<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 June 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)
June 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 2,155 2,105
Cash and cash equivalents 643 610
Receivables from affiliates 6
Deferred charges (net) and other assets 37 56
------ ------
Total Assets $4,738 $4,706
====== ======
LIABILITIES AND PARTNERS' EQUITY
Payables to affiliates $ 47 $
Other liabilities 3 2
------ ------
Total Liabilities 50 2
------ ------
Partners' Equity
Limited Partners' - 63,803 units
outstanding in 1996 and 1995 4,676 4,693
General Partner 12 11
------ ------
Total Partner's Equity 4,688 4,704
------ ------
Total Liabilities and Partners' Equity $4,738 $4,706
====== ======
</TABLE>
See accompanying notes.
<PAGE>
<TABLE>
LUTHERAN BROTHERHOOD REALTY FUND I
STATEMENT OF OPERATIONS
(Unaudited)
(thousands except per share amounts)
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenue:
Rental $ 128 $ 130 $ 260 $ 263
Interest 8 8 15 15
Equity in Joint Venture Capital 38 40 86 89
----- ----- ----- -----
Total revenue 174 178 361 367
----- ----- ----- -----
Expenses:
Property taxes 34 33 66 64
Management fee 5 5 10 11
Other property expenses 8 7 23 19
Depreciation and amortization 23 23 46 45
Administrative 48 3 104 43
----- ----- ----- -----
Total expenses 118 71 249 182
----- ----- ----- -----
Net income $ 56 $ 107 $ 112 $ 185
===== ===== ===== =====
Net income per weighted average
number of limited partnership units
outstanding $ .88 $ 1.68 $ 1.76 $ 2.90
===== ===== ===== =====
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>
LUTHERAN BROTHERHOOD REALTY FUND I
STATEMENT OF PARTNERS' EQUITY
FROM DECEMBER 31, 1993 THROUGH JUNE 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 1 111 112
------ ------ ------
Distributions to Limited Partners (128) (128)
Balance at June 30, 1996 $ 12 $4,676 $4,688
====== ====== ======
</TABLE>
See accompanying notes.
<PAGE>
<TABLE>
LUTHERAN BROTHERHOOD REALTY FUND I
STATEMENT OF CASH FLOW
(Unaudited)
(thousands)
<CAPTION>
Six Months Ended
June 30
1996 1995
---- ----
<S> <C> <C>
Net Income $112 $185
Adjustments to reconcile net income to
net cash provided by (used in)
operating activities:
Depreciation and amortization 46 45
Distributions from joint ventures 86 77
Equity in joint venture earnings (86) (89)
Changes in assets and liabilities:
Receivable from affiliates 6
Other assets (1) 4
Payable to affiliates 47 (17)
Other accrued operating expenses 1 4
---- ----
Net cash provided by operating
activities 211 209
---- ----
Cash flows from investing activities:
Capital improvements (2)
Tenant reimbursements - capital
improvements 23
Capital Infusion to Minnetonka 225 (30)
Capital Infusion to Minnetonka 300/400 (20)
---- ----
Net cash provided by (used in) investing
activities (50) 21
---- ----
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 33 102
Cash and cash equivalents at beginning
of period 610 521
---- ----
Cash and cash equivalents at end
of period $643 $623
==== ====
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, 1996 and June 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"), 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 June 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 $ 837
Property less depreciation 1,402 1,934 3,902
Deferred charges (net)
and other assets 207 371 1,146
------ ------ ------
1,978 2,992 5,885
Liabilities (6) (20) (49)
------ ------ ------
Net assets $1,972 $2,972 $5,836
====== ====== ======
</TABLE>
Revenues and expenses of the joint ventures for the six month periods ending
June 30, 1996 and 1995 were as follows (in thousands):
<TABLE>
<CAPTION>
Minnetonka Minnetonka Worthington
225 300 & 400 Green
Associates Associates Associates
---------- ---------- ----------
June 30, June 30, June 30,
-------- -------- --------
1996 1995 1996 1995 1996 1995
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Revenues $ 217 $ 214 $ 314 $ 312 $ 596 $ 566
Property taxes (30) (55) (78) (68) (70) (69)
Management fee (9) (10) (12) (14) (21) (17)
Other operating expenses (24) (37) (97) (68) (171) (160)
Depreciation (46) (38) (91) (80) (140) (131)
----- ----- ----- ----- ----- -----
Net income 108 74 36 82 194 189
----- ----- ----- ----- ----- -----
Partnership interest 33.3% 33.3% 33.3% 33.3% 19.3% 19.3%
Partnership income $ 36 $ 25 $ 12 $ 28 $ 38 $ 36
===== ===== ===== ===== ===== =====
</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, 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 June 30, 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.
Subsequent Event
On July 3, 1996, at a special meeting of the Limited Partners of the
Partnership, the partners approved the liquidation of the Partnership in
accordance with the liquidation proposal described in the Proxy Statement,
which had been mailed to them on or about June 11, 1996. The terms of the
liquidation proposal include 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.
Note 5. Fees and Reimbursements
For the six months ended June 30, 1996 and 1995, the Partnership was
allocated $52,800 and $16,300, 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 effective January 1, 1996. As a result of this
review, no material adjustments have been made to the carrying value of the
Partnership's real estate investments through June 30, 1996.
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 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 has listed the Properties
with real estate agencies to market them for sale and has received some
indications of interest. There can be no assurance, however, that 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
There was little change in gross rental revenues for NWDC during both the
second quarter and first six 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.
The Partnership's share of total joint venture income declined slightly to
$38,000 during the second quarter of 1996 from $40,000 during the second
quarter in 1995 and to $86,000 during the first six months of 1996 compared
to $89,000 during the first six months of 1995.
The Partnership's share of joint venture income from the Minnetonka 225
joint venture increased to $21,000 during the second quarter of 1996
compared to $8,000 during the second quarter of 1995 and to $36,000 for the
first six months of 1996 compared to $25,000 during the same period in 1995.
The primary reason for the increase was a large refund of 1995 property
taxes received during the second quarter of 1996. In addition, property
operating expenses declined 35% during the first six months of 1996 compared
to the first six months of 1995 due to roof repair expenses incurred during
the first quarter of 1995. This was partially offset by a 21% increase in
depreciation and amortization expense during the first six months of 1996
compared to the first six months of 1995 resulting from additional building
and tenant improvements.
In contrast, the Partnership's share of net income from the Minnetonka
300/400 joint venture declined 100% to -1000 during the second quarter of
1996 compared to $15,000 during the second quarter of 1995 and 57% to
$12,000 for the first six months of 1996 compared to $28,000 during the
first six months of 1995. The primary reason for this decline in net income
was a significant increase in property operating expenses during both
periods in 1996 compared to 1995 as a result of parking lot improvements to
the Minnetonka 300 property and exterior block repairs to both properties
during the second quarter of 1996. Property taxes and depreciation expense
also rose by nearly 15% during both comparable periods.
Gross rental revenues at Worthington Green rose approximately 5% during both
the second quarter of 1996 and first six months of 1996 compared to the same
periods in 1995 due to slight increases in both occupancy and rental rates
during 1996. This revenue increase was offset by modest increases in
property operations expenses and depreciation of additional building
improvements. As a result, there was no significant change in the
Partnership's share of net income from this joint venture for the second
quarter and first six months of 1996 compared to the same periods in 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. The property
continues to be 100% occupied by two tenants, with the next lease expiration
during June 1997 for 17% of the property.
The Village at Worthington Green
Occupancy for The Village remained strong during the second quarter of 1996.
In addition, rent loss (rent concessions and delinquencies) for the quarter
were at their lowest levels in more than nine months. Rental rates have
increased more than 3% since January of 1996 due to a tightening apartment
market in Worthington. A new 300 unit apartment project located
approximately two miles from The Village is currently under construction,
with the first units available by the fall of 1996. This project is
expected to have little effect on the leasing of units at The Village.
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 occuring in the marketplace because existing occupancy for
office/warehouse buildings is at an all-time high, approximating 95%.
Minnetonka 225 and Minnetonka 300 are both currently 100% occupied and do
not have leases expiring until mid-1997 or later. Minnetonka 400 is
currently 77% occupied by one tenant, whose lease will expire in December,
1996.
LIQUIDITY AND CAPITAL RESOURCES
At June 30, 1996, the Partnership held cash and cash equivalents of
$643,000. The Partnership improved its cash position by $33,000 during the
first six months as a result of net cash provided from operating activities
of $211,000 offset by cash used for investing activities of $50,000 and
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 1996 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, the Partnership's
share of capital expenditures for the Joint Venture properties was
approximately $167,000. Additional capital expenditures are anticipated
during the remainder of 1996 for which the partnership's share is expected
to total $68,000. 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 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 has listed the Partnership's properties with
real estate agencies to market them for sale. There can be no assurance,
however, that the General Partner will be able to accomplish such sales
during 1996 or thereafter.
<PAGE>
PART II
OTHER INFORMATION
ITEM 4. Submission of Matters to a Vote of Security Holders
- ------------------------------------------------------------
A Special Meeting of the Partnership's limited partners was held on
Wednesday, July 3, 1996. Present at the Special Meeting in person or by
proxy were limited partners holding a majority of Limited Partnership Units
("Units") representing a quorum for the purposes of the Special Meeting.
Pursuant to a proxy statement provided to the limited partners, the limited
partners were asked to approve a proposal to begin the liquidation of the
Partnership through the sale of the Properties within two years after the
date of approval of such proposal (the "Liquidation Proposal"). The limited
partners were also asked to approve a proposal to allow the adjournment of
the Special Meeting, if requested by the General Partner (the "Adjournment
Proposal"). The General Partner did not request adjournment of the Special
Meeting Pursuant to the Adjournment Proposal. The limited partners were
also asked to approve such other matters as were properly brought before the
meeting. The General Partner noted that the record date for determination
of limited partners entitled to vote at the Special Meeting had been set at
April 26, 1996, in the proxy statement, which was more than sixty (60) days
before the Special Meeting. To reset the record date within such sixty day
period, the General Partner requested ratification by the limited partners
of May 6, 1996 as the record date (the "Date Proposal") and reported that
the limited partnership interests were held of record by the same limited
partners on April 26, 1996 (the previous record date) and May 6, 1996 (the
revised record date).
1. The votes of the Units for the Liquidation Proposal were as follows:
46,238.35 FOR 660 AGAINST 15,103.65 ABSTAIN
2. The votes of the Units for the Adjournment Proposal were as follows:
46,238.35 FOR 660 AGAINST 15,103.65 ABSTAIN
3. The votes of the Units for the Date Proposal were as follows:
46,238.35 FOR 660 AGAINST 15,103.65 ABSTAIN
<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, 1996.
<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 13, 1996 By: /s/ Mitchell F. Felchle
-----------------------
Mitchell F. Felchle
President
Date: August 13, 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
12
<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 June 30, 1996 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-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 643
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 643
<PP&E> 2,248
<DEPRECIATION> 345
<TOTAL-ASSETS> 4,738
<CURRENT-LIABILITIES> 50
<BONDS> 0
<COMMON> 0
0
0
<OTHER-SE> 4,688
<TOTAL-LIABILITY-AND-EQUITY> 4,738
<SALES> 260
<TOTAL-REVENUES> 361
<CGS> 145
<TOTAL-COSTS> 145
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 112
<INCOME-TAX> 0
<INCOME-CONTINUING> 112
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 112
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
