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 June 30, 1995
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
<PAGE>
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.
<TABLE>
<CAPTION>
LUTHERAN BROTHERHOOD REALTY FUND I
BALANCE SHEET
(thousands)
(Unaudited)
June 30, December 31,
1995 1994
---------- ------------
<S> <C> <C>
ASSETS
Real estate investment, at cost:
Land $ 636 $ 636
Buildings 1,612 1,612
------ -------
2,248 2,248
Less: Accumulated depreciation (294) (268)
------ -------
1,954 1,980
Investments in Joint Ventures 2,107 2,095
Cash and cash equivalents 623 521
Deferred charges (net) and other assets 78 122
------ -------
Total Assets $4,762 $4,718
====== ======
LIABILITIES AND PARTNERS' EQUITY
Payables to affiliates $ 6 $ 23
Other liabilities 4
----- ------
Total Liabilities 10 23
----- ------
Partners' Equity
Limited Partners' - 63,803 units
outstanding in 1995 and 1994 4,742 4,687
General Partner 10 8
----- ------
Total Partner's Equity 4,752 4,695
----- ------
Total Liabilities and Partners' $4,762 $4,718
Equity ====== ======
</TABLE>
See accompanying notes.
<PAGE>
<TABLE>
<CAPTION>
LUTHERAN BROTHERHOOD REALTY FUND I
STATEMENT OF OPERATIONS
(Unaudited)
(thousands except per share amounts)
Three Months Ended Six Months Ended
June 30, June 30,
1995 1994 1995 1994
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenue:
Rental $ 130 $ 121 $ 263 $ 248
Interest 8 4 15 7
------ ------ ------ ------
Total revenue 138 125 278 255
------ ------ ------ ------
Expenses:
Property operations 45 44 94 85
Depreciation and amortization 23 16 45 32
Administrative 3 11 43 44
------ ------ ------ ------
Total expenses 71 71 182 161
------ ------ ------ ------
Net income from operations 67 54 96 94
Income from Joint Ventures 40 34 89 61
------ ------ ------ ------
Net income $ 107 $ 88 $ 185 $ 155
====== ====== ====== ======
Net income per weighted average
number of limited partnership units $ 1.68 $ 1.38 $ 2.90 $ 2.43
====== ====== ====== ======
Weighted average number of limited
partnership units outstanding 63,803 63,803 63,803 63,803
====== ====== ====== ======
Distributions per weighted average
limited partnership units outstanding $ 1.00 $ 1.00 $ 2.00 $ 2.00
======= ======= ======= =======
</TABLE>
See accompanying notes.
<PAGE>
<TABLE>
<CAPTION>
LUTHERAN BROTHERHOOD REALTY FUND I
STATEMENT OF PARTNERS' EQUITY
FROM DECEMBER 31, 1992 THROUGH JUNE 30 1995
(in thousands)
Total
General Limited Partners'
Partner Partners Equity
------- -------- ---------
<S> <C> <C> <C>
Balance at December 31, 1992 2 4,593 4,595
Net income 3 295 298
------ ------- -------
Distributions to Limited Partners (255) (255)
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 2 183 185
Distributions to Limited Partners (128) (128)
------ ------- -------
Balance at June 30, 1995 $ 10 $ 4,742 $ 4,752
====== ======= =======
</TABLE>
See accompanying notes.
<PAGE>
<TABLE>
<CAPTION>
LUTHERAN BROTHERHOOD REALTY FUND I
STATEMENT OF CASH FLOW
(Unaudited)
(thousands)
Six Months Ended
June 30,
1995 1994
----------------
<S> <C> <C>
Net Income $ 185 $ 155
Adjustments to reconcile net income to net
cash provided by (used in) operating activities:
Depreciation and amortization 45 32
Changes in assets and liabilities:
Other assets 4 (3)
Payable to affiliates (17) 96
Other accrued operating expenses 4 (3)
----- ------
Net cash provided by operating activities 221 277
----- ------
Cash flows from investing activities:
Capital improvements (2) (33)
Tenant Reimbursements - capital improvements 23
Capital Infusion to Minnetonka 300/400 (80)
Distributions from joint ventures 77 96
Equity in joint venture earnings (89) (66)
----- ------
Net cash provided by (used in) investing
activities 9 (83)
----- ------
Cash flows from financing activities:
Distributions to partners (128) (128)
----- ------
Net cash used in financing activities (128) (128)
----- ------
Net increase (decrease) in cash and cash
equivalents 102 66
Cash and cash equivalents at beginning of period 521 562
----- ------
Cash and cash equivalents at end of period $ 623 $ 628
====== ======
Supplemental Schedules:
Interest paid $ 0 $ 0
Income taxes paid $ 0 $ 0
</TABLE>
See accompanying notes.
<PAGE>
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 June 30, 1995 and June 30, 1994.
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.
<PAGE>
At June 30, 1995 the assets and liabilities of the joint ventures were as
follows (in thousands):
<TABLE>
<CAPTION>
Minnetonka Minnetonka Worthington
225 300 & 400 Green
Associates Associates Associates
---------- ---------- ----------
<S> <C> <C> <C>
Land $ 369 $ 687 $ 837
Property less depreciation 1,185 1,892 4,130
Deferred charges (net)
and other assets 354 553 987
------ ------ ------
1,908 3,132 5,954
Liabilities 66 176 114
------- ------- -------
Net assets $1,842 $2,956 $5,840
======= ======= ======
</TABLE>
Revenues and expenses of the joint ventures for the period from January 1,
1995 through June 30, 1995 were as follows (in thousands):
<TABLE>
<S> <C> <C> <C>
Revenues $ 214 $ 312 $ 566
Property taxes (55) (68) (69)
Management fee (10) (14) (17)
Other operating expenses (37) (68) (160)
Depreciation (38) (80) (131)
------- ------- -------
Net income 74 82 189
Partnership interest 33.3% 33.3% 19.3%
------- ------- -------
Partnership income $ 25 $ 28 $ 36
------- ------- -------
Total income from joint ventures $ 89
========
</TABLE>
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 June 30, 1995 and December 31,
1994 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 June 30, 1995, 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 six months ended June 30, 1995 and 1994, the Partnership was
allocated $16,300 and $21,800, respectively, in partnership administrative
expenses by the General Partner and other affiliated entities.
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 Partnership completed its start-up and investment-in-properties phases
in 1989 and is currently in an operational phase in which the Partnership's
activities will be focused on efforts to increase income and distributions
to Limited Partners through active management of the Partnership's
properties.
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 revenue for NWDC for the second quarter of 1995 and the first
six months of 1995 increased 7% and 6% respectively compared to the same
periods in 1994. This improvement was due primarily to an increase in
rental rates since the property has been 100% occupied in both 1994 and
1995. Interest revenue has also doubled for both comparative periods due to
rising short-term interest rates during the past year. Depreciation and
amortization expense increased over 40% during both comparative periods as a
result of the capitalization of additional tenant improvements late in 1994.
As a result of these and other smaller variances, the net income from
operations increased 24% and 2% respectively for the second quarter and
first six months of 1995 compared to the same periods in 1994.
The Partnership's share of Joint Venture income increased nearly 18% during
the second quarter of 1995 compared to the second quarter of 1994 and nearly
46% for the first six months of 1995 compared to the first six months of
1994.
The largest contributor to this increase was the Minnetonka 225 property
whose average occupancy improved to nearly 100% during the second quarter
and first six months of 1995 from 60% during the same periods in 1994. In
addition, there were unusually high operating expense reimbursements paid to
tenants in the first quarter of 1994. These 1994 reimbursements primarily
related to prior year property tax refunds received on the property in 1993.
Depreciation and amortization expense increased over 50% in 1995 compared to
1994 for both comparable periods due to capitalized improvement costs
incurred to attract new tenants. Despite the additional depreciation and
amortization charges and a 20% increase in property taxes, the Partnership's
share of joint venture income for this property increased to $8,000 for the
second quarter of 1995 compared to $4,000 for the second quarter of 1994 and
to $25,000 for the first six months of 1995 compared to a $1,000 loss for
the first six months of 1994.
Gross rental revenue at Minnetonka 300/400 rose nearly 38% for the second
quarter of 1995 compared to the second quarter of 1994 and 24% for the first
six months of 1995 compared to the first six months of 1994. However, this
increased revenue was offset by significant increases in depreciation and
operating expenses, primarily landscaping and interior repairs.
Depreciation expense jumped due to capitalized roof replacement costs at
Minnetonka 300 that were completed in December 1994. As a result, the
Partnership's share of joint venture income from Minnetonka 300/400 rose to
only $15,000 during the second quarter of 1995 compared to $12,000 during
the second quarter of 1994 and to $28,000 during the first six months of
1995 compared to $27,000 during the first six months of 1994.
The Partnership's share of joint venture income from Worthington Green was
$17,000 for the second quarter of 1995 compared to $18,000 for the second
quarter of 1994 and increased slightly to $36,000 during the first six
months of 1995 from $35,000 during the first six months of 1994. There was
little change in either gross rental revenues or property expenses during
the periods under review.
INFLATION
The moderate inflation experienced in 1994 had little effect on the
Partnership's operations. It is anticipated that during 1995, inflation
will continue at a moderate level and that the Partnership's operations will
not be significantly influenced by inflation.
LIQUIDITY AND CAPITAL RESOURCES
Northwest Distribution Center
The local bulk warehouse market is currently very favorable to owners and
sellers. Vacancy is below 5% in bulk buildings and average rent increases
of nearly 5% are being obtained. The property continues to be 100% occupied
by two tenants. The building will be painted during the 3rd quarter, and
replacement of the retaining wall at the entrance to the property will also
be completed. No variances from budgeted capital repair costs are
anticipated.
The Village at Worthington Green
Average leased occupancy at The Village was above 95% during the second
quarter of 1995. A new development located approximately 5 miles from The
Village was introduced during early 1995, but has had little impact on the
marketability of The Village despite offering rental concessions and greater
amenities. Due to pricing advantages, partial roof replacement and parking
lot maintenance work will be completed during the third quarter. All such
capital expenditures are expected to be within budget.
Minnetonka Industrial Properties
The local office/warehouse market continues to improve, with overall vacancy
less than 10%. Rental rates have been increased, on average, nearly 4.5%
over the last 12 months and further increases will be possible until
additional properties are developed. Currently, nearly 3.5 million square
feet of space is under plan for development. However, a large portion of
this space is built-to-suit for single tenants and will not represent
competition for the Fund's industrial holdings.
Minnetonka 225 is currently 100% leased, with the next lease expiration in
January of 1996 for approximately 9,072 square feet. We are currently
working to extend this tenant's lease. Roof repairs were necessary in early
1995 as a result of partial roof failure. Many buildings within the Twin
Cities experienced roof problems during the spring of 1995 due to rapid
freeze-thaw cycles. The roof is scheduled to be replaced beginning in the
third quarter of 1995. The current estimate for the project is
approximately $230,000. Minnetonka 300 is currently 100% leased, with one
tenant at the property presently under a month-to-month lease. This tenant
is paying 150% of market rent while searching for a building to purchase,
which has also provided us the opportunity to locate a replacement tenant
with minimal down time on the space. At the close of the second quarter,
Minnetonka 400 was 100% leased. However, a tenant representing 22% of the
property's square footage gave notice to terminate their lease as of July 1,
1995. The vacancy will be marketed and, as was originally anticipated,
certain capital improvements to this space will be needed in order to make
it marketable. These improvements include roof replacement, which will
commence during the third quarter at a cost of approximately $131,000.
At June 30, 1995, the Partnership held cash and cash equivalents of
$623,000. The Partnership improved its cash position by $102,000 during the
first six months as a result of net cash provided by operating activities of
$221,000 and by investing activities of $9,000 offset by distributions to
Partners of $128,000.
The Partnership has sufficient cash and cash equivalents to meet its 3%
required reserve.
Cash provided from operations in 1995 is expected to be sufficient to
satisfy substantially all of the Partnership's working capital and normal
capital expenditure needs. During the first six months of 1995, the
Partnership's share of capital expenditures was approximately $77,000. An
additional $204,000 in capital expenditures is anticipated during the
remainder of 1995. However, cash provided from operations in 1995 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.
It is not anticipated that the Partnership will acquire additional
properties or additional interests in joint ventures which own properties.
During the holding period of the properties, cash flow from operations is
expected to contribute to the liquidity of the Partnership as the
Partnership's primary objective is to generate current income. Secondarily,
the General Partner's intent is to realize an increased value for the
properties at sale, thus enhancing the Partnership's ability to make surplus
funds distributions to the Limited Partners upon such property sales.
<PAGE>
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 June 30, 1995.
<PAGE>
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: August 14, 1995 By: S/Mitchell F. Felchle
Mitchell F. Felchle
President
Date: August 14, 1995 By: S/Anita J. T. Young
Anita J. T. Young
Treasurer
(Chief Financial Officer)
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from Lutheran
Brotherhood Realty Fund I for the Quarter ended June 30, 1995 and is qualified
in its entirety by reference to such Form 10-Q.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> JUN-30-1995
<CASH> 623
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 623
<PP&E> 2248
<DEPRECIATION> 294
<TOTAL-ASSETS> 4762
<CURRENT-LIABILITIES> 10
<BONDS> 0
<COMMON> 0
0
0
<OTHER-SE> 4752
<TOTAL-LIABILITY-AND-EQUITY> 4762
<SALES> 263
<TOTAL-REVENUES> 367
<CGS> 139
<TOTAL-COSTS> 139
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 185
<INCOME-TAX> 0
<INCOME-CONTINUING> 185
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 185
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
