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 three months ended March 31, 2002
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the transition period from to
Commission File Number 0-14481
Brauvin Real Estate Fund L.P. 5
(Name of small business issuer as specified in its charter)
Delaware 36-3432071
(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)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on
which registered
None None
Securities registered pursuant to Section 12(g) of the Act:
Limited Partnership Interests
(Title of class)
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 filling
requirements for the past 90 days. Yes X No .
BRAUVIN REAL ESTATE FUND L.P. 5
(a Delaware limited partnership)
INDEX
PART I
Page
Item 1. Consolidated Financial Statements. . . . . . . . . . . . . . 3
Consolidated Statement of Net Assets in Liquidation
as of March 31, 2002 (Liquidation Basis) . . . . . . . . . . 4
Consolidated Statement of Changes in Net Assets
in Liquidation for the period January 1, 2002 to
March 31, 2002 (Liquidation Basis) . . . . . . . . . . . . . 5
Consolidated Statement of Changes in Net Assets
in Liquidation for the period January 1, 2001 to
March 31, 2001 (Liquidation Basis) . . . . . . . . . . . . . 6
Consolidated Statements of Operations for the
three months ended March 31, 2002 and 2001
(Liquidation Basis). . . . . . . . . . . . . . . . . . . . . 7
Notes to Consolidated Financial Statements . . . . . . . . . 8
Item 2. Management's Discussion and Analysis or Plan
of Operation . . . . . . . . . . . . . . . . . . . . . . . .19
PART II
Item 1. Legal Proceedings. . . . . . . . . . . . . . . . . . . . . .26
Item 2. Changes in Securities. . . . . . . . . . . . . . . . . . . .26
Item 3. Defaults Upon Senior Securities. . . . . . . . . . . . . . .26
Item 4. Submission of Matters to a Vote of Security
Holders. . . . . . . . . . . . . . . . . . . . . . . . . . .26
Item 5. Other Information. . . . . . . . . . . . . . . . . . . . . .26
Item 6. Exhibits, and Reports on Form 8-K. . . . . . . . . . . . . .26
Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . . .27
PART I - FINANCIAL INFORMATION
ITEM 1. Consolidated Financial Statements
The following Consolidated Statement of Net Assets in Liquidation
as of March 31, 2002 (Liquidation Basis), Consolidated Statement of
Changes in Net Assets in Liquidation for the period January 1, 2002
to March 31, 2002 (Liquidation Basis), Consolidated Statement of
Changes in Net Assets in Liquidation for the period January 1, 2001
to March 31, 2001 (Liquidation Basis) and Consolidated Statements
of Operations for the three months ended March 31, 2002 and 2001
(Liquidation Basis) for Brauvin Real Estate Fund L.P. 5 (the
"Partnership") are unaudited but reflect, in the opinion of the
management, all adjustments necessary to present fairly the
information required. All such adjustments are of a normal
recurring nature.
These consolidated financial statements should be read in
conjunction with the consolidated financial statements and notes
thereto included in the Partnership's 2001 Annual Report on Form
10-KSB.
CONSOLIDATED STATEMENT OF NET ASSETS IN LIQUIDATION AS OF
MARCH 31, 2002 (LIQUIDATION BASIS)
(Unaudited)
ASSETS
Real estate held for sale $7,689,875
Cash and cash equivalents 1,155,603
Tenant receivable (net of an
allowance of $86,593) 87,486
Escrow deposits 267,881
Other assets 14,394
Total Assets 9,215,239
LIABILITIES
Mortgage notes payable (Note 4) 5,751,580
Accounts payable and accrued expenses 234,323
Deferred gain on sale of real estate (Note 2) 504,085
Reserve for estimated costs during
the period of liquidation 190,315
Tenant security deposits 31,222
Due to affiliates (Note 5) 17,558
Total Liabilities 6,729,083
MINORITY INTEREST IN SABAL PALM
JOINT VENTURE 75,634
SHARE OF ACCUMULATED LOSSES IN EXCESS
OF INVESTMENT IN STRAWBERRY FIELDS
JOINT VENTURE 1,359
Net Assets in Liquidation $2,409,163
See accompanying notes to consolidated financial statements
CONSOLIDATED STATEMENT OF CHANGES IN NET ASSETS IN
LIQUIDATION FOR THE PERIOD JANUARY 1, 2002 TO MARCH 31, 2002
(LIQUIDATION BASIS)
(Unaudited)
Net assets in liquidation at January 1, 2002 $2,364,416
Income from operations 44,747
Net assets in liquidation at March 31, 2002 $2,409,163
See accompanying notes to consolidated financial statements
CONSOLIDATED STATEMENT OF CHANGES IN NET ASSETS IN
LIQUIDATION FOR THE PERIOD JANUARY 1, 2001 TO MARCH 31, 2001
(LIQUIDATION BASIS)
(Unaudited)
Net assets in liquidation at January 1, 2001 $1,908,750
Income from operations 104,926
Net assets in liquidation at March 31, 2001 $2,013,676
See accompanying notes to consolidated financial statements
CONSOLIDATED STATEMENTS OF OPERATIONS
For the three months ended March 31, 2002 and 2001
(Liquidation Basis)
(Unaudited)
2002 2001
INCOME
Rental $274,241 $308,332
Interest 854 11,286
Other, primarily tenant
expense reimbursements 31,335 35,892
Total income 306,430 355,510
EXPENSES
Interest 118,893 121,943
Real estate taxes 34,735 33,950
Repairs and maintenance 6,845 18,330
Management fees (Note 5) 17,558 21,465
Other property operating 19,946 24,738
Bad debt expense (24,536) 300
General and administrative 78,884 62,506
Total expenses 252,325 283,232
Income before minority
and equity interests 54,105 72,278
Minority interest's
share of Sabal Palm's
net income (9,358) (2,977)
Equity interest in
Strawberry Fields Joint
Venture's net income -- 35,625
Net income $ 44,747 $104,926
Net income allocated
to the General Partners $ 447 $ 1,049
Net income allocated
to the Limited Partners $ 44,300 $103,877
Net income per
Limited Partnership
Interest (9,914.5 units
outstanding) $ 4.47 $ 10.48
See accompanying notes to consolidated financial statements.
(1) ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION
The financial statements consolidate the accounts of Brauvin Real
Estate Fund L.P. 5 (the "Partnership") and joint ventures in which
the Partnership has a 50% interest or greater. Additionally, the
Partnership has a 42% interest in another joint venture which is
accounted for using the equity method of accounting.
Brauvin Real Estate Fund L.P. 5 (the "Partnership") was organized
on June 28, 1985. The General Partners of the Partnership are
Brauvin Ventures, Inc. and Jerome J. Brault. On August 8, 1997,
Mr. Cezar M. Froelich resigned as an Individual General Partner
effective 90 days from August 14, 1997. Brauvin Ventures Inc. is
owned by A.G.E. Realty Corporation Inc. (50%) and by Messrs. Brault
(beneficially) (25%) and Froelich (25%). A. G. Edwards & Sons,
Inc. and Brauvin Securities, Inc., affiliates of the General
Partners, were the selling agents of the Partnership. The
Partnership is managed by an affiliate of the General Partners.
The Partnership was formed on June 28, 1985 and filed a
Registration Statement on Form S-11 with the Securities and
Exchange Commission which became effective on March 1, 1985. The
sale of the minimum of $1,200,000 of limited partnership interests
of the Partnership (the "Units") necessary for the Partnership to
commence operations was achieved on June 28, 1985. The
Partnership's offering closed on February 28, 1986. A total of
$9,914,500 of Units were subscribed for and issued between March 1,
1985 and February 28, 1986 pursuant to the Partnership's public
offering.
Properties acquired by the Partnership either directly or
indirectly through joint ventures are: (a) Crown Point, (b)
Strawberry Fields (which was sold in July 2001) and (c) Sabal Palm
shopping centers.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Management's Use of Estimates
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
Basis of Presentation
As a result of the July 12, 1999 authorization by a majority of
the Limited Partners to sell the Partnership's properties the
Partnership has begun the liquidation process and, in accordance
with generally accepted accounting principles, the Partnership's
financial statements for periods subsequent to July 12, 1999 have
been prepared on the liquidation basis of accounting. Accordingly,
the carrying values of the assets are presented at their estimated
net realizable values and liabilities are presented at estimated
settlement amounts, including estimated costs associated with
carrying out the liquidation. Preparation of financial statements
on the liquidation basis of accounting requires significant
assumptions by management, including the estimate of liquidation
costs and the resolution of any contingent liabilities. There may
be differences between the assumptions and the actual results
because events and circumstances frequently do not occur as
expected. Those differences, if any, could result in a change in
the net assets recorded in the statement of net assets as of March
31, 2002.
Accounting Method
The accompanying consolidated financial statements have been
prepared using the accrual method of accounting.
Federal Income Taxes
Under the provisions of the Internal Revenue Code, the
Partnership's income and losses are reportable by the partners on
their respective income tax returns. Accordingly, no provision is
made for Federal income taxes in the financial statements.
Consolidation of Special Purpose Entity
The Partnership has one special purpose entity ("SPE"),
Brauvin/Crown Point L.P., which is owned 99% by the Partnership
and 1% by an affiliate of the General Partners. The creation of
the SPE did not affect the Partnership's economic ownership of the
property.
Consolidation of Joint Venture Partnership
The Partnership owns a 53% interest in the Sabal Palm Joint
Venture, which owns Sabal Palm Shopping Center. The accompanying
financial statements include 100% of the assets, liabilities,
operations and partners' capital of Sabal Palm Joint Venture. The
minority interest of the consolidated joint venture is adjusted for
the respective joint venture partner's share of income or loss and
any cash contributions from or distributions to the joint venture
partner Brauvin Real Estate Fund L.P. 4 ("BREF 4"). All
significant intercompany balances and transactions have been
eliminated.
Investment in Joint Venture
The Partnership owns a 42% equity interest in Strawberry Fields
Joint Venture (Note 6). The accompanying financial statements
include the investment in Strawberry Fields Joint Venture at
estimated net realizable value using the equity method of
accounting on a liquidation basis.
Investment in Real Estate
Prior to the preparation of the financial statements on the
liquidation basis of accounting, the operating properties acquired
by the Partnership were stated at cost, including acquisition
costs, leasing commissions, and tenant improvements, and net of
impairment losses. Depreciation and amortization expense were
computed on a straight-line basis over approximately 31.5 years and
the term of the applicable leases, respectively. All of the
Partnership's properties are subject to liens under first mortgages
(see Note 4).
Subsequent to the adoption of the liquidation basis of accounting
(see Note 2), the Partnership adjusted its investment in real
estate to estimated net realizable value, which is recorded as real
estate held for sale. Additionally, the Partnership suspended
recording any further depreciation expense.
Cash and Cash Equivalents
Cash and cash equivalents include all highly liquid debt
instruments with an original maturity within three months from date
of purchase.
The Partnership maintains its cash in bank deposit accounts,
which, at times, may exceed federally insured limits. The
Partnership has not experienced any losses in such accounts.
Management believes the Partnership is not exposed to any
significant credit risk related to cash or cash equivalents.
Estimated Fair Value of Financial Instruments
Disclosure of the estimated fair value of financial instruments
is made in accordance with the requirements of Statement of
Financial Accounting Standards No. 107, "Disclosures About Fair
Value of Financial Instruments". The estimated fair value amounts
have been determined by using available market information and
appropriate valuation methodologies. However, considerable
judgement is necessarily required in interpreting market data to
develop estimates of fair value.
The fair value estimates presented herein are based on
information available to management as of March 31, 2002, but may
not necessarily be indicative of the amounts that the Partnership
could realize in a current market exchange. The use of different
assumptions and/or estimation methodologies may have a material
effect on the estimated fair value amounts.
In connection with the adoption of the liquidation basis of
accounting, assets were adjusted to their net realizable values and
liabilities were adjusted to estimated settlement amounts, which
approximate their fair value at March 31, 2002.
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
Partnership 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 Partnership.
In July 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 July 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 Partnership does not believe that the adoption of SFAS 141,
142, 143 and 144 will have a significant impact on its financial
statements.
(2) ADJUSTMENT TO LIQUIDATION BASIS
On July 12, 1999, in accordance with the liquidation basis of
accounting, assets were adjusted to their estimated net realizable
values and liabilities were adjusted to their estimated settlement
amounts, including estimated costs associated with carrying out the
liquidation.
In the second quarter of 2001, the Partnership recorded
reductions in real estate held for sale and deferred gain of
$259,350 related to other than temporary decline in the value of
real estate for the Crown Point property.
In the third quarter of 2001, the Partnership recorded a
reduction in real estate held for sale and an increase in the
adjustment to liquidation basis in the amount of $114,367 related
to other than temporary decline in the value of real estate for the
Sabal Palm property.
In the fourth quarter of 2001, the Partnership recorded a
reduction in real estate held for sale and an increase in the
adjustment to liquidation basis in the amount of $7,508 related to
other than temporary decline in the value of real estate for the
Sabal Palm property.
In the fourth quarter of 2001, the Partnership recorded a
reduction in real estate held for sale and deferred gain of
$438,750 related to other than temporary decline in the value of
real estate for the Crown Point property.
In management's judgement no adjustments are required to real
estate held for sale in 2002.
(3) PARTNERSHIP AGREEMENT
The Partnership Agreement (the "Agreement") provides that 99% of
the net profits and losses from operations of the Partnership for
each fiscal year shall be allocated to the Limited Partners and 1%
of net profits and losses from operations shall be allocated to the
General Partners. The net profit of the Partnership from the sale
or other disposition of a Partnership property shall be allocated
as follows: first, there shall be allocated to the General
Partners the greater of: (i) 1% of such net profits; or (ii) the
amount distributable to the General Partners as Net Sale Proceeds
from such sale or other disposition, as defined in the Partnership
Agreement; and second, all remaining profits shall be allocated to
the Limited Partners. The net loss of the Partnership from any
sale or other disposition of a Partnership property shall be
allocated as follows: 99% of such net loss shall be allocated to
the Limited Partners and 1% of such net loss shall be allocated to
the General Partners.
The Agreement provides that distributions of Operating Cash Flow,
as defined in the Agreement, shall be distributed 99% to the
Limited Partners and 1% to the General Partners. The receipt by
the General Partners of such 1% of Operating Cash Flow shall be
subordinated to the receipt by the Limited Partners of Operating
Cash Flow equal to a 10% per annum, cumulative, non-compounded
return on Adjusted Investment, as such term is defined in the
Agreement (the "Preferential Distribution"). In the event the full
Preferential Distribution is not made in any year (herein referred
to as a "Preferential Distribution Deficiency") and Operating Cash
Flow is available in following years in excess of the Preferential
Distribution for said years, then the Limited Partners shall be
paid such excess Operating Cash Flow until they have paid any
unpaid Preferential Distribution Deficiency from prior years. Net
Sale Proceeds, as defined in the Agreement, received by the
Partnership shall be distributed as follows: (a) first, to the
Limited Partners until such time as the Limited Partners have been
paid an amount equal to the amount of their Adjusted Investment;
(b) second, to the Limited Partners until such time as the Limited
Partners have been paid an amount equal to any unpaid Preferential
Distribution Deficiency; and (c) third, 85% of any remaining Net
Sale Proceeds to the Limited Partners, and the remaining 15% of the
Net Sale Proceeds to the General Partners. The Preferential
Distribution Deficiency at March 31, 2002 equaled $14,300,190.
(4) MORTGAGE NOTES PAYABLE
Mortgage notes payable at March 31, 2002 consist of the
following:
Interest Date
Rate Due
Crown Point Shopping
Center (a) $2,723,194 7.55% 1/03
Sabal Palm Square
Shopping Center (b) 3,028,386 8.93% 4/03
$5,751,580
Each shopping center serves as collateral under its respective
nonrecourse debt obligation.
Maturities of the mortgage notes payable are as follows:
2002 $ 134,835
2003 5,616,745
$5,751,580
(a) On December 28, 1995, the acquisition loan was paid in full
when the Crown Point loan was refinanced by NationsBanc Mortgage
Capital Corporation. The refinancing resulted in a $3,275,000 non-
recourse loan with a fixed interest rate of 7.55%, and amortization
based on a 20-year term with a maturity of January 1, 2003.
As a precondition to the financing, the successor lender required
that ownership of the property reside in a single purpose entity
("SPE"). To accommodate the lender's requirements, ownership of
the property was transferred to the SPE, Brauvin/Crown Point L.P.,
which is owned 99% by the Partnership and 1% by an affiliate of the
General Partners. Distributions of Brauvin/Crown Point L.P. are
subordinated to the Partnership which effectively precludes any
distributions from the SPE to affiliates of the General Partners.
The creation of Brauvin/Crown Point L.P. did not affect the
Partnership's economic ownership of the Crown Point property.
Furthermore, this change in ownership structure had no material
effect on the financial statements of the Partnership.
The carrying value of Crown Point at March 31, 2002 was
approximately $4,662,000.
(b) On February 19, 1987, the Partnership and its joint venture
partner obtained a first mortgage loan in the amount of $3,200,000
from an unaffiliated lender. The loan was payable with interest
only at 9.5% per annum until February 1992 and then required
payments of principal and interest based on a 30-year amortization
schedule. Sabal Palm was required to make a balloon mortgage
payment in February 1997. Prior to the scheduled maturity, the
lender granted Sabal Palm an extension until April 1, 1997.
On March 31, 1997, Sabal Palm obtained a first mortgage loan in
the amount of $3,200,000 (the "First Mortgage Loan") secured by its
real estate, from NationsBanc Mortgage Capital Corporation. The
First Mortgage Loan bears interest at the rate of 8.93% per annum,
is amortized over a 25-year period, requires monthly payments of
principal and interest of approximately $26,700 and was scheduled
to mature on March 26, 2002. A portion of the proceeds of the
First Mortgage Loan, approximately $3,077,000, was used to retire
Sabal Palm's existing mortgage from Lincoln National Pension
Insurance Company.
In the second quarter of 1998, Winn-Dixie vacated its space at
the center. Winn-Dixie failed to timely pay its rental obligation
for November and December 2001 and January through March 2002.
On August 7, 2000 Sabal Palm was given notice that Walgreens will
vacate the space prior to its lease termination of April 30, 2025.
Walgreens has moved out, however, it remains liable for rental
payments under its lease with Sabal Palm. The General Partners are
considering potential lease buyout and potential releasing
strategies for this tenant.
In April 2002, the joint venture and the lender agreed to a
twelve month extension of the existing loan. The loan extension
was subject to the lease termination of Winn-Dixie and Winn-Dixie's
payment of a termination fee. As a requirement of the extension,
the joint venture and the lender agreed to use the proceeds from
the termination to redemize the former Winn-Dixie space into three
spaces as well as certain other improvements to the center. The
joint venture has signed a lease with Sav A Lot, a national grocery
chain for 14,350 square feet (one of the demized spaces). In
addition, the joint venture was in lease negotiations with a
potential retail tenant for 10,675 square feet in another one of
the demized spaces. However, the tenant has withdrawn from the
negotiations. Further, Walgreens has approached the joint venture
with a proposal to sublease its space in the center to another
retail tenant. The joint venture is currently reviewing this
proposal.
Due to the nonpayment of Winn-Dixie's rental obligations, the
joint venture did not make its mortgage payments for Sabal Palm in
November and December 2001 and January through March 2002 thus
resulting in a default on its loan. However, the lender took no
foreclosure action and the twelve month extension (as detailed
above) with the lender included the joint venture's payment of all
past due amounts thus curing the default.
The carrying value of Sabal Palm approximated $3,028,000 at March
31, 2002.
(5) TRANSACTIONS WITH AFFILIATES
Fees and other expenses paid or payable to the General Partners
or its affiliates for the three months ended March 31, 2002 and
2001 were as follows:
2002 2001
Management fees $17,558 $21,465
Reimbursable office
expenses 25,370 23,857
As of March 31, 2002, the Partnership had made all payments to
affiliates, except for management fees of $17,558.
(6) EQUITY INVESTMENT
The Partnership owns a 42% interest in Strawberry Fields Joint
Venture, located in West Palm Beach, Florida, and accounts for its
investment under the equity method. The following are condensed
financial statements for Strawberry Fields Joint Venture:
March 31,
2002
(Liquidation Basis)
Other assets $ 337
Other liabilities 2,000
Net liabilities in liquidation $ 1,663
For the three months ended March 31,
(Liquidation Basis)
2001
Rental income $206,144
Other income 24,330
230,474
Mortgage and
other interest 89,093
Operating and
administrative expenses 56,560
145,653
Net income $ 84,821
In 2001, the joint venture received an offer to purchase
Strawberry Fields for $5.585 million. In addition, Syms (a tenant
at Strawberry Fields) exercised its right of first refusal on the
sale of the property. Accordingly, the joint venture executed a
purchase and sale agreement with Syms for $5.585 million in the
second quarter of 2001.
On July 20, 2001, Strawberry Fields was sold to Syms for the
contract price. At closing, the Strawberry Fields Joint Venture
received net sales proceeds of approximately $299,000.
Item 2. Management's Discussion and Analysis or Plan of
Operation.
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.
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. Actual results
could differ materially from those projected in the forward-looking
statements. The Partnership undertakes no obligation to update
these forward-looking statements to reflect future events or
circumstances.
Liquidity and Capital Resources
The Partnership intends to satisfy its short-term liquidity
needs through cash flow from the properties. Mortgage notes
payable are expected to be satisfied through property sales.
The General Partners have determined to pursue the disposition
of the Partnership's assets. In 1999, the Partnership solicited
and received the votes of the Limited Partners to approve a sale of
all of the Partnership's properties, either on an individual or
group basis, and to subsequently liquidate the Partnership. The
solicitation, which was approved by the Limited Partners in the
third quarter of 1999, stated that the Partnership's properties may
be sold individually or in any combination provided that the total
sales price for the properties included in the transaction equals
or exceeds 70% of the aggregate appraised value for such
properties, which valuation was conducted by an independent third
party appraisal firm.
The Partnership intends to sell the properties under a closed
bid process, which will include identification of target buyers
with proven financing ability and performance of certain
evaluations of the properties, such as environmental testing.
Potential buyers will be requested to sign confidentiality
agreements to safeguard the Partnership's confidential proprietary
information. The General Partners have determined that each bid
must be all cash, completely unconditional and accompanied by a
substantial deposit.
In 2001, over 1,000 potential investors were contacted
regarding the sale of the properties. Of this group, approximately
180 became registered potential buyers for the properties.
Combined with prior periods, there have been approximately 300
potential buyers. In addition, the properties are listed on the
Internet at Loopnet.com, the largest commercial real estate website
in the nation. Subsequent to the end of the second quarter, the
Partnership engaged a new brokerage firm to assist in the marketing
of the Partnership's properties for sale. The brokerage firm is
national in scope and one of the largest real estate investment
brokers in the country. The terms of the engagement are
substantially similar to the terms previously negotiated.
Property Status
Crown Point
The anchor tenant at Crown Point is Food City. The overall
occupancy level at Crown Point was 89% at March 31, 2002 and 82% at
March 31, 2001.
On December 28, 1995, the loan balance of the acquisition
financing was paid in full when Crown Point was refinanced with
NationsBanc Mortgage Capital Corporation. The refinancing resulted
in a $3,275,000 non-recourse loan with a fixed interest rate of
7.55% and a maturity of January 1, 2003.
The carrying value of this property on December 31, 2001 is
approximately $4,662,000 based on the purchase contract price of
$4,800,000. This contract was executed on February 1, 2002 and is
subject to a 45 day due diligence period. In March 2002, the
proposed purchaser requested and the Partnership granted an
extension of the proposed purchaser's due diligence. The purchaser
is currently conducting additional environment studies on the
property as part of its due diligence investigation of the
property. Results of the investigation is not known at this time.
However, there can be no assurances that the sale will ultimately
be completed.
In 2001, the Strawberry Fields Joint Venture received an offer
to purchase Strawberry Fields for $5.585 million. In addition,
Syms exercised its right of first refusal on the sale of the
property. Accordingly, the Strawberry Fields Joint Venture
executed a purchase and sale agreement with Syms for $5.585 million
in the second quarter of 2001.
On July 20, 2001, Strawberry Fields was sold to Syms for the
contract price. At closing, the Strawberry Joint Venture received
net sales proceeds of approximately $299,000.
Sabal Palm was required to make a balloon mortgage payment in
February 1997. Prior to the scheduled maturity of the First
Mortgage Loan, the lender granted Sabal Palm an extension until
April 1, 1997. On June 30, 1997, Sabal Palm obtained a first
mortgage loan in the amount of $3,200,000 (the "First Mortgage
Loan") secured by its real estate, from NationsBanc Mortgage
Capital Corporation. The First Mortgage Loan bears interest at the
rate of 8.93% per annum, is amortized over a 25-year period,
requires monthly payments of principal and interest of
approximately $26,700 and was scheduled to mature on March 26,
2002. A portion of the proceeds of the First Mortgage Loan,
approximately $3,077,000 was used to retire Sabal Palm's existing
mortgage from Lincoln National Pension Insurance Company.
In the second quarter of 1998, Winn-Dixie vacated its space at
the center. Winn-Dixie failed to timely pay its rental obligation
for November and December 2001 and January through March, 2002.
On August 7, 2000 Sabal Palm was given notice that Walgreens
will vacate the space prior to its lease termination of April 30,
2025. Walgreens has moved out, however, it remains liable for
rental payments under its lease with Sabal Palm. The General
Partners are considering potential lease buyout and potential
releasing strategies for this tenant.
In total, Sabal Palm has received six offers on the property
ranging in price from $2.2 million to $3.4 million.
As a result of the two vacant anchor spaces representing more
than 55,000 square feet of space or 62% of the property, Sabal Palm
has proved very difficult to sell. The Partnership is continuing
to market this property for sale. To the extent the Partnership
is successful replacing Winn-Dixie with smaller tenants, the
redemizing of the anchor space will require a substantial
investment by the Partnership into the property. Any such
investment will be evaluated on the benefits to the Partnership
including the increased potential value to the Partnership and the
likelihood that the property will be sold sooner.
As a result of Winn-Dixie's lease default, in the third quarter
of 2001, Sabal Palm recorded an adjustment to liquidation basis of
$114,367 related to an other than temporary decline in the value of
real estate for Sabal Palm.
In the fourth quarter of 2001, Sabal Palm recorded a further
adjustment to liquidation basis of $7,508 related to an other than
temporary decline in the value of real estate at Sabal Palm.
In April 2002, the joint venture and the lender agreed to a
twelve month extension of the existing loan. The loan extension
was subject to the lease termination of Winn-Dixie and Winn-Dixie's
payment of a termination fee. As a requirement of the extension,
the joint venture and the lender agreed to use the proceeds from
the termination to redemize the former Winn-Dixie space into three
spaces as well as certain other improvements to the center. The
joint venture has signed a lease with Sav A Lot, a national grocery
chain, for 14,350 square feet (one of the demized spaces). In
addition, the joint venture was in lease negotiations with a
potential retail tenant for 10,675 square feet in another one of
the demized spaces. However, the tenant has withdrawn from the
negotiation. Further, Walgreens has approached the joint venture
with a proposal to sublease its space in Sabal Palm to another
retail tenant. The joint venture is currently reviewing this
proposal.
Due to the nonpayment of Winn-Dixie's rental obligations, the
joint venture did not make its mortgage payments for Sabal Palm in
November and December 2001 and January through March 2002 thus
resulting in a default on its loan. However, the lender took no
foreclosure action and the twelve month extension (as detailed
above) with the lender included the joint venture's payment of all
past due amounts thus curing the default.
As a result of the July 1999 authorization by a majority of the
Limited Partners to sell the Partnership's properties, the
Partnership has begun the liquidation process and, in accordance
with generally accepted accounting principles, the Partnership's
financial statements for periods subsequent to July 12, 1999 have
been prepared on the liquidation basis of accounting. Accordingly,
the carrying values of the assets are presented at net realizable
values and liabilities are presented at estimated settlement
amounts, including estimated costs associated with carrying out the
liquidation. Preparation of the financial statements on the
liquidation basis of accounting requires significant assumptions by
management, including the estimate of liquidation costs and the
resolution of any contingent liabilities. There may be differences
between the assumptions and the actual results because events and
circumstances frequently do not occur as expected. Those
differences, if any, could result in a change in the net assets
recorded in the statement of net assets as of March 31, 2002.
The General Partners expect to distribute proceeds from
operating cash flow, if any, and from the sale of real estate to
Limited Partners in a manner that is consistent with the investment
objectives of the Partnership. Management of the Partnership
believes that cash needs may arise from time to time which will
have the effect of reducing distributions to Limited Partners to
amounts less than would be available from refinancing or sale
proceeds. These cash needs include, among other things,
maintenance of working capital reserves in compliance with the
Agreement as well as payments for major repairs, tenant
improvements and leasing commissions in support of real estate
operations. In particular, the retenanting of Sabal Palm, if
successful, will require an additional capital investment by the
Partnership.
On June 20, 2001, the Partnership received an unsolicited
tender offer to purchase up to 4,950 of the outstanding Units for
$100 per Unit. The offer was made by a group that currently
beneficially owns the economic interests with respect to
approximately 14.5% of the outstanding Units. The offer period
expired on August 17, 2001. Subsequent to August 17, 2001 the
tender offer was increased to $120 per unit and the term was
extended to October 1, 2001. As of October 1, 2001, 404 economic
interests were transferred as a result of this tender offer. Upon
completion of the Offer, the purchasers held an aggregate of 1,842
economic interests, or approximately 19% of the outstanding total
Units.
The General Partners remained neutral as to the particular
merits or risks associated with the tender offer. The General
Partners cautioned that the ultimate amount actually received by
each Limited Partner will be affected by items including, but not
limited to, the timing of the liquidation of the assets, changes in
market conditions, necessary Partnership reserves and the sales
prices that can be negotiated.
The General Partners further informed the Limited Partners
that, for those investors who were primarily interested in
liquidating their Units immediately, the tender offer provided such
an opportunity.
Results of Operations
The Partnership's revenue and expenses are affected primarily
by the operations of the properties. Property operations, and in
particular the components of income, demand for space and rental
rates are, to a large extent, determined by local and national
market conditions.
These conditions have generally adversely impacted the
Partnership's property economics. Rental and occupancy rates have
generally been less than they were when the properties were
acquired.
The General Partners conduct an in-depth assessment of each
property's physical condition as well as a demographic analysis to
assess opportunities for increasing occupancy and rental rates and
decreasing operating costs. In all instances, decisions concerning
restructuring of loan terms, reversions and subsequent operation of
the property are made with the intent of maximizing the potential
proceeds to the Partnership and, therefore, return of investment
and income to Limited Partners.
In certain instances and under limited circumstances,
management of the Partnership entered into negotiations with
lenders for the purpose of restructuring the terms of loans to
provide for debt service levels that could be supported by
operations of the properties. When negotiations are unsuccessful,
management of the Partnership considers the possibility of
reverting the properties to the first mortgage lender. Foreclosure
proceedings may require 6 to 24 months to conclude.
An affiliate of the Partnership and the General Partners is
assigned responsibility for day-to-day management of the
properties. The affiliate receives a combined management and
leasing fee, which cannot exceed 6% of gross revenues generated by
the properties. Management fee rates are determined by the extent
of services provided by the affiliate versus services that may be
provided by third parties, i.e., independent leasing agents. In
all instances, fees paid by the Partnership to the property
management affiliate are, in the General Partners' opinion,
comparable to fees that would be paid to independent third parties.
Results of Operations - Three months ended March 31, 2002 and 2001
(Liquidation Basis)
As a result of the Partnership's adoption of the liquidation
basis of accounting, and in accordance with generally accepted
accounting principles, the Partnership's financial statements for
periods subsequent to July 12, 1999 have been prepared on a
liquidation basis.
The Partnership generated net income of $45,000 for the period
ended March 31, 2002 as compared to net income of $105,000 for the
same period in 2001.
Total income for the period ended March 31, 2002 was $306,000
as compared to $356,000 for the same period in 2001. The $50,000
decrease in total income was primarily a result of a $34,000
decrease in rental income and a $10,000 decrease in interest
income. Rental income decreased primarily as a result of a decline
in percentage rents earned which related to a vacated anchor tenant
at Sabal Palm. The decline in interest income is associated with
a decline in interest rates on the Partnership's investments.
Total expenses for the period ended March 31, 2002 were
$252,000 as compared to $283,000 for the same period in 2001. The
$31,000 decrease in expense is the result of a $25,000 decrease in
bad debt and an $11,000 decrease in repairs and maintenance.
Partially offsetting these decreases is an increase in general and
administrative expense of $16,000 mainly due to legal fees. Bad
debt expense decreased as a result of the allowance for certain
tenant items that had been previously estimated to be
uncollectible. Repairs and maintenance decreased as a result of
significant roof repairs that were done at Sabal Palm in the prior
period while only minor repairs were completed in 2002.
PART II - OTHER INFORMATION
ITEM 1. Legal Proceedings.
None.
ITEM 2. Changes in Securities.
None.
ITEM 3. Defaults Upon Senior Securities.
None.
ITEM 4. Submission of Matters To a Vote of Security
Holders.
None.
ITEM 5. Other Information.
None.
ITEM 6. Exhibits and Reports on Form 8-K.
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.
BY: Brauvin Ventures, Inc.
Corporate General Partner of
Brauvin Real Estate Fund L.P. 5
BY: /s/ Jerome J. Brault
Jerome J. Brault
Chairman of the Board of
Directors and President
DATE: June 4, 2002
BY: /s/ Thomas E. Murphy
Thomas E. Murphy
Chief Financial Officer
And Treasurer
DATE: June 4, 2002