<PAGE>
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 September 30, 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 _____
<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>
LUTHERAN BROTHERHOOD REALTY FUND I
BALANCE SHEET
(thousands)
<CAPTION>
(Unaudited)
September 30, December 31,
1996 1995
------------ ------------
<S> <C> <C>
ASSETS
Real estate investment, at cost:
Land $ 636 $ 636
Buildings 1,612 1,612
------ ------
2,248 2,248
Less: Accumulated depreciation (345) (319)
------ -------
1,903 1,929
Investments in joint ventures 1,560 2,105
Cash and cash equivalents 1,970 610
Receivables from affiliates 6
Deferred charges (net) and other assets 216 56
------ ------
Total Assets $5,649 $4,706
====== ======
LIABILITIES AND PARTNERS' EQUITY
Payables to affiliates $ 72 $
Real estate taxes payable 33
Other liabilities 3 2
------ ------
Total Liabilities 108 2
------ ------
Partners' Equity
Limited Partners' - 63,803 units
outstanding in 1996 and 1995 5,520 4,693
General Partner 21 11
------ ------
Total Partner's Equity 5,541 4,704
------ ------
Total Liabilities and Partners' Equity $5,649 $4,706
====== ======
See accompanying notes.
</TABLE>
<PAGE>
<TABLE>
LUTHERAN BROTHERHOOD REALTY FUND I
STATEMENT OF OPERATIONS
(Unaudited)
(thousands except per share amounts)
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenue:
Rental $ 128 $ 126 $ 389 $ 389
Interest 15 8 30 23
Equity in Joint Venture Capital (56) 42 29 131
Gain on sale of Joint Venture 956 956
------- ------- ------- -------
Total revenue 1,043 176 1,404 543
------- ------- ------- -------
Expenses:
Property taxes 33 32 99 96
Management fee 5 5 15 16
Other property expenses 12 55 36 74
Depreciation and amortization 34 23 79 68
Administrative 42 15 146 58
------- ------- ------- -------
Total expenses 126 130 375 312
------- ------- ------- -------
Net income $ 917 $ 46 $ 1,029 $ 231
======= ======= ======= =======
Net income per weighted average number
of limited partnership units outstanding $ 14.38 $ .72 $ 16.13 $ 3.62
======= ======= ======= =======
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 $ 3.00 $ 3.00
======= ======= ======= =======
See accompanying notes.
</TABLE>
<PAGE>
<TABLE>
LUTHERAN BROTHERHOOD REALTY FUND I
STATEMENT OF PARTNERS' EQUITY
FROM DECEMBER 31, 1993 THROUGH SEPTEMBER 30, 1996
(in thousands)
<CAPTION>
Total
General Limited Partners'
Partner Partners Equity
------- -------- ---------
<S> <C> <C> <C>
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 10 1,019 1,029
Distributions to Limited Partners (192) (192)
------- ------ ------
Balance at September 30, 1996 $ 21 $5,520 $5,541
======= ====== ======
See accompanying notes.
</TABLE>
<PAGE>
<TABLE>
LUTHERAN BROTHERHOOD REALTY FUND I
STATEMENT OF CASH FLOW
(Unaudited)
(thousands)
<CAPTION>
Nine Months Ended
September 30
1996 1995
---- ----
<S> <C> <C>
Net Income $1,029 $231
Adjustments to reconcile net income to net
cash provided by (used in) operating activities:
Depreciation and amortization 79 68
Distributions from joint ventures 124 117
Equity in joint venture earnings (18) (131)
Gain on sale of Worthington Green Associates (956)
Changes in assets and liabilities:
Receivable from affiliates 6 (40)
Other assets (213) 6
Payable to affiliates 72 (14)
Property taxes payable 33 32
Other accrued operating expenses 47
----- -----
Net cash provided by operating activities 156 316
----- -----
Cash flows from investing activities:
Capital improvements (32)
Tenant reimbursements - capital improvements 23
Capital infusion to Minnetonka 225 (30)
Capital infusion to Minnetonka 300/400 (20)
Proceeds from sale of Worthington Green Associates 1,445
----- -----
Net cash provided by (used in) investing activities 1,395 (9)
----- -----
Cash flows from financing activities:
Distributions to partners (191) (191)
----- -----
Net cash used in financing activities (191) (191)
----- -----
Net increase in cash and cash equivalents 1,360 116
Cash and cash equivalents at beginning of period 610 521
----- -----
Cash and cash equivalents at end of period $1,970 $637
====== =====
Supplemental Schedules:
Interest paid $ 0 $ 0
Income taxes paid $ 0 $ 0
See accompanying notes.
</TABLE>
<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 September 30, 1996 and September
30, 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"), a
Minnesota Fraternal Benefit Society and the parent of the General Partner
contributed $6,161,595 cash for an 84% interest in a joint venture. The
Partnership deeded the Village at Worthington Green ("Village") to the joint
venture 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 the Partnership's
payment of 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 September 30, 1996 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
Property less depreciation 1,402 1,934
Deferred charges (net)
and other assets 112 269 $1,097
------- ----- ------
1,883 2,890 1,097
Liabilities (34) (60) (1,097)
------ ------ ------
Net assets $1,849 $2,830 $ 0
====== ====== ======
</TABLE>
Revenues and expenses of the joint ventures for the nine month periods
ending September 30, 1996 and 1995 were as follows (in thousands):
<TABLE>
<CAPTION>
Minnetonka Minnetonka Worthington
225 300 & 400 Green
Associates Associates Associates
---------- ---------- ----------
September 30, September 30, September 30,
1996 1995 1996 1995 1996 1995
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Revenues $ 334 $ 323 $ 479 $ 472 $ 764 $ 859
Property taxes (64) (88) (116) (102) (88) (103)
Management fee (13) (14) (18) (21) (33) (28)
Other operating expenses (37) (51) (191) (92) (252) (277)
Tenant improvement amortization (144) (24) (194) (30)
Depreciation (28) (35) (66) (95) (140) (196)
------ ------ ------- ------ ------ ------
Net income 48 111 (106) 132 251 255
Partnership interest 33.3% 33.3% 33.3% 33.3% 19.3% 19.3%
------ ------ ------- ------ ------ ------
Partnership income $ 16 $ 37 $ (35) $ 44 $ 48 $ 50
====== ====== ======= ====== ====== ======
</TABLE>
As a result of the Partnership's Limited Partners approving on July 3, 1996,
a Liquidation Proposal contemplating the sale of the Partnership's property
and the properties held by joint ventures in which the Partnership is a co-
venturer (the "Liquidation Proposal"), all of Partnership's real estate
investments became classified as long-lived assets to be disposed of.
Therefore, in the third quarter of 1996, these real estate investments were
written down to net realizable value by amortizing the balance of capital
leasehold improvements. Additionally, depreciation was not recorded in the
third quarter.
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.
<PAGE>
In the event expenditures are made from these reserves, a portion of the
cash generated from operating revenue must be allocated to such reserves to
the extent necessary to maintain the foregoing level. Reserves, including
cash on hand and short term securities, at September 30, 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 September 30, 1996, the Partnership
paid distributions totaling $63,803, to the Limited Partners reflecting a
rate of 4% per annum on the Limited Partners' invested capital.
Subsequent Event
As previously reported in the notes to the Partnership's June 30, 1996
financial statements as a subsequent event, the Limited Partners approved
the Liquidation Proposal described in the Proxy Statement mailed to them on
or about June 11, 1996. The terms of the Liquidation Proposal included sale
of the property owned by the Partnership and the properties owned by joint
ventures in which the Partnership is a co-venturer ("the properties") over a
period of time not to exceed two years from the date of Limited Partner
approval, followed by the dissolution and winding up of the Partnership.
The property owned by the Worthington Green joint venture was sold during
the current quarter on August 19, 1996 and the Partnership's interest in the
sale proceeds is appropriately reflected in the financial statements.
All remaining properties (Minnetonka properties and the Northwest
Distribution Center) were sold on October 16, 1996, completing the sales
portion of the liquidation process. The Partnership will distribute in
December the net cash proceeds of the sales of all properties (together with
interest earned on the proceeds from the date of sale) after deduction of
expenses to complete the liquidation and winding up of the Partnership.
The Partnership will file a Certificate of Dissolution with the California
Secretary of State before making this distribution and complete the winding
up of the Partnership and file a Certificate of Cancellation.
Note 5. Fees and Reimbursements
For the nine months ended September 30, 1996 and 1995, the Partnership was
allocated $78,000 and $25,000, respectively, in partnership administrative
expenses by the General Partner and other affiliated entities.
Note 6. Recently Issued Accounting Standards
Effective January 1, 1996, the Partnership adopted 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").
<PAGE>
As a result of the adoption, the Partnership reviews long-lived assets to be
held and used on a quarterly basis for events or changes in circumstances
which indicate that the carrying amount of the assets may not be
recoverable. As a result of this review, no material adjustments had been
made to the carrying value of the Partnership's real estate investments
through June 30, 1996.
However, as a result of the approval of the Liquidation Proposal, the
Partnership's real estate investments have become classified as long-lived
assets to be disposed of effective July 3, 1996. As a result, these
investments have been written down to net realizable value, as described
more fully in note 3.
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.
At a special meeting of the Limited Partners held on July 3, 1996, the
Limited Partners approved a liquidation proposal to begin the process of
selling the Properties and winding up the Partnership. The General Partner
sold the Worthington Green property on August 19, 1996. As indicated in the
subsequent event note to the financial statements, the General Partner sold
the remaining properties on October 16, 1996 and is currently in the process
of winding up the Partnership.
RESULTS OF OPERATIONS
There continued to be little change in gross rental revenues for NWDC during
both the third quarter and first nine months of 1996 compared to the same
periods in 1995 because occupancy levels were at 100% during all periods.
Administrative expenses for all periods increased substantially in 1996
compared to 1995 due to legal fees and other costs incurred by the General
Partner in conducting the liquidation approval process and in negotiating
the sales of the properties. Depreciation and amortization were also higher
for both periods in 1996 compared to 1995 because the unamortized balance of
tenant improvements was expensed when the property was made available for
sale. In contrast, other property expenses significantly declined for both
periods in 1996 compared to 1995 due primarily to costs incurred in 1995 for
painting the exterior of the building and partial replacement of the
retaining wall.
The Partnership had a loss from joint ventures of $56,000 during the third
quarter of 1996 compared to income of $42,000 during the third quarter of
1995 and income of $29,000 during the first nine months of 1996 compared to
$131,000 during the first nine months of 1995. However, not included in the
above figures for 1996 was the Partnership's share of the gain on the sale
of Worthington Green apartment complex.
The Partnership's share of joint venture income from the Worthington Green
joint venture declined to $11,000 for the third quarter of 1996 from $13,000
during the third quarter of 1995 and to $48,000 during the first nine months
of 1996 from $49,000 during the first nine months of 1995. Revenues and
expenses were significantly lower during 1996 compared to 1995 because the
Worthington Green apartment complex was sold on August 19, 1996. The
Partnership's share of the gain from the sale was $956,000.
<PAGE>
The Minnetonka 225 joint venture had a net loss during the third quarter of
1996 despite a slight increase in gross rental revenues. This loss resulted
from writing off the remaining balances for all tenant improvements when the
property was made available for sale during the quarter. The Partnership's
share of the 1996 third quarter loss was $20,000 compared to net income of
$12,000 during the third quarter of 1995. For the first nine months of
1996, the Partnership's share of joint venture income was $16,000 compared
to $37,000 during the same period in 1995.
The Minnetonka 300/400 joint venture incurred losses during both the third
quarter and first nine months of 1996 due to the write-off of tenant
improvements together with parking lot improvements and exterior block
repairs to the properties during the second and third quarters. The
Partnership's share of the net loss during third quarter of 1996 was $47,000
compared to $17,000 of net income for the third quarter of 1995. The
comparative figures for the first nine months of 1996 and 1995 were a
$35,000 net loss and $44,000 in net income, respectively.
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
The property continued to be 100% occupied throughout the third quarter. As
indicated in the subsequent event note to the financial statements, this
property was sold on October 16, 1996.
The Village at Worthington Green
The property was sold on August 19, 1996. Income and expenses for the third
quarter were pro-rated with the purchaser as of the date of closing. A net
gain of $956,000 was realized on the sale.
Minnetonka Industrial Properties
All properties were 100% occupied as of the end of the third quarter.
During August, the owner completed the relocation of a tenant formerly at
the Minnetonka 300 building into the remaining vacant space at the
Minnetonka 400 building. Another tenant at the Minnetonka 300 building
expanded into the space vacated by the relocating tenant. As indicated in
the subsequent event note to the financial statements, these properties were
also sold on October 16, 1996.
LIQUIDITY AND CAPITAL RESOURCES
At September 30, 1996, the Partnership held cash and cash equivalents of
$1,970,000. The Partnership improved its cash position by $1,360,000 during
the first nine months as a result of net cash provided from operating
activities of $156,000 and by investing activities of $1,395,000 offset by
distributions to Partners of $191,000.
The Partnership has sufficient cash and cash equivalents to meet its 3%
required reserve.
<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) A report on Form 8-K dated August 19, 1996 was filed by the
Partnership for purposes of reporting the sale of the property
held by the Worthington Green joint venture.
(c) A report on Form 8-K dated October 16, 1996 was filed by the
Partnership for purposes of reporting the sale of the Minnetonka
Properties and the NWDC property.
<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: November 14, 1996 By: /s/ Mitchell F. Felchle
----------------- -------------------------------
Mitchell F. Felchle
President
Date: November 14, 1996 By: /s/ Anita J. T. Young
----------------- -------------------------------
Anita J. T. Young
Treasurer
(Chief Financial Officer)
<PAGE>
INDEX TO EXHIBIT
EXHIBIT NUMBER PAGE IN
REGISTRATION
STATEMENT
27 Financial Data Schedule
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from Lutheran
Brotherhood Realty Fund I Form 10-Q for the Quarter ended September 30, 1996
and is qualified in its entirety by reference to such Form 10-Q.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 1,970
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1,970
<PP&E> 2,248
<DEPRECIATION> 345
<TOTAL-ASSETS> 5,649
<CURRENT-LIABILITIES> 108
<BONDS> 0
<COMMON> 0
0
0
<OTHER-SE> 5,541
<TOTAL-LIABILITY-AND-EQUITY> 5,649
<SALES> 1,345
<TOTAL-REVENUES> 1,404
<CGS> 229
<TOTAL-COSTS> 229
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 1,029
<INCOME-TAX> 0
<INCOME-CONTINUING> 1,029
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,029
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
