<PAGE> 1
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, 1999
OR
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 0-24683
Brunner Companies Income Properties L.P. I
(Exact name of registrant as specified in its charter)
Delaware 31-1266850
State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
3632 Wheeler Road
P.O. Box 204227
Augusta, Georgia 30917-204227
(Address of principal executive offices)
(706) 863-0823
(Registrant's telephone number, including area code)
(Former address since last report)
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 No
--- ---
Indicate the number of shares outstanding of each of the registrant's classes of
common stock, as of the latest practicable date.
Title Outstanding
Class A Units 552,000 March 31, 1999
Class B Units 61,333
<PAGE> 2
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
a)
BRUNNER COMPANIES INCOME PROPERTIES L.P. I
BALANCE SHEET
(Unaudited)
March 31, 1999
(in thousands, except unit data)
<TABLE>
<S> <C> <C>
Assets
Cash and cash equivalents $ 749
Accounts receivable - net and escrow deposits 283
Other assets 66
Investment properties - net 17,866
-------
$18,964
=======
Liabilities and Partners' Capital (Deficit)
Liabilities
Accounts payable and accrued expenses $ 120
Accrued property taxes 44
Tenant security deposit liabilities 17
Mortgage notes payable 17,800
Partners' Capital (Deficit)
General partner's (27)
Class A limited partners' - (552,000 units) 740
Class B limited partners' - (61,333 units) 270 983
--- -------
$18,964
=======
</TABLE>
See Accompanying Notes to Financial Statements
<PAGE> 3
BRUNNER COMPANIES INCOME PROPERTIES L.P. I
STATEMENTS OF OPERATIONS
(Unaudited)
(in thousands, except unit data)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
1999 1998
----- -----
<S> <C> <C>
Revenues:
Rental income $ 766 $ 721
Other income 7 3
----- -----
Total revenues 773 724
----- -----
Expenses:
Operating 70 79
General and administrative 27 24
Depreciation 167 167
Interest 311 414
Property taxes 44 43
----- -----
Total expenses 619 727
----- -----
Net income (loss) $ 154 $ (3)
===== =====
Net income allocated to general partner
(1%) $ 2 $ --
Net income (loss) allocated to Class A
limited partners (89.1%) 137 (3)
Net income allocated to Class B limited 15 --
partners (9.9%) ----- -----
$ 154 $ (3)
===== =====
Net income (loss) per Class A limited
partnership unit $ .25 $(.01)
===== =====
</TABLE>
See Accompanying Notes to Financial Statements
<PAGE> 4
BRUNNER COMPANIES INCOME PROPERTIES L.P. I
STATEMENT OF CHANGES IN PARTNERS' CAPITAL (DEFICIT)
(Unaudited)
(in thousands, except unit data)
<TABLE>
<CAPTION>
Limited Partners'
-------------------------------
General
-------
Partner Class A Class B Total
------- ------- ------- -------
<S> <C> <C> <C> <C>
Original capital contributions $ 1 $ 5,520 $ 613 $ 6,134
======= ======= ======= =======
Partners' capital (deficit) at
December 31, 1998 $ (29) $ 603 $ 255 $ 829
Net income for the three months ended
March 31, 1999 2 137 15 154
------- ------- ------- -------
Partners' capital (deficit) at
March 31, 1999 $ (27) $ 740 $ 270 $ 983
======= ======= ======= =======
</TABLE>
<PAGE> 5
See Accompanying Notes to Financial Statements
BRUNNER COMPANIES INCOME PROPERTIES L.P. I
STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
1999 1998
----- -----
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 154 $ (3)
Adjustments to reconcile net loss to net cash provided by
operating activities:
Depreciation 167 167
Amortization of loan costs and leasing commissions 13 12
Change in accounts:
Receivables and deposits 59 129
Other assets 22 (22)
Accounts payable and accrued expenses 2 (13)
Tenant security deposit liabilities -- --
Accrued property taxes (132) (155)
----- -----
Net cash provided by operating activities 285 115
----- -----
Cash flows from investing activities:
Property improvements and replacements -- (6)
Net deposits to restricted escrows (16) (23)
----- -----
Net cash used in investing activities (16) (29)
----- -----
Cash flows used in financing activities:
Payments on mortgage notes payable -- (132)
----- -----
Net increase (decrease) in cash and cash equivalents 269 (46)
Cash and cash equivalents at beginning of period 480 333
----- -----
Cash and cash equivalents at end of period $ 749 $ 287
===== =====
Supplemental disclosure of cash flow information:
Cash paid for interest $ 311 $ 409
----- -----
</TABLE>
See Accompanying Notes to Financial Statements
<PAGE> 6
BRUNNER COMPANIES INCOME PROPERTIES, L.P. I
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
Note A - Basis of Presentation
The accompanying unaudited financial statements of Brunner Companies Income
Properties L.P. I (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 month period ended March 31, 1999, are not necessarily
indicative of the results that may be expected for the fiscal year ending
December 31, 1999. 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, 1998.
Certain reclassifications have been made to the 1998 information to conform to
the 1999 presentation.
Note B - 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. All of the outstanding stock of the Managing General
Partner is owned by BCIP I & III, LLC, an affiliate of Hull/Storey Development,
LLC ("Hull/Storey"). 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 three months ended March 31, 1999 and 1998 (in
thousands):
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Property management fees (included in
operating expenses) $ 20 $ 22
Reimbursement for services of affiliates
(included in general and administrative
expenses) $ 11 $ 11
</TABLE>
Additionally, the Partnership paid approximately $7,445 and $20,000 to an
affiliate of the Managing General Partner for lease commissions related to new
leases at the Partnership's properties during the three months ended March
31,1999 and 1998, respectively. These lease commissions are included in other
assets and amortized over the terms of the respective leases.
<PAGE> 7
Note C - Mortgage Notes Payable
Pursuant to lender agreements the maturity dates of the mortgage notes were
extended until May 10, 1999. The Managing General Partner has requested that
the lender extend the maturity dates of the mortgage notes as amended until May
10, 2000. The agreements further provide that, from and after October 10, 1998
through May 10, 1999, the mortgage notes accrued interest at a fixed rate per
annum of seven (7%) percent. Prior to the agreements, the stated interest rate
of the mortgage notes was nine (9%) percent. The agreement further provides
that, commencing with the November 1998 payment and continuing monthly through
the April 1999 payment, the Partnership is allowed to make interest only
payments. The agreements further provide that the lender, upon fifteen (15)
days prior written notice to the Managing General Partner, shall have the right
to accelerate repayment of the mortgage notes in full and demand the
Partnership repay the mortgage notes in full, with or without cause and
regardless of whether an event of default should exist or not. The mortgages
require a balloon payment at maturity for the remaining principal balance.
These notes are all cross-collateralized and cross-defaulted. The mortgage
notes payable are nonrecourse and are secured by the properties and by a pledge
of revenues from the respective properties.
The Partnership's continued ability to operate is dependent on its ability to
either restructure its existing debt or raise additional capital. To that end
the Managing General Partner is attempting to extend or modify the mortgage
notes, negotiating alternative financing sources requiring additional capital
infusions and evaluating the Partnership's alternatives. However, there can be
no assurance that debt restructuring will occur or additional capital will be
raised in a manner that allows the Partnership to continue its operations in
its present form.
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
three months ended March 31, 1999 and 1998:
<TABLE>
<CAPTION>
Average
Occupancy
1999 1998
---- ----
<S> <C> <C>
Hitchcock Plaza, 100% 93%
Aiken, South Carolina
Whitehorse Plaza, 97% 98%
Greenville, South Carolina
Georgetown Landing, 100% 94%
Georgetown, South Carolina
</TABLE>
Hitchcock Plaza had a tenant which occupied 20,000 square feet at December 31,
1997, or approximately 9% of the property's total square feet. The tenant's
lease expired January 31, 1998 and was not renewed. Another tenant at Hitchcock
Plaza is temporarily renting the space for storage. The Managing General
Partner is currently negotiating term leases with two new tenants to occupy
this space.
<PAGE> 8
White Horse Plaza has a tenant which leases 81,922 square feet, or
approximately 49% of the property's total square feet. While this tenant's
lease does not expire until October 31, 2006, and the General Partner expects
the tenant to honor its obligations under its lease, the tenant has vacated the
space. The General Partner expects this vacancy to impact occupancy for the
remainder of the property. In 1999, since this tenant vacated its space, four
additional tenants, leasing a total of 11,150 square feet in the property, or
approximately 7% of the property's total square feet, have terminated their
leases and have vacated the property. In addition, a tenant which leases 35,922
square feet, or approximately 22% of the property's total square feet, has, in
the second quarter of 1999, stopped honoring its contractual lease obligations,
including payment of rent. The Managing General Partner intends to actively
pursue the Partnership's legal remedies to require this tenant to comply with
its contractual lease obligations.
The Partnership's net income for the three months ended March 31, 1999, was
$154,000 compared to a net loss of $3,000 for the corresponding period of 1998.
The net income is primarily due to a decrease in interest expense and
operating expenses and to an increase in rental income. The reduction in
interest expense was due to the November 30, 1998 Loan Extension/Recast Letter
Agreement entered into between the Managing General Partner and the lender
holding the mortgage notes. The increase in rental income was due to the
payment of a loan termination fee and the collection from a tenant at Hitchcock
Plaza of a reimbursable expense incurred in 1997. Pursuant to the Partnership's
accounting policy for doubtful accounts, this amount had been previously
expensed. No expenditures for major repairs and maintenance were made during
the three month periods ended March 31, 1999 or 1998.
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.
At March 31, 1999, the Partnership held unrestricted cash of approximately
$749,000 compared to approximately $287,000 at March 31, 1998. The net increase
in cash for the three months ended March 31, 1999 was approximately $269,000
compared to a net decrease of approximately $46,000 for the three months ended
March 31, 1998. The net increase in cash is primarily due to the decrease in
interest expense and operating expenses and to the increase in rental income
discussed above as well as to the lack of principal payments.
No distributions were made in 1998 or 1997 and future cash distributions will
depend on the levels of net cash generated from operations, refinancing,
property sales, and the availability of cash reserves after restructuring of
existing indebtedness.
<PAGE> 9
Year 2000
The "Year 2000 Issue" has arisen because many existing computer programs and
chip-based embedded technology systems use only the last two digits to refer to
a year, and therefore do not properly recognize a year that begins with "20"
instead of the familiar "19". If not corrected, many computer applications
could fail or create erroneous results. The following disclosure provides
information regarding the current status of the Partnership's Year 2000
compliance program.
The Partnership processes its records on computer hardware and software systems
maintained by Hull/Storey Development, LLC ("Hull/Storey"), the management
company retained by the General Partner of the Partnership. Hull/Storey has
adopted a compliance program because it recognizes the importance of minimizing
the number and seriousness of any disruptions that may occur as a result of the
Year 2000 issue. Hull/Storey compliance program includes an assessment of its
hardware and software computer systems and embedded systems.
Hull/Storey has invested in the implementation and maintenance of accounting
and reporting systems and equipment that are intended to enable the Partnership
to provide adequately for its information and reporting needs and which are
also Year 2000 compliant. Substantially all of Hull/Storey's in-house systems
have already been certified as Year 2000 compliant through testing and other
mechanisms and Hull/Storey has not delayed any systems projects due to the Year
2000 Issue. Hull/Storey is in the process of engaging a third party to review
its Year 2000 in-house compliance. The Managing General Partner believes that
future costs associated with Year 2000 issues for Hull/Storey's in-house
systems will be insignificant and will therefore not impact the Partnership's
business, financial condition and results of operations.
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 annual 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.
<PAGE> 10
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
Exhibit 27, Financial Data Schedule (for SEC purposes only), is filed as
an exhibit to this report.
(b) Reports on Form 8-K:
A form 8-K/A was filed with the Securities and Exchange Commission on
March 29, 1999. This filing discloses that there was a change in
Registrant's certifying accountant effective December 18, 1999.
A form 8-K/A was filed with the Securities and Exchange Commission on
March 31, 1999. This filing amended the previous 8-K/A filed on March
29, 1999 to include the letter of the prior certifying accountant.
<PAGE> 11
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/ James H. Hull
----------------------------------------------
James M. Hull
President and Director
By: /s/ Deborah Mosley
----------------------------------------------
Deborah Mosley
Chief Accounting Officer
Date: May 13, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 154,000
<SECURITIES> 0
<RECEIVABLES> 283,000
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1,032,000
<PP&E> 25,067,000
<DEPRECIATION> 7,002,000
<TOTAL-ASSETS> 18,964,000
<CURRENT-LIABILITIES> 120,000
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 983,000
<TOTAL-LIABILITY-AND-EQUITY> 18,964,000
<SALES> 773,000
<TOTAL-REVENUES> 773,000
<CGS> 0
<TOTAL-COSTS> 619,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 154,000
<INCOME-TAX> 0
<INCOME-CONTINUING> 154,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 154,000
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
