UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934.
For the quarterly period ended March 31, 2002
[ ] Transition Report Under 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.
(Exact name of small business issuer 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)
Check whether the issuer (1) filed all reports required to be filed
by Section 13 or 15(d) of the Exchange Act during the past 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 .
As of May 15, 2002, the registrant had 1,286,163 shares of Common
Stock outstanding.
Transitional Small Business Disclosure Format(check one)
Yes No X .
BRAUVIN NET LEASE V, INC.
(a Maryland corporation)
INDEX
PART I - FINANCIAL INFORMATION
Page
Item 1. Consolidated Financial Statements. . . . . . . . . . . . . . 3
Consolidated Balance Sheet at March 31, 2002 . . . . . . . . 4
Consolidated Statements of Operations for the
three months ended March 31, 2002 and 2001 . . . . . . . . . 5
Consolidated Statements of Cash Flows for the
three months ended March 31, 2002 and 2001 . . . . . . . . . 6
Notes to Consolidated Financial Statements . . . . . . . . . 7
Item 2. Management's Discussion and Analysis or Plan
of Operation . . . . . . . . . . . . . . . . . . . . . . . 17
PART II - OTHER INFORMATION
Item 1. Legal Proceedings. . . . . . . . . . . . . . . . . . . . . .20
Item 2. Changes in Securities. . . . . . . . . . . . . . . . . . . .20
Item 3. Defaults Upon Senior Securities. . . . . . . . . . . . . . .20
Item 4. Submission of Matters to a Vote of Security
Holders. . . . . . . . . . . . . . . . . . . . . . . . . . .20
Item 5. Other Information. . . . . . . . . . . . . . . . . . . . . .20
Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
BRAUVIN NET LEASE V, INC.
(a Maryland corporation)
PART I - FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
The following Consolidated Balance Sheet as of March 31, 2002,
Consolidated Statements of Operations for the three months ended
March 31, 2002 and 2001, and Consolidated Statements of Cash Flows
for the three months ended March 31, 2002 and 2001 for Brauvin Net
Lease V, Inc. (the "Fund") are unaudited but reflect, in the
opinion of the management, all adjustments necessary to make the
consolidated financial statements not misleading. 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 Fund's 2001 Annual Report on Form 10-KSB.
BRAUVIN NET LEASE V, INC.
(a Maryland corporation)
CONSOLIDATED BALANCE SHEET
(Unaudited)
March 31,
2002
ASSETS
Investment in real estate, at cost:
Land $ 3,979,586
Buildings 7,632,199
11,611,785
Less accumulated depreciation (1,249,866)
Net investment in real estate 10,361,919
Cash and cash equivalents 324,699
Tenant receivables 27,734
Deferred rent receivable 409,617
Prepaid expenses 2,244
Total Assets $11,126,213
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Accounts payable and accrued
expenses $ 38,988
Rents received in advance 44,060
Due to affiliates 18,637
Total Liabilities 101,685
Stockholders' Equity:
Preferred stock, $.01 par value,
1,000,000 shares authorized;
none issued --
Common stock, $.01 par value,
9,000,000 shares authorized;
1,286,163 shares issued
and outstanding 12,862
Additional paid-in capital 11,526,203
Accumulated deficit (514,537)
Total Stockholders' Equity 11,024,528
Total Liabilities and Stockholders'
Equity $11,126,213
See notes to consolidated financial statements.
BRAUVIN NET LEASE V, INC.
(a Maryland corporation)
CONSOLIDATED STATEMENTS OF OPERATIONS
For the three months ended March 31,
(Unaudited)
2002 2001
INCOME
Rental $339,756 $339,897
Other charges to tenants 17,940 --
Interest and other 144 5,432
Total income 357,840 345,329
EXPENSES
Directors fees 3,000 3,000
Advisory fees 36,249 41,250
Management fees 3,723 3,451
General and administrative 22,411 20,395
Real estate taxes 17,940 --
Bad debt expense -- (7,852)
Depreciation and amortization 48,441 48,441
Total expenses 131,764 108,685
Net income $226,076 $236,644
Net income per share
(based on average shares
outstanding of 1,286,163
and 1,300,039, respectively
for the three months ended
March 31, 2002 and 2001) $ 0.18 $ 0.18
See notes to consolidated financial statements.
BRAUVIN NET LEASE V, INC.
(a Maryland corporation)
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the three months ended March 31,
(Unaudited)
2002 2001
Cash Flows From Operating Activities:
Net income $ 226,076 $ 236,644
Adjustments to reconcile net income to
net cash provided by operating
activities:
Depreciation and amortization 48,441 48,441
Provision for doubtful accounts -- (7,852)
Changes in:
Tenant receivables 3,781 10,413
Deferred rent receivable (5,956) (6,539)
Prepaid expenses 2,170 --
Accounts payable and
accrued expenses 9,881 (7,579)
Rents received in advance 14,852 --
Due to affiliates (5,929) (3,098)
Net cash provided by operating
activities 293,316 270,430
Cash Flows From Financing Activities:
Stock liquidations -- ( 115,456)
Dividends (267,452) (262,106)
Net cash used in
financing activities (267,452) (377,562)
Net increase(decrease) in cash
and cash equivalents 25,864 (107,132)
Cash and cash equivalents at
beginning of period 298,835 492,830
Cash and cash equivalents at
end of period $324,699 $385,698
See notes to consolidated financial statements.
BRAUVIN NET LEASE V, INC.
(a Maryland corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(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 March 31, 2002, the Fund had sold 1,286,163
shares and the gross proceeds raised were $12,881,903, net of
liquidations of $663,172, 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
The Fund intends to be treated as a REIT under 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
90% 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 March 31, 2002. Accordingly,
no impairment loss has been recorded in the accompanying financial
statements for the three months ended March 31, 2002.
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 March 31, 2002, 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.
Recent Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board ("FASB")
issued Statement of Financial Accounting Standards No. 133,
"Accounting for Derivative Instruments and Hedging Activities"
("SFAS 133"), which requires that all derivatives be recognized as
assets and liabilities in the balance sheet and be measured at fair
value. SFAS 133 also requires changes in fair value of derivatives
to be recorded each period in current earnings or comprehensive
income depending on the intended use of the derivatives. In June,
2000, the FASB issued SFAS 138, which amends the accounting and
reporting standards of SFAS 133 for certain derivatives and certain
hedging activities. SFAS 133 and SFAS 138 were adopted by the Fund
effective January 1, 2001. The adoption of SFAS 133 and SFAS 138
did not have an impact on the financial position, results of
operations and cash flows of the Fund.
In June 2001, the FASB issued Statement of Financial Accounting
Standards No. 141, "Business Combinations" ("SFAS 141"). SFAS 141
requires the purchase method of accounting for business
combinations initiated after June 30, 2001 and eliminates the
pooling-of-interests method. In June 2001, the FASB issued
Statement of Financial Accounting Standards No. 142, "Goodwill and
Other Intangible Assets" ("SFAS 142"), which was effective January
1, 2002. SFAS 142 requires, among other things, the discontinuance
of goodwill amortization. In addition, the standard includes
provisions for the reclassification of certain existing recognized
intangibles as goodwill, reassessment of the useful lives of
existing recognized intangibles, reclassification of certain
intangibles out of previously reported goodwill and the
identification of reporting units for purposes of assessing
potential future impairments of goodwill.
In June 2001, the FASB issued Statement of Financial Accounting
Standards No. 143, "Accounting for Asset Retirement Obligations"
("SFAS 143"), which is effective for years beginning after June 15,
2002. SFAS requires recognition of a liability and associated
asset for the fair value of costs arising from legal obligations
associated with the retirement of tangible long-lived assets. The
asset is to be allocated to expense over its estimated useful life.
In August 2001, the FASB issued Statement of Financial
Accounting Standards No. 144, "Accounting for the Impairment or
Disposal of Long-Lived Assets" ("SFAS 144"), which was effective
for fiscal years beginning after December 15, 2001. SFAS 144
supersedes FASB Statement No. 121, "Accounting for the Impairment
of Long-Lived Assets and Long-Lived Assets to Be Disposed Of"
("SFAS 121"). SFAS 144 retains the recognition and measurement
requirements of SFAS 121, but resolves significant SFAS 121
implementation issues. In addition, it applies to a segment of a
business accounted for as a discontinued operation (which was
formerly covered by portions of Accounting Principles Board Opinion
No. 30).
The Fund does not believe that the adoption of SFAS 141, 142,
143, or 144, will have a significant impact on its financial
statements.
(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, was entitled
to placement charges of 5.50% of the gross proceeds of the Fund's
offering, all of which were reallowed to placement agents. In
addition, BSI was 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.
Pursuant to the terms of the Advisory Agreement, the Advisor
was 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 until the fifth anniversary
of the termination of the offering, 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.
In February 2001, the independent directors reviewed the
Advisory Agreement, and modified the annual amount of the advisory
fee to $145,000. The $145,000 represents approximately 1.4% of
invested assets. In 2002, the independent directors again reviewed
the Advisory Agreement, and the advisory fee was renewed for a one
year period at an annual amount of $145,000.
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 the Fund's properties. The property management fee
payable to an affiliate of the Advisor shall not exceed the lesser
of: (a) fees that 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 three months ended March 31,
2002 and 2001 were as follows:
2002 2001
Advisory fees $36,249 $41,250
Management fees 3,723 3,451
$ 39,972 $ 44,701
As of March 31, 2002 the Fund made all payments to affiliates
except for $14,914 for advisory fees and $3,722 for management
fees.
(3) DIVIDENDS
Below is a table summarizing the dividends declared since
January 1, 2000:
Annualized
Declaration Record Payment Dividend
Date(a) Dates Date Rate Amount(b)
1/27/00 10/1/99-12/31/99 2/15/00 7.25% $237,390
5/4/00 1/1/00-3/31/00 5/15/00 7.25% 233,673
8/10/00 4/1/00-6/30/00 8/15/00 7.75% 250,600
11/9/00 7/1/00-9/30/00 11/15/00 7.75% 253,621
2/15/01 10/1/00-12/31/00 2/15/01 8.0% 262,106
5/10/01 1/1/01-3/31/01 5/15/01 8.0% 256,556
8/09/01 4/1/01-6/30/01 8/15/01 8.0% 256,528
11/15/01 7/01/01-9/30/01 11/15/01 8.0% 259,437
1/24/02 10/1/01-12/31/01 2/15/02 8.25% 267,452
05/08/02 1/1/02-3/31/02 5/15/02 8.25% 261,639
(a) Dividends were declared on a daily basis.
(b) The 11/15/01 distribution ($259,437) does not include a bonus
distribution of $64,308.
A dividend reinvestment plan ("Reinvestment Plan") was
available to the stockholders so that stockholders, if they so
elected, may have their distributions from the Fund invested in
shares. Until the third anniversary of the termination of the
offering, 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 were
charged a service charge, in an amount equal to 1% of their
distributions, which was paid to an affiliate of the Advisor to
defray the administrative costs of the Reinvestment Plan. At March
31, 2002, there were approximately 68,797 shares purchased through
the Reinvestment Plan and approximately 69,204 shares liquidated.
In accordance with the Fund's original investment objective,
during the first quarter of 2000, the Board of Directors approved
a plan to have the Fund's shares listed on the OTC Bulletin Board
under the symbol "yyBNL".
In order to qualify as a REIT, the Fund is required to
distribute dividends to its stockholders in an amount at least
equal to 90% for tax years beginning in 2001 and 95% for years
prior to 2001 of REIT taxable income of the Fund. The Fund intends
to make quarterly distributions to satisfy all annual distribution
requirements.
Effective February 13, 2001, the Board of Directors
discontinued the Dividend Reinvestment Plan. Accordingly, all
future dividends will be paid in cash.
(4) SUBSEQUENT EVENT
On April 29, 2002, the Fund sold the On The Border Restaurant
property to an unaffiliated third party for a sales price of
$1,385,000 (exclusive of an additional $200,000 tenant lease buyout
fee). The net proceeds received including the buyout was
approximately $1,467,000.
On May 16, 2002, the Fund sold the Just For Feet property to an
unaffiliated third party for a sales price of $2,675,000. The net
proceeds received was approximately $2,575,000.
In the second quarter of 2002, pursuant to the approval of the
Fund's Board of Directors and in accordance with the Fund's
acquisition guidelines, the Fund entered into a contract to
purchase a 9,611 square foot restaurant building situated on a two
acre parcel located in Bradenton, Florida for a gross purchase
price of $2,174,000. The current lease at this property expires in
October 2019, and has two 10 year options. The lease requires a
minimum base rent each month in the amount of $19,227 plus periodic
increases every three years. Additionally, if acquired the Fund will
receive a percentage of gross sales above a certain sales level. The
contract provides for a 45 day investigation period with closing 15
days thereafter. The Fund is currently in its investigation period
and there can be no assurance that the Fund will acquire this
property.
Item 2. Management's Discussion and Analysis or Plan 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. 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.
Liquidity and Capital Resources
As of March 31, 2002, the Fund had received $11,539,065 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
$663,172.
Compliance with 90% REIT taxable income test
The Fund is required, under the Internal Revenue Code, to make
distributions of an amount not less than 90% of its REIT taxable
income during the year.
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.
Property sales
On April 29, 2002, the Fund sold the On The Border Restaurant
property to an unaffiliated third party for a sales price of
$1,385,000 (exclusive of an additional $200,000 tenant lease buyout
fee). The net proceeds received including the buyout was
approximately $1,467,000.
On May 16, 2002, the Fund sold the Just For Feet property to an
unaffiliated third party for a sales price of $2,675,000. The net
proceeds received was approximately $2,575,000.
The Fund will be seeking to replace the sold properties in
accordance with the acquisition guidelines of the Fund.
Purchase contract
In the second quarter of 2002, pursuant with the approval of
the Fund's Board of Directors and in accordance with the Fund's
acquisition guidelines, the Fund entered into a contract to
purchase a 9,611 square foot restaurant building situated on a two
acre parcel located in Bradenton, Florida for a gross purchase
price of $2,174,000. The current lease at this property expires in
October 2019, and has two 10 year options. The lease requires a
minimum base rent each month in the amount of $19,227 plus periodic
increases every three years. Additionally, if acquired the Fund
will receive a percentage of gross sales above a certain sales
level. The contract provides for a 45 day investigation period
with closing 15 days thereafter. The Fund is currently in its
investigation period and there can be no assurance that the Fund
will acquire this property.
Results of Operations - 2002 Compared to 2001
The Fund generated net income of $226,000 for the three months
ended March 31, 2002 as compared to net income of $237,000 for the
three months ended March 31, 2001.
Total income for the three months ended March 31, 2002 was
$358,000 as compared to $345,000 for the same three month period in
2001, an increase of $13,000. The $13,000 increase was due to an
increase in other charges to tenants of $18,000 related to real
estate taxes offset by a decrease in interest and other income of
$5,000. The charge to tenants for real estate tax was not billed in
the first quarter of 2001, however real estate tax was billed to
the tenants in the first quarter of 2002.
For the three months ended March 31, 2002, total expenses were
$132,000 as compared to $109,000 for the same three month period in
2001, an increase of $23,000. The increase is primarily due to a
increase in real estate tax expense of $18,000 corresponding to the
increase in other charges to tenants of $18,000. Bad debt expense
increased $7,900 as a result of the Fund receiving payment in 2001
that management had estimated to be uncollectible. These increases
in expense were offset by a decrease in advisory fees of $5,000.
PART II - OTHER INFORMATION
ITEM 1. Legal Proceedings.
None.
ITEM 2. Changes in Securities.
None.
ITEM 3. Defaults Upon Senior Securities.
None.
ITEM 4. Submission of Matters to a Vote of Security
Holders.
None.
ITEM 5. Other Information
None.
SIGNATURES
In accordance with the requirements of the Exchange Act, the
registrant caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
BRAUVIN NET LEASE V, INC.
BY: /s/ James L. Brault
James L. Brault
Executive Vice President and Secretary
DATE: May 21, 2002
BY: /s/Thomas E. Murphy
Thomas E. Murphy
Chief Financial Officer
DATE: May 21, 2002