FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1996
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission file number 0-17617
LUTHERAN BROTHERHOOD REALTY FUND I,
a California limited partnership
(Exact name of registrant as specified in its charter)
California 94-3046442
(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization)
625 Fourth Avenue South
Minneapolis, Minnesota 55415
(Address of principal executive offices)
(612) 339-8091
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes __X__ No _____
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
In the opinion of Lutheran Brotherhood Real Estate Products Company (the
"General Partner"), the General Partner of Lutheran Brotherhood Realty Fund
I, a California limited partnership (the "Partnership"), all adjustments
necessary for a fair presentation of the Partnership's results have been
made in the following financial statements for the interim periods
presented. All such adjustments are of a recurring nature. However, such
financial statements are unaudited and subject to any year-end adjustments
that may be necessary.
LUTHERAN BROTHERHOOD REALTY FUND I
BALANCE SHEET
(thousands)
(Unaudited)
March 31, December 31,
1996 1995
----------- ------------
ASSETS
- ------
Real estate investment, at cost:
Land $ 636 $ 636
Buildings 1,612 1,612
------ ------
2,248 2,248
Less: Accumulated depreciation (332) (319)
------ ------
1,916 1,929
Investments in joint ventures 2,165 2,105
Cash and cash equivalents 650 610
Receivables from affiliates 6
Deferred charges (net) and other assets 48 56
------ ------
Total Assets $4,779 $4,706
====== ======
LIABILITIES AND PARTNERS' EQUITY
- --------------------------------
Payables to affiliates $ 44 $
Property taxes payable 32
Other liabilities 7 2
------ ------
Total Liabilities 83 2
------ ------
Partners' Equity
Limited Partners' - 63,803 units
outstanding in 1996 and 1995 4,684 4,693
General Partner 12 11
------ ------
Total Partner's Equity 4,696 4,704
------ ------
Total Liabilities and Partners' $4,779 $4,706
Equity ====== ======
See accompanying notes.
LUTHERAN BROTHERHOOD REALTY FUND I
STATEMENT OF OPERATIONS
(Unaudited)
(thousands except per share amounts)
Three Months Ended
March 31,
1996 1995
--------------------
Revenue:
Rental $ 132 $ 133
Interest 7 7
Equity in Joint Venture Capital 48 49
------- -------
Total revenue 187 189
------- -------
Expenses:
Property taxes 32 32
Management fee 5 5
Other property expenses 15 12
Depreciation and amortization 23 22
Administrative 56 40
------- -------
Total expenses 131 111
------- -------
Net income $ 56 $ 78
======== ========
Net income per weighted average
number of limited partnership units outstanding $ .88 $ 1.22
======== ========
Weighted average number of limited
partnership units outstanding 63,803 63,803
======== ========
Distributions per weighted average
limited partnership units outstanding $ 1.00 $ 1.00
======= ========
See accompanying notes.
LUTHERAN BROTHERHOOD REALTY FUND I
STATEMENT OF PARTNERS' EQUITY
FROM DECEMBER 31, 1993 THROUGH MARCH 31, 1996
(in thousands)
Total
General Limited Partners'
Partner Partners Equity
------- -------- --------
Balance at December 31, 1993 5 4,633 4,638
Net income 3 309 312
Distributions to Limited Partners (255) (255)
----- ------ ------
Balance at December 31, 1994 8 4,687 4,695
Net income 3 261 264
Distributions to Limited Partners (255) (255)
----- ------ ------
Balance at December 31, 1995 11 4,693 4,704
Net income 1 55 56
Distributions to Limited Partners (64) (64)
----- ------ ------
Balance at March 31, 1996 $ 12 $ 4,684 $ 4,696
===== ======= =======
See accompanying notes.
LUTHERAN BROTHERHOOD REALTY FUND I
STATEMENT OF CASH FLOW
(Unaudited)
(thousands)
Three Months Ended
March 31,
1996 1995
-----------------
Net Income $ 56 $ 78
Adjustments to reconcile net income to net
cash provided by (used in) operating activities:
Depreciation and amortization 23 22
Distributions from joint ventures 38 29
Equity in joint venture earnings (48) (49)
Changes in assets and liabilities:
Due from affiliates 6
Other assets (2) (9)
Payable to affiliates 44 1
Property taxes payable 32 32
Other accrued operating expenses 5 4
----- -----
Net cash provided by operating activities 154 108
----- -----
Cash flows from investing activities:
Capital improvements (3)
Tenant reimbursements - capital improvements 23
Capital Infusion to Minnetonka 225 (30)
Capital Infusion to Minnetonka 300/400 (20) 0
----- -----
Net cash provided by (used in) investing activities (50) 20
----- -----
Cash flows from financing activities:
Distributions to partners (64) (64)
----- -----
Net cash used in financing activities (64) (64)
----- -----
Net increase (decrease) in cash and cash equivalents 40 64
Cash and cash equivalents at beginning of period 610 521
----- -----
Cash and cash equivalents at end of period $ 650 $ 585
===== =====
Supplemental Schedules:
Interest paid $ 0 $ 0
Income taxes paid $ 0 $ 0
See accompanying notes.
Note 1. Organization and Partnership Matters
Termination of the Offering
The Partnership's offering expired on February 11, 1989, having raised a
total of $6,365,000 in contributed capital (including Initial Limited
Partner's Contribution) from which the Partnership netted $5,719,000 after
underwriting commissions and registration expenses.
Note 2. Net Income Per Partnership Unit
The Partnership Agreement of the Partnership ("Partnership Agreement")
provides for net income and net losses from operations for financial
reporting purposes to be allocated 99% to the Limited Partners and 1% to the
General Partner. Net income per weighted average number of Limited
Partnership Units is computed by dividing net income allocated to the
Limited Partners by the weighted average number of Limited Partnership Units
outstanding. Per unit information has been computed based on 63,803
weighted average units outstanding at both March 31, 1996 and March 31,
1995.
Note 3. Real Estate Investments
On September 29, 1989, the Partnership restructured (the "Restructure") its
investment portfolio by consummating the following agreements entered into
as of June 30, 1989. The Restructure completely eliminated the
Partnership's debt.
Worthington Green Associates
Pursuant to a joint venture agreement, Lutheran Brotherhood ("LB"), the
parent of the General Partner contributed $6,161,595 cash for an 84%
interest in the joint venture. The Partnership deeded the Village at
Worthington Green ("Village") for a 16% interest in the joint venture and
$6,161,595 cash. On December 1, 1989, the agreement was revised to increase
the Partnership's interest in the joint venture to 19.3% in exchange for an
additional $200,000 in cash.
Northwest Distribution Center
Pursuant to a purchase agreement with LB which was assigned to LB from the
General Partner, the Partnership purchased the Northwest Distribution Center
("NWDC"), a bulk warehouse/distribution center located in New Hope,
Minnesota, for $2,256,750.
Minnetonka 225 Associates
Pursuant to a joint venture agreement with LB, the Partnership contributed
$606,430 cash for a 33% interest in a joint venture which owns and operates
a multi-tenant office/warehouse facility located in Minnetonka, Minnesota.
Minnetonka 300 & 400 Associates
Pursuant to a joint venture agreement with LB, the Partnership contributed
$891,089 cash for a 33% interest in a joint venture which owns and operates
two multi-tenant office/warehouse facilities located in Minnetonka,
Minnesota.
At March 31, 1996 the assets and liabilities of the joint ventures were as
follows (in thousands):
Minnetonka Minnetonka Worthington
225 300 & 400 Green
Associates Associates Associates
---------- ---------- ----------
Land $ 369 $ 687 $ 837
Property less depreciation 1,404 1,818 3,965
Deferred charges (net)
and other assets 218 650 1,099
------- ------ ------
1,991 3,155 5,901
Liabilities (36) (145) (48)
------- ------ ------
Net assets $1,955 $3,010 $5,853
====== ====== ======
Revenues and expenses of the joint ventures for the three month periods
ending March 31, 1996 and 1995 were as follows (in thousands):
Minnetonka Minnetonka Worthington
225 300 & 400 Green
Associates Associates Associates
---------- ---------- ----------
March 31, March 31, March 31,
1996 1995 1996 1995 1996 1995
---- ---- ---- ---- ---- ----
Revenues $ 117 $ 109 $ 152 $ 151 $ 296 $ 282
Property taxes (33) (12) (34) (34) (35) (34)
Management fee (5) (5) (6) (7) (10) (7)
Other operating expenses (13) (22) (30) (32) (76) (80)
Depreciation (21) (18) (44) (39) (70) (65)
----- ---- ---- ---- ---- ----
Net income 45 52 38 39 105 96
Partnership interest 33.3% 33.3% 33.3% 33.3% 19.3% 19.3%
----- ----- ----- ----- ----- -----
Partnership income $ 15 $ 17 $ 13 $ 13 $ 20 $ 19
===== ===== ===== ===== ===== =====
Note 4. Commitments, Contingencies, and Subsequent Events
Commitments
Under the Partnership Agreement, the Partnership is required to maintain
reasonable reserves for normal repairs, replacements, working capital, and
contingencies in an amount equal to at least 3% of Capital Contributions.
In the event expenditures are made from these reserves, a portion of the
cash generated from operating revenue shall be allocated to such reserves to
the extent necessary to maintain the foregoing level. Reserves, including
cash on hand and short term securities, at March 31, 1996 and December 31,
1995 were in excess of 3% of Capital Contributions.
Pending Litigation
The Partnership is not a party to, nor is any of the Partnership's property
the subject of, any material legal proceedings.
Subsequent Distribution
Subsequent to quarter end, but as of March 31, 1996, the Partnership paid
distributions totaling $63,803, to the Limited Partners at the rate of 4%
per annum on the Limited Partners' invested capital.
Note 5. Fees and Reimbursements
For the three months ended March 31, 1996 and 1995, the Partnership was
allocated $38,499 and $20,002, respectively, in partnership administrative
expenses by the General Partner and other affiliated entities.
Note 6. Recently Issued Accounting Standards
In March, 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 121, "Accounting for Impairment of Long-
Lived Assets and for Long-Lived Assets to Be Disposed Of" ("SFAS 121").
SFAS 121 establishes accounting standards for the impairment of long-lived
assets, certain identifiable intangibles, and goodwill related to those
assets to be held and used and for long-lived assets and certain
identifiable intangibles to be disposed of.
The Partnership has adopted SFAS 121 by reviewing long-lived assets to be
held and used for impairment as of March 31, 1996. As a result of this
review, no material adjustments have been made to the carrying value of the
Partnership's real estate investments.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
INTRODUCTION
The Partnership was formed to engage in the business of acquiring and
operating income-producing real properties and holding the properties for
investment. The Partnership's public offering commenced on December 4,
1987, and expired on February 11, 1989. The offering raised a total of
$6,365,000 in contributed capital (including the Initial Partners'
contributions) from which the Partnership netted $5,719,000 after
underwriting and registration expenses.
The General Partner intends to seek limited partner approval of a
liquidation proposal to begin the process of selling the Partnership's
properties and winding up the Partnership. The General Partner has listed
the Partnership's properties with real estate agencies to test the
feasibility of such sales. There can be no assurance, however, that
following limited partner approval of the liquidation proposal, the General
Partner will be able to accomplish such sales during 1996 or thereafter.
Currently, the Partnership owns a warehouse/distribution center in New Hope,
Minnesota and is a co-venturer in three joint ventures holding four
residential and commercial properties. See Part I, Item 1, Note 3, Real
Estate Investments, for a description of the September, 1989 restructure of
the Partnership's investment portfolio pursuant to which the Partnership
acquired its interest in these properties.
RESULTS OF OPERATIONS
Gross rental revenues for NWDC were relatively flat because occupancy levels
were at 100% during the first quarters of both 1996 and 1995.
Administrative expenses increased 40% to $56,000 during the first quarter of
1996 compared to $40,000 during the first quarter of 1995 due to the General
Partner's efforts to determine the feasibility of liquidation of the
Partnership.
The Partnership's share of Joint Venture income decreased slightly to
$48,000 during the first quarter of 1996 from $49,000 during the first
quarter of 1995. The Partnership's share of income from the Minnetonka 225
Joint Venture was $15,000 during the first quarter of 1996 compared to
$17,000 during the same period in 1995. Rental revenues rose from $109,000
to $117,000 because of slight increases in occupancy levels and rental rates
during the first quarter of 1996 compared to the first quarter of 1995.
This improvement was offset by an increase in property tax expense to
$33,000 during the first quarter of 1996 from $12,000 during the first
quarter of 1995. The tax accrual was underestimated in 1995 and a prior
year adjustment was taken in 1995 for disputed taxes. Other operating
expenses decreased 41% primarily due to roof repair expenses incurred during
the first quarter of 1995.
Gross rental revenue for Minnetonka 300/400 remained flat during the first
quarter of 1996 compared to the same period in 1995. Depreciation and
amortization expense rose 13% during the same period due to the amortization
of tenant improvements for Minnetonka 300 that were completed in June of
1995. Other operating expenses declined slightly so that overall the
Partnership's share of net income was $13,000 for both the first quarter of
1996 and 1995.
Occupancy levels at Worthington Green remained at 96% during both periods.
Gross rental revenues increased 5% due to slight increases in rental rates.
Depreciation expense increased 8% as a result of a $30,000 roof replacement
completed in November of 1995. Overall, the Partnership's share of net
income increased to $20,000 during the first quarter of 1996 compared to
$19,000 during the first quarter of 1995.
INFLATION
The moderate inflation experienced in 1995 had little effect on the
Partnership's operations. It is anticipated that during 1996, inflation
will continue at a moderate level and that the Partnership's operations will
not be significantly influenced by inflation.
PROPERTY HIGHLIGHTS
Northwest Distribution Center
In general, the industrial-bulk warehouse market continues to show strength,
with occupancies exceeding 95% in the Twin Cities market area. Rental rates
have been strong and this is prompting the return of semi-speculative real
estate development, a situation that supports the General Partner's
consideration of liquidating the Partnership. The property continues to be
100% occupied by two tenants, with the next lease expiration during June of
1997 for 20,000 square feet.
The Village at Worthington Green
Occupancy for the first three months of 1996 averaged approximately 96%,
which is slightly lower than during first quarter 1995. We believe this
downward movement is only temporary and the property should continue to
lease well.
Minnetonka Industrial Properties
The market for industrial-office/warehouse buildings such as the Minnetonka
properties remained fairly healthy through March of 1996. Much development
is occurring in the marketplace because existing occupancy for
office/warehouse buildings is at an all-time high, exceeding 95%. We can
expect to see the effects of the new competition on the Minnetonka
Properties as we negotiate lease renewals during late 1996 and early 1997.
Minnetonka 225 is currently 100% occupied, with the next lease renewal in
December of 1997 for 8% of the property. Minnetonka 300 is also currently
100% occupied, with the most recent lease renewal as of February 1996 for 2%
of the property. Management has not renewed this lease yet due to the
probability of an adjacent tenant wanting to expand into this smaller area
in connection with a separate lease renewal. Minnetonka 400 was 100%
occupied as of March 31, 1996, after having been 78% occupied during the
last half of 1995. Management negotiated a short-term lease for the balance
of space in this building during the quarter as part of an overall long-term
lease we are negotiating for the entire facility. The next lease expiration
is December of 1996 for 76% of the property and as noted above, we are
actively seeking a lease renewal and/or new tenants for the property at this
time.
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 1996, the Partnership held cash and cash equivalents of
$650,000. The Partnership improved its cash position by $40,000 during the
quarter as a result of net cash provided from operating activities of
$154,000 offset by cash used for investing activities of $50,000 and
distributions to Partners of $64,000.
The Partnership has sufficient cash and cash equivalents to meet its 3%
required reserve.
Cash provided from operations in 1996 is expected to be sufficient to
satisfy substantially all of the Partnership's working capital and normal
capital expenditure needs. During the first quarter, the Partnership's
share of capital expenditures for the Joint Venture properties was
approximately $12,000. Additional capital expenditures are anticipated
during the remainder of 1996 which are expected to total $139,000. However,
cash provided from operations in 1996 may not be sufficient to provide
anticipated distributions to the Limited Partners for the entire year. The
Partnership may borrow funds from the General Partner to provide cash for
distributions to Limited Partners but it is not anticipated that such
borrowing will occur.
The Partnership will not acquire additional properties or additional
interests in joint ventures which own properties. During the holding period
of the Partnership's properties, cash flow from operations is expected to
contribute to the liquidity of the Partnership and to generate current
income. The General Partner, however, intends to seek limited partner
approval of a liquidation proposal to begin the process of selling the
Partnership's properties and winding up the Partnership. The General
Partner has listed the Partnership's properties with real estate agencies to
test the feasibility of such sales. There can be no assurance, however,
that following limited partner approval of the liquidation proposal, the
General Partner will be able to accomplish such sales during 1996 or
thereafter.
PART II. Other Information
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) No exhibits are filed as part of this report.
(b) There were no reports on Form 8-K filed during the quarter
ended March 31, 1996.
SIGNATURES
Pursuant to the requirements 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.
LUTHERAN BROTHERHOOD REALTY FUND I,
a California limited partnership
By: Lutheran Brotherhood Real
Estate Products Company,
Its General Partner
Date: May 15, 1996 By: /S/ Mitchell F. Felchle
-------------------------------
Mitchell F. Felchle
President
Date: May 15, 1996 By: /S/ Anita J. T. Young
-------------------------------
Anita J. T. Young
Treasurer
(Chief Financial Officer)
INDEX TO EXHIBIT
EXHIBIT NUMBER PAGE IN
REGISTRATION
STATEMENT
27 Financial Data Schedule
10