<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
[X] Annual Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934.
For the fiscal year ended December 31, 1998
[ ]Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934.
For the transition period from N/A to N/A
Commission File Number 0-28332
BRAUVIN NET LEASE V, INC.
(Name of small business issuer as specified in its charter)
Maryland 36-3913066
(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
(Issuer's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange on
Title of each class which registered
None N/A
Securities registered pursuant to Section 12(g)of the Act:
Common Stock, par value - $.01 per share
(Title of Class)
Check whether the issuer (1) 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 .
Check if there is no disclosure of delinquent filers in response to
Item 405 of Regulation S-B is contained in this form, and no
disclosure will 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-KSB or any
amendment to this Form 10-KSB. [X]
State issuer's revenues for its most recent fiscal year: $1,353,497.
The aggregate market value of the Common Stock held by non-
affiliates as of March 30, 1999 was $12,970,712. As of March 30,
1999, the registrant had 1,297,071 shares of Common Stock
outstanding.
Transitional small business disclosure format (check one)
Yes ___ No X .
<PAGE>
BRAUVIN NET LEASE V, INC.
1998 FORM 10-KSB ANNUAL REPORT
INDEX
PART I
Page
Item 1. Description of Business. . . . . . . . . . . . . . . . . . . 3
Item 2. Description of Properties. . . . . . . . . . . . . . . . . . 5
Item 3. Legal Proceedings. . . . . . . . . . . . . . . . . . . . . 10
Item 4. Submission of Matters to a Vote of Security
Holders. . . . . . . . . . . . . . . . . . . . . . . . . . 10
PART II
Item 5. Market for Common Equity and
Related Stockholder Matters. . . . . . . . . . . . . . . . 11
Item 6. Management's Discussion and Analysis or Plan
of Operation . . . . . . . . . . . . . . . . . . . . . . . 13
Item 7. Consolidated Financial Statements. . . . . . . . . . . . . .18
Item 8. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure. . . . . . . . . . . . 18
PART III
Item 9. Directors, Executive Officers, Promoters and
Control Persons; Compliance with Section 16(a) of
the Exchange Act . . . . . . . . . . . . . . . . . . . . . 19
Item 10.Executive Compensation . . . . . . . . . . . . . . . . . . 24
Item 11.Security Ownership of Certain Beneficial Owners
and Management . . . . . . . . . . . . . . . . . . . . . . 24
Item 12.Certain Relationships and Related Transactions . . . . . . 24
Item 13.Exhibits and Reports on Form 8-K . . . . . . . . . . . . . 27
Signatures . . . . . . . . . . . . . . . . . . . . . . . . 31
BRAUVIN NET LEASE V, INC.
(a Maryland corporation)
PART I
Item 1. Description of Business.
General
Brauvin Net Lease V, Inc. (the "Fund") is a Maryland corporation
formed on October 14, 1993, which operates as a real estate
investment trust ("REIT") under federal tax laws. The Fund has
intended to acquire properties which are leased to creditworthy
corporate operators of nationally or regionally established
businesses, primarily in the retail and family restaurant sectors.
Substantially all of the leases are on a long-term "triple net"
basis generally requiring the corporate tenant to pay both base
annual rent with mandatory escalation clauses and all operating
expenses. The Fund acquired one property during the year ended
December 31, 1994, five properties during the year ended December
31, 1995, two properties during the year ended December 31, 1996
and one property during the year ended December 31, 1997. See Item
2, "Description of Properties."
The advisory agreement provides for Brauvin Realty Advisors V,
L.L.C. (the "Advisor"), an affiliate of the Fund, to be the advisor
to the Fund. The Fund registered the sale of up to 5,000,000
shares of common stock at $10.00 per share in an initial public
offering filed with the Securities and Exchange Commission
("Registration Statement") and the issuance of 500,000 shares
pursuant to the Fund's dividend reinvestment plan ("Reinvestment
Plan"). After the termination of the Offering, the Fund registered
the issuance of 200,000 shares under the Reinvestment Plan. The
Reinvestment Plan is available for those stockholders who wish to
participate pursuant to which stockholders may cause dividends from
the Fund to be automatically reinvested in additional shares. On
August 8, 1994, the Fund sold the minimum (120,000) shares required
under its Registration Statement and commenced its real estate
activities. The offering period for the sale of common stock
terminated on February 25, 1996 after the Fund had raised
$12,865,680 in gross proceeds with an additional $133,861 of shares
purchased by stockholders through the Reinvestment Plan, including
$200,000 invested by the Advisor ("Initial Investment"), before
reduction for selling commissions and other offering costs. At
December 31, 1998, the Fund had outstanding 1,294,960 shares and
the gross proceeds raised were $13,387,442, net of liquidations of
$437,852, including the $200,000 invested by the Advisor, before
reduction for selling commissions and other offering costs.
The Fund's structure and business were designed to provide
stockholders: (1) cash distributions beginning in the first
quarter of operations in amounts that exceed taxable income, and in
no event less than 95% of the Fund's taxable income, given the non-
cash nature of depreciation expense and the REIT qualification
requirements; (2) preservation of capital, through acquisition of
well located properties with leases on a long term "triple net"
basis to creditworthy corporate tenants; (3)increased income and
protection against inflation, through leases with mandatory rent
escalation clauses; and (4) capital appreciation, through the
potential increase in value of the properties. There can be no
assurance that the foregoing objectives will be achieved.
The Fund qualifies as a REIT under Sections 856-860 of the
Internal Revenue Code, as amended (the "Code"). In order to
qualify, the Fund is required to distribute substantially all of
its taxable income to its stockholders and meet certain asset and
income tests as well as certain other requirements.
The Fund has no employees other than its officers who do not
receive compensation from the Fund.
The Fund intends to sell its properties not later than seven to
nine years after their acquisition and distribute the net proceeds
and other cash to the stockholders.
The terms of the transactions between the Fund and the Advisor
and its affiliates are set forth in Item 12 below, to which
reference is hereby made for a description of such terms and
transactions.
Market Conditions/Competition
Prior to the acquisition of the Fund's properties, the Fund had
competed with many other entities engaged in real estate investment
activities to acquire property, some of which had greater resources
than the Fund. In addition, the number of entities and the amount
of funds available for investment in properties of a type suitable
for investment by the Fund may have resulted in increased
competition for such investments and possibly increased the prices
paid therefor.
As it is anticipated that the leases at the Fund's properties
will entitle the Fund to participate in gross receipts of lessees
above fixed minimum amounts, the success of the Fund will depend in
part on the ability of those lessees to compete with similar
businesses in their respective vicinities. The Fund's business is
not seasonal.
Item 2. Description of Properties.
Country Harvest Buffet Restaurant
On November 21, 1994, the Fund purchased a 6,750 square foot
building and the underlying land which was occupied by a Country
Harvest Buffet restaurant (the "CHB Property") located in Lynnwood,
Washington (metropolitan Seattle), from an unaffiliated party, for
$900,000 plus closing costs. The CHB Property was originally
leased to Country Harvest Buffet Restaurants, Inc. under a triple
net twenty-year lease, with two ten-year extension options. The
lease required a minimum base rent each month in the amount of
$8,438 plus periodic increases beginning in the sixth lease year.
The tenant discontinued operations in mid-June 1997 as a result of
new competition from a new and larger buffet restaurant opening in
the immediate area. The tenant continued to pay its rent on a
timely basis through the end of 1997. In January, 1998, Country
Harvest Buffet Restaurants, Inc. filed for protection from its
creditors under Chapter 11 of the United States Bankruptcy Code.
However, prior to this filing, the Fund agreed to a sublease with
another buffet restaurant, Moon Buffet. To avoid complications of
a rejection of the main lease under bankruptcy law, the Fund agreed
to a novation of the main lease. Moon Buffet opened for business
mid-April 1998. The Moon Buffet lease is a triple net, which
requires monthly payments of minimum base rent in the amount of
$8,721 with periodic increases in rent beginning in the third
sublease year. Under the Moon Buffet sublease no percentage rental
payments will be made to the Fund. The Moon Buffet lease is
scheduled to expire in November, 2014.
On The Border Restaurant
On January 9, 1995, the Fund purchased an 8,200 square foot
building and the underlying land which was occupied by an On The
Border restaurant (the "OTB Property") located in Stafford, Texas
(metropolitan Houston), from an unaffiliated party, for $1,340,000
plus closing costs. The OTB Property is leased to On The Border
Corporation, a subsidiary of On The Border Cafes, Inc., under a
triple net, initial fifteen-year lease with two five-year extension
options which is guaranteed by Brinker Restaurant Corporation, an
affiliate of On The Border Cafes, Inc. The lease requires a
minimum base rent each month in the amount of $12,292 plus periodic
increases beginning in the sixth lease year. The tenant of the OTB
Property discontinued its operations on May 29, 1996. Brinker
Texas, L.P., the property's lease guarantor (and a wholly-owned
subsidiary of Brinker International) has stated its intention to
honor the lease and cooperate with the Fund to cause the property
to be reoccupied. Moreover, the adjacent highway was widened which
has resulted in the condemnation of a portion of the frontage of
the parcel. The monetary damages from this condemnation were paid
to HMG/Courtland Properties, the developer of the property (the
"Developer"). The Fund was compensated with an adjacent piece of
land owned by the Developer. The Fund is working with Brinker
International, in order to locate a subtenant or facilitate the
sale of this location. The Fund does not currently anticipate that
this situation will adversely affect the Fund's cash flow, as rent
is currently being paid on the lease.
The Fund has a pending sale contract on this property to an
unaffiliated third party in the amount of approximately $1,533,000.
If this sale is consummated, it is anticipated that the Fund will
actively pursue the acquisition of an additional property.
Blockbuster Video
On January 31, 1995, the Fund purchased a 6,515 square foot
building and the underlying land which was occupied by a
Blockbuster Video store (the "BBV Property") located in Lakewood,
Colorado (metropolitan Denver), from an unaffiliated party, for
$1,120,000 plus closing costs. The BBV Property is leased to
Blockbuster Video, Inc. under a triple net, ten-year lease with
three five-year extension options. The lease requires a minimum
base rent each month in the amount of $10,254 plus periodic
increases beginning in the sixth lease year.
Chili's Restaurant
On April 13, 1995, the Fund purchased a 6,100 square foot
building and the underlying land which was occupied by a Chili's
restaurant (the "Chili's Property") located in Birmingham, Alabama,
from an unaffiliated party, for $1,080,000 plus closing costs. The
Chili's Property was leased to Sunstate Ventures, Inc., a Chili's
restaurant franchisee, under a triple net lease, for an original
remaining term of approximately fourteen years with two five-year
extension options. The lease requires a minimum base rent each
month in the amount of $10,417.
On October 1, 1996, the assets of Sunstate Ventures, Inc. were
purchased by Brinker Alabama, Inc. a wholly-owned subsidiary of
Brinker International, Inc. and the Chili's lease was assigned from
Sunstate Ventures, Inc. to Brinker Alabama, Inc. The terms and
conditions of the original lease for this property remain
unchanged.
Just For Feet
On June 15, 1995, the Fund purchased a 15,000 square foot
building and the underlying land which was occupied by a Just For
Feet store (the "Feet Property") located in Independence, Missouri,
from an unaffiliated party, for $2,141,400 plus closing costs. The
Feet Property is leased to Just For Feet, Inc., under a triple net,
twenty-year lease with two five-year extension options. The lease
requires a minimum base rent each month in the amount of $19,630
plus periodic increases beginning in the sixth lease year.
Video Watch
On July 31, 1995, the Fund purchased an 8,000 square foot
building and the underlying land which was occupied by a Video
Watch store (the "Video Property") located in Beloit, Wisconsin,
from an unaffiliated party, for $830,000 plus closing costs. The
Video Property was leased to Video Watch, Inc. ("Video Watch"),
under a triple net, ten-year lease with one five-year extension
option. The lease requires a minimum base rent each month in the
amount of $8,000 plus periodic increases beginning in the third
lease year.
In August 1995, Hollywood Entertainment Corporation acquired
Video Watch, Inc. and shortly thereafter converted the Video Watch
property to a Hollywood Video. The terms and conditions of the
original lease for this property remain unchanged.
Pier 1 Imports
On May 3, 1996, the Company purchased the land and a 10,834
square foot building underlying a Pier 1 Imports store (the "Pier
1 Property"), located in Sioux Falls, South Dakota from P. One
Sioux Falls Investors, Inc., an unaffiliated party, for $1,375,000
plus closing costs. The Pier 1 Property has been leased to Pier 1
Imports, Inc. ("Pier 1"), under a triple net, ten-year lease ending
February 28, 2006. The lease requires Pier 1 to pay a minimum base
rent each month in the amount of $13,046.
Taylor Rental
On November 22, 1996, the Company purchased the land and a 5,000
square foot building underlying the Taylor Rental Facility (the
"Taylor Property") located in Jacksonville, Florida, from an
unaffiliated party, for $650,000 plus closing costs. The Taylor
Property has been leased to Stanley Works Corporation ("Stanley
Works"), under a triple net lease, for a remaining term ending July
31, 2007. The lease requires Stanley Works to pay base rent each
month in the amount of $5,811 with rent escalations every three
years based upon 66% of CPI increase.
In the first quarter of 1999, the tenant of the Taylor Property
discontinued its operations. The Fund has identified a subtenant
for this location. The Fund does not currently anticipate that
this situation will adversely affect the Fund's cash flow, as rent
is currently being paid on the lease.
Jiffy Lube & Firestone
On February 20, 1997, effective as of January 22, 1997, the Fund,
through a wholly-owned subsidiary intended to qualify as a
qualified REIT subsidiary, purchased two buildings consisting of a
6,580 square foot building and the underlying land which was
occupied by a Firestone Tire & Service Center facility (the
"Firestone Facility") and a 2,440 square foot building and the
underlying land which was occupied by a Jiffy Lube oil change
facility (the "Jiffy Lube Facility"), located in East Norriton
Township, Pennsylvania from an unaffiliated party for $1,450,000
plus closing costs. The Firestone Facility has been leased to
Bridgestone/Firestone Inc. ("Firestone") under a triple net lease
(except the landlord is responsible for structural, roof and
exterior repairs) for an initial term of 25 years ending January
31, 2013 which requires Firestone to pay a minimum base rent each
month in the amount of $7,975 plus periodic increases and
percentage rent. The Jiffy Lube Facility has been leased to Jiffy
Lube International of Maryland, Inc. ("Jiffy Lube") under a triple
net lease for an initial term of 20 years ending May 8, 2007 which
requires Jiffy Lube to pay a minimum base rent each month in the
amount of $6,570 plus periodic increases and percentage rent.
In the opinion of management, the Fund has provided for adequate
insurance coverage of its real estate investment properties.
As of December 31, 1998 all the Funds properties are fully
occupied with the exception of the On The Border Restaurant.
All the Funds properties are being depreciated over 40 years for
financial reporting and 39 years for tax reporting. The federal
tax basis of all the Funds properties is approximately $11,528,400.
Risk of Ownership
The possibility exists that tenants of the Fund's properties as
well as lease guarantors, if any, may be unable to fulfill their
obligations pursuant to the terms of their leases, including making
base rent or percentage rent payments to the Fund. 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 Fund.
Furthermore, the Fund may be unable to successfully locate a
substitute tenant due to the fact that these buildings have been
designed or built primarily to house a particular type of
operation. Thus, the properties may not be readily marketable to a
new tenant without substantial capital improvements or remodeling.
Such improvements may require expenditure of funds which might
otherwise be available for distribution.
Item 3. Legal Proceedings.
None.
Item 4. Submission of Matters to a Vote of Security Holders.
None.
<PAGE>
PART II
Item 5. Market for the Issuer's Common Equity and Related
Stockholder Matters.
At December 31, 1998 there were 712 stockholders in the Fund.
Although there is no established public trading market for the
shares and no assurance exists that there will be a public market
for the shares, shares may be redeemed or transferred as discussed
below.
Redemption of Shares
After the termination of the offering, any stockholder (excluding
the Advisor or its affiliates who may not sell the shares
represented by the initial investment while the Advisor remains the
advisor to the Fund, but who may transfer the shares to an
affiliate) who acquired or received shares directly from the Fund
or the Reinvestment Plan (such shares, for so long as owned by the
original holder, are called "Eligible Shares") may present such
Eligible Shares to the Fund for redemption at any time subject to
the availability of proceeds in accordance with the procedures
outlined in the Fund's Prospectus. Subject to the conditions
described in the Fund's Prospectus, the Fund is required to redeem
such Eligible Shares presented for redemption for cash to the
extent it has sufficient net proceeds ("Reinvestment Proceeds")
from the sale of shares under the Reinvestment Plan. There is no
assurance that there will be investment proceeds available for
redemption and, accordingly, an investor's shares may not be
redeemed. The full amount of Reinvestment Proceeds for any quarter
will be used to redeem Eligible Shares presented for redemption for
the following quarter. If the full amount of Reinvestment Proceeds
available for redemption for any given quarter exceeds the amount
necessary for such redemptions, the remaining amount may be held
for subsequent redemptions or may be invested by the Fund in
additional properties as described in the Fund's Prospectus. If
the full amount of Reinvestment Proceeds available for redemption
for any given quarter is insufficient to make all the requested
redemptions, the Fund will redeem the Eligible Shares presented for
redemption on a first come basis. As of March 29, 1999, the Fund
has received completed redemption requests for approximately
$556,949 that have not yet been redeemed by the Fund due to
insufficient Reinvestment Plan proceeds.
Upon presentment of Eligible Shares to the Fund for redemption,
the redemption price will be the offering price per Eligible Share
($10.00 per share) from the termination of the offering until the
third anniversary of the termination of the Offering (February 25,
1999) and thereafter at a price determined on the basis of the
annual valuation of the Fund assets. The Board of Directors, in
their sole discretion, may determine, prior to listing the shares
for trading on an exchange or market, that it is appropriate to pay
a higher or lower price than described above. In determining
whether a price adjustment is appropriate, the Board of Directors
would consider a variety of factors, including whether the Fund's
net book value is substantially less than a share valuation based
on the Fund's present and historic dividend rates and underlying
value of the properties. Any such price adjustment will be made
with respect to all shares redeemed during the period the price
adjustment is in effect. The Board of Directors will announce any
price adjustment and the time period of its effectiveness as part
of its regular communications with stockholders. Any shares
acquired pursuant to a redemption will be retired and no longer
available for issuance by the Fund. Once the shares are listed for
trading on an exchange or included for quotation on a formal
market, whether prior to or subsequent to the third anniversary of
the termination of the offering, the redemption price will be the
market price of the shares on such exchange or market and no price
adjustment will be made.
The Board of Directors, in their sole discretion, may amend or
suspend the plan at any time they determine, provided that such
amendment or suspension is in the best interest of the Fund.
Transfer of Shares
All shares are fully transferable, subject only to restrictions
which would cause loss of REIT status. However, each person
acquiring shares must comply with the procedures in the Prospectus
prior to any share transfer being recorded on the books and records
of the Fund.
Dividends
Below is a table summarizing the dividends declared since January
1, 1997:
Annualized
Declaration Record Payment Dividend
Date(a) Dates Date Rate Amount
1/31/97 10/1/96-12/31/96 2/15/97 7% $229,517
5/8/97 1/1/97-3/31/97 5/15/97 7% 224,034
8/7/97 4/1/97-6/30/97 8/15/97 7% 224,907
11/6/97 7/1/97-9/30/97 11/15/97 7% 227,999
1/29/98 10/1/97-12/31/97 2/15/98 7% 227,354
5/7/98 1/1/98-3/31/98 5/15/98 6.5% 206,711
8/6/98 4/1/98-6/30/98 8/15/98 6.75% 217,606
11/2/98 7/1/98-9/30/98 11/15/98 6.2% 202,531
2/15/99 10/1/98-12/31/98 2/15/99 6.9% 224,972
(a) Dividends were declared on a daily basis.
In order to qualify as a REIT, the Fund is required to
distribute dividends to its Stockholders in an amount at least
equal to 95% of REIT taxable income of the Fund. The Fund intends
to make quarterly distributions to satisfy all annual distribution
requirements. See "Management's Discussion and Analysis or Plan of
Operations".
Item 6. Management's Discussion and Analysis or Plan 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 "Description of 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, including, without limitation,
tenant defaults which could materially decrease the Fund's rental
income. Actual results could differ materially from those
projected in the forward-looking statements. The Fund 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
As of December 31, 1998, the Fund had received $11,666,750 in
connection with the sale of shares, net of selling commissions and
other offering costs, including $200,000 paid by the Advisor for a
share of stock as disclosed in the Prospectus and liquidations of
$437,852. The Fund acquired one property during the year ended
December 31, 1994 for $900,000 plus closing costs, acquired five
properties during the year ended December 31, 1995 for $6,511,400
plus closing costs, acquired two properties during the year ended
December 31, 1996 for $2,025,000 plus closing costs and acquired
one property during the year ended December 31, 1997 for $1,450,000
plus closing costs. For more details on the properties purchased
see Item 2.
Upon the acquisition of the property purchased during the year
ended December 31, 1997, the Fund has invested all the proceeds of
the offering allocable to investments in real estate. The Fund
has no material capital commitments. In the opinion of management
of the Fund, each property is adequately covered by insurance.
Compliance with 95% REIT taxable income test
The Fund is required, under the Code, to make distributions of
an amount not less than 95% of its REIT taxable income during the
year. See Item 5 for detail on distributions made in 1998 and
1997.
The amount required to have been paid for the year ended
December 31, 1997 approximated $679,000.
The amount required to have been paid for the year ended
December 31, 1998 approximated $701,000. In accordance with the
Fund's intent to maintain its qualification as a REIT under the
Code, the Fund intends to manage its dividend distributions to
approximate earnings during the year to which they relate.
Results of Operations - 1998 Compared to 1997
Results of operations for the year ended December 31, 1998
reflected rental income of approximately $1,338,000. Total income
was approximately $1,353,000 which consisted primarily of rental
income. Total expenses were approximately $510,000 and net income
was approximately $844,000.
Total income was approximately $1,353,000 in 1998 compared to
approximately $1,360,000 in 1997, a decrease of approximately
$7,000. This decrease was due to a decrease in interest and other
income of $13,000 and an increase in rental income of $6,000. A
Firestone/Jiffy Lube facility was purchased in 1997, which accounts
for the decrease in interest income and the increase in rental
income.
Total expenses incurred in 1998 were approximately $510,000
compared to approximately $540,000 in 1997, a decrease of
approximately $30,000. The decrease was due primarily to a
decrease in acquisition costs in the amount of $33,000, general and
administrative expenses of $20,000 and directors fees in the amount
of $5,000. The decline in acquisition expense was the result of
the 1997 purchase of the Fund's last property. General and
administrative expenses decreased primarily as a result of a
decline in professional fees. Partially offsetting these decreases
were increases in bad debt and depreciation expenses of $17,000 and
$10,000, respectively. Bad debt expense increased as a result of
the bankruptcy of the original tenant at the Country Harvest Buffet
property (as detailed more fully below).
The Country Harvest Buffet tenant discontinued its operations in
mid-June 1997 as a result of new competition from a new and larger
buffet restaurant opening in the immediate area. The tenant
continued to pay its rent on a timely basis through the end of
1997. In January, 1998, Country Harvest Buffet Restaurants, Inc.
filed for protection from its creditors under Chapter 11 of the
United States Bankruptcy Code. However, prior to this filing, the
Fund agreed to a sublease with another buffet restaurant, Moon
Buffet. To avoid complications of a rejection of the main lease
under bankruptcy law, the Fund agreed to a novation of the main
lease. Moon Buffet opened for business mid-April 1998.
The tenant of the On The Border property discontinued its
operations on May 29, 1996. Brinker Texas, L.P., the property's
lease guarantor (and a wholly-owned subsidiary of Brinker
International), has stated its intention to honor the lease and
cooperate with the Fund to cause the property to be re-occupied.
In addition the adjacent highway is in the process of being widened
which has resulted in the condemnation of a portion of the frontage
of the parcel owned by the Fund. Per the purchase contract the
monetary damages from this condemnation were paid to HMG/Courtland
Properties, the developer of the property (the "Developer"). The
Fund was compensated with an adjacent piece of land owned by the
Developer. The Fund is working with Brinker International, in
order to locate a subtenant or purchaser for this location. The
Fund does not currently anticipate that this situation will
adversely affect the Fund's cash flow, as rent is currently being
paid on the lease. The Fund has a pending sale contract on this
property to an unaffiliated third party in the amount of
approximately $1,533,000. If this sale is consummated, it is
anticipated that the Fund will actively pursue the acquisition of
an additional property.
Results of Operations - 1997 Compared to 1996
Results of operations for the year ended December 31, 1997
reflected rental income of approximately $1,332,000. Total rental
income for the eight properties held for the entire year ended
December 31, 1997 was approximately $1,139,000. Total income was
approximately $1,360,000 which consisted primarily of rental
income. Total expenses were approximately $540,000 and net income
was approximately $820,000.
Total income was approximately $1,360,000 in 1997 compared to
approximately $1,201,000 in 1996, an increase of approximately
$159,000. This increase was due primarily to the number of
properties increasing from six in the beginning of 1996 to nine by
the end of 1997.
Total expenses incurred in 1997 were approximately $540,000
compared to approximately $483,000 in 1996, an increase of
approximately $57,000. The increase was due primarily to increased
expenses such as depreciation in the amount of approximately
$38,000 as a result of the increase in the number of properties
owned increased from six in the beginning of 1996 to nine by the
end of 1997. Other expenses, such as advisory fees, have increased
approximately $17,000. Pursuant to the terms of the Advisory
Agreement, following the termination of the offering on February
25, 1996, the Advisor was entitled to an annual advisory fee
payable monthly, in an amount equal to the greater of : (i) .60%
of gross proceeds, or (ii) $175,000. Accordingly, the Advisory fee
is $175,000 annually.
Item 7. Consolidated Financial Statements.
See Index to Consolidated Financial Statements on Page F-1 of
this Annual Report on Form 10-KSB for financial statements where
applicable.
Item 8. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure.
None.
<PAGE>
PART III
Item 9. Directors, Executive Officers, Promoters and Control
Persons; Compliance with Section 16(a) of the Exchange Act.
The Board of Directors
The Board of Directors is responsible for the management and
control of the affairs of the Fund and has retained the Advisor to
manage the Fund's day-to-day activities including responsibilities
with respect to, among other things, the acquisition or disposition
of properties.
The Fund's Articles and By-Laws provide for not fewer than three
directors, a majority of whom must be independent directors. Each
of the directors will serve for a one-year term and will be elected
annually.
There are currently six directors of the Fund, two of whom are
affiliates of the Advisor, four of whom are independent directors.
The Board of Directors has established written policies on
investments and borrowing as necessary to supplement the provisions
in the Articles and monitors the administrative procedures,
investment operations and performance of the Fund and the Advisor
to ensure that such policies are carried out. The Fund follows the
policies on investments and borrowing set forth in the Fund's
prospectus unless the policies are modified through an amendment of
the Articles. The independent directors are responsible for
reviewing the investment policies of the Fund not less often than
annually and with sufficient frequency to determine that the
policies being followed are in the best interests of the
stockholders. The Articles provide that each director shall have
had at least three years of relevant experience demonstrating the
knowledge and experience required to successfully acquire and
manage the type of assets being acquired by the Fund. In addition,
at least one of the independent directors shall have had three
years of relevant real estate experience. For purposes hereof,
relevant real estate experience shall mean actual direct experience
by the director in acquiring or managing the type of real estate to
be acquired by the Fund for his or her own account or as an agent.
A vacancy in the Board of Directors created by the death,
resignation or incapacity of a director or by an increase in the
number of Directors (within the limits referred to above) may be
filled by the vote of a majority of the remaining directors. With
respect to a vacancy created by the death, resignation or
incapacity of an independent director, the remaining independent
directors shall nominate a replacement. Vacancies occurring as a
result of the removal of a director by stockholders shall be filled
by a majority vote of the stockholders. Any director may resign at
any time and may be removed by the holders of at least a majority
of the outstanding shares (with or without cause).
The Directors and Officers of the Fund are:
Name Position(s) with the Fund
Mr. Jerome J. Brault Chairman of the Board of Directors,
President and Chief Executive
Officer
Mr. James L. Brault Director, Executive Vice President
and Secretary
Mr. Jeff A. Jacobson Director
Mr. Gregory S. Kobus Director
Mr. Kenneth S. Nelson Director
Mr. Hugh K. Zwieg Director
Mr. Thomas E. Murphy Chief Financial Officer(Principal
Accounting Officer)
MR. JEROME J. BRAULT (age 65) is chairman of the board of
directors, president and chief executive officer of the Fund and
the Advisor. Mr. Brault has been a director since the offering of
the Fund. Mr. Brault is a majority shareholder of the Advisor.
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 seven 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 member and manager of Brauvin Real Estate
Funds, L.L.C. He is a member of Brauvin Capital Trust, L.L.C. He
is the chief executive officer of Brauvin Capital Trust, Inc. Mr.
Brault received a B.S. in Business from DePaul University, Chicago,
Illinois in 1959.
MR. JAMES L. BRAULT (age 38) is a director, executive vice
president, secretary and responsible for the overall operations of
the Fund, the Advisor and other affiliates of the Advisor. Mr.
Brault has been a director since the offering of the Fund. He is
a manager of Brauvin Real Estate Funds, L.L.C., Brauvin Capital
Trust, L.L.C. and BA/Brauvin L.L.C. He is an officer of various
Brauvin entities, which act as the general partners of seven
publicly registered real estate programs. He is the president and
a director of Brauvin Capital Trust, Inc. Mr. Brault is executive
vice president, assistant secretary and responsible for the overall
operations of Brauvin Management Company. 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 $160.0 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. JEFF A. JACOBSON (age 37) has been a director of the Fund
since its offering. Mr. Jacobson is currently a Managing Director
of Security Capital Global Capital Management Group Incorporated,
a wholly owned affiliate of Security Capital Group Incorporated.
Prior to joining Security Capital Group in September 1997, Mr.
Jacobson was a Managing Director responsible for fixed income
investment activities at LaSalle Partners Limited, an international
institutional and corporate real estate investment manager and
services provider headquartered in Chicago, Illinois. Mr. Jacobson
joined LaSalle Partners in 1986 and worked at LaSalle through 1988
when he joined the Jacobson Group, a family owned real estate
development company located in Naples, Florida. Mr. Jacobson
returned to LaSalle Partners in 1990. Mr. Jacobson received a
B.A. in Economics from Stanford University in 1984 and a M.A. from
the Food Research Institute of Stanford University, Palo Alto,
California in 1984.
MR. GREGORY S. KOBUS (age 49) has been a director of the Fund
since its offering. Mr. Kobus became Chairman and President of
Hawthorn Bank, Mundelein, Illinois in 1992. Prior thereto, he was
Senior Vice President and Manager of the Financial Institution
Group at Exchange National Bank from 1983 to 1990. Prior thereto
Mr. Kobus was a Vice President and Division Head (Commercial
Lending) of the American National Bank and Trust Company of
Chicago. Throughout his career, Mr. Kobus has been responsible for
commercial loans in excess of $1.0 billion. Mr. Kobus received a
B.S. in Mathematics from St. Procopius College, Lisle, Illinois in
1972 and an M.B.A. from the University of Chicago in 1979.
MR. KENNETH S. NELSON (age 49) has been a director of the Fund
since its offering. Mr. Nelson is currently Managing Director and
head of Corporate Real Estate for Bank One Corporation. Mr. Nelson
joined First Chicago NBD Corporation the predecessor of Bank One in
1983 as vice president and manager of its Washington, D.C. Real
Estate Office. Prior to joining First Chicago NBD Corporation, Mr.
Nelson was with Mellon Bank N.A. for ten years holding various
management and lending positions in its Mortgage Banking and
Commercial Real Estate Departments. Mr. Nelson holds a B.A. in
Mathematical Economics from Colgate University and an M.B.A. from
Wharton School of Business, University of Pennsylvania.
MR. HUGH K. ZWIEG (age 39) has been a director of the Fund since
its offering. Mr. Zwieg is Senior Vice President of CMD
Corporation since 1989. Mr. Zwieg is responsible for the placement
of all debt and equity capital and management of all institutional
relationships. In addition, he oversees the financial structuring
of all CMD's investments and sales. Prior thereto, Mr. Zwieg was
Vice President of Investment Management of Balcor Company, a real
estate investment subsidiary of Shearson Lehman, from 1987 to 1989,
where he managed a $500 million real estate portfolio with
responsibility for the operations, leasing, financing and sales
strategy for the properties. During his tenure, he also worked in
the Special Projects Group, which was responsible for the
recapitalization and workout of problem assets in Balcor's Equity
and Debt portfolios. Mr. Zwieg began his career at the First
National Bank of Chicago where he was a commercial real estate loan
officer. Mr. Zwieg received a B.B.A. in 1982 and an M.B.A. in
1983, both from the University of Wisconsin in Madison, Wisconsin.
MR. THOMAS E. MURPHY (age 32) is the treasurer and chief
financial officer of the Fund. He is the chief financial officer
of various Brauvin entities, which act as general partners of seven
publically registered real estate programs. Mr. Murphy is also the
chief financial officer of Brauvin Associates, Inc., Brauvin
Management Company, Brauvin Financial, Inc. and Brauvin Securities,
Inc. He is the treasurer, chief financial officer and secretary
of Brauvin Capital Trust, Inc. He is responsible for the Fund's
accounting and financial reporting to regulatory agencies. He
joined the Brauvin organization in July 1994. Prior to joining the
Brauvin organization he was in the accounting department of
Zell/Merrill Lynch and First Capital Real Estate Funds where he was
responsible for the preparation of the accounting and financial
reporting for several real estate limited partnerships and
corporations. Mr. Murphy received a B.S. in Accounting from
Northern Illinois University in 1988. Mr. Murphy is a Certified
Public Accountant and is a member of the Illinois Certified Public
Accountants Society.
Section 16(a) Beneficial Ownership Reporting Compliance
Under Section 16(a) of the Securities Exchange Act of 1934, as
amended, the Fund's directors and executive officers are required
to report their initial ownership of stock and any subsequent
change in such ownership to the Securities and Exchange Commission
and to the Fund (such requirements hereinafter referred to as
"Section 16(a) filing requirements"). Specific time deadlines for
the Section 16(a) filing requirements have been established.
To the Fund's knowledge, and based solely upon a review of the
copies of such reports furnished to the Fund, and upon written
representations that no other reports were required, during the
fiscal year ended December 31, 1998, all Section 16(a) filing
requirements applicable to its officers and directors were complied
with.
Item 10. Executive Compensation.
The Fund is managed by the Advisor pursuant to the terms of the
Advisory Agreement as defined in the Prospectus and does not pay
compensation to its officers. Each of the Independent Directors
receives annual compensation of $5,000. Aggregate compensation
paid to directors during 1998 and 1997 was approximately $18,000
and $23,000, respectively. Accordingly, disclosures typically
required by Item 402 of Regulation S-B are not applicable to the
Fund, as the Fund has no compensated executive officers. See Item
12 "Certain Relationships and Related Transactions" for discussion
of the fees paid to the Advisor and its affiliates.
Item 11. Security Ownership of Certain Beneficial Owners and
Management.
No person or group is known by the Fund to own beneficially more
than 5% of the outstanding shares. The Advisor owns one share of
the Fund. Other than the beneficial ownership of such share which
certain directors who own interests in the Advisor may be deemed to
own, none of the officers and directors of the Fund owns any
shares. No officer or director of the Fund possesses a right to
acquire beneficial ownership of shares.
Item 12. Certain Relationships and Related Transactions.
The Fund is required to pay certain fees to the Advisor or its
affiliates pursuant to various agreements set forth in the
Prospectus and described below.
Pursuant to the terms of the Selling Agreement, Brauvin
Securities, Inc. ("BSI"), an affiliate of the Advisor, is entitled
to placement charges of 5.50% of the gross proceeds of the Fund's
offering, all of which will be reallowed to placement agents. In
addition, BSI is entitled to a marketing and due diligence expense
allowance fee equal to 0.50% of the gross proceeds to reimburse
marketing and due diligence expenses, some portion of which may be
reallowed to placement agents. The Fund was reimbursed placement
charges of $6,867, and was reimbursed marketing and due diligence
expense allowance fees of $615, in 1997, to BSI.
Pursuant to the terms of the Prospectus, the Advisor was
reimbursed $137,666 in 1997 for certain expenses related to the
costs of sales and informational meetings.
Pursuant to the terms of the Advisory Agreement, the Fund had
incurred or paid the Advisor a non-accountable expense allowance in
an amount equal to 2.5% of the gross proceeds of the offering which
in 1998 and 1997 were $3,086 and $3,536, respectively.
Pursuant to the terms of the Advisory Agreement, the Advisor is
entitled to receive acquisition fees for services rendered in
connection with the selection or acquisition of any property
however designated as real estate commissions, selection fees,
development fees, or any fees of a similar nature. Such
acquisition fees may not exceed the lesser of (a) such compensation
as is customarily charged in arm's-length transactions by others
rendering similar services as an ongoing business in the same
geographic locale and for comparable properties or (b) 3.5% of the
gross proceeds of the Fund's offering. The Fund will also
reimburse the Advisor an amount estimated to be 0.75% of the gross
proceeds of the offering in connection with any expenses attendant
to the acquisition of properties whether or not acquired.
Acquisition fees of $16,678 and acquisition expenses of $5,913 were
paid by the Fund in 1997 to the Advisor.
Pursuant to the terms of the Advisory Agreement, the Advisor is
entitled to an advisory fee, payable monthly, following the
termination of the offering, in an amount equal to the greater of:
(i) .60% of gross proceeds, or (ii) $175,000. Advisory fees of
$175,000 were paid by the Fund in both 1998 and 1997.
Pursuant to the terms of the Management Agreement, Brauvin
Management Company ("BMC"), an affiliate of the Advisor, provided
leasing and re-leasing services to the Fund in connection with the
management of Fund's properties. The property management fee
payable to an affiliate of the Advisor shall not exceed the lesser
of: (a) fees which are competitive for similar services in the
geographical area where the properties are located; or (b) 1% of
the gross revenues of each property. Property management fees of
$12,693 and $11,865 were incurred and payable by the Fund in 1998
and 1997 respectively, to BMC.
Messrs. Jerome J. Brault and James L. Brault are the managers of
the Advisor. Messrs. Jerome J. Brault, James L. Brault and Thomas
E. Murphy are officers of BSI and BMC. In addition, Mr. Jerome J.
Brault has a controlling interest and Mr. James L. Brault has a
nominal interest in the Advisor. Mr. Jerome J. Brault also has a
50% ownership interest in BSI and an interest in BMC.
<PAGE>
Item 13. Exhibits and Reports on Form 8-K.
(a) Exhibits required by the Securities and Exchange Commission
Regulation S-B, Item 601:
Exhibit No. Description
*3(a) Amended Articles of Incorporation of
Brauvin Net Lease V, Inc.
*3(b) By-laws of Brauvin Net Lease V, Inc.
*4 Specimen Stock Certificate
**10(a) Advisory Agreement
**10(b) Assignment and Assumption Agreement
among Brauvin Realty Advisors V, Inc.,
Brauvin Realty Advisors V, L.L.C., the
Fund and Jerome Brault
*10(c) Agreement of Purchase and Sale between
Country Harvest Buffet Restaurants,
Inc. and Brauvin, Inc. on behalf of
the Fund dated November 11, 1994
*10(d) Lease between Country Harvest Buffet
Restaurants, Inc. and Brauvin, Inc. on
behalf of the Fund dated November 21,
1994
*10(e) Agreement of Purchase and Sale between
Bomasada Investment Group II, L.L.C.
("Bomasada") and Brauvin, Inc. on
behalf of the Fund dated December 12,
1994 (with lease between Bomasada and
Blockbuster Videos, Inc. dated March
23, 1994 attached)
*10(f) Testing and Remediation License
Agreement between Bomasada and Diamond
Shamrock Stations, Inc. dated July 8,
1994
*10(g) Assignment of Shopping Center Lease by
and between Blockbuster Investment
Group II L.L.C. and the Fund dated
January 31, 1995
*10(h) Assignment of Testing and Remediation
License Agreement between Bomasada and
the Fund dated January 31, 1995.
*10(i) Agreement of Purchase and Sale between
HMG/Courtland Properties, Inc. ("HMG")
and Brauvin, Inc., on behalf of the
Fund dated December 19, 1994 (with
lease between Sugar Grove Investment
Associates, Ltd. and On The Border
Corporation dated as of January 25,
1993, including amendments, attached)
*10(j) Assignment and Assumption Agreement
(regarding On The Border Corporation
Lease) between HMG and the Fund dated
January 6, 1995.
*10(k) Contract for Sale and Purchase between
Chilly Land, Inc. and Brauvin, Inc. on
behalf of the Fund dated March 28,
1995.
*10(l) Assignment of Lease and Other Property
(regarding the Chili's Property)
between Chilly Land, Inc. and the Fund
dated April 13, 1995 (with the Lease
Agreement dated December 7, 1988
between Birmingham Retail Center
Associates, Ltd. and Sunstate Alabama
Restaurant Corporation, as amended by
letter agreements dated December 5,
1988 and February 15, 1989 attached).
*10(m) Agreement of Purchase and Sale between
KCBB, Inc. and Brauvin, Inc., on
behalf of the Fund dated December 15,
1994 (with lease between KCBB, Inc.
and Just For Feet, Inc. dated November
9, 1994 attached).
*10(n) Assignment of Lease (regarding Just
For Feet Lease) between Legacy Group
L.L.C. and Brauvin Net Lease V, Inc.
dated May 23, 1995.
*10(o) Agreement of Purchase and Sale between
Loves Park Development Corporation
("Loves Park") and Brauvin, Inc., on
behalf of the Fund dated July 11, 1995
(with lease between Roscoe Development
Corporation (assignor to Loves Park)
and Video Watch, Inc. dated October 5,
1994 attached).
*10(p) Assignment of Lease (regarding Video
Watch) between Loves Park and Brauvin
Net Lease V, Inc. dated July 31, 1995.
***10(q) Agreement of Purchase and Sale between
P. One Sioux Falls Investors, Inc.
and, Brauvin, Inc., on behalf of the
Fund dated February 12, 1996 (with
lease between P. One Sioux Falls
Investors, Inc. and Pier 1 Imports
(U.S.), Inc. dated June 5, 1995
attached).
***10(r) Assignment and Assumption Agreement
between P. One Sioux Falls Investors,
Inc. and the Fund dated February 12,
1996.
***10(s) Purchase and Sale Agreement between
Germantown Associates Limited
Partnership and Germantown Associates,
Inc., on behalf of the Fund dated
January 21, 1997 (with schedule of
leases between (1) Lewis J. Stowe, III
and Firestone Tire & Rubber Company
now known as Bridgestone/Firestone,
Inc. as amended dated September 25,
1986; and (2) Lewis J. Stowe, III and
Jiffy Lube of Pennsylvania, Inc., as
amended dated June 11, 1986. Both
leases are attached)
***10(t) Assignment and Assumption Agreement
between Germantown Associates Limited
Partnership and Germantown Associates,
Inc. dated January 21, 1997.
****16 Letter of Ernst & Young LLP dated
December 10, 1996
21 Subsidiaries of the small business
issuer
23 Independent Auditors' Consent
27 Financial Data Schedule
*Incorporated by reference from the exhibits filed with the
Fund's registration statement (Registration No. 33-70550) on
Form S-11 filed under the Securities Act of 1933.
**Management Contract
***Incorporated by reference from 1996 Form 10K SB/A filed on
June 19, 1997.
****Incorporated by reference from Exhibit 16 filed with the
Fund's Form 8-K/A filed on December 12, 1996.
(b) Reports on Form 8-K.
None.
<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 NET LEASE V, INC.
(Registrant)
Date: 3/31/99 By: /s/ Jerome J. Brault
Jerome J. Brault,
Chairman, President
and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons on
behalf of the Registrant and in the capacities and on the dates
indicated.
Signature Title Date
/s/ Jerome J. Brault 3/31/99
Jerome J. Brault Chairman, President
and Chief Executive
Officer
/s/ Jeff A. Jacobson 3/31/99
Jeff A. Jacobson Director
/s/ Kenneth S. Nelson 3/31/99
Kenneth S. Nelson Director
/s/ James L. Brault 3/31/99
James L. Brault Director, Executive
Vice President and
Secretary
/s/ Gregory S. Kobus 3/31/99
Gregory S. Kobus Director
/s/ Hugh K. Zwieg 3/31/99
Hugh K. Zwieg Director
/s/ Thomas E. Murphy 3/31/99
Thomas E. Murphy Chief Financial
Officer (Principal
Accounting Officer)
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Independent Auditors' Report . . . . . . . . . . . . . . . . . . . F-2
Consolidated Balance Sheet, December 31, 1998. . . . . . . . . . . .F-3
Consolidated Statements of Operations, for the years
ended December 31, 1998 and 1997 . . . . . . . . . . . . . . . . .F-4
Consolidated Statements of Stockholders' Equity for the
years ended December 31, 1998 and 1997 . . . . . . . . . . . . . .F-5
Consolidated Statements of Cash Flows for the years
ended December 31, 1998 and 1997. . . . . . . . . . . . . . . . . .F-6
Notes to Consolidated Financial Statements . . . . . . . . . . . . .F-7
All other schedules provided for in Item 13(a) of Form 10-KSB are
either not required, not applicable, or immaterial.
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Stockholders of
Brauvin Net Lease V, Inc.
Chicago, Illinois
We have audited the accompanying consolidated balance sheet of
Brauvin Net Lease V, Inc. and subsidiary as of December 31, 1998,
and the related consolidated statements of operations, stockholders'
equity and cash flows for the years ended December 31, 1998 and
1997. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is
to express an opinion on these consolidated financial statements
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
Net Lease V, Inc. and subsidiary at December 31, 1998, and the
results of their operations and their cash flows for the years ended
December 31, 1998 and 1997 in conformity with generally accepted
accounting principles.
/s/ Deloitte & Touche LLP
Chicago, Illinois
February 16, 1999
<PAGE>
BRAUVIN NET LEASE V, INC.
(a Maryland corporation)
CONSOLIDATED BALANCE SHEET
December 31,
1998
ASSETS
Investment in real estate, at cost:
Land $ 3,979,586
Buildings 7,632,199
11,611,785
Less: Accumulated depreciation (620,134)
Net investment in real estate 10,991,651
Cash and cash equivalents 321,725
Tenant receivables 173
Deferred rent receivable 282,926
Organization costs (net of
accumulated amortization of
$33,833) 1,167
Total Assets $11,597,642
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Accounts payable and accrued
expenses $ 24,539
Rents received in advance 26,248
Due to affiliates 56,849
Total Liabilities 107,636
Stockholders' Equity:
Preferred stock, $.01 par value,
1,000,000 shares authorized;
none issued --
Common stock, $.01 par value,
9,000,000 shares authorized;
1,294,960 outstanding 13,372
Additional paid-in capital 11,653,378
Accumulated deficit (176,744)
Total Stockholders' Equity 11,490,006
Total Liabilities and Stockholders'
Equity $11,597,642
See notes to consolidated financial statements.
<PAGE>
CONSOLIDATED STATEMENTS OF OPERATIONS
Years ended December 31,
1998 1997
INCOME
Rental $1,337,993 $1,331,713
Interest and other 15,504 28,210
Total income 1,353,497 1,359,923
EXPENSES
Directors fees 18,000 23,225
Advisory fees 175,000 175,000
Management fees 12,693 11,865
General and administrative 86,046 105,950
Bad debt expense 17,158 --
Acquisition costs -- 33,211
Depreciation and amortization 200,676 190,902
Total expenses 509,573 540,153
Net Income $ 843,924 $ 819,770
Net Income Per Share
(based on average shares
outstanding of 1,276,072
and 1,274,855, respectively
for the years ended
December 31, 1998 and 1997) $ 0.66 $ 0.64
See notes to consolidated financial statements.
<PAGE>
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Years Ended December 31, 1998 and 1997
Common Stock
Number Paid-in (Accumulated
of Shares Amount Capital Deficit) Total
Balance at
January 1,
1997 1,296,185 $12,962 $11,863,544 $(79,778) $11,796,728
Net income -- -- -- 819,770 819,770
Dividends -- -- -- (906,457) (906,457)
Liquidation of stock,
net of issuance of
stock, net of
selling commissions
and other offering
costs of $165,026 (5,916) (59) (224,124) -- (224,183)
Balance at
December 31,
1997 1,290,269 12,903 11,639,420 (166,465) 11,485,858
Net income -- -- -- 843,924 843,924
Dividends -- -- -- (854,203) (854,203)
Issuance of stock,
net of selling
commissions and
other offering
costs of $32,482,
net of
liquidations 4,691 469 13,958 -- 14,427
Balance at
December 31,
1998 1,294,960 $13,372 $11,653,378 $(176,744) $11,490,006
Ordinary and non-taxable dividends amounted to $738,268 and $115,935,
respectively for the year ended December 31, 1998. Ordinary and non-
taxable dividends amounted to $714,575 and $191,882 for the year ended
December 31, 1997.
See notes to consolidated financial statements.
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOW
Years ended December 31,
1998 1997
Cash Flows From Operating Activities:
Net income $843,924 $ 819,770
Adjustments to reconcile net income to
net cash provided by operating activities:
Amortization of organization costs 7,000 7,000
Depreciation 193,676 183,902
Acquisition costs charged off -- 33,211
Bad debt expense 17,158 --
Changes in:
Tenant receivables (16,936) (17)
Deferred rent receivable (94,102) (104,260)
Prepaid expenses -- 3,001
Accounts payable and accrued expenses 3,901 (1,146)
Rents received in advance (15,155) (8,170)
Due to affiliates 1,966 950
Net cash provided by operating activities 941,432 934,241
Cash Flows From Investing Activities:
Capital expenditures (83,343) --
Purchase of properties -- (1,525,289)
Cash used in investing activities (83,343) (1,525,289)
Cash Flows From Financing Activities:
Issuance of stock net of liquidations 46,909 (59,157)
Selling commissions and other
offering costs (32,482) (165,026)
Dividends (854,203) (906,457)
Net cash used in
financing activities (839,776) (1,130,640)
Net increase (decrease) in cash
and cash equivalents 18,313 (1,721,688)
Cash and cash equivalents at
beginning of year 303,412 2,025,100
Cash and cash equivalents at end of year $ 321,725 $ 303,412
See notes to consolidated financial statements.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 1998 and 1997
(1) ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization
Brauvin Net Lease V, Inc. (the "Fund") is a Maryland corporation
formed on October 14, 1993, which operates as a real estate
investment trust ("REIT") under federal tax laws. The Fund has
acquired properties that are leased to creditworthy corporate
operators of nationally or regionally established businesses
primarily in the retail and family restaurant sectors. All of the
leases are on a long-term "triple net" basis generally requiring
the corporate tenant to pay both base annual rent with mandatory
escalation clauses and all operating expenses. The Fund acquired
properties subject to leases with a Country Harvest Buffet
Restaurant during the year ended December 31, 1994; an On the
Border Restaurant, a Blockbuster Video, a Chili's Restaurant, a
Just for Feet and a Video Watch during the year ended December 31,
1995; a Pier 1 Imports and a Taylor Rental during the year ended
December 31, 1996; and a Jiffy Lube and Firestone facility during
the year ended December 31, 1997.
The advisory agreement provides for Brauvin Realty Advisors V,
L.L.C. (the "Advisor"), an affiliate of the Fund, to be the advisor
to the Fund. The Fund registered the sale of up to 5,000,000
shares of common stock at $10.00 per share in an initial public
offering filed with the Securities and Exchange Commission
("Registration Statement") and the issuance of 500,000 shares
pursuant to the Fund's dividend reinvestment plan. On August 8,
1994, the Fund sold the minimum 120,000 shares required under its
Registration Statement and commenced its real estate activities.
The offering period for the sale of common stock terminated on
February 25, 1996. At December 31, 1998, the Fund had sold
1,294,960 shares and the gross proceeds raised were $13,387,442,
net of liquidations of $437,852, including $200,000 invested by the
Advisor ("Initial Investment"), before reduction for selling
commissions and other offering costs.
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 consolidated financial statements have been
prepared using the accrual method of accounting.
Rental Income
Rental income is recognized on a straight line basis over the
life of the related leases. Differences between rental income
earned and amounts due per the respective lease agreements are
credited or charged, as applicable, to deferred rent receivable.
Federal Income Taxes
For the years ended December 31, 1998 and 1997, the Fund
continued to be treated as a REIT under the Internal Revenue Code
Sections 856-860. A REIT will generally not be subject to federal
income taxation to the extent that it distributes at least 95% of
its taxable income to its shareholders and meets certain asset and
income tests as well as other requirements. The Fund continues to
qualify as a real estate investment trust and, accordingly, no
provision has been made for Federal income taxes in the financial
statements.
Consolidation of Subsidiary
The Fund owns a 100% interest in one qualified REIT subsidiary,
Germantown Associates, Inc., which owns one Firestone/JiffyLube
property. The accompanying financial statements have consolidated
100% of the assets, liabilities, operations and stockholder's
equity of Germantown Associates, Inc. All significant intercompany
accounts have been eliminated.
Investment in Real Estate
The Fund's rental properties are stated at cost including
acquisition costs. Depreciation is recorded on a straight-line
basis over the estimated economic lives of the properties which
approximate 40 years.
The Fund has performed an analysis of its long-lived assets, and
the Fund'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, 1998 or 1997.
Accordingly, no impairment loss has been recorded in the
accompanying financial statements for the years ended December 31,
1998 and 1997.
Cash and Cash Equivalents
Cash and cash equivalents include all highly liquid instruments
with an original maturity within three months from date of purchase
and approximate their fair value.
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, "Disclosure 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 Fund
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 reasonable
estimates of fair value: cash and cash equivalents; accounts
payable and accrued expense; rents received in advance; and due to
affiliates.
Organization Costs
Organization costs represent costs incurred in connection with
the organization and formation of the Fund. Organization costs are
amortized over a period of five years using the straight line
method.
(2) RELATED PARTY TRANSACTIONS
The Fund is required to pay certain fees to the Advisor or its
affiliates pursuant to various agreements set forth in the
Prospectus and described below.
Pursuant to the terms of the Selling Agreement, Brauvin
Securities, Inc. ("BSI"), an affiliate of the Advisor, is entitled
to placement charges of 5.50% of the gross proceeds of the Fund's
offering, all of which will be reallowed to placement agents. In
addition, BSI is entitled to a marketing and due diligence expense
allowance fee equal to 0.50% of the gross proceeds to reimburse
marketing and due diligence expenses, some portion of which may be
reallowed to placement agents.
In 1997, pursuant to the terms of the Prospectus, the Advisor was
reimbursed for certain expenses related to the costs of sales and
informational meetings.
Pursuant to the terms of the Advisory Agreement, the Advisor is
entitled to a non-accountable expense allowance in an amount equal
to 2.5% of the gross proceeds of the offering.
Pursuant to the terms of the Advisory Agreement, the Advisor is
entitled to receive acquisition fees for services rendered in
connection with the selection or acquisition of any property
however designated as real estate commissions, selection fees,
development fees, or any fees of a similar nature. Such
acquisition fees may not exceed the lesser of (a) such compensation
as is customarily charged in arm's-length transactions by others
rendering similar services as an ongoing business in the same
geographic locale and for comparable properties or (b) 3.5% of the
gross proceeds of the Fund's offering. The Fund will also
reimburse the Advisor an amount estimated to be 0.75% of the gross
proceeds of the offering in connection with any expenses attendant
to the acquisition of properties whether or not acquired.
Pursuant to the terms of the Advisory Agreement, the Advisor is
entitled to an annual advisory fee, payable monthly, in an amount
equal to 0.60% of the gross proceeds during the offering. Following
the termination of the offering, the annual advisory fee is an
amount equal to the greater of: (i) .60% of gross proceeds, or
(ii) $175,000.
Pursuant to the terms of the Management Agreement, Brauvin
Management Company ("BMC"), an affiliate of the Advisor, provides
leasing and re-leasing services to the Fund in connection with the
management of Fund's properties. The property management fee
payable to an affiliate of the Advisor shall not exceed the lesser
of: (a) fees which are competitive for similar services in the
geographical area where the properties are located; or (b) 1% of
the gross revenues of each property.
Fees, commissions and other expenses incurred and payable to the
Advisor or its affiliates for the years ended December 31, 1998 and
1997 were as follows:
1998 1997
Selling commissions
(reimbursement) $ -- $ (6,867)
Costs of sales and
informational meetings -- 137,666
Due diligence (reimbursement)
fees -- (615)
Advisory fees 175,000 175,000
Dividend
reinvestment fees 1,279 1,448
Management fees 12,693 11,865
Nonaccountable fees 3,086 3,536
Acquisition fees
and expenses -- 22,591
$ 192,058 $ 344,624
As of December 31, 1998 the Fund made all payments to affiliates
except for $53,914 for advisory fees, $869 for management fees,
$617 for dividend reinvestment fees and $1,449 of nonaccountable
fees.
(3) DIVIDENDS
Below is a table summarizing the dividends declared since January
1, 1997:
Annualized
Declaration Record Payment Dividend
Date(a) Dates Date Rate Amount
1/31/97 10/1/96-12/31/96 2/15/97 7% $229,517
5/8/97 1/1/97-3/31/97 5/15/97 7% 224,034
8/7/97 4/1/97-6/30/97 8/15/97 7% 224,907
11/6/97 7/1/97-9/30/97 11/15/97 7% 227,999
1/29/98 10/1/97-12/31/97 2/15/98 7% 227,354
5/7/98 1/1/98-3/31/98 5/15/98 6.5% 206,711
8/6/98 4/1/98-6/30/98 8/15/98 6.75% 217,606
11/2/98 7/1/98-9/30/98 11/15/98 6.2% 202,531
2/15/99 10/1/98-12/31/98 2/15/99 6.9% 224,972
(a) Dividends were declared on a daily basis.
The dividend reinvestment plan ("Reinvestment Plan") is
available to the stockholders so that stockholders, if they so
elect, may have their distributions from the Fund invested in
shares. The price per share purchased through the Reinvestment
Plan shall equal $10 per share with the purchase of partial shares
allowed. The Fund has registered 200,000 shares for distribution
solely in connection with the Reinvestment Plan. Funds raised
through the Reinvestment Plan will be utilized to: (i) purchase
shares from existing stockholders who have notified the Fund of
their desire to sell their shares or held for subsequent
redemptions; or (ii) purchase additional properties. The
stockholders electing to participate in the Reinvestment Plan will
be charged a service charge, in an amount equal to 1% of their
distributions, which will be paid to an affiliate of the Advisor to
defray the administrative costs of the Reinvestment Plan. At
December 31, 1998, there were approximately 52,176 shares purchased
through the Reinvestment Plan and approximately 43,785 shares
liquidated.
In order to qualify as a REIT, the Fund is required to distribute
dividends to its Stockholders in an amount at least equal to 95% of
REIT taxable income of the Fund. The Fund intends to make
quarterly distributions to satisfy all annual distribution
requirements.
(4) OPERATING LEASES
The Fund'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 Fund under operating leases of the
Fund's properties as of December 31, 1998:
Year ending December 31: 1999 $ 1,285,017
2000 1,323,948
2001 1,325,613
2002 1,333,001
2003 1,346,262
Thereafter 8,232,674
$14,846,515
<PAGE>
Exhibit 21
Subsidiaries of Small Business Issuer
State of Names under which
Subsidiary Incorporation Subsidiary does business
Germantown Illinois Montgomery County
Associates, Inc. Associates, Inc.<PAGE>
EXHIBIT 23
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration
Statement No. 333-03899 of Brauvin Net Lease V, Inc. on Form S-3 of
our report dated February 16, 1999 appearing in the Annual Report
on Form 10-KSB of Brauvin Net Lease V, Inc. for the year ended
December 31, 1998.
/s/ Deloitte & Touche LLP
Chicago, Illinois
February 16, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<CASH> 321,725
<SECURITIES> 0
<RECEIVABLES> 283,099
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 11,611,785 <F1>
<DEPRECIATION> 620,134
<TOTAL-ASSETS> 11,597,642
<CURRENT-LIABILITIES> 107,636
<BONDS> 0
0
0
<COMMON> 11,490,006 <F2>
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 11,597,642
<SALES> 0
<TOTAL-REVENUES> 1,353,497 <F3>
<CGS> 0
<TOTAL-COSTS> 509,573 <F4>
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 843,924
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
<FN>
<F1> "PP&E" REPRESENTS INVESTMENT IN REAL ESTATE [LAND AND
BUILDING]
<F2> "COMMON" REPRESENTS TOTAL STOCKHOLDERS EQUITY
<F3> "TOTAL REVENUES" REPRESENTS RENTAL, INTEREST, AND OTHER
INCOME
<F4> "TOTAL COSTS" REPRESENTS TOTAL EXPENSES
</FN>
</TABLE>
