FORM 10-QSB--QUARTERLY OR TRANSITIONAL REPORT UNDER SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
QUARTERLY OR TRANSITIONAL REPORT
U.S. Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-QSB
(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, 1998
[ ] 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 33-20527
BRUNNER COMPANIES INCOME PROPERTIES L.P. I
(Exact name of small business issuer as specified in its charter)
Delaware 31-1234157
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
55 Beattie Place, P.O. Box 1089
Greenville, South Carolina 29602
(Address of principal executive offices)
(864) 239-1000
(Issuer's telephone number)
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 filing requirements for the past 90 days. Yes X No
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
a)
BRUNNER COMPANIES INCOME PROPERTIES L.P. I
BALANCE SHEET
(Unaudited)
September 30, 1998
(in thousands, except unit data)
Assets
Cash and cash equivalents $ 336
Receivables and deposits 276
Restricted escrows 29
Other assets 101
Investment properties:
Land $ 4,123
Buildings and related personal property 20,944
25,067
Accumulated depreciation (6,866) 18,201
$18,943
Liabilities and Partners' Capital (Deficit)
Liabilities
Accounts payable $ 2
Tenant security deposit liabilities 18
Accrued property taxes 156
Other liabilities 133
Mortgage notes payable, in default 17,847
Partners' Capital (Deficit)
General partner's $ (29)
Class A limited partners' - (552,000 units) 565
Class B limited partners' - (61,333 units) 251 787
$18,943
See Accompanying Notes to Financial Statements
b)
BRUNNER COMPANIES INCOME PROPERTIES L.P. I
STATEMENTS OF OPERATIONS
(Unaudited)
(in thousands, except unit data)
Three Months Ended Nine Months Ended
September 30, September 30,
1998 1997 1998 1997
Revenues:
Rental income $ 681 $ 672 $ 2,086 $ 2,086
Other income 3 7 8 11
Total revenues 684 679 2,094 2,097
Expenses:
Operating 83 85 240 242
General and administrative 46 24 97 68
Depreciation 166 167 500 502
Interest 409 418 1,235 1,266
Property taxes 52 50 144 161
Total expenses 756 744 2,216 2,239
Net loss $ (72) $ (65) $ (122) $ (142)
Net loss allocated to general
partner (1%) $ (1) $ -- $ (1) $ (1)
Net loss allocated to Class A
limited partners (89.1%) (64) (59) (109) (127)
Net loss allocated to Class B
limited partners (9.9%) (7) (6) (12) (14)
$ (72) $ (65) $ (122) $ (142)
Net loss per Class A limited
partnership unit $ (.12) $ (.11) $ (.20) $ (.23)
See Accompanying Notes to Financial Statements
c)
BRUNNER COMPANIES INCOME PROPERTIES L.P. I
STATEMENT OF CHANGES IN PARTNERS' CAPITAL (DEFICIT)
(Unaudited)
(in thousands, except unit data)
General Limited Partners'
Partner Class A Class B Total
Original capital contributions $ 1 $ 5,520 $ 613 $ 6,134
Partners' (deficit) capital at
December 31, 1997 $ (28) $ 674 $ 263 $ 909
Net loss for the nine months
ended September 30, 1998 (1) (109) (12) (122)
Partners' (deficit) capital at
September 30, 1998 $ (29) $ 565 $ 251 $ 787
See Accompanying Notes to Financial Statements
d)
BRUNNER COMPANIES INCOME PROPERTIES L.P. I
STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
Nine Months Ended
September 30,
1998 1997
Cash flows from operating activities:
Net loss $ (122) $ (142)
Adjustments to reconcile net loss to net
cash provided by operating activities:
Depreciation 500 502
Amortization of loan costs and leasing
commissions 35 33
Change in accounts:
Receivables and deposits 97 (10)
Other assets (19) (35)
Accounts payable -- (34)
Tenant security deposit liabilities 1 2
Accrued property taxes (51) 61
Other liabilities 11 (22)
Net cash provided by operating activities 452 355
Cash flows from investing activities:
Property improvements and replacements (23) --
Net deposits to restricted escrows (23) --
Net cash used in investing activities (46) --
Cash flows used in financing activities:
Payments on mortgage notes payable (403) (370)
Net increase (decrease) in cash and cash equivalents 3 (15)
Cash and cash equivalents at beginning of period 333 332
Cash and cash equivalents at end of period $ 336 $ 317
Supplemental disclosure of cash flow information:
Cash paid for interest $1,222 $1,255
See Accompanying Notes to Financial Statements
e)
BRUNNER COMPANIES INCOME PROPERTIES L.P. I
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
NOTE A - GOING CONCERN UNCERTAINTY - DEFAULT ON MORTGAGE NOTES PAYABLE
The financial statements have been prepared assuming Brunner Companies Income
Properties L.P. I (the "Partnership") will continue as a going concern.
The cross-collateralized and cross-defaulted loans on Hitchcock Plaza, White
Horse Plaza, and Georgetown Landing totaling $17,847,000 matured on October 10,
1998. The Partnership did not have the funds to repay these loans and is thus,
in default. The Partnership attempted to renegotiate the terms of the note,
however, these efforts have been unsuccessful to date and a demand letter has
recently been received from the lender. The Managing General Partner is
continuing its efforts to extend or modify the note. It is also attempting to
sell the properties, but it does not believe they can be sold for the balance
due on the notes. If these negotiations and efforts are unsuccessful, it is
likely the properties will be foreclosed by the lender, and the Partnership will
be forced to terminate. The financial statements do not include any adjustments
to reflect the possible future effects on the recoverability and classification
of assets or amends and classification of liabilities that may result from this
uncertainty.
NOTE B - BASIS OF PRESENTATION
The accompanying unaudited financial statements of the Partnership have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-QSB and Item 310(b)of
Regulation S-B. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of 104 Management, Inc. (the "Managing
General Partner"), an Ohio corporation, all adjustments (consisting of normal
recurring accruals) considered necessary for a fair presentation have been
included. Operating results for the three and nine month periods ended September
30, 1998, are not necessarily indicative of the results that may be expected for
the fiscal year ending December 31, 1998. For further information, refer to the
financial statements and footnotes thereto included in the Partnership's annual
report on Form 10-KSB for the fiscal year ended December 31, 1997.
Certain reclassifications have been made to the 1997 information to conform to
the 1998 presentation.
NOTE C - TRANSACTIONS WITH AFFILIATED PARTIES
The Partnership has no employees and is dependent on the Managing General
Partner and its affiliates for the management and administration of all
partnership activities. The partnership agreement provides for payments to
affiliates for property management services based on a percentage of revenue and
for reimbursement of certain expenses incurred by affiliates on behalf of the
Partnership. The following payments were made to affiliates of the Managing
General Partner during the nine months ended September 30, 1998 and 1997 (in
thousands):
Nine Months Ended
September 30,
1998 1997
Property management fees (included in operating expenses) $ 66 $ 63
Reimbursement for services of affiliates, (included in
general and administrative expenses) 37 27
Additionally, the Partnership paid approximately $32,000 and $14,000 to an
affiliate of the Managing General Partner for lease commissions related to new
leases at the Partnership's properties during the nine months ended September
30, 1998 and 1997, respectively. These lease commissions are included in other
assets and amortized over the terms of the respective leases.
For the period from January 1, 1997 to August 31, 1997, the Partnership insured
its properties under a master policy through an agency affiliated with the
Managing General Partner, but with an insurer unaffiliated with the Managing
General Partner. An affiliate of the Managing General Partner acquired, in the
acquisition of a business, certain financial obligations from an insurance
agency which was later acquired by the agent who placed the master policy. The
agent assumed the financial obligations to the affiliate of the Managing General
Partner which received payments on these obligations from the agent. The amount
of the Partnership's insurance premiums accruing to the benefit of the affiliate
of the Managing General Partner by virtue of the agent's obligations is not
significant.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS
The Partnership's investment properties consist of three retail centers. The
following table sets forth the average occupancy of the properties for the nine
months ended September 30, 1998 and 1997:
Average Occupancy
1998 1997
Hitchcock Plaza
Aiken, South Carolina 91% 99%
Whitehorse Plaza
Greenville, South Carolina 99% 98%
Georgetown Landing
Georgetown, South Carolina 98% 94%
The decrease in occupancy at Hitchcock Plaza resulted primarily from the move-
out of a tenant in January 1998 which had previously leased 20,000 square feet.
The Managing General Partner is aggressively pursuing a new tenant to occupy
this large space. The increase in average occupancy at Georgetown Landing can
be attributed to the move-in of a tenant during March 1998 who leases 3,720
square feet. The move-in of this tenant increased occupancy to 100% at the
property.
The Partnership realized a net loss of approximately $122,000 for the nine
months ended September 30, 1998, compared to a net loss of approximately
$142,000 for the nine months ended September 30, 1997. The Partnership's net
loss, for the three months ended September 30, 1998, was approximately $72,000
compared to a net loss of approximately $65,000 for the three months ended
September 30, 1997. The decrease in net loss for the nine month period ended
September 30, 1998, is primarily due to decreases in interest expense and
property taxes. The decrease in interest expense is due to a reduction in the
mortgage principal balance. The decrease in tax expense is primarily due to the
reassessment of property values at Hitchcock Plaza. Partially offsetting the
decreases in interest expense and tax expense is an increase in general and
administrative expenses. General and administrative expenses increased
primarily due to an increase in reimbursements to affiliates of the General
Partner for costs incurred in managing the Partnership. No expenditures for
major repairs and maintenance were made during the nine months ended September
30, 1998. During the nine months ended September 30, 1997, approximately
$13,000 was spent on exterior painting at White Horse Plaza.
As part of the ongoing business plan of the Partnership, the Managing General
Partner monitors the rental market environment of each of its investment
properties to assess the feasibility of increasing rents, maintaining or
increasing occupancy levels and protecting the Partnership from increases in
expense. As part of this plan, the Managing General Partner attempts to protect
the Partnership from the burden of inflation-related increases in expenses by
increasing rents and maintaining a high overall occupancy level. However, due
to changing market conditions, which can result in the use of rental concessions
and rental reductions to offset softening market conditions, there is no
guarantee that the Managing General Partner will be able to sustain such a plan.
As noted above, a large tenant vacated its space at Hitchcock Plaza, and the
Managing General Partner is aggressively pursuing a new tenant to occupy the
vacant space.
At September 30, 1998, the Partnership held unrestricted cash of approximately
$336,000 compared to approximately $317,000 at September 30, 1997. The net
increase in cash for the nine months ended September 30, 1998 was approximately
$3,000 compared to a net decrease in cash of approximately $15,000 for the nine
months ended September 30, 1997. Net cash provided by operating activities
increased primarily due to an increase in cash provided by receivables and
deposits due to the timing of cash receipts. Partially offsetting the increase
in cash provided by receivables and deposits was an increase in cash used for
property taxes due to the timing of payments. Net cash used in investing
activities increased as a result of deposits to restricted escrows and building
improvements made at Hitchcock Plaza. Cash flows used in financing activities
increased due to increased payments on mortgage notes payable.
The cross-collateralized and cross-defaulted loans on Hitchcock Plaza, White
Horse Plaza, and Georgetown Landing totaling $17,847,000 matured on October 10,
1998. The Partnership did not have the funds to repay these loans and is thus,
in default. The Partnership attempted to renegotiate the terms of the note,
however, these efforts have been unsuccessful to date and a demand letter has
recently been received from the lender. The Managing General Partner is
continuing its efforts to extend or modify the note. It is also attempting to
sell the properties, but it does not believe they can be sold for the balance
due on the notes. If these negotiations and efforts are unsuccessful, it is
likely the properties will be foreclosed by the lender, and the Partnership will
be forced to terminate. The financial statements do not include any adjustments
to reflect the possible future effects on the recoverability and classification
of assets or amends and classification of liabilities that may result from this
uncertainty.
Year 2000
General Description of the Year 2000 Issue and the Nature and Effects of the
Year 2000 on Information Technology (IT) and Non-IT Systems
The Year 2000 Issue is the result of computer programs being written using two
digits rather than four to define the applicable year. The Partnership is
dependent upon the Managing General Partner and its affiliates for management
and administrative services ("Managing Agent"). Any computer programs or
hardware that have date-sensitive software or embedded chips may recognize a
date using "00" as the year 1900 rather than the year 2000. This could result
in a system failure or miscalculations causing disruptions of operations,
including, among other things, a temporary inability to process transactions,
send invoices, or engage in similar normal business activities.
The Managing Agent has determined that it will be required to modify or replace
significant portions of its software and certain hardware so that those systems
will properly utilize dates beyond December 31, 1999. The Managing Agent
presently believes that with modifications or replacements of existing software
and certain hardware, the Year 2000 Issue can be mitigated. However, if such
modifications and replacements are not made, or are not completed timely, the
Year 2000 Issue could have a material impact on the operations of the Managing
Agent and the Partnership.
Status of Progress in Becoming Year 2000 Compliant
The Managing Agent's plan to resolve the Year 2000 Issue involves the following
four phases: assessment, remediation, testing and implementation. To date, the
Managing Agent has fully completed its assessment of all information systems
that could be significantly affected by the Year 2000, and has begun the
remediation, testing and implementation phase on both hardware and software
systems. Assessments are continuing in regards to embedded systems in operating
equipment. The Managing Agent anticipates having all phases complete by June 1,
1999.
In addition to the areas the Partnership is relying on the Managing Agent to
verify compliance with, the Partnership has certain operating equipment,
primarily at the property sites, which needed to be evaluated for Year 2000
compliance. The focus of the Managing General Partner was to the security
systems, elevators, heating-ventilation-air-conditioning systems, telephone
systems and switches, and sprinkler systems. The Managing General Partner is
currently engaged in the identification of all non-compliant operational
systems, and is in the process of estimating the costs associated with any
potential modifications or replacements needed to such systems in order for them
to be Year 2000 compliant. It is not expected that such costs would have a
material adverse affect upon the operations of the Partnership.
Risk Associated with the Year 2000
The Managing General Partner believes that the Managing Agent has an effective
program in place to resolve the Year 2000 issue in a timely manner and has
appropriate contingency plans in place for critical applications that could
affect the Partnership's operations. To date, the Managing General Partner is
not aware of any external agent with a Year 2000 issue that would materially
impact the Partnership's results of operations, liquidity or capital resources.
However, the Managing General Partner has no means of ensuring that external
agents will be Year 2000 compliant. The Managing General Partner does not
believe that the inability of external agents to complete their Year 2000
resolution process in a timely manner will have a material impact on the
financial position or results of operations of the Partnership. However, the
effect of non-compliance by external agents is not readily determinable.
Other
Certain items discussed in this quarterly report may constitute forward-looking
statements within the meaning of the Private Securities Litigation Reform Act of
1995 (the "Reform Act") and as such may involve known and unknown risks,
uncertainties and other factors which may cause the actual results, performance
or achievements of the Partnership to be materially different from any future
results, performance, or achievements expressed or implied by such forward-
looking statements. Such forward-looking statements speak only as of the date
of this quarterly report. The Partnership expressly disclaims any obligation or
undertaking to release publicly any updates of revisions to any forward-looking
statements contained herein to reflect any change in the Partnership's
expectations with regard thereto or any change in events, conditions or
circumstances on which any such statement is based.
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
Exhibit 27, Financial Data Schedule, is filed as an exhibit to
this report.
(b) Reports on Form 8-K:
None filed during the quarter ended September 30, 1998.
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.
BRUNNER COMPANIES INCOME PROPERTIES L.P. I
By: Brunner Management Limited Partnership
Its General Partner
By: 104 Management, Inc.
Its Managing General Partner
By: /s/Carroll D. Vinson
Carroll D. Vinson
President and Director
By: /s/Robert D. Long, Jr.
Robert D. Long, Jr.
Vice President and Chief Accounting Officer
Date: November 16, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from
Brunner Companies Income Properties L.P. I 1998 Third Quarter 10-QSB
and is qualified in its entirety by reference to such 10-QSB filing.
</LEGEND>
<CIK> 0000830737
<NAME> BRUNNER COMPANIES INCOME PROPERTIES L.P. I
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> SEP-30-1998
<CASH> 336
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0<F1>
<PP&E> 25,067
<DEPRECIATION> 6,866
<TOTAL-ASSETS> 18,943
<CURRENT-LIABILITIES> 0<F1>
<BONDS> 17,847
0
0
<COMMON> 0
<OTHER-SE> 787
<TOTAL-LIABILITY-AND-EQUITY> 18,943
<SALES> 0
<TOTAL-REVENUES> 2,094
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 2,216
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,235
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (122)
<EPS-PRIMARY> (.20)<F2>
<EPS-DILUTED> 0
<FN>
<F1>Registrant has an unclassified balance sheet.
<F2>Multiplier is 1.
</FN>
</TABLE>
