FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
Commission file number: 0-14207
RANCON REALTY FUND IV,
A CALIFORNIA LIMITED PARTNERSHIP
(Exact name of registrant as specified in its charter)
California 33-0016355
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
400 South El Camino Real, Suite 1100
San Mateo, California 94402
(Address of principal (Zip Code)
executive offices)
(415) 343-9300
(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 ____
Total number of units outstanding as of March 31, 1997: 79,846
Page 1 of 16
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PART 1. FINANCIAL INFORMATION
Item 1. Financial Statements
RANCON REALTY FUND IV,
A CALIFORNIA LIMITED PARTNERSHIP
Consolidated Balance Sheets
(in thousands, except units outstanding)
(Unaudited)
March 31, December 31,
1997 1996
Assets
Investments in real estate:
Rental property, net of accumulated depreciation
of $13,431 and $13,077 at March 31, 1997
and December 31, 1996, respectively $ 39,595 $ 38,094
Construction in progress 2,208 2,184
Land held for development 4,914 4,911
Land held for sale 4,873 4,869
-------- --------
Total real estate investments 51,590 50,058
Cash and cash equivalents 968 97
Restricted cash 102 102
Accounts and interest receivable 24 188
Note receivable --- 405
Deferred financing costs and other fees, net of
accumulated amortization of $826 and $775 at
March 31, 1997 and December 31, 1996, respectively 1,322 1,223
Prepaid expenses and other assets 567 622
-------- -------
Total assets $ 54,573 $52,695
======== =======
continued -
Page 2 of 16
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RANCON REALTY FUND IV,
A CALIFORNIA LIMITED PARTNERSHIP
Consolidated Balance Sheets - continued
(in thousands, except units outstanding)
(Unaudited)
March 31, December 31,
1997 1996
Liabilities and Partners' Equity (Deficit)
Liabilities:
Notes payable $ 19,398 $ 17,256
Accounts payable and accrued expenses 862 713
Interest payable 96 67
-------- --------
Total liabilities 20,356 18,036
-------- --------
Commitments and contingent liabilities (see Note 4)
Partners' equity (deficit):
General partners (891) (891)
Limited partners, 79,846 limited
partnership units outstanding at
March 31, 1997 and December 31, 1996 35,108 35,550
-------- --------
Total partners' equity 34,217 34,659
-------- --------
Total liabilities and partners' equity $ 54,573 $ 52,695
======== ========
See accompanying notes to financial statements.
Page 3 of 16
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RANCON REALTY FUND IV,
A CALIFORNIA LIMITED PARTNERSHIP
Consolidated Statements of Operations
(in thousands, except per unit amounts and units outstanding)
(Unaudited)
Three months ended
March 31,
1997 1996
Revenues:
Rental income $ 1,539 $ 1,120
Interest and other income 8 28
------- -------
Total revenues 1,547 1,148
------- -------
Expenses:
Operating 712 525
Interest expense 393 261
Depreciation and amortization 391 303
Expenses associated with undeveloped land 177 183
General and administrative expenses 316 325
------- -------
Total expenses 1,989 1,597
------- -------
Net loss $ (442) $ (449)
======= =======
Net loss per limited partnership unit $ (5.54) $ (5.62)
======= =======
Weighted average number of limited
partnership units outstanding during
each period used to compute net loss
per limited partnership unit 79,846 79,846
======= =======
See accompanying notes to financial statements.
Page 4 of 16
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RANCON REALTY FUND IV,
A CALIFORNIA LIMITED PARTNERSHIP
Consolidated Statements of Partners'
Equity (Deficit) For the three months
ended March 31, 1997 and 1996
(in thousands)
(Unaudited)
General Limited
Partners Partners Total
Balance at December 31, 1996 $ (891) $ 35,550 $ 34,659
Net loss --- (442) (442)
------ -------- --------
Balance at March 31, 1997 $ (891) $ 35,108 $ 34,217
====== ======== ========
Balance at December 31, 1995 $ (891) $ 37,060 $ 36,169
Net loss --- (449) (449)
------ -------- --------
Balance at March 31, 1996 $ (891) $ 36,611 $ 35,720
====== ======== ========
See accompanying notes to financial statements.
Page 5 of 16
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RANCON REALTY FUND IV,
A CALIFORNIA LIMITED PARTNERSHIP
Consolidated Statements of Cash Flows (in thousands)
(Unaudited)
Three months ended
March 31,
1997 1996
-------- -------
Cash flows from operating activities:
Net loss $ (442) $ (449)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation and amortization 391 303
Amortization of loan fees, included in interest expense 14 22
Changes in certain assets and liabilities:
Accounts and interest receivable 164 (37)
Prepaid expenses and other assets 55 47
Accounts payable and accrued expenses 149 247
Interest payable 29 38
Deferred financing costs and other fees (150) (42)
------- ------
Net cash provided by operating activities 210 129
------- ------
Cash flows from investing activities:
Net proceeds from sale of real estate --- 84
Additions to real estate and property development costs (1,481) (2,354)
------- ------
Net cash used for investing activities (1,481) (2,270)
------- ------
Cash flows from financing activities:
Net loan proceeds 2,200 1,547
Notes payable principal payments (58) (34)
Reduction of restricted cash, net --- 525
------- ------
Net cash provided by financing activities 2,142 2,038
------- ------
Net increase (decrease) in cash and cash equivalents 871 (103)
Cash and cash equivalents at beginning of period 97 1,296
------- ------
Cash and cash equivalents at end of period $ 968 $1,193
======= ======
- continued -
Page 6 of 16
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RANCON REALTY FUND IV,
A CALIFORNIA LIMITED PARTNERSHIP
Consolidated Statements of Cash Flows (in thousands) - continued
(Unaudited)
Three months ended
March 31,
1997 1996
-------- ------
Supplemental disclosure of cash flow information:
Cash paid for interest $ 350 $ 201
======= ======
Supplemental disclosure of additions to real estate
and property development costs:
Purchase price of real estate $(1,750) $ ---
Reduction of note receivable 405 ---
Additions to real estate and property development costs (136) ---
------- ------
Net additions to real estate
and property development costs $(1,481) $ ---
======= =======
See accompanying notes to financial statements.
Page 7 of 16
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RANCON REALTY FUND IV,
A CALIFORNIA LIMITED PARTNERSHIP
Notes to Consolidated Financial Statements
March 31, 1997
(Unaudited)
Note 1. THE PARTNERSHIP AND ITS SIGNIFICANT ACCOUNTING POLICIES
In the opinion of Rancon Financial Corporation ("RFC") and Daniel Lee Stephenson
(the "Sponsors") and Glenborough Inland Realty Corporation, the accompanying
unaudited financial statements contain all adjustments (consisting of only
normal accruals) necessary to present fairly the financial position of Rancon
Realty Fund IV, A California Limited Partnership (the "Partnership") as of March
31, 1997 and December 31, 1996, and the related statements of operations, the
changes in partners' equity and cash flows for the three months ended March 31,
1997 and 1996.
In December, 1994, RFC entered into an agreement with Glenborough Inland Realty
Corporation ("Glenborough") whereby RFC sold to Glenborough the contract to
perform the rights and responsibilities under RFC's agreement with the
Partnership and other related Partnerships (collectively, the "Rancon
Partnerships") to perform or contract on the Partnership's behalf, for
financial, accounting, data processing, marketing, legal, investor relations,
asset and development management and consulting services for the Partnership for
a period of ten years or until the liquidation of the Partnership, whichever
comes first. Pursuant to the contract, the Partnership will pay Glenborough for
its services as follows: (i) a specified asset administration fee of $993,000
per year, which is fixed for five years subject to reduction in the year
following the sale of assets; (ii) sales fees of 2% for improved properties and
4% for land; (iii) a refinancing fee of 1% and (iv) a management fee of 5% of
gross rental receipts. As part of this agreement, Glenborough will perform
certain tasks for the General Partner of the Rancon Partnerships and RFC agreed
to cooperate with Glenborough, should Glenborough attempt to obtain a majority
vote of the limited partners to substitute itself as the General Partner for the
Rancon Partnerships. This agreement became effective January 1, 1995.
Glenborough is not an affiliate of RFC or the Partnership.
Consolidation - In order to satisfy certain lender requirements for the
Partnership's 1996 loan secured by Service Retail Center, Promotional Retail
Center, and Carnegie Business Center I, Rancon Realty Fund IV Tri-City Limited
Partnership, a Delaware limited partnership ("RRF IV Tri-City") was formed in
April, 1996. The three properties securing the loan were contributed to RRF IV
Tri-City by the Partnership. The limited partner of RRF IV Tri-City is the
Partnership and the general partner is Rancon Realty Fund IV, Inc., a
corporation wholly owned by the Partnership. Since the Partnership indirectly
owns 100% of RRF IV Tri-City, the financial statements of RRF IV Tri-City have
been consolidated with those of the Partnership. All intercompany transactions
have been eliminated in consolidation.
Reclassification - Certain 1996 balances have been reclassified to conform with
the current period presentation.
Page 8 of 16
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RANCON REALTY FUND IV,
A CALIFORNIA LIMITED PARTNERSHIP
Notes to Consolidated Financial Statements
March 31, 1997
(Unaudited)
Note 2. REFERENCE TO 1996 AUDITED FINANCIAL STATEMENTS
These unaudited financial statements should be read in conjunction with the
Notes to Financial Statements included in the December 31, 1996 audited
financial statements.
Note 3. INVESTMENTS IN REAL ESTATE
On February 28, 1997, the Partnership purchased the property known as TGI
Friday's for $1,750,000. The Partnership paid $1,345,000 in cash and the
existing $405,000 note receivable secured by a deed of trust on the TGI Friday's
property was retired as part of this transaction.
Note 4. COMMITMENTS AND CONTINGENT LIABILITIES
The Partnership is contingently liable for subordinated real estate commissions
payable to the Sponsor in the amount of $643,000 at March 31, 1997 for sales
that transpired in previous years. The subordinated real estate commissions are
payable only after the Limited Partners have received distributions equal to
their original invested capital plus a cumulative non-compounded return of six
percent per annum on their adjusted invested capital.
Note 5. NOTES PAYABLE
In January, 1997, the Partnership obtained an unsecured promissory note for a
$1,500,000 revolving line of credit from Glenborough. As of March 31, 1997, the
Partnership had drawn a total of $1,000,000 on the line of credit to fund
capital expenditures and other Partnership costs. In April, 1997, the
Partnership drew the remaining $500,000 on the line of credit. The loan had a
stated interest rate of eleven percent (11%) per annum, required monthly
interest only payments and had a maturity date of December 31, 1997. The loan
was paid off in May 1997, from proceeds of new permanent financing (see below).
On February 28, 1997, the Partnership obtained a $1,200,000 unsecured loan at an
interest rate of one percent (1%) per annum in excess of the bank "Prime Rate."
The loan was used to finance the acquisition of the TGI Friday's property. This
loan was also paid off in May 1997, from the proceeds of new permanent financing
(see below).
On May 8, 1997, the Partnership obtained new permanent financing of $5,000,000
from Wells Fargo Bank, secured by real estate referred to as Circuit City and
TGI Friday's. The Partnership used the proceeds to pay off the $1,500,000
Glenborough line of credit and $1,221,000 to pay off the unsecured Wells Fargo
Bank loan. In addition, the Partnership incurred approximately $193,000 in loan
fees and
Page 9 of 16
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RANCON REALTY FUND IV,
A CALIFORNIA LIMITED PARTNERSHIP
Notes to Consolidated Financial Statements
March 31, 1997
(Unaudited)
closing costs and held back $1,956,000 for the Circuit City tenant improvement
allowance. The remaining net proceeds of approximately $130,000 were added to
the Partnership's cash reserves.
The new loan bears interest at one percent (1%) per annum in excess of the
lender's "Prime Rate," requires monthly payments of interest only, and matures
on May 31, 1999 with an option for a one year extension.
Page 10 of 16
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Item 2. Management's Discussion and Analysis of Financial Conditions and
Results of Operations.
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 1997, the Partnership had cash of $968,000. The remainder of the
Partnership's assets consist primarily of its investments in real estate,
totaling approximately $51,590,000.
The Partnership's primary sources of funds consist of cash provided by its
rental activities, permanent financing, construction financing, property sales
and interest income on certificates of deposit and other deposits of funds
invested temporarily, pending their use in the development of properties.
A majority of the Partnership's assets are located within the Inland Empire, a
submarket of Southern California, and have been directly affected by the
economic weakness of the region. Management believes, however, that the market
has flattened and is no longer falling in terms of sales prices. While prices
have not increased significantly, the Southern California real estate market
appears to be improving. Management continues to evaluate the real estate
markets in which the Partnership's assets are located in an effort to determine
the optimal time to dispose of them and realize their maximum value.
Tri-City
The Partnership currently owns the following properties in the Tri-City
Corporate Center area within the Inland Empire submarket of the Southern
California region:
Property Type Square Feet
---------------------------- ---------------------------------- -----------
One Vanderbilt Four story office building 73,809
Two Vanderbilt Four story office building 69,094
Carnegie Business Center I Two light industrial buildings 62,605
Service Retail Center Two retail buildings 20,780
Promotional Retail Center Four strip center retail buildings 104,865
Inland Regional Center Two story office building 81,079
TGI Friday's Restaurant 9,386
In addition, construction of a 38,600 square foot build-to-suit retail building
(referred to as the Circuit City property) was completed in May 1997 and the
tenant's lease commenced on May 8, 1997.
The Partnership also owns approximately 26 acres of unimproved land in the
Tri-City area.
Additionally, the Partnership owns the Shadowridge Woodbend Apartments (a
240-unit apartment complex) in Vista, California plus approximately 25 acres of
unimproved land in Riverside County, California.
On May 8, 1997, the Partnership obtained new permanent financing of $5,000,000
from Wells Fargo Bank, secured by real estate referred to as Circuit City and
TGI Friday's. The Partnership used the
Page 11 of 16
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proceeds to pay off the $1,500,000 Glenborough line of credit and $1,221,000 to
pay off the unsecured Wells Fargo Bank loan. In addition, the Partnership
incurred approximately $193,000 in loan fees and closing costs and held back
$1,956,000 for the Circuit City tenant improvement allowance. The remaining net
proceeds of approximately $130,000 were added to the Partnership's cash
reserves.
Lake Elsinore
Lake Elsinore is 24.8 acres of undeveloped land, commercially zoned in Lake
Elsinore, Riverside County, California. Offsite improvements remain on hold at
the Lake Elsinore property and there is no development activity planned for the
near future.
Perris
Perris is 17.14 acres of unimproved land near Perris Lake in Perris, Riverside
County, California. There has been no development of the Perris property to
date. The property is being marketed for sale to retail users and interested
developers.
Temecula
Final map approval was received January 2, 1996 on the 12.4 acre property in
Temecula, California. The Partnership has an executed sales contract on a 3.16
acre parcel for $607,000, pending a due diligence period. The sale is expected
to close between June, 1997 and January, 1998. Negotiations are currently
underway for the sale of two additional lots totaling 1.56 acres and the
remaining lots are held for sale.
The Partnership has a $100,000 certificate of deposit ("CD") held as collateral
for subdivision improvements and monument bonds related to the 11.29 acres of
land for sale in Temecula, California. It is anticipated that this CD will be
released in 1997.
General Matters
The $149,000 or 21% increase in accounts payable and accrued expenses at March
31, 1997 from December 31, 1996 is largely due to the accrual of property tax
expenses which are payable in April, 1997.
The improvement in cash flow from operations for the three months ended March
31, 1997 over the three months ended March 31, 1996 is primarily a result of the
placement of the Inland Regional Center into service in June, 1996 and the
acquisition of TGI Friday's in February, 1997.
The General Partners continue to assess the real estate market in Southern
California in an effort to determine an appropriate time to liquidate the
Partnership and realize the maximum value for its assets. Cash generated from
property sales may be utilized in the development of other properties or
distributed to the partners.
Page 12 of 16
<PAGE>
RESULTS OF OPERATIONS
Revenues
Rental income for the three months ended March 31, 1997 increased $419,000 or
37% over the three months ended March 31, 1996, primarily as a result of: (i)
the commencement of operations of the Inland Regional Center in June 1996; (ii)
rent earned from Circuit City as the project is under construction; (iii) the
acquisition of the TGI Friday's property in February, 1997; and (iv) the
increased occupancy at One Vanderbilt, Two Vanderbilt, Service Retail Center,
Carnegie Business Center I, and Shadowridge/Woodbend Apartments in the first
quarter of 1997 over the first quarter of 1996.
Occupancy rates at the Partnership's Tri-City properties as of March 31, 1997
and 1996 were as follows:
March 31,
1997 1996
-------- -------
One Vanderbilt 88% 59%
Two Vanderbilt 63% 13%
Service Retail Center 100% 97%
Carnegie Business Center I 90% 87%
Promotional Retail Center-Phase I 97% 97%
Inland Regional Center (commenced June, 1996) 100% n/a
TGI Friday's (acquired February 28, 1997) 100% n/a
As of March 31, 1997, tenants at Tri-City occupying substantial portions of
leased rental space included: (i) ITT Educational Services with a lease which
expires in December, 2004; (ii) Inland Regional Center with a lease through
July, 2009; (iii) CompUSA with a lease through August, 2003; (iv) PetsMart with
a lease through January, 2009; and (v) Circuit City with a lease through
January, 2018. These five tenants, in the aggregate, occupied approximately
201,000 square feet of the 412,000 total leasable square feet at Tri-City as of
March 31, 1997 and account for 53% of the rental income generated at Tri-City
and 37% of the total rental income for the Partnership during the first quarter
of 1997.
Interest income decreased $20,000 or 71% during the three months ended March 31,
1997 compared to the three months ended March 31, 1996 due to a lower average
cash balance in 1997 as a result of additions to real estate and property
development costs in 1996 and the elimination of the interest income on the
$405,000 note receivable that was retired as part of the acquisition of TGI
Friday's on February 28, 1997.
Page 13 of 16
<PAGE>
Expenses:
Operating expenses increased $187,000 or 36% in the three months ended March 31,
1997 over the same period in 1996 due to the addition of the Inland Regional
Center as an operating property in June, 1996 and property tax refunds received
in the first quarter of 1996.
Interest expense increased $132,000 or 50% during the three months ended March
31, 1997 compared to the same period in 1996 due to the increased debt to
finance the acquisition and construction of properties over the past year.
Depreciation and amortization for the quarter ended March 31, 1997 increased
$88,000 or 29% from the quarter ended March 31, 1996 primarily as a result of
the acquisition and construction of properties such as Inland Regional Center
and TGI Friday's over the past year.
The $9,000 or 3% decrease in general and administrative expenses during the
three months ended March 31, 1997 from the three months ended March 31, 1996 was
due to a payment of $24,000 for professional services rendered in 1996 in
connection with the valuation of the limited partner interests; such payment was
not incurred in 1997. This was partially offset by legal fees incurred in 1997
for a landfill liability agreement with the City of San Bernardino whereby
monitoring costs associated with landfill will now be shared with the City of
San Bernardino.
Page 14 of 16
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Part II. OTHER INFORMATION
Item 1. Legal Proceedings
None.
Item 2. Changes in Securities
Not applicable.
Item 3. Defaults Upon Senior Securities
Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders
None.
Item 5. Other Information
None.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
#27 - Financial Data Schedule
(b) Reports on Form 8-K:
None.
Page 15 of 16
<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.
RANCON REALTY FUND IV,
a California Limited Partnership
(Registrant)
Date: May 14, 1997 By: /s/ Daniel L. Stephenson
------------------------
Daniel L. Stephenson
Chief Executive Officer and
Chief Financial Officer of
Rancon Financial Corporation,
General Partner of
Rancon Realty Fund IV,
a California Limited Partnership
Page 16 of 16
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<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000743870
<NAME> RANCON REALTY FUND IV
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 1,070
<SECURITIES> 0
<RECEIVABLES> 24
<ALLOWANCES> 0
<INVENTORY> 4,873
<CURRENT-ASSETS> 1,094
<PP&E> 60,148
<DEPRECIATION> 13,431
<TOTAL-ASSETS> 54,573
<CURRENT-LIABILITIES> 958
<BONDS> 19,398
0
0
<COMMON> 0
<OTHER-SE> 34,217
<TOTAL-LIABILITY-AND-EQUITY> 54,573
<SALES> 0
<TOTAL-REVENUES> 1,547
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 1,596
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 393
<INCOME-PRETAX> (442)
<INCOME-TAX> 0
<INCOME-CONTINUING> (442)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (442)
<EPS-PRIMARY> (5.54)
<EPS-DILUTED> (5.54)
</TABLE>
