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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] Annual Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the quarterly year ended September 30, 1999
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 0-19219
Brauvin Income Plus L.P. III
(Exact name of registrant as specified in its charter)
Delaware 36-3639043
(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)
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements
for the past 90 days. Yes X No .
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BRAUVIN INCOME PLUS L.P. III
(a Delaware limited partnership)
INDEX
PART I Financial Information Page
Item 1. Consolidated Financial Statements . . . . . . . . . . 3
Consolidated Statement of Net Assets in Liquidation
as of September 30, 1999 (Liquidation Basis)
and Balance Sheet at December 31, 1998
(Going Concern Basis) . . . . . . . . . . . . . . . . 4
Consolidated Statement of Changes in Net Assets
in Liquidation for the period June 18, 1999 to
September 30, 1999 (Liquidation Basis) . . . . . . . 5
Notes to Consolidated Financial Statements. . . . . . 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations . . . . . . . . . 18
Item 3. Quantitative and Qualitative Disclosures about
Market Risk . . . . . . . . . . . . . . . . . . . . . 25
PART II Other Information
Item 1. Legal Proceedings . . . . . . . . . . . . . . . . . . 26
Item 2. Changes in Securities . . . . . . . . . . . . . . . . 26
Item 3. Defaults Upon Senior Securities . . . . . . . . . . . 26
Item 4. Submissions of Matters to a Vote of
Security Holders . . . . . . . . . . . . . . . . . . 26
Item 5. Other Information . . . . . . . . . . . . . . . . . . 26
Item 6. Exhibits and Reports on Form 8-K. . . . . . . . . . . 26
SIGNATURES. . . . . . . . . . . . . . . . . . . . . . . . . . 27
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PART I - FINANCIAL INFORMATION
ITEM 1. Consolidated Financial Statements
Except for the December 31, 1998 Consolidated Balance Sheet
(Going Concern Basis), the following Consolidated Statement of Net
Assets in Liquidation as of September 30, 1999 (Liquidation Basis)
and the Consolidated Statement of Changes in Net Assets in
Liquidation for the period June 18, 1999 to September 30, 1999
(Liquidation Basis) for Brauvin Income Plus L.P. III (the
"Partnership") are unaudited and have not been examined by
independent public accountants but reflect, in the opinion of the
management, all adjustments necessary to present fairly the
information required. All such adjustments are of a normal
recurring nature.
These consolidated financial statements should be read in
conjunction with the consolidated financial statements and notes
thereto included in the Partnership's 1998 Annual Report on Form
10-K.
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BRAUVIN INCOME PLUS L.P. III
(a Delaware limited partnership)
CONSOLIDATED STATEMENT OF NET ASSETS IN LIQUIDATION AS OF
SEPTEMBER 30, 1999 AND BALANCE SHEET AT DECEMBER 31, 1998
(Liquidation (Going Concern
Basis) Basis)
September 30, 1999 December 31, 1998
(Unaudited)
ASSETS
Land -- $ 7,397,633
Buildings and improvements -- 10,065,524
-- 17,463,157
Less: Accumulated depreciation -- (2,888,332)
Net investment in real estate -- 14,574,825
Real estate held for sale $19,015,126 --
Investment in Joint Ventures (Note 5):
Brauvin Gwinnett County Venture 140,778 147,518
Brauvin Bay County Venture 351,517 355,532
Cash and cash equivalents 726,028 849,223
Restricted cash 174,853 --
Rent receivable -- 7,992
Deferred rent receivable -- 59,407
Prepaid offering costs -- 70,824
Other assets -- --
Total Assets $20,408,302 $16,065,321
LIABILITIES AND PARTNERS' CAPITAL
Accounts payable and accrued expenses $ 251,712 $ 245,228
Rent received in advance 77,437 9,881
Deferred gain on sale of real estate 4,625,113 --
Reserve for estimated costs during
the liquidation period 130,000 --
Tenant security deposits 51,626 51,626
Due to affiliates 1,944 1,587
Total Liabilities 5,137,832 308,322
Minority Interest in Brauvin
Chili's Limited Partnership (844) (768)
Net Assets in Liquidation $15,271,314
PARTNERS' CAPITAL
General Partners 116,693
Limited Partners 15,641,074
Total Partners Capital 15,757,767
Total Liabilities and Partners' Capital $16,065,321
See accompanying notes to consolidated financial statements.
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BRAUVIN INCOME PLUS L.P. III
(a Delaware limited partnership)
CONSOLIDATED STATEMENT OF CHANGES IN NET ASSETS IN LIQUIDATION
(LIQUIDATION BASIS) FOR THE PERIOD
JUNE 18, 1999 TO SEPTEMBER 30, 1999
(Unaudited)
Net Assets June 18, 1999
(Going Concern Basis) $15,437,109
Income from operations 521,062
Distributions (417,330)
Adjustments to Liquidation Basis (269,527)
Net Assets in Liquidation
at September 30, 1999 $15,271,314
See accompanying notes to consolidated financial statements.
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BRAUVIN INCOME PLUS L.P. III
(a Delaware limited partnership)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION
BRAUVIN INCOME PLUS L.P. III (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
subject to "triple-net" leases. The General Partners of the
Partnership are Brauvin Realty Advisors III, Inc. and Jerome J.
Brault. Brauvin Realty Advisors III, Inc. is owned by Messrs.
Brault (beneficially) (50%) and Cezar M. Froelich (50%). Mr.
Froelich resigned as a director of Brauvin Realty Advisors III,
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, was the selling agent for the
Partnership. The Partnership is managed by an affiliate of the
General Partners.
The Partnership was formed on July 31, 1989 and filed a
Registration Statement on Form S-11 with the Securities and
Exchange Commission which was declared effective on October 30,
1989. The sale of 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 January 15,
1990. The Partnership's offering was originally expected to close
on October 29, 1990 but the Partnership, with the receipt of the
necessary regulatory approval, extended the offering until it
closed on October 29, 1991. Through September 30, 1999 and
December 31, 1998, the Partnership has sold $22,766,719 of Units.
This total includes $1,459,119 of Units raised by Limited Partners
who utilized their distributions of Operating Cash Flow to purchase
additional Units through the distribution reinvestment plan (the
"Plan"). Units valued at $462,972 have been repurchased by the
Partnership from Limited Partners liquidating their investment in
the Partnership and have been retired as of September 30, 1999 and
December 31, 1998. As of September 30, 1999, the Plan participants
have acquired Units under the Plan which approximate 6% of the
total Units outstanding.
The Partnership has acquired the land and buildings underlying
five Ponderosa restaurants (one of which was sold in 1998, see Note
7), two Chi-Chi's restaurants, one International House of Pancakes
restaurant, one Applebee's restaurant, two Sports Unlimited stores,
and three Steak n Shake restaurants. The Partnership also acquired
99.5%, 6.4% and 34.0% equity interests in three joint ventures with
entities affiliated with the Partnership. These ventures own the
land underlying a Chili's restaurant, a CompUSA store and a
Blockbuster Video store, respectively.
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 those estimates.
Basis of Presentation
As a result of the settlement agreement (see Note 6) which was
approved by the United States District Court for the Northern
District of Illinois on June 18, 1999 the Partnership has begun the
liquidation process and, in accordance with generally accepted
accounting principles, the Partnership's financial statements for
periods subsequent to June 18, 1999 have been prepared on a
liquidation basis. Accordingly, the carrying value of the assets
is presented at net realizable amounts and all liabilities are
presented at estimated settlement amounts, including estimated
costs associated with carrying out the liquidation. Preparation of
the financial statements on a liquidation basis requires
significant assumptions by management, including the estimate of
liquidation costs and the resolution of any contingent liabilities.
There may be differences between the assumptions and the actual
results because events and circumstances frequently do not occur as
expected. Those differences, if any, could result in a change in
the net assets recorded in the statement of net assets as of
September 30, 1999.
Accounting Method
The accompanying financial statements have been prepared using
the accrual method of accounting.
Rental Income
Prior to the preparation of the financial statements on a
liquidation basis, rental income was 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 were credited or charged as applicable to deferred rent
receivable.
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 consolidated 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.
Consolidation of Joint Venture
The Partnership owns a 99.5% equity interest in one joint
venture, Brauvin Chili's Limited Partnership, which owns one
Chili's restaurant. The accompanying financial statements have
consolidated 100% of the assets, liabilities, operations and
partners' capital of Brauvin Chili's Limited Partnership. All
significant intercompany accounts have been eliminated.
Investment in Joint Venture
The Partnership owns a 6.4% and a 34.0% equity interest in two
joint ventures, Brauvin Gwinnett County Venture, which owns one
CompUSA store, and Brauvin Bay County Venture, which owns one
Blockbuster Video store, respectively. The accompanying financial
statements include the investments in Brauvin Gwinnett County
Venture and Brauvin Bay County Venture using the equity method of
accounting.
Investment in Real Estate
Prior to the conversion from the going concern basis to the
liquidation basis of accounting, the Partnership's rental
properties were stated at cost including acquisition costs.
Depreciation was recorded on a straight-line basis over the
estimated economic lives of the properties which approximate 35
years.
Offering Costs
Offering costs represent costs incurred in selling Units, such
as the printing of the Prospectus and marketing materials.
Offering costs have been recorded as a reduction of Limited
Partners' Capital. Prepaid offering costs represent amounts in
excess of the defined percentages of the gross proceeds. Prior to
the commencement of the Partnership's proxy solicitation (see Note
6), gross proceeds were expected to increase due to the purchase of
additional Units through the Plan and the prepaid offering costs
would be transferred to offering costs and treated as a reduction
in Partners' Capital.
Cash and Cash Equivalents
Cash equivalents include all highly liquid debt instruments with
an original maturity within three months of purchase.
Restricted Cash
Per the terms of the settlement agreement (see Note 6) the
Partnership was required to establish a cash reserve that will be
restricted for the payment of the General Partners legal fees and
costs. The release of these funds to the General Partners is
subject to the certification by the Special Master that the General
Partners have been cooperative, did not breach their fiduciary
duties to the Limited Partners, did not breach the settlement
agreement or the Partnership Agreement and used their best efforts
to manage the affairs of the Partnership in such a manner as to
maximize the value and marketability of the Partnership's assets in
accordance with their obligations under the Partnership Agreement.
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, 1998, 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;
other assets; accounts payable and accrued expenses; rent received
in advance; and due to affiliate.
(2) ADJUSTMENT TO LIQUIDATION BASIS
On June 18, 1999, in accordance with the liquidation basis of
accounting, assets were adjusted to estimated net realizable value
and liabilities were adjusted to estimated settlement amounts,
including estimated costs associated with carrying out the
liquidation. The net adjustment required to convert from the going
concern (historical cost) basis to the liquidation basis of
accounting was a decrease in assets of $269,527 which is included
in the September 30, 1999 statement of changes in net assets in
liquidation. Significant changes in the carrying value of assets
and liabilities are summarized as follows:
Increase in real estate held for sale (a) $4,625,113
Decrease in investment in Joint Venture (5,449)
Write-off of deferred rent receivable (63,254)
Write-off of prepaid offering costs (70,824)
Increase in deferred gain on sale
of real estate (4,625,113)
Estimated liquidation costs (130,000)
Total adjustment to liquidation basis $ (269,527)
(a) Net of estimated closing costs.
(3) 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 a
9-1/4% non-cumulative, non-compounded, annual return on Adjusted
Investment, as such term is defined in the Agreement, commencing on
the last day of the calendar quarter in which the Unit was
purchased (the "Current Preferred Return"); and (b) thereafter, any
remaining amounts will be distributed 98% to the Limited Partners
(on a pro rata basis) and 2% to the General Partners.
The net proceeds of a sale or refinancing of a Partnership
property shall be distributed as follows:
* first, pro rata to the Limited Partners until each Limited
Partner has received an amount equal to a 10.5% cumulative,
non-compounded, annual return of Adjusted Investment (the
"Cumulative Preferred Return");
* second, to the Limited Partners until each Limited Partner has
been paid an amount equal to his Adjusted Investment, as defined
in the Agreement, apportioned pro rata among the Limited
Partners based on the amount of the Adjusted Investment; and
* thereafter, 95% to the Limited Partners (apportioned pro rata
based on Units) 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 to each Partner in the same ratio as the cash
distributions received by such Partner attributable to that period
bears to the total cash distributed by the Partnership. In the
event that there are no cash distributions, net profits and losses
from operations of the Partnership (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% to the General Partners and 98% 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 Capital Account balances of the Limited
Partners are equal to any unpaid Cumulative Preferred Return, as of
such date; (c) third, to the Limited Partners until the Capital
Account balances of the Limited Partners are equal to the sum of
the amount of their Adjusted Investment plus any unpaid Cumulative
Preferred Return; (d) fourth, to the General Partners until their
Capital Account balances are equal to any previously subordinated
fees; and (e) 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
Accounts balances; and (b) thereafter, 95% to the Limited Partners
and 5% to the General Partners.
(4) TRANSACTIONS WITH RELATED PARTIES
The Partnership pays an affiliate of the General Partners an
annual property management fee equal to up to 1% of gross revenues
derived from Partnership properties managed by such affiliate. The
property management fee is subordinated to receipt by the Limited
Partners of distributions of Operating Cash Flow in an amount equal
to the Current Preferred Return.
An affiliate of one of the General Partners provided securities
and real estate counsel to the Partnership.
The Partnership pays affiliates of the General Partners selling
commissions of 7-1/2% 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 5% 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.
Fees, commissions and other expenses paid or payable to the
General Partners or its affiliates for the nine months ended
September 30, 1999 and 1998 were as follows:
1999 1998
Management fees $17,958 $ 17,712
Reimbursable operating expenses 101,371 93,449
As of September 30, 1999 and December 31, 1998, the Partnership
has made all payments to affiliates except for $1,944 and $1,587,
respectively, related to management fees.
(5) INVESTMENT IN JOINT VENTURES
The Partnership owns equity interests in the Brauvin Gwinnett
County Venture and the Brauvin Bay County Venture and reports its
investments on the equity method. The following are condensed
financial statements for the Brauvin Gwinnett County Venture and
the Bay County Venture:
BRAUVIN GWINNETT COUNTY VENTURE
(Liquidation (Going Concern
Basis) Basis)
September 30, 1999 December 31, 1998
Land and buildings, net $ -- $2,239,254
Real estate held for sale 2,194,362 --
Other assets 3,529 85,048
$2,197,891 $2,324,302
Liabilities $ 3,922 $ 25,029
Net assets in liquidation $2,193,969
Partners' capital 2,299,273
$2,324,302
BRAUVIN BAY COUNTY VENTURE
(Liquidation (Going Concern
Basis) Basis)
September 30, 1999 December 31, 1998
Land and buildings, net $ -- $1,033,942
Real estate held for sale 1,028,651 --
Other assets 23,632 17,330
$1,052,283 $1,051,272
Liabilities $ 17,117 $ 4,296
Net assets in liquidation $1,035,166
Partners' capital 1,046,976
$1,051,272
(6) 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, December 31, 1997, March 31, 1998 and June 30,
1998 (the "Merger Agreement"), the Partnership proposed 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.
Although the Merger will not be consummated, the following text
describes the transaction. Promptly upon consummation of the
Merger, the Partnership would have ceased to exist and the
Purchaser, as the surviving entity, would succeed to all of the
assets and liabilities of the Partnership. The Limited Partners
holding a majority of units voted in favor of the Merger on
November 8, 1996. A majority of the Limited Partners also voted in
favor of an amendment of the Agreement allowing the Partnership to
sell or lease property to affiliates (this amendment, together with
the Merger shall be referred herein as the "Transaction").
However, as described below, on August 12, 1998, the District Court
in the Christman Litigation (as defined below) granted plaintiffs'
motion for partial summary judgement, holding that the Partnership
Agreement did not allow the Limited Partners to vote in favor or
against the Transaction.
The redemption price to be paid to the Limited Partners in
connection with the Merger was 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 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 $19,129,150, or $8.58 per
Unit, on April 1, 1996. Subsequently, the Partnership purchased a
34% interest in Brauvin Bay County Venture. Based on the terms of
the Merger Agreement, the fair market value of the Assets was to
be increased by the amount of the investment in Brauvin Bay County
Venture, and correspondingly, the Partnership's cash holdings were
to be reduced by the same amount and, therefore, the total
redemption amount would remain unchanged. The redemption price of
$8.85 per Unit also included 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 of 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 $0.27 was distributed to Limited
Partners in the December 31, 1997 distribution.
The General Partners were not to receive any payment in exchange
for the redemption of their general partnership interests nor would
they have received 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,
were to have a minority ownership interest in the Purchaser.
The Merger was not completed primarily due to certain litigation,
as described below.
In September 1997, one of the Partnership's properties located
in Elmhurst, Illinois sustained extensive fire damage. The
Partnership is currently negotiating with the insurance company and
the tenant on the disposition of the insurance proceeds.
Additionally, on September 3, 1998, the Partnership sold this
property to an unaffiliated third party for a sales price of
approximately $300,000, which resulted in a loss on the sale of
approximately $289,500. In October 1999, the Partnership received
a partial insurance settlement of $150,000 related to the fire
damage at this property.
Litigation
Two legal actions, as hereinafter described, against the General
Partners of the Partnership and affiliates of such General
Partners, as well as against the Partnership on a nominal basis in
connection with the Merger, have been settled. On April 13, 1999,
all the parties to the litigation reached an agreement to settle
the litigation, subject to the approval by the United States
District Court for the Northern District of Illinois. This
approval was obtained on June 18, 1999. Management believes that
the settlement will not have a material financial impact on the
Partnership. The terms of the settlement agreement, along with a
Notice to the Class, were forwarded to the Limited Partners in the
second quarter. One additional legal action, which was dismissed
on January 28, 1998 had also been brought against the General
Partners of the Partnership and affiliates of such General
Partners, as well as the Partnership on a nominal basis in
connection with the Merger. With respect to these actions the
Partnership and the General Partners and their named affiliates
denied all allegations set forth in the complaints and vigorously
defended against such claims.
(7) PROPERTY SALES
On March 18, 1998, the Partnership sold approximately .332 acres
of land on which a Steak-n-Shake restaurant is situated to an
unaffiliated third party for approximately $150,000, resulting in
a gain of approximately $14,600.
On September 3, 1998, the Partnership sold the Elmhurst, Illinois
property to an unaffiliated third party for approximately
$300,000, resulting in a loss of approximately $289,500. The
Partnership continues to negotiate with the insurance company and
the tenant on the disposition of the insurance proceeds as a result
of the September 1997, fire at this property.
(8) SUBSEQUENT EVENT
On October 15, 1999, the Partnership sold the Ponderosa Unit
Number 1005, located in Kissimmee, Florida to an unaffiliated third
party for a contract sales price of $1,144,000. The net proceeds
from this sale will be distributed as a return of capital on
November 15, 1999.
<PAGE>
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.
General
Certain statements in this Quarterly Report that are not
historical fact constitute "forward-looking statements" within the
meaning of the Private Securities Litigation Reform Act of 1995.
Without limiting the foregoing, words such as "anticipates,"
"expects,""intends,""plans" and similar expressions are intended to
identify forward-looking statements. Theses 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
The "Year 2000" problem concerns the inability of computer
technology systems to correctly identify and process date sensitive
information beyond December 31, 1999. Many computers
automatically add the "19" prefix to the last two digits the
computer reads for the year when date information is needed in
computer software programs. Thus when a date beginning on January
1, 2000 is entered into a computer, the computer may interpret this
date as the year "1900" rather than "2000".
The Partnership's computer information technology systems
consists of a network of personal computers linked to a server
built using hardware and software from mainstream suppliers. The
Partnership does not own any equipment that contains embedded
microprocessors, which may also pose a potential Year 2000 problem.
Additionally, the Partnership has no internally generated software
coding to correct as all of the Partnership's software is purchased
and licensed from external providers. These external providers
have assured management that their systems are, or will be, Year
2000 compliant.
The Partnership has two main software packages that contain date
sensitive information, (i) accounting and (ii) investor relations.
In 1997, the Partnership initiated and completed the conversion
from its existing accounting software to a new software program
that is Year 2000 compliant. In 1998, the investor relations
software was also updated to a new software program that is Year
2000 compliant. Management has determined that the Year 2000 issue
will not pose significant operational problems for its remaining
computer software systems. All costs associated with these
conversions are expensed as incurred, and are not material.
Management does not believe that any further expenditures will be
necessary for the Partnership to be Year 2000 compliant. However,
additional personal computers may be purchased from time to time to
replace existing machines.
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 issue. 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.
The most reasonably likely worst case scenario for the
Partnership with respect to the Year 2000 issue would be the
inability of certain tenants to timely make their rental payments
beginning in January 2000. This could result in the Partnership
temporarily suffering a depletion of the Partnership's cash
reserves as expenses will need to be paid while the cash flows from
revenues are delayed. The Partnership has no formal Year 2000
contingency plan.
Liquidity and Capital Resources
The Partnership commenced an offering to the public on October
30, 1989 of 2,500,000 Units. The offering was anticipated to close
on October 29, 1990 but was extended by the General Partners with
the necessary regulatory approval to October 29, 1991. The
Offering was conditioned upon the sale of $1,200,000, which was
achieved on January 15, 1990. The Offering closed on October 29,
1991 with the Partnership raising a cumulative total of
$21,307,600. Until the proxy solicitation process began, the
Partnership continued to raise additional funds through the Plan.
The Plan raised $1,459,119 through September 30, 1999 from Limited
Partners investing their distributions of Operating Cash Flow in
additional Units. As of September 30, 1999, Units valued at
$462,972 have been repurchased by the Partnership from Limited
Partners liquidating their investment in the Partnership and have
been retired. Additionally, returns of capital distribution of
$439,619 and $1,301,731 were distributed by the Partnership to
Limited Partners on November 15, 1998 and 1999 respectively.
The Partnership purchased the land, buildings and improvements
underlying five Ponderosa restaurants on January 19, 1990, February
16, 1990, March 19, 1990, April 24, 1990 and June 4, 1990,
respectively. In addition, the Partnership closed on the land,
buildings and improvements underlying two Chi-Chi's restaurants;
the first closed on March 12, 1991 and the second closed on March
27, 1991. The land, buildings and improvements underlying an IHOP
restaurant were purchased on April 26, 1991, an Applebee's
restaurant on June 5, 1991 (which was expanded in 1992), two Sports
Unlimited sporting goods stores on September 17, 1991, a Chili's
restaurant on February 7, 1992 and three Steak n Shake restaurants
on April 16, 1992.
On February 7, 1992, the Partnership purchased a 99.5% equity
interest in a joint venture with an affiliate, Brauvin Chili's
Limited Partnership, which owns one Chili's restaurant.
On November 9, 1993, the Partnership purchased a 6.4% interest
in a joint venture with affiliated public real estate limited
partnerships (the "Venture"). The Venture acquired the land and
building underlying a 25,000 square foot CompUSA computer
superstore from an unaffiliated seller.
On October 31, 1996, the Partnership purchased a 34% joint
venture equity interest in a joint venture with affiliated public
real estate limited partnerships, the Brauvin Bay County Venture.
The Bay County Venture purchased real property upon which is
operated a newly constructed Blockbuster video store. The property
contains a 6,466 square foot building located on a 40,075 square
foot parcel of land.
These operating properties are expected to generate cash flow for
the Partnership after deducting certain operating and general and
administrative expenses from their rental income. The Partnership
has no funds available to purchase additional property, excluding
those raised through the Plan.
Distributions of the Partnership's net earnings for the period
January 1, 1999 to March 31, 1999, April 1, 1999 to June 30, 1999,
and July 1, 1999 to September 30, 1999 were made to Limited
Partners on May 17, 1999, August 15, 1999, and November 15, 1999,
respectively, in the amounts of approximately $512,200, $417,300
and $526,000.
Distributions of the Partnership's net earnings for the period
January 1, 1998 to March 31, 1998, April 1, 1998 to June 30, 1998,
July 1, 1998 to September 30, 1998 and October 1, 1998 to December
31, 1998 were made to Limited Partners on May 8, 1998, August 15,
1998, November 15, 1998 and February 15, 1999, respectively, in the
amounts of approximately $525,000, $361,400, $644,100 and $500,900.
In addition, distributions of approximately $21,500 were paid to
various states for income taxes on behalf of all Limited Partners
during 1998.
Below is a table summarizing the four year historical data for
distribution rates per unit:
Distribution
Date 1999 (a) 1998 (b) 1997 (c) 1996
February 15 $.2246 $ -- $.2396 $.2313
May 15 .2296 .2368 .2390 .2313
August 15 .1871 .1621 .2190 --
November 15 (d) .2358 .2888 .5665 --
(a) The 1999 May distribution was made on May 17, 1999.
(b) The 1998 distributions were made on May 8, 1998, August 15,
1998, November 15, 1998 and February 15, 1999.
(c) The 1997 distributions were made on March 31, 1997, July 15,
1997, October 22, 1997 and December 31, 1997.
(d) The November 15, 1998 and November 15, 1999 distributions
above do not include returns of capital distribution of
approximately $0.1971 and $0.5836, per Unit, respectively.
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.
Included in the December 31, 1997 distribution was any prior period
earnings including amounts previously reserved for anticipated
closing costs.
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.
During the nine months ended September 30, 1999 and the year
ended December 31, 1998, the General Partners and their affiliates
earned management fees of $17,958, $23,172, respectively, and
received $300 and $17,951 in Operating Cash Flow distributions for
the nine months ended September 30, 1999 and the year ended
December 31, 1998, respectively. Included in the $17,951 received
in 1998 was approximately $15,100 the Partnership paid the General
Partners as an Operating Cash Flow distribution for the year ended
December 31, 1997.
Although the Merger will not be consummated, the following text
describes the Transaction. Pursuant to the terms of the Agreement,
the Limited Partners would have received approximately $8.85 per
Unit in cash; of this original amount, approximately $0.27 has
already been distributed to the Limited Partners. Promptly upon
consummation, the Partnership would have ceased to exist and the
Purchaser, as the surviving entity, would have succeeded to all of
the assets and liabilities of the Partnership.
The Partnership drafted a proxy statement, which required prior
review and comment by the 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 various legal
issues, as described in legal proceedings, the Special Meeting was
adjourned to November 8, 1996 at 10:00 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 would have
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 also 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 was 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 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 $19,129,150, or $8.58 per
Unit, on April 1, 1996. Subsequently, the Partnership purchased a
34% 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 would remain unchanged. The redemption price of $8.85 per
Unit also included 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 of 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 cash redemption amount
approximately $0.27 was 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 was
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 was the highest price which might be obtained
in the marketplace, but rather that based on the appraised values
of the properties, the price reflected in the Transaction was
believed by Cushman & Wakefield to be reasonable.
Mr. Jerome J. Brault is the Managing General Partner and Brauvin
Realty Advisors III, Inc. is the Corporate General Partner. Mr.
Cezar M. Froelich resigned his position as an Individual General
Partner of the Partnership effective as of September 17, 1996. The
General Partners were not to receive any payment in exchange for
the redemption of their general partnership interests nor were they
to receive any fees from the Partnership in connection with the
Transaction. The remaining General Partners do not believe that
Mr. Froelich's lack of future involvement will have any adverse
effect on the Partnership.
The Managing General Partner and his son, James L. Brault, an
executive officer of the Corporate General Partner, were to have a
minority ownership interest in the Purchaser. Therefore, the
Messrs. Brault had an indirect economic interest in consummating
the Transaction that was in conflict with the economic interests of
the Limited Partners. Mr. Froelich has no affiliation with the
Purchaser.
Although the Special Meeting was held and an affirmative vote of
the majority of the Limited Partners was received, the District
Court in the Christman Litigation ruled on August 12, 1998 in favor
of the Plaintiff's motion for partial summary judgement, holding
the Partnership Agreement did not allow the Limited Partners to
vote in favor or against the Transaction by proxy.
As discussed in "Legal Proceedings", all the parties to the
litigation reached an agreement to settle the litigation, subject
to the approval by the United States District Court for the
Northern District of Illinois. This approval was obtained on June
18, 1999.
The 1999 and 1998 distributions were based on the net earnings
of the Partnership for the nine months ended September 30, 1999 and
the year ended December 31, 1998, respectively. These distributions
were lower than they otherwise would be because the Partnership has
incurred significant legal costs to defend against the lawsuits.
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 Affiliated Partnerships' properties. However, subsequent to
their closings, two properties have been reopened and subleased to
two unrelated local concept restaurant operators and two have been
sold to unaffiliated third parties. Fortunately, none of the
Partnership's properties has been closed, with the exception of the
Elmhurst property (as described below). However, this is the type
of risk the Partnership was seeking to avoid with the successful
completion of the Merger.
In September 1997, one of the Partnership's property located in
Elmhurst, Illinois sustained extensive fire damage. The
Partnership is currently negotiating with the insurance company and
the tenant on the disposition of the insurance proceeds. On
September 3, 1998, the Partnership sold the Elmhurst property to an
unaffiliated third party for approximately $300,000, resulting in
a loss of approximately $289,500.
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. The Special Master has been empowered to determine
how the assets of the Partnership should be sold or disposed of in
a manner which allows the Limited Partners to maximize their
financial return in the shortest practicable time frame. In
addition, early in the second quarter of 1998, the Special Master
retained a financial advisor (the "Financial Advisor"), at the
expense of the Partnership, to assist the Special Master. The
Financial Advisor was engaged to perform a valuation of the
properties of the Partnership as well as a valuation of the
Partnership. The cost to the Partnership for the services of the
Financial Advisor was $110,000.
On August 4, 1998 the Special Master filed a Report and
Recommendation with the District Court expressing the Special
Master's recommendation that the Partnership's properties be
disposed of in an auction conducted by the Financial Advisor under
the direction of the Special Master. The District Court accepted
this Report and Recommendation. On November 4, 1998, the Special
Master filed an additional Report and Recommendation with the
District Court, requesting that the Court withdraw its Order of
Reference to Special Master on the grounds it would be impossible
to effect the sale of the Partnership's properties in a manner that
maximizes the financial return to Limited Partners in a short time
frame, unless certain litigation issues are resolved.
Results of Operations
As a result of the settlement agreement that was approved by the
United States District Court for the Northern District of Illinois
on June 18, 1999 the Partnership has begun the liquidation process
and therefore operations are being accounted for on a liquidation
basis of accounting. The settlement agreement gave the Special
Master authority to liquidate the assets of the Partnership in an
orderly manner, to this end the Special Master has retained the
services of the Financial Advisor who is actively marketing the
properties for sale.
Item 3. Quantitative and Qualitative Disclosures about Market
Risk.
The Partnership does not engage in any hedge transactions or
derivative financial instruments.
<PAGE>
Part II
Item 1. Legal Proceedings.
Two legal actions, as hereinafter described, against the General
Partners of the Partnership and affiliates of such General
Partners, as well as against the Partnership on a nominal basis in
connection with the Merger, have been settled. On April 13, 1999,
all the parties to the litigation reached an agreement to settle
the litigation, subject to the approval by the United States
District Court for the Northern District of Illinois. This
approval was obtained on June 18, 1999. Management believes that
the settlement will not have a material financial impact on the
Partnership. The terms of the settlement agreement, along with a
Notice to the Class, were forwarded to the Limited Partners in the
second quarter. One additional legal action, which was dismissed
on January 28, 1998 had also been brought against the General
Partners of the Partnership and affiliates of such General
Partners, as well as the Partnership on a nominal basis in
connection with the Merger. With respect to these actions the
Partnership and the General Partners and their named affiliates
denied all allegations set forth in the complaints and vigorously
defended against such claims.
Item 2. Changes in Securities.
None.
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Submission of Matters to a Vote of Security Holders.
None.
Item 5. Other Information.
None.
Item 6. Exhibits and Reports On Form 8-K.
Exhibit 27. Financial Data Schedule
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of l934,
the registrant has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.
BY: Brauvin Realty Advisors III, Inc.
Corporate General Partner of
Brauvin Income Plus L.P. III
BY: /s/ Jerome J. Brault
Jerome J. Brault
Chairman of the Board of Directors,
President and Chief Executive Officer
DATE: November 15, 1999
BY: /s/ Thomas E. Murphy
Thomas E. Murphy
Chief Financial Officer and Treasurer
DATE: November 15, 1999
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> SEP-30-1999
<CASH> 726,028
<SECURITIES> 492,295 <F1>
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 19,015,126 <F2>
<DEPRECIATION> 0
<TOTAL-ASSETS> 20,408,302
<CURRENT-LIABILITIES> 512,719
<BONDS> (844) <F3>
0
0
<COMMON> 15,271,314 <F4>
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 0
<SALES> 0
<TOTAL-REVENUES> 1,120,566 <F5>
<CGS> 0
<TOTAL-COSTS> 435,410 <F6>
<OTHER-EXPENSES> (21,209) <F7>
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 706,365
<EPS-BASIC> 0
<EPS-DILUTED> 0
<FN>
<F1> "SECURITIES" REPRESENTS INVESTMENT IN JOINT VENTURE
<F2> "PP&E" REPRESENTS REAL ESTATE HELD FOR SALE
<F3> "BONDS" REPRESENTS MINORITY INTEREST IN JOINT VENTURE
<F4> "COMMON" REPRESENTS NET ASSETS IN LIQUIDATION
<F5> "TOTAL REVENUES" REPRESENTS RENTAL, INTEREST, AND OTHER
INCOME
<F6> "TOTAL COSTS" REPRESENTS TOTAL EXPENSES
<F7> "OTHER EXPENSES" REPRESENTS MINORITY INTEREST AND JOINT
VENTURES' NET INCOME/LOSS
</FN>
</TABLE>
