shareholder, president and
a director of Brauvin/Chicago, Ltd. He is an officer, director and
one of the principal shareholders of various Brauvin entities which
act as the general partners of six other publicly registered real
estate programs. He is an officer, director and one of the
principal shareholders of Brauvin Associates, Inc., Brauvin
Management Company, Brauvin Advisory Services, Inc. and Brauvin
Securities, Inc., Illinois companies engaged in the real estate and
securities businesses. He is a director, president and chief
executive officer of Brauvin Net Lease V, Inc. Mr. Brault received
a B.S. in Business from DePaul University, Chicago, Illinois in
1959.
MR. JAMES L. BRAULT (age 37) is a vice president and secretary
and is responsible for the overall operations of the Corporate
General Partner and other affiliates of the Corporate General
Partner. He is a manager of Brauvin Real Estate Funds, L.L.C. He
is an officer of various Brauvin entities which act as the general
partners of six other publicly registered real estate programs.
Mr. Brault is executive vice president and assistant secretary and
is responsible for the overall operations of Brauvin Management
Company. He is also an executive vice president and secretary for
Brauvin Net Lease V, Inc. Prior to joining the Brauvin
organization in May 1989, he was a Vice President of the Commercial
Real Estate Division of the First National Bank of Chicago ("First
Chicago"), based in their Washington, D.C. office. Mr. Brault
joined First Chicago in 1983 and his responsibilities included the
origination and management of commercial real estate loans, as well
as the direct management of a loan portfolio in excess of $150
million. Mr. Brault received a B.A. in Economics from Williams
College, Williamstown, Massachusetts in 1983 and an M.B.A. in
Finance and Investments from George Washington University,
Washington, D.C. in 1987. Mr. Brault is the son of Mr. Jerome J.
Brault.
MR. B. ALLEN AYNESSAZIAN (age 33) is the treasurer and chief
financial officer of the Corporate General Partner and other
affiliates of the Corporate General Partner. He is the chief
financial officer of various Brauvin publicly registered real
estate programs, including Brauvin Net Lease V, Inc. He is also
responsible for the overall financial accounting of Brauvin
Management Company, Brauvin Financial, Inc. and related
partnerships. He is also responsible for the Partnership's
accounting and financial reporting to regulatory agencies. He
joined the Brauvin organization in August 1996. Prior to that
time, he was the chief financial officer of Giordano's Enterprises,
a privately held, 40-restaurant, family-style pizza chain in the
Chicago metropolitan area where he worked since 1989. While at
Giordano's, Mr. Aynessazian was responsible for all accounting
functions, lease negotiations and financings of new restaurants,
equipment and general corporate debt. From 1987 to 1989, Mr.
Aynessazian worked in the accounting compliance and tax department
of KPMG Peat Marwick. Mr. Aynessazian is a certified public
accountant.
Item 11. Executive Compensation.
(a & b) The Partnership is required to pay certain fees, make
distributions and allocate a share of the profits and losses of the
Partnership to the Corporate General Partner and its affiliates as
described under the caption "Compensation Table" on pages 10 to 12
of the Partnership's Prospectus, as supplemented, and the sections
of the Agreement entitled "Distribution of Operating Cash Flow,"
"Allocation of Profits, Losses and Deductions," "Distribution of
Net Sale or Refinancing Proceeds" and "Compensation of General
Partners and Their Affiliates" on pages A-10 to A-15 of the
Agreement, attached as Exhibit A to the Prospectus. The
relationship of the Corporate General Partner (and its directors
and officers) to its affiliates is set forth above in Item 10.
Reference is also made to Note 2 of the Notes to the Consolidated
Financial Statements filed with this annual report for a
description of such distributions and allocations.
The General Partners are entitled to receive Acquisition Fees
for services rendered in connection with the selection, purchase,
construction or development of any property by the Partnership
whether designated as real estate commissions, acquisition fees,
finders' fees, selection fees, development fees, construction fees,
non-recurring management fees, consulting fees or any other similar
fees or commissions, however designated and however treated for tax
or accounting purposes. Aggregate Acquisition Fees payable to all
persons in connection with the purchase of Partnership properties
may not exceed such compensation as is customarily charged in
arm's-length transactions by others rendering similar services as
an ongoing public activity in the same geographic locale and for
comparable properties. The aggregate Acquisition Fees to be paid
to the General Partners and their affiliates shall not exceed 6% of
the gross proceeds of the Offering. No amounts were paid in 1997
or 1995. An acquisition fee of $19,171 was paid in 1996 related to
the purchase of the Bay County Venture.
As described in Item 7, the General Partners were also entitled
to receive any portion of the 1% of the gross proceeds of the
Offering placed in the Distribution Guaranty Reserve not utilized
to pay the Distribution Guaranty through the Distribution Guaranty
Termination Date. The General Partners received approximately
$140,000 in consideration for providing such guaranty to the
Partnership through the Distribution Guaranty Termination date of
July 28, 1989. However, 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
December 31, 1997, 1996, and 1995, $140,000 was due from the
General Partners related to the Distribution Guaranty.
An affiliate of the General Partners provides leasing and
re-leasing services to the Partnership in connection with the
management of Partnership properties. The maximum property
management fee payable to the General Partners or their affiliates
shall be equal to 1% of the gross revenues of each Partnership
property or interest therein, however, the receipt of such property
management fee by the General Partners or their affiliates is
subordinated to the receipt by the Limited Partners of a 9%
non-cumulative, non-compounded annual return on Adjusted
Investment. An affiliate of the General Partners received $37,668,
$42,653 and $42,134 in 1997, 1996 and 1995, respectively, for
providing such services to the Partnership.
(c, d, e & f) Not applicable.
(g) The Partnership has no employees and pays no
employee or director compensation.
(h & i) Not applicable.
(j) Compensation Committee Interlocks and Insider
Participation. Since the Partnership has no
employees, it did not have a compensation committee
and is not responsible for the payment of any
compensation.
(k) Not applicable.
(l) Not applicable.
The following is a summary of all fees, commissions and other
expenses paid or payable to the General Partners or their
affiliates for the years ended December 31,1997, 1996 and 1995:
1997 1996 1995
Selling commissions $ -- $12,307 $48,712
Management fees 41,080 42,653 42,134
Reimbursable operating expenses 172,954 135,590 80,583
Legal fees 239 3,993 11,642
Acquisition fees -- 19,171 --
Transaction costs -- 14,873 --
As of December 31, 1997, the Partnership has made all payments
to affiliates except for $3,412 related to management fees.
Item 12. Security Ownership of Certain Beneficial Owners and
Management.
(a) No person or group is known by the Partnership to own
beneficially more than 5% of the outstanding Units of the
Partnership.
(b) None of the officers and directors of the Corporate
General Partner purchased Units.
(c) Other than as described in the Proxy, the Partnership is
not aware of any arrangements which may result in a change
in control of the Partnership.
No officer or director of the Corporate General Partner possesses
a right to acquire beneficial ownership of Units. The General
Partners will share in the profits, losses and distributions of the
Partnership as outlined in Item 11, "Executive Compensation."
Item 13. Certain Relationships and Related Transactions.
(a & b ) The Partnership is entitled to engage in various
transactions involving affiliates of the Corporate
General Partner, as described in the sections of the
Partnership's Prospectus, as supplemented, entitled
"Compensation Table" and"Conflicts of Interest" at pages
10 to 15 and the section of the Agreement entitled
"Rights, Duties and Obligations of Ge neral Partners" at
pages A-17 to A-20 of the Agreement. The relationship of
the Corporate General Partner to its affiliates is set
forth in Item 10. Cezar M. Froelich, a former Individual
General Partner and a shareholder of the Corporate Gerneral
Partner, is a principal of the law firm of Shefsky & Froelich Ltd.,
which firm acted as securities and real estate counsel to
the Partnership, the General Partners and certain of itsaffiliates.
(c) The original General Partners owe the Partnership, at
December 31, 1997, 1996 and 1995, approximately
$140,000.
(d) There have been no transactions with promoters.
<PAGE>
PART IV
Item 14. Exhibits, Consolidated Financial Statement Schedules,
and Reports on Form 8-K.
(a) The following documents are filed as part of this
report:
(1) (2) Consolidated Financial Statements and Schedule indicated
in Part II, Item 8 "Consolidated Financial Statements
and Supplementary Data." (See Index to Consolidated
Financial Statements and Schedule on page F-1 of Form 10-K).
(3) Exhibits required by the Securities and Exchange
Commission Regulation S-K Item 601:
(10)(d) First Amendment and Waiver to Agreement and Plan of
Merger.
(21) Subsidiaries of the Registrant.
(27) Financial Data Schedule.
The following exhibits are incorporated by reference from the
Registrant's Registration Statement (File No. 33-21928) on Form
S-11 filed under the Securities Act of 1933:
Exhibit No. Description
3.(a) Restated Limited Partnership Agreement
3.(b) Articles of Incorporation of Brauvin Realty
Advisors II, Inc.
3.(c) By-Laws of Brauvin Realty Advisors II, Inc.
3.(d) Amendment to the Certificate of Limited Partnership
of the Partnership
10.(a) Escrow Agreement
(b) Form 8-K. None
(c) An annual report for the fiscal year 1997 will be sent to
the Limited Partners subsequent to this filing.
The following exhibits are incorporated by references to the
Registrant's fiscal year ended December 31, 1994 Form 10-K (File
No. 0-17756):
Exhibit No. Description
(10)(b)(1) Management Agreement
(19)(a) Amendment to Distribution Reinvestment Plan
(28) Pages 8-15 of the Partnership's Prospectus
dated June 17, 1988 as supplemented, and pages
A-10 to A-15 and A-17 to A-20 of the Agreement.
The following exhibits are incorporated by reference to the
Registrant's definitive proxy statement dated August 23, 1996 (File
No. 0-17557):
Exhibit No. Description
(10)(c) Merger Agreement.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
BRAUVIN HIGH YIELD FUND L.P. II
BY: Brauvin Realty Advisors II, Inc.
Corporate General Partner
By:/s/ Jerome J. Brault
Jerome J. Brault
Chairman of the Board of Directors,
President and Chief Executive Officer
By:/s/ B. Allen Aynessazian
B. Allen Aynessazian
Chief Financial Officer and
Treasurer
By:/s/ James L. Brault
James L. Brault
Executive Vice President and Secretary
INDIVIDUAL GENERAL PARTNER
By:/s/ Jerome J. Brault
Jerome J. Brault
DATED: March 31, 1998
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULE
Page
Independent Auditors' Report . . . . . . . . . . . . . .. . F-2
Consolidated Financial Statements:
Consolidated Balance Sheets, December 31, 1997 and 1996 . . F-3
Consolidated Statements of Operations, for the years
ended December 31, 1997, 1996 and 1995 . . . . . . . . F-4
Consolidated Statements of Partners' Capital, for the years
ended December 31, 1997, 1996 and 1995 . . . . . . . . F-5
Consolidated Statements of Cash Flows, for the years ended
December 31, 1997, 1996 and 1995 . . . . . . . . . . . F-6
Notes to Consolidated Financial Statements . . . . . . F-7
Schedule III -- Real Estate and Accumulated Depreciation,
December 31, 1997. . . . . . . . . . . . . . . . . . . . . F-27
All other schedules provided for in Item 14(a)(2) of Form 10-K
are either not required, not applicable, or not material.
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Partners
Brauvin High Yield Fund L.P. II
Chicago, Illinois
We have audited the accompanying consolidated balance sheets of
Brauvin High Yield Fund L.P. II (a limited partnership) and
subsidiaries as of December 31, 1997 and 1996, and the related
consolidated statements of operations, partners' capital, and cash
flows for each of the three years in the period ended December 31,
1997. Our audits also included the financial statement schedule
listed in the Index to Consolidated Financial Statements and
Schedule on page F-1. These consolidated financial statements and
the financial statement schedule are the responsibility of the
Partnership's management. Our responsibility is to express an
opinion on these consolidated financial statements and the financial
statement schedule based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts
and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such consolidated financial statements present
fairly, in all material respects, the financial position of Brauvin
High Yield Fund L.P. II and subsidiaries at December 31, 1997 and
1996, and the results of their operations and their cash flows for
each of the three years in the period ended December 31, 1997 in
conformity with generally accepted accounting principles. Also, in
our opinion, such financial statement schedule, when considered in
relation to the basic consolidated financial statements taken as a
whole, presents fairly in all material respects the information set
forth therein.
/s/ Deloitte & Touche LLP
Chicago, Illinois
February 7, 1998
<PAGE>
BRAUVIN HIGH YIELD FUND L.P. II
(a Delaware limited partnership)
CONSOLIDATED BALANCE SHEETS
December 31, December 31,
1997 1996
ASSETS
Investment in real estate (Note 6):
Land $10,961,124 $10,961,124
Buildings 24,440,040 24,440,040
35,401,164 35,401,164
Less: Accumulated depreciation (6,066,215) (5,357,473)
Net investment in real estate 29,334,949 30,043,691
Investment in Brauvin Bay
County Venture (Note 7) 275,500 283,793
Cash and cash equivalents 1,198,267 2,413,914
Rent receivable 79,726 37,063
Deferred rent receivable 410,100 342,539
Due from General Partners (Note 5) 140,000 140,000
Other assets 25,591 29,582
Total Assets $31,464,133 $33,290,582
LIABILITIES AND PARTNERS' CAPITAL
LIABILITIES:
Accounts payable and accrued
expenses $ 165,430 $ 59,233
Rent received in advance 50,768 142,596
Due to an affiliate 3,412 --
Undisbursed insurance proceeds 199,452 --
Tenant security deposits 87,992 --
Total Liabilities 507,054 201,829
MINORITY INTEREST:
Brauvin High Yield Venture 31,007 32,374
Brauvin Funds Joint Venture 2,431,037 2,450,861
PARTNERS' CAPITAL:
General Partners 342,441 319,429
Limited Partners 28,152,594 30,286,089
Total Partners' Capital 28,495,035 30,605,518
Total Liabilities and
Partners' Capital $31,464,133 $33,290,582
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 years ended December 31, 1997, 1996 and 1995
1997 1996 1995
INCOME
Rental (Note 4) $4,239,915 $4,130,302 $4,192,243
Interest 161,260 93,923 68,435
Other 9,684 3,004 7,708
Total income 4,410,859 4,227,229 4,268,386
EXPENSES
General and administrative 363,643 245,571 161,125
Management fees (Note 3) 41,080 42,653 42,134
Amortization of deferred
organization costs and
other assets 1,200 2,497 5,427
Depreciation 708,742 722,089 722,089
Transaction costs (Note 8) 345,309 453,013 --
Valuation fees -- 90,780 --
Provision for
impairment(Note 6) -- 550,000 --
Total expenses 1,459,974 2,106,603 930,775
Income before minority and
equity interests'
share of net income 2,950,885 2,120,626 3,337,611
Minority interest share
in net income:
Brauvin High Yield Venture (5,833) (5,828) (5,967)
Brauvin Funds Joint Venture (286,426) (291,814) (291,906)
Equity interest in:
Brauvin Bay County Venture's
net income 18,487 1,027 --
Net Income $ 2,677,113 $1,824,011 $3,039,738
Net income allocated to the
General Partners $ 23,012 -- --
Net income allocated to the
Limited Partners $ 2,654,101 $1,824,011 $3,039,738
Net income per
Unit outstanding (a) $ 65.78 $ 45.23 $ 75.82
(a) Net income per Unit is 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
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 PARTNERS' CAPITAL
For the years ended December 31, 1997, 1996 and 1995
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 -- (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 -- (15,203) (15,203)
Net income -- 1,824,011 1,824,011
Cash distributions -- (1,814,767) (1,814,767)
Balance, December 31, 1996 319,429 30,286,089 30,605,518
Net income 23,012 2,654,101 2,677,113
Cash distributions -- (4,787,596) (4,787,596)
Balance, December 31, 1997 $342,441 $28,152,594 $28,495,035
* Total Units outstanding at December 31, 1997, 1996 and 1995 were
40,347, 40,347, and 40,316, respectively. Cash distributions to
Limited Partners per Unit were $118.66, $45.00, and $89.36 for the
years ended December 31, 1997, 1996 and 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 years ended December 31,
1997 1996 1995
Cash Flows From Operating Activities:
Net income $2,677,113 $1,824,011 $3,039,738
Adjustments to reconcile net income
to net cash provided by
operating activities:
Depreciation and amortization 709,942 724,586 727,516
Provision for impairment -- 550,000 --
Minority interest's share of income:
Brauvin High Yield Venture 5,833 5,828 5,967
Brauvin Funds Joint Venture 286,426 291,814 291,906
Equity interest share of income
from Brauvin Bay County Venture (18,487) (1,027) --
(Increase) decrease in rent
receivable (42,663) 19,912 9,639
Increase in deferred rent receivable (67,561) (67,561) (67,561)
Decrease (increase) in other assets 2,791 (654) (7,652)
Increase (decrease) in accounts
payable and accrued expenses 106,197 (2,526) (69,745)
(Decrease) increase in rent
received in advance (91,828) 84,252 (148,133)
Increase (decrease)in due to affiliates 3,412 -- (3,469)
Increase in tenant security deposits 87,992 -- --
Net cash provided by operating
activities 3,659,167 3,428,635 3,778,206
Cash Flows From Investing Activities:
Investment in Brauvin Bay County
Venture -- (282,766) --
Increase in undisbursed insurance
proceeds 199,452 -- --
Distributions from Brauvin Bay
County Venture 26,780 -- --
Net cash provided by (used in)
investing activities 226,232 (282,766) --
Cash Flows From Financing Activities:
Sale of Units, net of liquidations,
selling commissions and other
offering costs -- 18,658 397,627
Cash distributions to Limited
Partners (4,787,596) (1,814,767) (3,582,492)
Decrease in due from General Partners -- 10,175 17,521
Decrease in due to General Partners -- -- (23,000)
Cash distribution to minority interest:
Brauvin High Yield Venture (7,200) (7,200) (6,400)
Brauvin Funds Joint Venture (306,250) (313,600) (313,600)
Net cash used in financing activities(5,101,046) (2,106,734) (3,510,344)
Net (decrease) increase in cash
and cash equivalents (1,215,647) 1,039,135 267,862
Cash and cash equivalents at
beginning of year 2,413,914 1,374,779 1,106,917
Cash and cash equivalents at
end of year $1,198,267 $2,413,914 $1,374,779
See accompanying notes to consolidated financial statements
<PAGE>
(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.
and Jerome J. Brault. Brauvin Realty Advisors II, Inc. is owned
primarily by Messrs. Brault (beneficially) (44%) and Cezar M.
Froelich (44%). Mr. Froelich resigned as a director of Brauvin
Realty Advisors II, Inc. in December 1994 and as an Individual
General Partner effective as of September 17, 1996. 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
December 31, 1997, 1996 and 1995, the Partnership has sold
$42,982,178, $42,982,178, and $42,837,384 of Units, respectively.
These totals include $4,059,178, $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, $2,886,915 and $2,773,086 have been
repurchased by the Partnership from Limited Partners liquidating
their investment in the Partnership and have been retired as of
December 31, 1997, 1996 and 1995, respectively. As of
December 31, 1997, the Plan 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, one Blockbuster
Video store, three Avis Lube Oil Change Centers and three Chi-Chi's
restaurants. Also acquired were 99%, 51% and 26% equity interests
in three joint ventures with affiliated entities, which ventures
purchased the land and buildings underlying six Ponderosa
restaurants, a Scandinavian Health Spa and a Blockbuster Video
store, respectively. In 1995, the Partnership and Metromedia, the
parent of Ponderosa Restaurants, exchanged one of the Ponderosa
restaurants for a Tony Roma's restaurant. 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
accompanying financial statements have consolidated 100% of the
assets, liabilities, operations and partners' capital of these
ventures. All significant intercompany accounts have been
eliminated.
Investment in Joint Venture
The Partnership owns a 26% equity interest in a joint venture,
Brauvin Bay County Venture, which owns one Blockbuster Video Store.
The accompanying financial statements include the investment in
Brauvin Bay County Venture using the equity method of accounting.
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.
In 1995, the Partnership adopted Statement of Financial
Accounting Standards No. 121, "Accounting for the Impairment of
Long-Lived Assets and Long-Lived Assets to be Disposed Of" (SFAS
121). SFAS 121 requires the provision of an allowance for
impairment to reduce the cost basis of real estate to its estimated
fair value when the real estate is judged to have suffered an
impairment that is other than temporary. The Partnership has
performed an analysis of its long-lived assets, and the
Partnership's management determined that there were no events or
changes in circumstances that indicated that the carrying amount of
the assets may not be recoverable at December 31, 1997, 1996 and
1995, except as described in Note 6.
Cash and Cash Equivalents
Cash and cash equivalents include all highly liquid debt
instruments with an original maturity within three months of
purchase.
Estimated Fair Value of Financial Instruments
Disclosure of the estimated fair value of financial instruments
is made in accordance with the requirements of Statement of
Financial Accounting Standards No. 107, "Disclosures About Fair
Value of Financial Instruments." The estimated fair value amounts
have been determined by using available market information and
appropriate valuation methodologies. However, considerable
judgement is necessarily required in interpreting market data to
develop estimates of fair value.
The fair value estimates presented herein are based on
information available to management as of December 31, 1997 and
1996, but may not necessarily be indicative of the amounts that the
Partnership could realize in a current market exchange. The use of
different assumptions and/or estimation methodologies may have a
material effect on the estimated fair value amounts.
The carrying amounts of the following items are a reasonable
estimate of fair value: cash and cash equivalents; rent receivable;
due from General Partners; accounts payable and accrued expenses;
rent received in advance; due to an affiliate; undisbursed
insurance proceeds; and tenant security deposits.
(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
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.
The orignal General Partners owe the Partnership $140,000 at
December 31, 1997 and 1996, 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.
The Partnership pays an affiliate of the General Partners an
acquisition fee in the amount of up to 6% of the gross proceeds of
the Partnership's offering for the services rendered in connection
with the process pertaining to the acquisition of a property.
Acquisition fees related to the properties not ultimately purchased
by the Partnership are expensed as incurred.
An affiliate of one of the General Partners provided 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 years ended December 31,
1997, 1996 and 1995 were as follows:
1997 1996 1995
Selling commissions $ -- $12,307 $48,712
Management fees 41,080 42,653 42,134
Reimbursable operating
expenses 172,954 135,590 80,583
Legal fees 239 3,993 11,642
Acquisition fees -- 19,171 --
Transaction costs -- 14,873 --
As of December 31, 1997, the Partnership has made all payments
to affiliates except for $3,412 related to management fees.
(4) LEASES
The Partnership's rental income is principally obtained from
tenants through rental payments provided under triple-net
noncancelable operating leases.
The leases provide for a base minimum annual rent and increases
in rent such as through participation in gross sales above a stated
level. The following is a schedule of noncancelable future minimum
rental payments due to the Partnership under operating leases as of
December 31, 1997:
Year ending December 31:
1998 $ 3,921,129
1999 3,969,473
2000 3,902,646
2001 3,900,146
2002 3,900,146
Thereafter 14,308,166
$33,901,706
Additional rent based on percentages of tenant sales increases
was $164,769, $83,633 and $129,786 in 1997, 1996 and 1995,
respectively.
Approximately 58% of the Partnership's rental income is from
properties operated as Ponderosa restaurants. The Partnership is
subject to some risk of loss should adverse events affect those
Ponderosa restuarants and in turn adversely affect the lessees'
ability to pay rent to the Partnership.
(5) WORKING CAPITAL RESERVES
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 original 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 original General
Partners agreed to continue the Distribution Guaranty up to the net
$140,000 of Distribution Guaranty previously paid to them. At
December 31, 1997, 1996 and 1995, $140,000 was due from the
original General Partners related to the Distribution Guaranty.
(6) PROVISION FOR IMPAIRMENT
In 1996, the Partnership engaged Cushman & Wakefield Valuation
Advisory Services ("Cushman & Wakefield") to prepare an appraisal
of the Partnership's properties. As a result of this appraisal,
during the fourth quarter of 1996, the Partnership recorded an
additional provision for impairment of $550,000 related to an other
than temporary decline in 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 buildings based on the original acquisition percentages of 30%
(land) and 70% (building).
<PAGE>
(7) INVESTMENT IN JOINT VENTURE
The Partnership owns an equity interest in the Brauvin Bay
County Venture and reports its investment on the equity method.
The following are condensed financial statements for the Brauvin
Bay County Venture:
BRAUVIN BAY COUNTY VENTURE
December 31, December 31,
1997 1996
Land and buildings, net $1,051,588 $1,069,277
Other assets 11,989 13,531
$1,063,577 $1,082,808
Liabilities $ 13,820 $ 1,155
Partners' capital 1,049,757 1,081,653
$1,063,577 $1,082,808
Period from
October 31, 1996
Year Ended
(inception) to
December 31, December 31,
1997 1996
Rental income $109,985 $18,502
Expenses:
Depreciation 17,689 2,898
Management fees 1,178 191
Operating and administrative 20,014 11,463
38,881 14,552
Net income $ 71,104 $3,950
<PAGE>
(8) MERGER AND LITIGATION
Merger
Pursuant to the terms of an agreement and plan of merger dated
as of June 14, 1996, as amended March 24, 1997, June 30, 1997,
September 30, 1997 and December 31, 1997 (the "Merger Agreement"),
the Partnership proposes to merge with and into Brauvin Real Estate
Funds, L.L.C., a Delaware limited liability company affiliated with
certain of the General Partners (the "Purchaser") through a merger
(the "Merger") of its Units. In connection with the Merger, the
Limited Partners will receive approximately $779.22 per Unit in
cash (of this original amount approximately $31.13 has already been
distributed to the Limited Partners in the December 31, 1997
distribution). 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 Limited Partners holding a majority of the Units
approved the Merger on November 8, 1996. By approving the Merger,
the Limited Partners also approved an amendment of the 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").
The redemption price to be paid to the Limited Partners in
connection with the Merger is based on the fair market value of the
properties of the Partnership (the "Assets"). Cushman & Wakefield
Valuation Advisory Services ("Cushman & Wakefield"), an independent
appraiser, the largest real estate valuation and consulting
organization in the United States, was engaged by the Partnership
to prepare an appraisal of Assets, to satisfy the Partnership's
requirements under the Employee Retirement Income Security Act of
1974, as amended. Cushman & Wakefield determined the fair market
value of the Assets at April 1, 1996 to be $30,183,300, or $748.09
per Unit. Subsequently, the Partnership purchased a 26% interest
in Brauvin Bay County Venture. Based on the terms of the Merger
Agreement, the fair market value of the Assets will be increased by
the amount of the investment in Brauvin Bay County Venture, and
correspondingly, the Partnership's cash holdings were reduced by
the same amount and therefore the total redemption amount remains
unchanged. The redemption price of $779.22 per Unit also includes
all remaining cash of the Partnership, less net earnings of the
Partnership from and after August 1, 1996 through December 31,
1996, less the Partnership's actual costs incurred and accrued
through the effective time at the filing of the certificate of
merger, 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. Of the original purchase price approximately $31.13
has already been distributed to the Limited Partners in the
December 31, 1997 distribution.
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.
The Merger has not been completed primarily due to certain
litigation, as described below, that is still pending. The
General Partners believe that these lawsuits are without merit and,
therefore, continue to vigorously defend against them.
Following receipt of Limited Partner approval, the Purchaser
commenced the finalization of the Purchaser's financing and its due
diligence review of the Assets and the assets of the Affiliated
Partnerships (as defined below). The due diligence process has
revealed certain concerns relating to potential environmental
problems at one property of the Affiliated Partnerships. A plan
for the remediation (including the projected expenses) is currently
being developed by the Affiliated Partnership.
The due diligence review has also raised questions regarding the
interpretation of certain terms in the leases governing some of the
Partnership's and the Affiliated Partnerships' properties. A very
significant tenant is interpreting certain purchase options
contained in its leases in a way that would cause the value of the
properties leased by such tenant to be significantly below the
Cushman & Wakefield appraised value. Members of management of the
Partnership and the Affiliated Partnerships have been working with
the Purchaser to assess these risks and to resolve them in a way
that will allow the Merger and the related transactions to be
consummated without any changes to the terms or the Merger price.
In accordance with the terms of the Merger Agreement, the
General Partners suspended all distributions to Limited Partners;
however, as a result of the unforeseen delays brought about by the
litigation and the due diligence issues highlighted above, the
General Partners felt it was appropriate that an earnings
distribution be made to the Limited Partners. Although the terms
of the Merger Agreement entered into by the Partnership and the
Purchaser provide that the Assets being acquired by the Purchaser
in connection with the Merger include all earnings of the
Partnership from and after August 1, 1996, the Purchaser has agreed
to allow the Partnership to make distributions to the Limited
Partners of net earnings for the period from and after January 1,
1997 until the Merger is consummated. In exchange, the Partnership
has agreed to extend the termination date of the Merger Agreement
to March 31, 1998. It is anticipated that the Merger Agreement
will be extended past March 31, 1998 in the hope that the pending
litigation will be resolved.
Distributions of the Partnership's net earnings for the periods
January 1, 1997 to March 31, 1997, April 1, 1997 to June 30, 1997,
July 1, 1997 to September 30, 1997 and October 1, 1997 to December
31, 1997 were made to the Limited Partners on March 31, 1997, July
15, 1997, October 22, 1997 and December 31, 1997, respectively in
the amounts of approximately $814,500, $761,000, $922,600 and
$2,283,600, respectively. In addition, distributions of
approximately $5,900 were paid to various states on behalf of all
limited partners in 1997. Net earnings accruing after December 31,
1997 through the closing date will be included with the final cash
distribution to the Limited Partners from the Merger.
Litigation
Two legal actions, as hereinafter described, are pending against
the General Partners and affiliates of such General Partners, as
well as against the Partnership on a nominal basis in connection
with the Merger. One additional legal action, which was dismissed
on January 28, 1998, had also been brought against the General
Partners and affiliates of such General Partners, as well as
against the Partnership on a nominal basis in connection with the
Merger. Each of these actions was brought by limited partners of
the Partnership. With respect to the pending actions, the
Partnership, the General Partners and their named affiliates deny
all allegations set forth in the complaints and are vigorously
defending against such claims.
A. The Dismissed Florida Lawsuit
On September 17, 1996, a lawsuit was filed in the Circuit Court
of the Seventeenth Judicial Circuit in and for Broward County,
Florida, styled Rebecca Scialpi and Helen Friedlander v. Jerome J.
Brault, Brauvin Realty Advisors, Inc., Brauvin Realty Advisors II,
Inc., Brauvin Realty Advisors III, Inc., and Brauvin Realty
Advisors IV, Inc., James L. Brault, and Brauvin Real Estate Funds,
L.L.C. and Brauvin High Yield Fund L.P., Brauvin High Yield Fund
L.P. II, Brauvin Income Plus L.P. III, and Brauvin Corporate Lease
Program IV, L.P., Docket No. 96012807. The Plaintiffs, Scialpi and
Friedlander, are limited partners in the Partnership. The
Partnership and the other affiliated partnerships named in this
lawsuit (the "Affiliated Partnerships") that are proposed to be a
party to a merger or sale with the Purchaser, were each named as a
"Nominal Defendant" in this lawsuit. Jerome J. Brault, the
Managing General Partner of the Partnership, and Brauvin Realty
Advisors II, Inc., the Corporate General Partner of the
Partnership, as well as certain corporate general partners of the
Affiliated Partnerships, were named as defendants in this lawsuit.
James L. Brault, an officer of the Corporate General Partner and
the son of Jerome J. Brault, was also named as a defendant. This
lawsuit was dismissed for want of prosecution on January 28, 1998.
B. The Illinois Christman Lawsuit
On September 18, 1996, a class action lawsuit was filed in the
United States District Court for the Northern District of Illinois,
styled M. Barbara Christman, Joseph Forte, Janet M. Toolson, John
Archbold, and Ben O. Carroll v. Brauvin Realty Advisors, Inc.,
Brauvin Realty Advisors II, Inc., Brauvin Realty Advisors III,
Inc., Brauvin Realty Advisors IV, Inc., Jerome J. Brault, Brauvin
Real Estate Funds, L.L.C. and Brauvin High Yield Fund L.P., Brauvin
High Yield Fund L.P. II, Brauvin Income Plus L.P. III, and Brauvin
Corporate Lease Program IV L.P., Docket No. 96C6025. The
Partnership and the Affiliated Partnerships are each named as a
"Nominal Defendant" in the lawsuit. Jerome J. Brault and the
Corporate General Partner of the Partnership, as well as the
corporate general partners of the Affiliated Partnerships, are
named as defendants.
The plaintiffs filed an amended complaint on October 8, 1996,
which alleges claims for breach of fiduciary duties, breaches of
the Agreement, and violation of the Illinois Deceptive Trade
Practices Act. The amended complaint seeks injunctive relief,
as well as compensatory and punitive damages, relating to the
Transaction.
On October 2, 1996, the District Court certified plaintiffs'
proposed class as all of the limited partners of the Partnership
and of the Affiliated Partnerships, and appointed plaintiffs'
counsel, The Mills Law Firm, as counsel for the class. On October
2, 1996, the District Court also conducted a hearing on plaintiffs'
motion to preliminarily enjoin the special meetings of the limited
partners and the Transaction. The District Court denied
plaintiffs' motion for a preliminary injunction at the conclusion
of the October 2, 1996 hearing.
On September 27, 1996, counsel for plaintiffs, The Mills Law
Firm, mailed a solicitation to all of the Limited Partners,
requesting that they revoke their previously-mailed proxies in
favor of the Merger. On October 11, 1996, the General Partners
filed a counterclaim against plaintiffs and their counsel, The
Mills Law Firm, alleging that plaintiffs and The Mills Law Firm
violated the federal securities laws and proxy rules by sending
their September 27, 1996 letter to the Limited Partners. The
plaintiffs and The Mills Law Firm have moved to dismiss this
counterclaim. The District Court has taken this motion under
advisement and has yet to issue a ruling.
On October 10 and 11, 1996, the District Court conducted an
evidentiary hearing on the motion of the General Partners to
invalidate revocations of proxies procured as a result of The Mills
Law Firm's September 27, 1996 letter. In that evidentiary hearing,
The Mills Law Firm admitted that it violated the proxy rules by
sending its September 27, 1996 letter to the Limited Partners
without filing such letter with the Commission in violation of the
Commission's requirements. At the conclusion of the hearing on
October 10 and 11, the District Court found that the General
Partners have a likelihood of succeeding on the merits with respect
to their claim that the September 27, 1996 letter sent to the
Limited Partners by plaintiffs and The Mills Law Firm is false or
misleading in several significant respects.
Notwithstanding this finding, the District Court did not
invalidate the revocations of proxies resulting from The Mills Law
Firm's September 27, 1996 letter because it did not believe it
possessed the authority to do so under present law. This ruling
was appealed to the Seventh Circuit Court of Appeals. The Seventh
Circuit Court of Appeals subsequently dismissed this appeal on the
grounds that the appeal was rendered moot by the Limited Partners'
approval November 8, 1996 of the Merger.
On October 16, 1996 and on November 6, 1996, the parties filed
cross-motions for partial summary judgement addressing the
allegation in plaintiffs' amended complaint that the Agreement does
not allow the Limited Partners to vote in favor of or against the
Transaction by proxy. These cross-motions for partial summary
judgement were taken under advisement by the District Court, and
the District Court has yet to issue a ruling.
On April 2, 1997, the Court granted plaintiffs' leave to again
amend their complaint. In their second amended complaint,
plaintiffs have named the Partnership as a "Nominal Defendant."
Plaintiffs have also added a new claim, alleging that the General
Partners violated certain of the rules of the Securities and
Exchange Commission (the "Commission") by making false and
misleading statements in the Proxy. Plaintiffs also allege that
the General Partners breached their fiduciary duties, breached
various provisions of the Agreement, violated the Illinois
Deceptive Trade Practice Act, and violated section 17-305 of the
Delaware Revised Uniform Limited Partnership Act. The General
Partners deny those allegations and will continue to vigorously
defend against these claims.
On April 2, 1997, plaintiffs again requested that the District
Court enjoin the closing of the Transaction. After conducting a
lengthy hearing on May 1, 1997, the District Court denied
plaintiffs' motion to preliminarily enjoin the closing of the
Transaction with the Purchaser. Plaintiffs filed a notice of
appeal to the Seventh Circuit Court of Appeals from the District
Court's May 1, 1997 order denying plaintiffs' motion to
preliminarily enjoin the closing of the Transaction. This appeal
was dismissed by the Seventh Circuit Court of Appeals on January
23, 1998, based on the appeal court's finding that the District
Courts order of January 16, 1998 (as described below) rendered the
appeal moot.
On January 16, 1998, by agreement of the Partnership and the
General Partners and pursuant to a motion of the General Partners,
the District Court entered an order preventing the Partnership and
the General Partners from completing the Merger, or otherwise
disposing of all or substantially all of the Partnership's assets,
until further order of the court.
On January 28, 1998, the District Court entered an Order of
Reference to Special Master, designating a Special Master and
vesting the Special Master with authority to resolve certain
aspects of the lawsuit subject to the District Court's review and
confirmation.
C. The Scialpi Illinois Lawsuit
On June 20, 1997, another lawsuit was filed in the United States
District Court for the Northern District of Illinois, styled
Benjamin Siegel, Rebecca Scialpi, Helen Friedlander, and BHS &
Associates, Inc. v. Jerome J. Brault, Brauvin Realty Advisors,
Inc., Brauvin Realty Advisors II, Inc., Brauvin Realty Advisors
III, Inc., Brauvin Realty Advisors IV, Inc., James L. Brault,
Brauvin Real Estate Funds LLC, Brauvin High Yield Fund L.P.,
Brauvin High Yield Fund II L.P., Brauvin Income Plus L.P. III, and
Brauvin Corporate Lease Program IV, L.P. docket number 97 C 4450.
The Partnership and the Affiliated Partnerships are each named as
"Nominal Defendant" in the lawsuit, Jerome J. Brault and the
Corporate General Partner of the Partnership, as well as the
corporate general partners of the Affiliated Partnerships, have
been named as defendants in this lawsuit. James L. Brault, an
officer of the Corporate General Partner and the son of Jerome J.
Brault, is also named as a defendant.
Notably, the complaint was filed by two of the same parties,
Scialpi and Friedlander, who were plaintiffs in the Florida
lawsuit, which is described above. As also described above,
Scialpi and Friedlander are limited partners in the Partnership,
but have no relationship with the Affiliated Partnerships. On
August 15, 1997, the plaintiffs filed an amended complaint dropping
Benjamin Siegel as a plaintiff. The plaintiffs are also
represented by the same lawyers that represented them in the
Florida lawsuit.
The complaint alleges a putative class action consisting of
claims that certain Commission rules were violated by making false
and misleading statements in the Proxy, the defendants breached
their fiduciary duties and breached the Agreement. The complaint
was consolidated with the Christman lawsuit, which is described
above, pursuant to General Rule 2.31 of the United States District
Court of the Northern District of Illinois. The General Partners
deny these allegations and intend to vigorously defend these
claims. There have been no material developments with respect to
this lawsuit since it was filed on June 20, 1997.
(9) SUBSEQUENT EVENT - PROPERTY SALE
In January 1998, Ponderosa unit 850, located in Mansfield, Ohio,
was sold by its joint venture partnership. This closed property
was sold to an unaffiliated third party for approximately $750,000.
This sale resulted in an immaterial loss to the Partnership.
<PAGE>
<TABLE>
SCHEDULE III
BRAUVIN HIGH YIELD FUND L.P.II
(a Delaware limited partnership)
REAL ESTATE AND ACCUMULATED DEPRECIATION
DECEMBER 31, 1997
<CAPTION> Gross Amount at Which Carried
Initial Cost at Close of Period
Buildings Cost of Buildings
and Subsequent and Accumulated Date
Description Encumbrances(c) Land Improvements Improvements Land Improvements Total Depreciation(b) Acquired
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Ponderosas - BHYF II $ 0 $ 3,907,384 $9,117,233 $0 $ 3,907,384 $ 9,117,233 $13,024,617 $2,289,988 9/88-11/89
Ponderosas - BHYV 0 1,810,770 4,225,129 0 1,810,770 4,225,129 6,035,899 1,111,813 9/88
Taco Bell 0 128,236 299,218 0 128,236 299,218 427,454 76,575 1/89
Scandinavian Health Spa-BFJV 0 1,657,861 3,868,342 0 1,657,861 3,868,342 5,526,203 929,895 7/89
Children's World Learning
Centers 0 771,140 1,799,327 0 771,140 1,799,327 2,570,467 384,929 1/90-9/90
Hardee's Restaurants 0 729,798 1,702,861 0 414,798 967,861 1,382,659 311,792 5/90-7/90
Avis Lubes 0 507,620 1,184,448 0 507,620 1,184,448 1,692,068 253,782 6/90-8/90
Blockbuster Video Store 0 354,644 827,501 0 354,644 827,501 1,182,145 174,672 9/90
Chi-Chi's Restaurants 0 1,408,671 2,150,981 0 1,408,671 2,150,981 3,559,652 532,769 3/91
$0 $11,276,124 $25,175,040 $0 $10,961,124 $24,440,040 $35,401,164 $6,066,215
<FN>
<F1>
NOTES:
(a) The cost of this real estate is $36,451,166 for tax purposes (unaudited). The buildings are depreciated over
approximately 35 years using the straight line method. The properties were constructed between 1969 and 1990.
(b) The following schedule summarizes the changes in the Partnership's real estate and accumulated depreciation balances:
</FN>
<CAPTION>
Real estate 1997 1996 1995
<S> <C> <C> <C>
Balance at beginning of year $ 35,401,164 $35,951,164 $35,951,164
Subtractions - land and buildings (d) -- (550,000) ----
Balance at end of year $ 35,401,164 $35,401,164 $35,951,164
Accumulated depreciation 1997 1996 1995
Balance at beginning of year $ 5,357,473 $ 4,635,384 $ 3,913,295
Provision for depreciation 708,742 722,089 722,089
Balance at end of year $ 6,066,215 $ 5,357,473 $ 4,635,384
<FN>
<F2>
(c) Encumbrances - Brauvin High Yield Fund L.P. II did not borrow cash in order to purchase its properties.
100% of the land and buildings were paid for with funds contributed
by the Limited Partners.
(d) The 1996 amount reflects a provision for impairment on land of $165,000 and buildings of $385,000 related
to the properties in St. Johns and Albion, Michigan.
</FN>
</TABLE>
<PAGE>
EXHIBITS
TO
BRAUVIN HIGH YIELD FUND L.P. II
FORM 10-K ANNUAL REPORT
FOR THE YEAR ENDED
DECEMBER 31, 1997
<PAGE>
EXHIBIT INDEX
BRAUVIN HIGH YIELD FUND L.P. II
FORM 10-K
For the fiscal year ended December 31, 1997
Exhibit (21) Subsidiaries of the Registrant
Exhibit (27) Financial Data Schedule
<PAGE>
Exhibit 21
Name of Subsidiary State of Formation
Brauvin High Yield Venture Illinois
Brauvin Funds Joint Venture Illinois
Brauvin Bay County Venture Illinois
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<CASH> 1,198,267
<SECURITIES> 275,500 <F1>
<RECEIVABLES> 489,826
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 35,401,164 <F2>
<DEPRECIATION> 6,066,215
<TOTAL-ASSETS> 31,464,133
<CURRENT-LIABILITIES> 507,054
<BONDS> 2,462,044 <F3>
0
0
<COMMON> 28,495,035 <F4>
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 31,464,133
<SALES> 0
<TOTAL-REVENUES> 4,410,859 <F5>
<CGS> 0
<TOTAL-COSTS> 1,459,974 <F6>
<OTHER-EXPENSES> 273,772 <F7>
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,677,113
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
<FN>
<F1> "SECURITIES" REPRESENTS INVESTMENTS IN JOINT VENTURE
<F2> "PP&E" REPRESENTS INVESTMENT IN REAL ESTATE [LAND AND
BUILDING]
<F3> "BONDS" REPRESENTS MINORITY INTEREST IN JOINT VENTURES
<F4> "COMMON" REPRESENTS TOTAL PARTNERS CAPITAL
<F5> "TOTAL REVENUES" REPRESENTS RENTAL, INTEREST, AND OTHER
INCOME
<F6> "TOTAL COSTS" REPRESENTS TOTAL EXPENSES
<F7> "OTHER EXPENSES" REPRESENTS MINORITY INTEREST SHARE OF
NET INCOME
</FN>
</TABLE>
