<PAGE>
SCHEDULE 14A
(Rule 14a-101)
Information Required In Proxy Statement
SCHEDULE 14A INFORMATION
Consent Solicitation Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934
(Amendment No. 3)
Filed by the Registrant : [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement [X] Confidential, for use of Commission only
[ ] Definitive Proxy Statement (as permitted by Rule 14a-6(e)(2))
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
Rancon Realty Fund IV, a California Limited Partnership
- -------------------------------------------------------------
(Name of Registrant as Specified in its Charter)
- ----------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than Registrant)
Payment of Filing Fee (Check the appropriate box):
[ ] No Fee Required.
[X] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11
(set forth the amount on which the filing fee is calculated and how
it was determined):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total Fee Paid:
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[X] Fee paid previously with preliminary materials:
The filing fee of $9,470 was paid in connection with the initial filing of
the Schedule 14A (Preliminary Proxy Statement).
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration statement
number, or the form or schedule and the date of its filing:
(1) Amount Previously Paid:
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(2) Form, Schedule or Registration Statement no.:
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(3) Filing Party:
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(4) Date Filed:
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<PAGE>
RANCON REALTY FUND IV,
a California Limited Partnership
c/o Preferred Partnership Services, Inc.
39560 Stevenson Place, #112
Fremont, California 94539-3074
July 6, 1999
Dear Unitholder:
We are writing to request your consent to sell Rancon Realty Fund IV's
("Fund IV") interests in its remaining properties (the "Properties"), which
consists of ten rental properties and approximately 23 acres of unimproved land
it owns in the Tri-City Corporate Centre in San Bernardino, California (the
"Tri-City Properties") and an aggregate of approximately 27 acres of unimproved
land in Lake Elsinore and Temecula, California (the "Remaining Properties").
Fund IV has not, as of the date hereof, entered into any agreement for the
sale of the Tri-City Properties. If the proposal is approved, the general
partners of Fund IV, Daniel L. Stephenson and Rancon Financial Corporation
(collectively, the "General Partner"), currently intend to offer the Tri-City
Properties for sale by soliciting bids from various potential purchasers. To
maximize the proceeds from the sales, the offering of the Tri-City Properties
will include parcels in the Tri-City Corporate Centre which are owned by Rancon
Realty Fund V ("Fund V"), a partnership also sponsored by the General Partner of
Fund IV. The Remaining Properties will not be sold with the Tri-City Properties,
but will be sold separately, in one or more individual or group sales. The
Properties will not be sold to any affiliates of the Partnership or of the
General Partner. Pursuant to an agreement entered into with Fund IV in 1997,
Glenborough Realty Trust Incorporated, a publicly traded real estate investment
trust, has the right to match any offer for the Properties that the Partnership
otherwise intends to accept.
The net proceeds of the sales of Fund IV's Properties (after deducting the
expenses of the sale, repaying related property loans, and payment of certain
fees) will be distributed to the partners in Fund IV. In accordance with the
limited partnership agreement governing Fund IV, ninety days following the sale
of all of Fund IV's Properties and the receipt in cash of the proceeds thereof,
Fund IV will be terminated and dissolved. A consent in favor of the sale of Fund
IV's Properties will also be a consent in favor of the dissolution of Fund IV
ninety days following the sale of all of Fund IV's Properties and the receipt in
cash of the proceeds thereof, as all these transactions are being presented as a
single proposal. A majority of Fund IV's outstanding units must consent to the
proposal in order for the transaction to proceed.
The Properties will be sold as soon as practicable, consistent with
obtaining fair value for the Properties. The General Partner's current goal is
to complete the sale of the Properties within approximately six months after
consent to this Asset Sale and Dissolution Proposal has been obtained. The
Partnership expects that some Properties will be sold on the installment basis,
under which a portion of the sales price will be received in the year of sale
with subsequent payments paid in subsequent periods (presently anticipated to be
in 2000 or 2001). The Partnership will not be dissolved until all such
subsequent payments are made by the buyers of such Properties, or the related
promissory notes evidencing the obligation to make such payments to the
Partnership are sold, refinanced or otherwise paid by the buyers of the
Properties. Prior to completion of the sale of all of the Properties and the
receipt in cash of the proceeds thereof, the General Partner currently intends
(but is not obligated) to make interim distributions, from time to time, of all
or a portion of the net proceeds from sales of the Properties.
The enclosed materials discuss the proposal in detail, but we would like to
summarize our reasons for recommending that you consent to the proposal.
IF THE PROPERTIES ARE SOLD FOR THEIR APPRAISED VALUES (AS OF JANUARY 1,
1999), THE GENERAL PARTNER CURRENTLY ESTIMATES (SUBJECT TO THE ASSUMPTIONS
AND QUALIFICATIONS SET FORTH IN THE ATTACHED CONSENT SOLICITATION
STATEMENT) THAT,AS A RESULT OF THE SALE OF THE PROPERTIES AND DISSOLUTION
<PAGE>
OF THE PARTNERSHIP,UNITHOLDERS WILL RECEIVE AN AGGREGATE OF APPROXIMATELY
$428 PER UNIT OF LIMITED PARTNERSHIP INTEREST. The foregoing is an
estimate only, and the actual distributions to be received by Unitholders
from the sale of the Properties and dissolution of the Partnership
could vary materially from the above estimate and may be substantially
less. In certain circumstances, such as if the Properties are sold for
prices in excess of their appraised values, or if the costs and expenses
of the Asset Sale and Dissolution are less than currently estimated
by the General Partner, the actual distributions to be received by
Unitholders from the sale of the Properties and dissolution of the
Partnership could exceed the above estimate.
A CONDITION TO SALES OF THE PROPERTIES WILL BE THAT THE PRICE AT WHICH
SALES OF THE PROPERTIES ARE MADE SHALL AT LEAST EQUAL THE APPRAISED VALUES
OF SUCH PROPERTIES (AS OF JANUARY 1, 1999) AS REFLECTED IN INDEPENDENT
APPRAISALS. The General Partner has obtained appraisals prepared by an
independent appraiser, CB Richard Ellis, Inc., to establish the fair market
value as of January 1, 1999 of the Properties, as well as the properties
owned by Fund V to be offered for sale with the Properties. The aggregate
appraised value of the Partnership's Properties (as of January 1, 1999) as
reflected in such appraisals is $44,395,000. A condition to sales of the
Remaining Properties (which may take longer to sell than the Tri-City
Properties) will be that the price at which sales of the Remaining Proper-
ties are made shall at least equal the appraised values of such Remaining
Properties reflected in such January 1999 appraisals of CB Richard Ellis,
Inc., or in any later independent appraisal obtained by the Partnership.
The aggregrate aappraised value of the Remaining Properties as reflected in
the January 1999 appraisals of CB Richard Ellis, Inc. is $2,955,000. Bid-
ders for any package of properties containing Tri-City Properties and Fund
V properties will be required to specify how their overall bid is allocated
among the individual properties in the package, and proceeds from the sales
of any such package (as well as general expenses related to the sales)
will be apportioned between the two partnerships based upon such
allocation.
FUND IV EXPECTS TO BENEFIT SUBSTANTIALLY BY SELLING THE PROPERTIES IN
PACKAGES OF PROPERTIES INSTEAD OF INDIVIDUALLY. The General Partner
believes that there is significant demand for packages of properties (such
as separate packages of retail properties, office properties and unimproved
land) in attractive areas such as the Tri-City Corporate Centre by real
estate investment trusts and other real estate investors seeking to expand
their portfolio of properties. Benefits of packaged sales also include
lower apportioned sale costs and faster liquidation of Fund IV.
<PAGE>
THE GENERAL PARTNER BELIEVES CURRENT MARKET CONDITIONS ARE FAVORABLE FOR A
SALE OF THE PROPERTIES.
The market for properties in the Tri-City Corporate Centre area and real
estate markets in general have significantly improved from the most recent
recession in real estate.
The real estate capital markets are active; the General Partner believes
that there is a significant number of potential buyers of the Properties
which should help maximize the net proceeds from the sales of such
properties.
Although the General Partner believes that 1999 represents an advantageous
time for sellers of commercial properties, the General Partner believes
that conditions beyond this year are less predictable and that the
possibility of continued improvements in economic and market conditions
does not justify postponing the sale of the Properties.
The operations of the improved properties are relatively stable.
To the extent Fund IV's Properties are not sold they will continue to
subject Fund IV to the risks inherent in the ownership of property.
The development of the majority of Fund IV's unimproved properties cannot
be done on an economical basis for several years.
In considering whether to submit this proposed sale of Fund IV's
Properties and dissolution of Fund IV to the partners in Fund IV, we also
considered the disadvantages of this course of action. The primary disadvantages
of disposing of Fund IV's Properties and dissolving Fund IV pursuant to this
proposal are:
UNITHOLDERS WHO PURCHASED THEIR UNITS DURING THE INITIAL PUBLIC OFFERING OF
THE UNITS MAY NOT RECEIVE AGGREGATE DISTRIBUTIONS, INCLUDING DISTRIBUTIONS
FROM THE SALE OF THE PROPERTIES PURSUANT TO THIS PROPOSAL, EQUAL TO THE
MONEY THAT THEY ORIGINALLY INVESTED IN FUND V.
THERE CAN BE NO ASSURANCE THAT THIS PROPOSAL WILL RESULT IN GREATER RETURNS
TO THE PARTNERS IN FUND IV THAN A CONTINUATION F FUND IV. Fund IV will not
benefit from possible improvements in economic and market conditions after
the Properties are sold which could produce increased cash flow and enhance
the sales prices of the Properties.
Additional factors that you should consider in determining whether to
consent to the proposal are set forth in the attached Consent Statement,
including under the section entitled "Risk Factors Relating to the Asset Sale
and Dissolution".
After carefully weighing the facts and circumstances associated with
the proposed sale as well as alternative courses of action, we concluded that
the proposed sale of Fund IV's Properties, and the distribution of the net
proceeds to the partners of Fund IV and the dissolution of Fund IV is an
outstanding opportunity to maximize value for investors.
<PAGE>
Therefore, we recommend that you approve the proposed transaction by
signing and returning the Consent Form in the postage-paid envelope. Your
participation is extremely important and your early response could save Fund IV
the substantial costs associated with a follow-up mailing. If you have any
questions, please feel free to call the Partnership's soliciting agent,
Preferred Partnership Services, Inc., toll free at 1-888-909-7774.
Sincerely,
/S/ DANIEL L STEPHENSON
---------------------------------------------------
Daniel L. Stephenson
General Partner, and Chief Executive Officer of
Rancon Financial Corporation, General Partner
Questions about the enclosed material?
Please call Preferred Partnership Services, Inc., toll free at 1-888-909-7774.
<PAGE>
Rancon Realty Fund IV,
a California Limited Partnership
c/o Preferred Partnership Services, Inc.
39560 Stevenson Place, #112
Fremont, California 94539-3074
NOTICE OF CONSENT SOLICITATION
To the Unitholders of Rancon Realty Fund IV, a California Limited Partnership
NOTICE IS HEREBY GIVEN to limited partners ("Unitholders") holding
units of limited partnership interest ("Units") in Rancon Realty Fund IV, a
California Limited Partnership (the "Partnership") that Daniel L. Stephenson and
Rancon Financial Corporation (collectively, the "General Partner") are
soliciting written consents to approve a single proposal (the "Asset Sale and
Dissolution Proposal") consisting of (i) the sale of all or substantially all of
the properties (the "Properties") of the Partnership, consisting of the
Partnership's properties in the Tri-City Corporate Centre in San Bernardino,
California (the "Tri-City Properties") as well as its other properties (the
"Remaining Properties") in Lake Elsinore and Temecula, California (the "Asset
Sale"), and (ii) the termination and dissolution of the Partnership in
accordance with the limited partnership agreement governing the Partnership,
ninety days after the sale of all of the Partnership's Properties and the
receipt in cash of the proceeds thereof (the "Dissolution"), in the manner
described in the accompanying Consent Solicitation Statement. The Asset Sale and
Dissolution will result in the distribution to the Unitholders of all net cash
proceeds of the sale of the Properties and all net cash proceeds, if any, from
the sale of any remaining Partnership assets after payment of and provision for
all Partnership liabilities, all as more fully described in the accompanying
Consent Solicitation Statement.
The Asset Sale and Dissolution Proposal must be approved by Unitholders
holding a majority of the outstanding Units. Only Unitholders of record at the
close of business on June 28, 1999 are entitled to notice of the solicitation of
consents and to give their consent to the Asset Sale and Dissolution Proposal.
In order to be valid, all consents must be received before 5:00 P.M., Pacific
time, on August 25, 1999 (unless such date or time is extended). The vote will
be obtained through the solicitation of written consents and no meeting of
Unitholders will be held. A consent may be revoked by written notice of
revocation or by a later dated consent containing different instructions at any
time on or before the expiration of the time by which the Consent Form must be
received.
Your Approval is Important. Please read the Consent Solicitation
Statement carefully and then complete, sign and date the enclosed Consent Form
and return it in the self-addressed postage-paid envelope. Any Consent Form
which is signed and does not specifically disapprove the Asset Sale and
Dissolution Proposal will be treated as approving the Asset Sale and Dissolution
Proposal. Your prompt response will be appreciated.
Dated July 6, 1999 RANCON REALTY FUND IV,
a California Limited Partnership
By: /S/ DANIEL L STEPHENSON
----------------------------------------
Daniel L. Stephenson, General Partner,
and Chief Executive Officer of
Rancon Financial Corporation, General Partner
<PAGE>
CONSENT SOLICITATION STATEMENT
FOR RANCON REALTY FUND IV
This Consent Solicitation Statement (this "Statement") is being
furnished to holders of record ("Unitholders") of units of limited partnership
interests ("Units") in Rancon Realty Fund IV, a California limited partnership
(the "Partnership"), as of the close of business on June 28, 1999 (the "Record
Date"), in connection with the solicitation (this "Solicitation") of consents,
upon the terms and subject to the conditions of this Statement and the
accompanying form of consent (the "Consent Form"), by Daniel L. Stephenson, an
individual, and Rancon Financial Corporation, a California corporation, the
general partners of the Partnership (collectively hereinafter sometimes referred
to as the "General Partner"), on behalf of the Partnership, to approve (i) the
proposed sale of all or substantially all of the real estate assets of the
Partnership, including the Partnership's properties in the Tri-City Corporate
Centre in San Bernardino, California (the "Tri-City Properties") as well as its
other properties (the "Remaining Properties") in Lake Elsinore and Temecula,
California (the "Asset Sale"), and (ii) the termination and dissolution of the
Partnership in accordance with the limited partnership agreement governing the
Partnership, ninety days after the sale of all of the Partnership's Properties
and the receipt in cash of the proceeds thereof (the "Dissolution").
As of the date hereof, the Partnership has not entered into any
agreement for the sale of any of the Properties. If this proposal (the "Asset
Sale and Dissolution Proposal") is approved, the General Partner will be
authorized to sell the Partnership's Properties, in one or a series of (related
or unrelated) transactions, on such terms as are negotiated by the General
Partner. If the Asset Sale and Dissolution Proposal is approved, the General
Partner currently intends to group the Tri-City Properties into two or more
packages of properties (such as separate packages of retail properties, office
properties and unimproved land) and then solicit separate bids from potential
purchasers for each package. To enhance the value of the packages and maximize
the proceeds from the sales, the packages will include parcels in the Tri-City
Corporate Centre which are owned by Rancon Realty Fund V ("Fund V"), a
partnership also sponsored by the General Partner of Fund IV. The Remaining
Properties will not be sold with the Tri-City Properties, but will be sold
separately in one or more individual or group sales. The Properties will not be
sold to any affiliates of the Partnership or of the General Partner. The
Properties will be sold as soon as practicable (consistent with obtaining
reasonable value for the Properties). A condition to sales of the Tri-City
Properties will be that the price at which the sale of such Properties is made
shall at least equal the appraised value (as of January 1, 1999) of the
Properties being sold as reflected in appraisals performed by CB Richard Ellis,
Inc. (the "Appraisals of Properties"). See "FAIRNESS OF THE ASSET SALE AND
DISSOLUTION Appraisals of Properties." A condition to sales of the Remaining
Properties (which may take longer to sell than the Tri-City Properties) will be
that the price at which the sale of such Properties is made shall at least equal
the appraised value of the Properties being sold as reflected in the Appraisals
or in any later appraisal obtained by the Partnership from CB Richard Ellis,
Inc. ("CBRE") or another independent appraiser. The Appraisals performed by CBRE
with respect to the two Remaining Properties reflect their appraised value as of
January 22, 1999 and January 27, 1999, respectively. See "THE ASSET SALE AND
DISSOLUTION PROPOSAL - Terms of the Asset Sale" and "FAIRNESS OF THE ASSET SALE
AND DISSOLUTION - Appraisals." Bidders for any package of properties containing
Tri-City Properties and Fund V properties will be required to specify how their
overall bid is allocated among the individual properties in the package, and
proceeds from the sales of any such package (as well as general expenses related
to the sale) will be apportioned between the two partnerships based upon such
allocation. Pursuant to an existing agreement, Glenborough Realty Trust
Incorporated, a publicly traded real estate investment trust which is the
Partnership's asset and property manager, has a right to match any offers for
the Properties that the Partnership otherwise intends to accept. See "THE ASSET
SALE AND DISSOLUTION PROPOSAL - GLB Matching Right."
Ninety days following consummation of the sale of all of the
Partnership's Properties and the receipt in cash of the proceeds thereof, the
---------------------------
This Consent Solicitation Statement is dated July 6, 1999,
and is first being distributed to Unitholders of the Partnership along with
the enclosed Consent Form on or about July 6, 1999
<PAGE>
Partnership will be terminated and dissolved. In connection with the sale of the
Partnership's Properties and the termination, dissolution and winding up of its
affairs, the Partnership intends to distribute to Unitholders (A) the net
proceeds of the sale of the Properties after deducting the expenses of the sale,
repaying any mortgages which are secured by the Properties (the "Property
Loans"), and payment of certain fees (including certain sales fees and brokerage
fees), and (B) the net proceeds, if any, from the disposition (or realization)
of any remaining Partnership assets (such as accounts receivable) after payment
of and provision for all Partnership liabilities.
- Assuming, for purposes of illustration, that all the Partnership's
Properties are sold for an aggregate sales price for the Properties
equal to their appraised market values as of January 1999 reflected in
the Appraisals, the Partnership will receive approximately $47,350,000
in consideration.
- The consideration to be received by the Partnership from the sale of
the Properties will be reduced by the amount required to repay the
Property Loans.
- As of March 31, 1999, the aggregate outstanding balance of the Property
Loans (principal and accrued interest) was approximately $15,965,000.
As a result, assuming the Properties are sold for their appraised
values as of January 1999, the Partnership will receive approximately
$31,385,000 in consideration after repayment of the Property Loans.
- Assuming the foregoing aggregate proceeds of $31,385,000 from the sale
of the Properties after deducting the repayment of any Property Loans,
and assuming $5,324,000 in aggregate proceeds from the disposition (or
realization) of any remaining Partnership assets after payment of and
provision for all Partnership liabilities (based on the net assets of
the Partnership (other than investments in real estate) as of March 31,
1999), the General Partner believes that an aggregate of approximately
$36,709,000 (the "Estimated Net Proceeds") of the foregoing amounts
would be available for distribution, prior to the costs and expenses of
the Asset Sale and Dissolution.
- Assuming that the costs and expenses of the Asset Sale and Dissolution
(including, for example, sales fees, asset administration fees and
management fees to be paid to the Partnership's asset and property
manager, Glenborough Realty Trust Incorporated, and accounting fees)
equal 8% of the aggregate sales price of the Properties, the General
Partner believes that an aggregate of approximately $32,921,000 (the
"Estimated Net Distributable Cash") of the Estimated Net Proceeds would
be available for distribution to the Unitholders as a result of the
Asset Sale and Dissolution.
- Assuming Estimated Net Distributable Cash of $32,921,000, and by
dividing this amount by the number of Units issued and outstanding as
of the record date, the General Partner currently estimates that the
Unitholders would receive out of the Estimated Net Distributable Cash
approximately $428 per Unit.
Although the Estimated Net Distributable Cash takes into account an estimate of
the sales and dissolution costs to the Partnership, the Estimated Net
Distributable Cash does not otherwise take into account any operating income
(such as rental income) or certain operating expenses of the Partnership for any
period after March 31, 1999 and prior to the time the Properties are sold and
the Partnership dissolved, which is likely to affect the amount of Net
Distributable Cash actually available for distribution to the Unitholders.
Assuming consummation of the Asset Sale and Dissolution, the General Partner
will not receive any of the net proceeds from sales of the Properties or upon
dissolution with respect to its general partnership interests.
Given the time needed to solicit consents to the Asset Sale and
Dissolution Proposal, market the Properties, and close the sale of the
Properties, and given that the Partnership anticipates that a portion of the
purchase price for some Properties will be paid with promissory notes of the
buyers in favor of the Partnership with terms currently anticipated to range
from approximately six to eighteen months, the Partnership does not presently
anticipate that the sale of all of the Partnership's Properties will be
consummated and all of the cash proceeds thereof received by the Partnership
prior to at least early 2000, and potentially not until 2001. Prior to the
completion of the sale of all of the Properties and the receipt in cash of the
proceeds thereof, the General Partner currently intends, but is not obligated,
to make interim distributions, from time to time, of all or a portion of the net
(ii)
<PAGE>
proceeds from sales of the Properties. The General Partner also intends to
distribute in 1999 the net proceeds of the sale of a Partnership property which
occurred in January 1999.
The discussion above contains forward-looking statements. There can be
no assurance that any sale or sales of the Properties will be consummated or
that any of the foregoing estimates will be realized, including that $428 per
Unit will be the actual aggregate amount distributed to Unitholders as a result
of the Asset Sale and Dissolution. Unitholders, in determining whether to
consent to the Asset Sale and Dissolution Proposal, are cautioned not to
attribute undue certainty to the foregoing estimates, which are based on a
variety of assumptions relating to the Properties, general business and economic
conditions and other matters. The amount of the proceeds from the sale of the
Properties, the estimated amount to be distributed to Unitholders, and the date
prior to which consummation of the sale of the Properties and receipt in cash of
the proceeds thereof is not anticipated to occur are based on the Partnership's
current estimates and are subject to various and significant uncertainties, many
of which are beyond the Partnership's control, that could cause the actual
results to differ materially from the Partnership's expectations. A number of
such uncertainties are described under "RISK FACTORS RELATING TO THE ASSET SALE
AND DISSOLUTION -- Estimates, Including Estimate of the Aggregate Distributions
to be Received by Unitholders as a Result of the Asset Sale and Dissolution, May
Not be Realized." THE ACTUAL DISTRIBUTIONS TO BE RECEIVED BY UNITHOLDERS FROM
THE ASSET SALE AND DISSOLUTION OF THE PARTNERSHIP COULD, FOR THE FOREGOING
REASONS, VARY MATERIALLY, FROM THE ABOVE ESTIMATE PER UNIT, AND MAY BE
SUBSTANTIALLY LESS. In certain circumstances, such as if the Properties are sold
for prices in excess of their appraised values, or if the costs and expenses of
the Asset Sale and Dissolution are less than currently estimated by the General
Partner, the actual distributions to be received by Unitholders from the sale of
the Properties and dissolution of the Partnership could exceed the above
estimate. See "RISK FACTORS RELATING TO THE ASSET SALE AND DISSOLUTION" and
"SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS, INCLUDING ESTIMATES." If the
Partnership determines at any time prior to Dissolution that the amount of
distributions resulting from the Asset Sale and Dissolution will be more than
ten percent less than the estimate set forth in this Statement, the Partnership
will provide to Unitholders an informational supplement to this Statement. If
the Partnership makes such determination during this Solicitation of consents
from Unitholders to the Asset Sale and Dissolution Proposal or after consent to
this proposal has been obtained but prior to the Partnership having obligated
itself to sell any of the Properties (e.g., through acceptance of bids, entering
into sales agreements or otherwise), the Partnership will also resolicit
consents to the Asset Sale and Dissolution Proposal.
The Appraisals reflect CB Richard Ellis, Inc.'s valuation of the real
estate portfolios of the Partnership as of January 1999 (as of January 1, 1999
with respect to the Tri-City Properties and as of January 22 and January 27,
1999, respectively, with respect to the two Remaining Properties) in the context
of the market conditions existing as of such date and the information available
on such date. The Partnership does not intend to obtain any updated appraisals
at the time of any actual sale of the Properties (although the Partnership may,
but is not obligated to, obtain new or updated appraisals of the Remaining
Properties from CBRE or another independent appraiser in connection with the
sale of the Remaining Properties). See "RISK FACTORS RELATING TO THE ASSET SALE
AND DISSOLUTION -- No Obligation to Update January 1999 Appraisals."
From inception of the Partnership in 1984 through May 31, 1999, the
Partnership has made aggregate distributions to the Unitholders of approximately
$24,001,383 and $1,401,773 to the General Partner. See "THE ASSET SALE AND
DISSOLUTION PROPOSAL Distribution of Net Proceeds."
THIS CONSENT SOLICITATION STATEMENT, INCLUDING THE SUMMARY OF APPRAISALS,
ATTACHED HERETO AS APPENDIX A, CONTAINS IMPORTANT INFORMATION WHICH SHOULD BE
READ BEFORE ANY DECISION IS MADE WITH RESPECT TO THE SOLICITATION. ALL
STATEMENTS IN THIS CONSENT SOLICITATION STATEMENT ARE QUALIFIED IN THEIR
ENTIRETY BY REFERENCE TO THE SUMMARY OF APPRAISALS. UNITHOLDERS ARE URGED TO
READ THE SUMMARY OF APPRAISALS.
(iii)
<PAGE>
--------------------------
THE GENERAL PARTNER OF THE PARTNERSHIP RECOMMENDS THAT UNITHOLDERS
CONSENT TO THE ASSET SALE AND DISSOLUTION PROPOSAL.
--------------------------
THIS SOLICITATION FOR CONSENT FORMS WILL EXPIRE AT 5:00 P.M. PACIFIC TIME,
ON AUGUST 25, 1999 (THE "EXPIRATION DATE"), UNLESS EXTENDED BY THE GENERAL
PARTNER IN ITS SOLE DISCRETION. CONSENT FORMS MAY BE REVOKED AT ANY TIME UNTIL
THE EXPIRATION DATE, BUT MAY NOT BE REVOKED THEREAFTER.
--------------------------
THE TRANSACTIONS DESCRIBED HEREIN HAVE NOT BEEN APPROVED OR DISAPPROVED BY
THE SECURITIES AND EXCHANGE COMMISSION (THE "COMMISSION") NOR HAS THE COMMISSION
PASSED UPON THE FAIRNESS OR THE MERITS OF SUCH TRANSACTIONS NOR UPON THE
ACCURACY OR ADEQUACY OF THE INFORMATION CONTAINED IN THIS DOCUMENT. ANY
REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
--------------------------
Questions and requests for assistance or additional copies of the
Solicitation documents may be directed to the Partnership's soliciting agent,
Preferred Partnership Services, Inc., 39560 Stevenson Place, #112, Fremont,
California, 94539-3074; telephone no.: 1-888-909-7774 or 510-713-0241; facsimile
no.: 510-713-0366.
(iv)
<PAGE>
Rancon Realty Fund IV
a California Limited Partnership
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C>
RISK FACTORS RELATED TO THE ASSET SALE AND DISSOLUTION 1
DESCRIPTION OF THE TERMS OF THE SOLICITATION 7
Purpose of Solicitation 7
Expiration Date; Extension; Amendment 7
Record Date; Requisite Consents 7
Consent Procedures 8
Revocation of Instructions 9
No Dissenting Unitholders'Rights 9
THE ASSET SALE AND DISSOLUTION PROPOSAL 9
The Partnership 9 Background and
Reasons for the Asset Sale 10
General 10
Establishment of Certain Management Arrangements 10
Rescinded 1997 Agreement to Sell All the Properties 11
Other Offers; Recent Sales of Properties 12
Reasons for the Asset Sale 12
The Partnership's Properties 13
Terms of the Asset Sale 14
Abandonment; Certain Events Requiring Resolicitation
or Subsequent Approval 16
GLB Matching Right 17
Certain Information Regarding GLB 18
Effect of the Asset Sale; Dissolution 18
Distribution of Net Proceeds 19
Operation of the Properties Prior to the Asset Sale 21
Regulatory Requirements 21
Accounting Treatment 22
Failure to Approve the Asset Sale and Dissolution Proposal 22
FAIRNESS OF THE ASSET SALE AND DISSOLUTION 22
General Partner Recommendation 22
Appraisals of Properties 24
Selection and Qualifications of Appraiser 24
Summary of Methodology 24
Valuation Methodology -
Improved Properties Income Approach 25
Valuation Methodology -
Improved Properties -Sales Comparison Approach 25
Valuation Methodology -Unimproved Land 26
Conclusions as to Value 27
Assumptions, Limitations and Qualifications
of Appraisals 28
Compensation and Material Relationships 29
</TABLE>
(v)
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BENEFITS OF THE ASSET SALE AND DISSOLUTION AND POSSIBLE CONFLICTS
OF THE GENERAL PARTNER AND ITS AFFILIATES 30
CERTAIN FEDERAL AND STATE INCOME TAX
CONSEQUENCES OF THE ASSET SALE AND DISSOLUTION 31
General 31
Allocation of Income and Loss Generally 31
Capital Gains 32
Allocation of Gain and Loss from Sale of Properties 32
Distribution of Net Proceeds 33
Passive Loss Limitations 34
Certain State Income Tax Considerations 34
SELECTED FINANCIAL DATA 34
VOTING SECURITIES AND PRINCIPAL HOLDERS THEREOF 35
Outstanding Voting Securities; Record Date 35
Security Ownership of Certain Beneficial Owners
and Management 35
MARKET FOR UNITS; DISTRIBUTIONS 36
OTHER MATTERS 36
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS,
INCLUDING ESTIMATES 36
INCORPORATION BY REFERENCE 37
ADDITIONAL INFORMATION 38
Appendix A: CB Richard Ellis, Inc. Summary of Appraisals A-1
Appendix B: Annual Report on Form 10-K for year ended
December 31, 1998 B-1
Appendix C: Quarterly Report on Form 10-Q for quarter
ended March 31, 1999, as amended C-1
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RISK FACTORS RELATED TO THE ASSET SALE AND DISSOLUTION
In addition to the other information included elsewhere in this
Statement, the following factors should be considered carefully in determining
whether to consent to the Asset Sale and Dissolution Proposal.
Estimates, Including Estimate of the Aggregate Distributions to be Received by
Unitholders as a Result of the Asset Sale and Dissolution, May Not be Realized
There can be no assurance that any sale or sales of the Properties will
be consummated or that any of the estimates set forth in this Statement will be
realized, including that $428 per Unit will be the actual aggregate amount
distributed to Unitholders. Unitholders, in determining whether to consent to
the Asset Sale and Dissolution Proposal, are cautioned not to attribute undue
certainty to any estimates, which are based on a variety of assumptions relating
to the Properties, general business and economic conditions and other matters.
The amount of the proceeds from the sale of the Properties, the estimated amount
to be distributed to Unitholders, and the date prior to which consummation of
the sale of the Properties and receipt in cash of the proceeds thereof is not
anticipated to occur are based on the Partnership's current estimates and are
subject to various and significant uncertainties, many of which are beyond the
Partnership's control, that could cause the actual results to differ materially
from the Partnership's expectations. Such uncertainties include, among other
things, the amount of demand for the Properties, the ability of the Partnership
to sell all of the Properties for their appraised values as reflected in the
Appraisals, the duration of the marketing period for the Properties and any
diligence period for prospective buyers, the actual dates when Properties are
sold and the amount of any related Property Loans at such time, the duration of
any installment sale of any of the Properties, the actual fees and expenses of
any sales of Properties and Partnership assets, the actual costs of dissolving
the Partnership, the condition of the real estate market, in general, as well as
in the Tri-City, Lake Elsinore and Temecula areas, and the availability of
capital for potential purchasers. Examples of uncertainties that could cause the
aggregate amount of distributions to Unitholders as a result of the Asset Sale
and Dissolution to be less than the Partnership's estimate of $428 per Unit
include the following:
- Although the Estimated Net Distributable Cash takes into
account an estimate of the sales and dissolution costs to the
Partnership, the Estimated Net Distributable Cash does not
otherwise take into account any operating income (such as
rental income) or certain operating expenses of the
Partnership for any period after March 31, 1999 and prior to
the time the Properties are sold and the Partnership
dissolved, which is likely to affect the amount of Net
Distributable Cash actually available for distribution to the
Unitholders. If operating losses are incurred in such period,
actual aggregate distributions to Unitholders as a result of
the Asset Sale and Dissolution could be less than estimated.
If operating income (other than that generated from sales of
the Properties) is generated during such period, actual
aggregate distributions to Unitholders as a result of the
Asset Sale and Dissolution could exceed the Partnership's
estimate.
- The Partnership's estimate of Net Distributable Cash
resulting from the Asset Sale and Dissolution is based on the
assumption that the costs and expenses of the Asset Sale and
Dissolution (including, for example, sales fees, asset
administration fees and management fees to be paid to the
Partnership's asset and property manager, Glenborough Realty
Trust Incorporated, and accounting fees) will equal 8% of the
aggregate sales price of the Properties (see "THE ASSET SALE
AND DISSOLUTION PROPOSAL -- Distribution of Net Proceeds"). If
actual costs and expenses exceed such estimated amount, actual
aggregate distributions to Unitholders as a result of the
Asset Sale and Dissolution could be less than estimated.
Conversely, if actual costs and expenses are less than such
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estimated amount, actual aggregate distributions to
Unitholders as a result of the Asset Sale and Dissolution
could exceed the Partnership's estimate.
- If a Property is sold on the installment basis, and afterwards
there is a default in payment on the related promissory note,
the exercise by the Partnership of its remedies (which may
include foreclosure on any property securing the promissory
note) could delay dissolution of the Partnership, will likely
involve additional costs and expenses to the Partnership, and
could result in the Partnership not achieving its estimate of
aggregate distributions to be received by Unitholders as a
result of the Asset Sale and Dissolution. See "Risks
Associated with Installment Sales of Properties" below and
"THE ASSET SALE AND DISSOLUTION PROPOSAL -- Terms of the Asset
Sale."
- If Partnership liabilities, unknown at the time of the mailing
of this Statement, later arise which must be satisfied or
reserved for as part of the Asset Sale and Dissolution, the
aggregate amount of distributions to Unitholders as a result
of the Asset Sale and Dissolution could be less than
estimated.
- Delays in the sale of the Properties and dissolution of the
Partnership, such as delays involving the marketing of the
Properties or closing of sales of the Properties or delays
occasioned by any difficulties in disposing of the
Partnership's North River Tower parcel of land, could result
in additional expenses (and possibly operating losses) and
result in actual aggregate distributions to Unitholders as a
result of the Asset Sale and Dissolution less than the amount
estimated by the Partnership. See "Anticipated Timing of Asset
Sale and Dissolution May Not be Achieved" and "Potential
Difficulty in Disposing of North River Tower Land Parcel"
below.
- In the event that the Partnership obtains new or updated
appraisals of the Remaining Properties in connection with the
sale of the Remaining Properties (which it might do, for
instance, if it has marketed such Properties for an extended
period of time and has been unable to attract a buyer for such
Properties at the values reflected in the Appraisals), such
new or updated appraisals might reflect lower values for the
Remaining Properties than the Appraisals. If the Remaining
Properties are sold for such lower values, the aggregate
amount of distributions to Unitholders as a result of the
Asset Sale and Dissolution is likely to be less than
estimated.
- In certain circumstances, the Partnership may resolicit con-
sents from Unitholders or submit certain sales of Properties
to the Unitholders for their approval (including if the
Partnership is unable to sell a Property for a purchase
price at least equal to the appraised value of such Property).
As indicated under "THE ASSET SALE AND DISSOLUTION PROPOSAL --
Abandonment; Certain Events Requiring Resolicitation or
Subsequent Approval," any such submission to Unitholders (even
if the matter being submitted is approved) will likely result
in the distribution to Unitholders of aggregate distributions
from the Asset Sale and Dissolution of less than the
Partnership's estimate, as a result of, among other things,
the proposed sale for which approval is sought being for less
than the appraised value of the Property proposed to be sold
as reflected in the Appraisals, the costs and expenses of such
submission, and any operating loss of the Partnership during
any delay occasioned by such submission to the Unitholders.
There can be no assurance that the estimates set forth in this Statement will be
realized. The actual aggregate distributions to be received by Unitholders as a
result of the Asset Sale and Dissolution could, for the foregoing reasons, vary
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materially, from the Partnership's estimate of $428 per Unit, and may be
substantially less. See also "SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS,
INCLUDING ESTIMATES." If the Partnership determines at any time prior to
Dissolution that the amount of distributions resulting from the Asset Sale and
Dissolution will be more than ten percent less than the estimate set forth in
this Statement, the Partnership will provide to Unitholders an informational
supplement to this Statement. If the Partnership makes such determination during
this Solicitation of consents from Unitholders to the Asset Sale and Dissolution
Proposal or after consent to this proposal has been obtained but prior to the
Partnership having obligated itself to sell any of the Properties (e.g., through
acceptance of bids, entering into sales agreements or otherwise), the
Partnership will also resolicit consents to the Asset Sale and Dissolution
Proposal.
No Obligation to Update January 1999 Appraisals
The Appraisals reflect CBRE's valuation of the real estate portfolios
of the Partnership as of January 1999 (as of January 1, 1999 with respect to the
Tri-City Properties and as of January 22 and January 27, 1999, respectively,
with respect to the two Remaining Properties) in the context of the market
conditions existing as of such date and the information available on such date.
The Partnership does not intend to obtain any updated appraisals at the time of
any actual sale of the Properties (although the Partnership may, but is not
obligated to, obtain new or updated appraisals in connection with sale of the
Remaining Properties), and, therefore, there can be no assurance that the
Properties will be sold or disposed of at a price equal to what appraisals,
conducted at the actual time of sale, would indicate are such Properties'
values. Events occurring after the January 1999 dates of the Appraisals and
before consummation of any sales of Properties comprising the Asset Sale, such
as changes in capital markets (including changes in financing rates) that might
affect demand for real property, changes in building occupancy, changes in
tenant motivation with respect to the exercise of renewal options, or changes in
real estate property markets, could affect the Properties or the assumptions
used in preparing the Appraisals and result in higher or lower values of the
Properties if updated appraisals were conducted at such time. CB Richard Ellis,
Inc. ("CBRE") has no obligation to update the Appraisals on the basis of
subsequent events. The Appraisals are subject to certain assumptions,
limitations and qualifications. A number of the assumptions limitations and
qualifications made by CBRE in conducting the Appraisals are described under
"FAIRNESS OF THE ASSET SALE AND DISSOLUTION -- Appraisals of Properties --
Assumptions, Limitations and Qualifications of Appraisals."
Anticipated Timing of Asset Sale and Dissolution May Not be Achieved
In accordance with the partnership agreement governing the Partnership,
ninety days following the sale of all of the Properties and the receipt in cash
of the proceeds thereof, the Partnership will be terminated and dissolved, and
the Partnership intends to wind up its affairs as soon thereafter as possible.
The Partnership currently estimates that all the Properties will not be sold and
all the proceeds from such sales received prior to at least early 2000, and
potentially not until 2001. See "THE ASSET SALE AND DISSOLUTION PROPOSAL --
Terms of the Asset Sale." There can be no assurance, however, that the sale of
all of the Properties and the receipt of all the proceeds from such sales will
take place in accordance with such estimated time frame. It is possible that it
will take more time than was initially estimated to sell all of the Properties
and receive all of the proceeds from such sales, including all proceeds from
installment sales. See "Potential Difficulty in Disposing of North River Tower
Land Parcel," "Risks Associated with Installment Sales of Properties," and
"Possible Submission of Additional Matters to Unitholders" below. See also "THE
ASSET SALE AND DISSOLUTION PROPOSAL -- Terms of the Asset Sale" and "--
Distribution of Net Proceeds."
Potential Difficulty in Disposing of North River Tower Land Parcel
In addition, difficulty or delays in disposing of the Partnership's
North River Tower parcel of land, could delay dissolution of the Partnership and
distribution of proceeds. Such parcel of land was part of a landfill operated by
the City of San Bernardino (the "City") from approximately 1950 to 1960. There
are no records of which the Partnership is aware disclosing that hazardous
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<PAGE>
wastes exist at the landfill other than a recent report prepared for the City by
an outside consultant indicating small trace amounts at the landfill which the
Partnership believes at this time, based on the information known to it, are not
of material significance. The Partnership believes that the Partnership's
landfill monitoring program currently meets or exceeds all regulatory
requirements. The Partnership is currently working with the Santa Ana Region of
the California Regional Water Quality Control Board and the City to determine
the need and responsibility for any further testing. There is no current
requirement to ultimately clean up the site, however, no assurance can be made
that circumstances will not arise which could impact the Partnership's
responsibility related to the property. The General Partner instructed CBRE that
CBRE was not required as part of its engagement to ascertain what would have to
be done, and the cost thereof, to build on such parcel of land as the
Partnership did not believe the expense of the testing and preparatory work
necessary for such an evaluation (including determining how much of such parcel
is over the actual landfill and the composition of such landfill) to be
justified. As a result, CBRE indicated that such land parcel is of indeterminate
value. The Partnership intends to explore donating such property to private or
governmental entities. In addition, the Partnership reserves the right to accept
a bid for a group of Properties that includes the North River Tower parcel of
land, but which is less than another bid for a group of Properties that is the
same except that it does not include the North River Tower parcel of land.
Allocation of Income and Loss; Aggregate Loss Anticipated From Sale of
Properties
Each partner is required to take into account in computing his or her
income tax liability his or her allocable share of the Partnership's items of
income, gain, loss, deduction and credit (hereinafter referred to as "income or
loss") in accordance with the Partnership Agreement. If the allocation of income
or loss in the Partnership Agreement does not have "substantial economic effect"
as defined in Section 704(b) of the Internal Revenue Code of 1986, as amended,
the law requires the Partnership's income or loss to be allocated in accordance
with the partners' economic interests in the Partnership. See "CERTAIN FEDERAL
AND STATE INCOME TAX CONSEQUENCES OF THE ASSET SALE AND DISSOLUTION." The
Partnership estimates it would recognize, in the aggregate with respect to all
of its Properties, losses of approximately $8,406,582 as a result of the Asset
Sale assuming the Properties are sold for the values reflected in the January
1999 Appraisals (with nothing paid for the North River Tower parcel of land),
without taking into account any depreciation for 1999 or thereafter, and without
taking into account the January 1999 sale of the Perris Land (for which a loss
of $3,119,720 was realized). However, depending on the timing of sales of
individual or groups of Properties and whether Properties are sold for cash or
for cash and promissory notes, losses may be realized in some periods and gains
in other periods. See "BENEFITS OF THE ASSET SALE AND DISSOLUTION AND POSSIBLE
CONFLICTS OF THE GENERAL PARTNER AND ITS AFFILIATES."
Risks Associated with Installment Sales of Properties
The General Partner anticipates that the Partnership will extend seller
financing in connection with the sale of one or more Properties, i.e., allowing
a buyer to pay a portion of the purchase price with promissory notes of the
buyer in favor of the Partnership. In such event, the full distribution to the
Unitholders of the net proceeds of such a sale will be delayed until the notes
are paid at maturity, sold, refinanced or otherwise paid by the buyer. As the
Partnership will not be dissolved until ninety days following the sale of all of
the Properties and the receipt in cash of the proceeds thereof, then generally
the longer the term of any promissory note, the longer it will be before the
Partnership is dissolved. Although the General Partner does not intend to extend
seller financing to any buyer which does not have the financial capacity to pay
such obligation to the Partnership, there can be no assurance that a buyer will
not default on any such promissory notes. In the event of any such default, the
exercise by the Partnership of its remedies (which may include foreclosure on
any property securing the promissory note) could delay dissolution of the
Partnership, will likely involve additional costs and expenses to the
Partnership, and could result in the Partnership not achieving the estimate set
forth herein of aggregate distributions to be received by Unitholders as a
result of the Asset Sale and Dissolution.
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<PAGE>
Unitholders May Not Recover Original Investment in the Partnership
Unitholders who purchased their Units during the initial public
offering of the Units may not receive aggregate distributions, including
distributions from the Asset Sale, equal to the money that they originally
invested in the Partnership. See "THE ASSET SALE AND DISSOLUTION PROPOSAL -
Distribution of Net Proceeds" and "CERTAIN FEDERAL AND STATE INCOME TAX
CONSEQUENCES OF THE ASSET SALE AND DISSOLUTION."
No Dissenters Appraisal Rights for Unitholders
Neither California law nor the Partnership Agreement provides
Unitholders with any right to dissent from, or seek an independent appraisal of,
the value of the Partnership or its assets. Thus, Unitholders will be bound to
accept the consideration received by the Partnership upon the sale of the
Properties and the resulting distributions to Unitholders as a result of the
Asset Sale and Dissolution if the Asset Sale and Dissolution Proposal is
consented to by the Unitholders.
No Assurance that Asset Sale and Dissolution Will Result in Greater Returns to
Unitholders than a Continuation of the Partnership
If the Asset Sale and Dissolution Proposal is not approved, the General
Partner intends to continue to manage the Partnership and its properties
substantially as they are currently being managed and to continue to entertain
and consider indications of interest from third parties to acquire all or a
portion of the Partnership's properties. See "THE ASSET SALE AND DISSOLUTION
PROPOSAL - Failure to Approve the Asset Sale and Dissolution Proposal." There
can be no assurance that the Asset Sale and Dissolution will result in greater
returns to the Unitholders than a continuation of the Partnership. With respect
to the Partnership's Properties, as a result of the Asset Sale and Dissolution,
the Partnership will not benefit from possible improvements in economic and
market conditions which could produce increased cash flow and enhance the sales
price of the Properties.
General Partner Will Have Broad Discretion in Manner of Effectuating the Asset
Sale and Dissolution
In considering whether to approve the Asset Sale and Dissolution
Proposal, the Unitholders should bear in mind that the General Partner has broad
discretion to manage the business and affairs of the Partnership. If the
Unitholders consent to the Asset Sale and Dissolution Proposal, they also will
be deemed to have consented to any transaction that may be undertaken to
accomplish the Asset Sale and Dissolution and will not be entitled to approve or
disapprove of any such transaction, including any particular sale or sales of
Property that is within the terms of the Asset Sale and Dissolution. See "THE
ASSET SALE AND DISSOLUTION PROPOSAL -- Terms of the Asset Sale." The Partnership
shall automatically (without requiring any additional consent or approval of the
Unitholders) be terminated and dissolved in accordance with the Partnership
Agreement, ninety days following the sale or other disposition of all of the
Partnership's Properties and the receipt in cash of the proceeds thereof.
General Partner May Abandon Asset Sale and Dissolution Even if the Proposal is
Approved
Even if consent to the Asset Sale and Dissolution Proposal is obtained
from the Unitholders, the General Partner reserves the right, in its sole
discretion, to thereafter abandon the Asset Sale and Dissolution. For example,
the General Partner may choose to abandon the Asset Sale and Dissolution in the
event of changes in the general economy or real estate markets.
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<PAGE>
Benefits of the Asset Sale and Dissolution and Possible Conflicts of the General
Partner and its Affiliates
The General Partner will not receive any fees in connection with the
Asset Sale and Dissolution, nor, assuming the Asset Sale and Dissolution is
consummated, will the General Partner receive any distributions in connection
with the Asset Sale and Dissolution. Assuming the Asset Sale and Dissolution is
consummated, the Unitholders will receive 100% of all distributions made by the
Partnership upon the Asset Sale and upon Dissolution. In addition, $643,000 in
subordinated real estate commissions payable to the General Partner at March 31,
1999 are payable only after the Unitholders 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, which is not expected to
be achieved as a result of the Asset Sale. As a result, such subordinated real
estate commissions will not be paid to the General Partner and will be
eliminated. However, consummation of the Asset Sale and dissolution of the
Partnership will eliminate any liability of the General Partner for liabilities
of the Partnership which could arise in the continued operation of the
Partnership. In addition, although the General Partners presently have capital
account deficits (the excess of (a) allocations of loss and distributions of
cash to the General Partner over (b) allocations of income and capital
contributions since the inception of the Partnership), it is anticipated that,
as permitted under the Partnership Agreement and the Asset Sale and Dissolution
Proposal, the Properties will be sold in such a manner, using the installment
method for sales of certain of the Properties, that will result in net income in
a taxable particular year sufficient to eliminate the General Partners' capital
account deficits. See "BENEFITS OF THE ASSET SALE AND DISSOLUTION AND POSSIBLE
CONFLICTS OF THE GENERAL PARTNER AND ITS AFFILIATES."
Possible Submission of Additional Matters to Unitholders
In certain circumstances as described under "THE ASSET SALE AND
DISSOLUTION PROPOSAL -- Abandonment; Certain Events Requiring Resolicitation or
Subsequent Approval," the Partnership will resolicit consents from the
Unitholders or submit certain sales of Properties to the Unitholders for their
approval. If the Partnership determines at any time prior to Dissolution that
the amount of distributions resulting from the Asset Sale and Dissolution will
be more than ten percent less than the estimate set forth in this Statement, the
Partnership will provide to Unitholders an informational supplement to this
Statement. If the Partnership makes such determination during this Solicitation
of consents from Unitholders to the Asset Sale and Dissolution Proposal or after
consent to this proposal has been obtained but prior to the Partnership having
obligated itself to sell any of the Properties (e.g., through acceptance of
bids, entering into sales agreements or otherwise), the Partnership will also
resolicit consents to the Asset Sale and Dissolution Proposal. The Properties
will not be sold to any affiliates of the Partnership or of the General Partner.
In the event the Partnership later determines that a sale of any of the
Properties to an affiliate of the Partnership or the General Partner is in the
best interests of the Partnership, such sale will be submitted to the
Unitholders for their approval. In the event that the Partnership is unable to
sell a Tri-City Property for a purchase price at least equal to the appraised
value of such Property being sold as reflected in the Appraisals (or in the
event that the Partnership is unable to sell a Remaining Property for a purchase
price at least equal to the appraised value of such Property being sold as
reflected in the Appraisals or any later new or updated appraisal from CBRE or
another independent appraiser) and the Partnership desires to sell the Property
for a lesser price, the Partnership will submit such sale to the Unitholders for
their approval. Any such submission to Unitholders of a proposed Property sale
for less than the appraised value (or to an affiliate of the Partnership or the
General Partner) will likely delay consummation of the Asset Sale and
dissolution of the Partnership and could prevent complete consummation of the
Asset Sale and consummation of the dissolution if such proposed Property sale
for less than the appraised value (or to an affiliate of the Partnership or the
General Partner) which is submitted to the Unitholders is not approved. In
addition, any such submission to Unitholders (even if the matter being submitted
is approved) will likely result in the distribution to Unitholders of aggregate
distributions from the Asset Sale and dissolution of less than the Partnership's
estimate of $428 per Unit, as a result of, among other things, the proposed sale
for which approval is sought being for less than the appraised value of the
Property proposed to be sold as reflected in the Appraisals, the costs and
expenses of such submission, and any operating loss of the Partnership during
any delay occasioned by such submission to the Unitholders.
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DESCRIPTION OF THE TERMS OF THE SOLICITATION
Purpose of Solicitation
Upon the terms and subject to the conditions set forth in this
Statement and in the accompanying Consent Form, the General Partner on behalf of
the Partnership is soliciting consents from Unitholders for the purpose of
approving the Asset Sale and Dissolution Proposal. See "THE ASSET SALE AND
DISSOLUTION PROPOSAL."
Solicitation of the Consent Forms will be made initially by mail. In
addition to solicitation by mail, Consent Forms may also be solicited
personally, by telephone, by facsimile or by telegraph by the director, officer
or other regular employees of the General Partner. No additional compensation
will be paid to the director, officer or other regular employees of the General
Partner for such services. In addition, the Partnership has retained Preferred
Partnership Services, Inc., a California corporation unaffiliated with the
Partnership (the "Soliciting Agent"), to assist in the solicitation of proxies
from the Partnership's Unitholders. The Soliciting Agent will receive for such
service a fee of approximately $155,000 plus reimbursement of reasonable
out-of-pocket expenses. Preferred Partnership Services, Inc. also provides
investor services to the Partnership. See "THE ASSET SALE AND DISSOLUTION
PROPOSAL - Background and Reasons for the Asset Sale - Establishment of Certain
Management Arrangements." The cost of preparing, assembling, printing and
mailing this Statement and the enclosed Consent Form, and the cost of soliciting
Consent Forms (including the costs of the Soliciting Agent), will be borne by
the Partnership.
Expiration Date; Extension; Amendment
This Statement is furnished in connection with the solicitation of
Consent Forms by the General Partner to approve the Asset Sale and Dissolution
Proposal. This Solicitation for Consent Forms will expire at 5:00 P.M., Pacific
Time, on the Expiration Date, unless extended by the General Partner in its sole
discretion. In order to count, Consent Forms must be received by the Partnership
prior to 5:00 P.M., Pacific Time, on August 25, 1999. The Partnership expressly
reserves the right, in the sole discretion of the General Partner, (i) to extend
the Expiration Date, from time to time, until the Requisite Consents (as defined
below) have been obtained, and (ii) to amend, at any time or from time to time
before the Requisite Consents are obtained, the terms of this Solicitation. As
promptly as practicable following any such extension or amendment, notice
thereof shall be given by the Partnership to each Unitholder in writing.
Record Date; Requisite Consents
The Partnership has fixed the close of business on June 28, 1999 (the
"Record Date"), as the Record Date for determining the Unitholders entitled to
notice of and to consent to the Asset Sale and Dissolution Proposal. Only
Unitholders on the Record Date or their duly designated proxies may execute and
deliver a Consent Form. As of the Record Date, there were 76,767 Units
outstanding held by approximately 10,847 holders of record. Holders of Units are
entitled to one vote per Unit.
The Asset Sale and Dissolution Proposal must be approved by at least a
majority of the issued and outstanding Units (the "Requisite Consents") as
required by the Partnership's Second Amended and Restated Agreement of Limited
Partnership, as amended (the "Partnership Agreement").
Units represented by "broker non-votes" (i.e., Units held in record
name by brokers or nominees as to which (i) an executed Consent Form has not
been received from the beneficial owners or persons entitled to Consent, (ii)
the broker or nominee does not have discretionary voting authority under
applicable rules or the instrument under which it serves in such capacity, or
(iii) the recordholder has indicated on the Consent Form or has otherwise
notified the Partnership that it does not have authority to vote the Units with
respect to the Asset Sale and Dissolution Proposal) will not be included in the
affirmative vote totals, and therefore will have the same effect as not
consenting to the Asset Sale and Dissolution Proposal for purposes of
determining whether the Requisite Consents have been obtained. Consent Forms
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marked "ABSTAIN" will also have the same effect as not consenting to the Asset
Sale and Dissolution Proposal for purposes of determining whether the Requisite
Consents have been obtained.
If the Partnership fails to receive the Requisite Consents on or before
the Expiration Date, or any extension thereof, then the Partnership will
continue with its present objective of maximizing the return to Unitholders by
actively managing and operating its properties over a short holding period. In
that event, the Partnership's properties will be disposed of at an appropriate
time while pursuing development opportunities for certain properties. See "THE
ASSET SALE AND DISSOLUTION PROPOSAL - Failure to Approve the Asset Sale and
Dissolution Proposal."
Consent Procedures
UNITHOLDERS WHO DESIRE TO CONSENT TO THE ASSET SALE AND DISSOLUTION
PROPOSAL SHOULD SO INDICATE BY MARKING THE APPROPRIATE BOX ON THE CONSENT FORM
INCLUDED HEREWITH, AND COMPLETING, SIGNING, DATING AND DELIVERING THE CONSENT
FORM TO THE SOLICITING AGENT BY MAIL IN THE SELF-ADDRESSED, POSTAGE-PAID
ENVELOPE ENCLOSED FOR THAT PURPOSE, BY OVERNIGHT COURIER OR BY FACSIMILE AT THE
ADDRESS OR FACSIMILE NUMBER SET FORTH BELOW AND ON THE CONSENT FORM, ALL IN
ACCORDANCE WITH THE INSTRUCTIONS CONTAINED HEREIN AND THEREIN.
Fully completed and executed consent forms should be sent by mail in
the self-addressed, postage-paid envelope enclosed for that purpose, or by
overnight courier, or by facsimile, to the Partnership's Soliciting Agent,
Preferred Partnership Services, Inc., as follows:
PREFERRED PARTNERSHIP SERVICES, INC.
39560 Stevenson Place, #112
Fremont, California 94539-3074
Facsimile Number: 510-713-0366
Telephone Number: 1-888-909-7774 or 510-713-0241
All Consent Forms that are properly completed, signed and delivered to
the Partnership and not properly revoked (See "Revocation of Instructions"
below) prior to the Expiration Date, will be given effect in accordance with the
specifications thereof. If a Consent Form is delivered and none of the "CONSENT"
nor the "DOES NOT CONSENT" nor the "ABSTAIN" box is marked with respect to the
Asset Sale and Dissolution Proposal, but the Consent Form is otherwise properly
completed and signed, the Unitholder will be deemed to have consented to the
Asset Sale and Dissolution Proposal.
Consent Forms should be executed in exactly the same manner as the
name(s) in which ownership of the Units is registered. If the Units to which a
Consent Form relates are held by two or more joint holders, all such holders
should sign the Consent Form. If a Consent Form is signed by a trustee, partner,
executor, administrator, guardian, attorney-in-fact, officer of a corporation or
other person acting in a fiduciary, agency or representative capacity, such
person must so indicate when signing and must submit with the Consent Form
evidence satisfactory to the Partnership of authority to execute the Consent
Form.
The execution and delivery of a Consent Form will not affect a
Unitholder's right to sell or transfer the Units. All Consent Forms received by
the Partnership (and not properly revoked) prior to the Expiration Date will be
effective (notwithstanding a record transfer of such Units subsequent to the
Record Date), unless the Unitholder revokes such Consent Form prior to 5:00
P.M., Pacific Time, on the Expiration Date by following the procedures set forth
under "Revocation of Instructions" below.
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All questions as to the validity, form and eligibility (including time
of receipt) regarding the consent procedures will be determined by the General
Partner in its sole discretion, which determination will be conclusive and
binding. The Partnership reserves the right to reject any or all Consent Forms
that are not in proper form. The Partnership also reserves the right to waive
any defects, irregularities or conditions of delivery as to particular Consent
Forms. Unless waived, all such defects or irregularities in connection with
deliveries of Consent Forms must be cured within such time as the General
Partner determines. Neither the General Partner nor any of its affiliates or any
other persons shall be under any duty to give any notification of any such
defects or irregularities or waivers, nor shall any of them incur any liability
for failure to give such notification. Deliveries of Consent Forms will not be
deemed to have been made until any irregularities or defects therein have been
cured or waived. The interpretations of the terms and conditions of this
Solicitation by the General Partner shall be conclusive and binding.
Revocation of Instructions
Any Unitholder who has delivered a Consent Form to the Partnership may
revoke the instructions set forth in such Consent Form by delivering to the
Soliciting Agent a written notice of revocation prior to 5:00 P.M., Pacific
Time, on the Expiration Date. In order to be effective, a notice of revocation
of the instructions set forth in a Consent Form must (i) contain the name of the
person who delivered the Consent Form, (ii) be in the form of a subsequent
Consent Form marked either as "CONSENT" or "DOES NOT CONSENT" or "ABSTAIN," as
the case may be, (iii) be signed by the Unitholder thereof in the same manner as
the original signature on the Consent Form, and (iv) be received by the General
Partner prior to 5:00 P.M., Pacific Time, on the Expiration Date at its address
set forth on the Consent Form. A purported notice of revocation that lacks any
of the required information, is dispatched to an improper address or is not
received in a timely manner will not be effective to revoke the instructions set
forth in a Consent Form previously given. A revocation of the instructions set
forth in a Consent Form can only be accomplished in accordance with the
foregoing procedures. No Unitholder may revoke the instructions set forth in a
Consent Form after 5:00 P.M., Pacific Time, on the Expiration Date.
No Dissenting Unitholders Rights
Under the California Uniform Limited Partnership Act and under the
Partnership Agreement, Unitholders do not have dissenter's appraisal rights in
connection with the Asset Sale or Dissolution of the Partnership.
THE ASSET SALE AND DISSOLUTION PROPOSAL
The Partnership
The Partnership is a California Limited Partnership which was organized
in 1984 and reached final funding in July 1987. Daniel L. Stephenson and Rancon
Financial Corporation are the general partners of the Partnership. Rancon
Financial Corporation is wholly owned by Mr. Stephenson. The Partnership
executive offices, as well as those of the General Partner, are located at 27740
Jefferson Avenue, Suite 200, Temecula, California 92590 (telephone number:
909-676-6664). For a description of the Partnership and the Partnership's
Properties, see the Partnership's Annual Report on Form 10-K for the fiscal year
ended December 31, 1998 (the "Partnership's 10-K") and the Partnership's
Quarterly Report on Form 10-Q for the quarter ended March 31, 1999 (the
"Partnership's 10-Q"), copies of which (without exhibits) are included as
Appendices B and C to this Statement, respectively, and are incorporated herein
by reference.
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<PAGE>
Background and Reasons for the Asset Sale
General . Prior to 1995, the Partnership's business strategy was to
hold its properties for future development and operation. In 1995, the
Partnership modified its strategy to focus on eventual disposition of its
Properties while pursuing development opportunities for certain sites.
At its inception, the Partnership estimated that its properties would
be developed and sold after a period of seven years of ownership after
completion of development or construction. The Partnership purchased one
property which it sold and used the proceeds of that sale and proceeds from its
offering of securities to develop commercial offices, and restaurant, retail,
hotel, transportation and light industrial facilities, primarily in a master
planned development known as Tri-City Corporate Centre ("Tri-City") in San
Bernardino, California. Tri-City is zoned for mixed commercial, office, hotel,
transportation-related, and light industrial uses and all of the parcels thereof
are separately owned by the Partnership and Rancon Realty Fund V ("Fund V"), a
partnership sponsored by the general partners of the Partnership. As described
in greater detail under "The Partnership's Properties" below, as of May 31,
1999, the Partnership owns ten rental properties totaling approximately 457,903
square feet of space in Tri-City, approximately 23 acres of unimproved land in
Tri-City and an aggregate of approximately 27 additional acres of unimproved
land in Lake Elsinore and Temecula, California.
After acquisition and development of some of its properties, the
Partnership's properties experienced a decrease in market value due to a
substantial weakening of the markets for commercial real estate in Southern
California, where the majority of the Partnership properties are located and in
the United States real estate markets in general. The amount of capital
investment in real estate began to decline sharply in 1989. Overbuilding in many
markets, the general recessionary economy in the United States in the early to
mid-1990's and subsequent corporate downsizing further contributed to the
imbalance of supply and demand for commercial and industrial properties. In
addition, rapid expansion of new retail formats such as discounters and
"category-killers" depressed the value of neighborhood retail shopping centers.
The combined effect of these factors resulted in significant reductions in real
estate values in many geographic areas.
Establishment of Certain Management Arrangements . Effective January 1,
1995, Rancon Financial Corporation, a general partner of the Partnership,
entered into an agreement with Glenborough Inland Realty Corporation ("GIRC")
whereby Rancon Financial Corporation sold to GIRC, for approximately $4,466,000
and the assumption of $1,715,000 of Rancon Financial Corporation's debt, the
contract to perform the rights and responsibilities under Rancon Financial
Corporation's agreement with the Partnership and seven 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 to the liquidation of
the Partnership, whichever comes first. In connection with such agreement, the
Partnership also agreed to pay GIRC an amount equal to the amount of any
distributions received by the General Partner in the future with respect to its
general partnership interest in the Partnership.
Rancon Financial Corporation entered into this transaction with GIRC,
when it determined to sell that portion of its business relating to investor
relations services, property management services and asset management services,
and most of those services are now rendered to the Partnership, to three other
related partnerships and to third parties by Glenborough Corporation ("GC"),
successor by merger to GIRC. All of the non-voting preferred stock of GC is held
by Glenborough Realty Trust Incorporated, a Maryland corporation which is a real
estate investment trust ("REIT") formed in December 1995 and publicly traded on
the New York Stock Exchange ("GLB"). Effective January 1, 1998, the
Partnership's agreement with GC was amended to eliminate GC's responsibility for
providing investor relations services and Preferred Partnership Services, Inc.,
a California corporation unaffiliated with the Partnership and which is acting
as Soliciting Agent in connection with this solicitation, contracted to assume
those services.
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<PAGE>
Rescinded 1997 Agreement to Sell All the Properties . In Fall 1994,
during negotiations of the agreement with GIRC described above, GIRC inquired
whether the Partnership would have an interest in contributing its properties to
GLB (which an affiliate of GIRC was then forming), in exchange for securities in
GLB. The Partnership elected not to do so because of the risk of investing in a
startup REIT and because the Partnership was of the opinion that the bottom of
the real estate cycle was near and did not want to consider a sale until the
cycle moved in a positive direction. Approximately 18 months later, GLB had
begun operations and its stock had begun trading, and GC once again inquired
whether the Partnership would have an interest in contributing its properties to
GLB in exchange for securities of GLB. For the same reasons as stated above, the
Partnership again declined.
In April 1997, GLB again proposed to acquire the Partnership's
properties, but this time for cash rather than securities. For this reason, and
because the General Partner believed that the real estate cycle had moved in a
more positive direction, it requested that GLB submit a formal offer. In May
1997, an offer was made by GLB to buy all of the real estate assets of the
Partnership for $45,200,000 in cash, subject to obtaining an appraisal and a
fairness opinion as to the terms and conditions of the sale from the financial
point of view of the Unitholders. In June 1997, the Partnership, GLB and
Glenborough Properties, L.P., GLB's operating partnership ("GPLP") executed a
letter of intent setting forth an agreement in principle on the terms and
conditions of the sale. In July 1997, the Partnership received an appraisal that
the fair market value of the properties to be purchased by GLB was $48,575,000.
Following receipt of the appraisal, the Partnership made a counter-offer to GLB
to sell the properties for a price equal to the appraised fair market value. GLB
accepted the counter-offer, subject to a reduction of $370,500 from the
appraised value for certain lots that had been included in the appraisals but
subsequently sold. In September 1997, the Partnership and GPLP entered into a
definitive purchase agreement for all of the real estate assets of the
Partnership (the "Glenborough Agreement"). Under the terms of the agreement, GLB
agreed to purchase all of the real estate assets of the Partnership (excluding
accounts receivable relating to the properties existing as of the closing date
or cash reserves or other similar assets of the Partnership such as prepaid
expenses) for an aggregate purchase price of $48,204,500. The sales fee
otherwise payable to GC in connection with the sale under its management
agreement with the Partnership (entered into in 1994) was waived.
GLB also agreed to assume all obligations of the Partnership relating
to the properties, including obligations under leases. The Partnership was to
bear the cost of a fairness opinion, appraisals, filing fees, legal fees and
similar expenses, estimated to be approximately $325,000. The net cash proceeds
from the sale of the remaining Partnership assets after payment of the
Partnership's liabilities were to be distributed in liquidation of the
Partnership to Unitholders along with the net proceeds of the sale (after
deducting expenses of the sale and the amount of mortgage loans on the
properties) and the payment by the General Partner of the amount of the General
Partner's negative capital account balance. The General Partner estimated at
that time that such distribution would equal approximately $316 per Unit
(subject to variations from one Unitholder to another depending on the date of
the Unitholder's admission to the Partnership). The consummation of the sale to
GLB was subject to the satisfaction of a number of conditions, including
completion of due diligence, approval of the sale by the Unitholders and receipt
of a fairness opinion and appraisal (which were each satisfied).
As part of the proposed acquisition by GPLP of the Partnership's real
estate assets, and pursuant to an agreement between the General Partner and GPLP
dated September 30, 1997, the General Partner agreed to contribute its general
partner interest in the Partnership (the "Transfer") to GPLP, and in return GPLP
agreed that the General Partner would receive $12,900 of partnership interests
in GPLP. GPLP also agreed to assume and pay to the Partnership the General
Partner's negative capital account obligation of $778,617 ($681,700 of which was
allocated to Daniel L. Stephenson and $96,917 of which was allocated to Rancon
Financial Corporation). It was also agreed that the General Partner would
provide a guaranty of up to $778,617 of the mortgage debt of GPLP or one of its
affiliates. The Transfer was conditioned on and was to take place concurrently
with the sale of the properties.
In November 1997, the Unitholders consented to the sale of the
Partnership's real estate assets to GLB and subsequent liquidation of the
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<PAGE>
Partnership with sixty percent of the total outstanding Units cast in favor of
such proposal. However, on December 18, 1997, the Partnership, GLB and GPLP
entered into an agreement to rescind the Glenborough Agreement. As a result, the
agreement for the Transfer terminated. The General Partner determined that it
would be in the best interests of the Partnership to rescind the Glenborough
Agreement due to greater than anticipated opposition to the timing of the sale
by the Limited Partners who voted against (11% of the outstanding Units),
abstained from (1% of the outstanding Units) or did not respond to (27% of the
outstanding Units) the proposal and because the General Partner, sensing the
beginning of positive changes in the real estate market, believed that holding
the Partnership's real estate assets for an additional period of time would
provide the Partnership the opportunity to possibly recognize an appreciation in
the value of the real estate in the areas where the Partnership's properties are
located.
Under the terms of the rescission of the Glenborough Agreement, GLB
relinquished the right to purchase the Partnership's real estate assets at such
time in exchange for reimbursement by the Partnership of GLB's out-of-pocket
costs and expenses incurred by GLB in connection with the original Glenborough
Agreement (approximately $42,225), and the grant by the Partnership to GLB of a
matching right with respect to the properties subject to the Glenborough
Agreement in the event of a future sale of such properties.
See "GLB Matching Right" below for a description of the terms of the matching
right.
Other Offers; Recent Sales of Properties . On January 27, 1998, the
Partnership sold one of the three parcels of land in Rancon Towne Village in
Temecula, California to an unaffiliated entity for $270,000 and, after sales
expenses, realized net proceeds of $241,000. On April 24, 1998, the Partnership
entered into a contract with a third party buyer for the sale for $4,500,000 of
24.8 acres of undeveloped land, commercially zoned in Lake Elsinore, California
("Lake Elsinore Plaza"); however, the sale fell out of contract in October 1998.
In June 1998, the Partnership sold Shadowridge Woodbend Apartments (a 240 unit
apartment complex located in Vista, California) to an unaffiliated third party
for a price of $16,075,000. After sales expenses and the payment of an
outstanding mortgage on the property, the Partnership realized net proceeds of
approximately $9,806,591. Of the net proceeds from such sale, $4,000,000 was
distributed in November 1998. See "Distribution of Net Proceeds" below. The
remaining net proceeds were used to fund development of sites for Mimi's
Restaurant and Office Max. See "The Partnership's Properties" below. In Fall
1998, the Partnership entered into an agreement to sell Lake Elsinore Plaza to
an unaffiliated buyer, for a price of $4,500,000. As all the conditions to such
sale were not satisfied, in October 1998, the sales agreement was terminated by
mutual agreement of the buyer and the Partnership. In November 1998, an
unsolicited offer for Lake Elsinore Plaza in the amount of $2,000,000 was
received by the Partnership from an unaffiliated buyer. The offer was considered
insufficient and was rejected by the Partnership. On January 15, 1999, a sale of
the Partnership's Perris property, approximately 17.14 acres of unimproved land
in Perris, California (the "Perris Land"), to an unaffiliated third party
closed. The Perris Land was sold for a total purchase price of $334,800. After
sales expenses, the Partnership realized net proceeds from the sale of
approximately $296,000. Since January 1, 1998, the Partnership has not received
any firm offers for its properties other than the rescinded Glenborough
Agreement and the sales and contemplated sales described above.
The net proceeds from the sale of the Perris Land will be distributed
at the same time as the net proceeds from the Asset Sale and Dissolution or, in
whole or in part, prior thereto as interim distributions. See "Distribution of
Net Proceeds" below. The General Partner has waived its right to any
distributions with respect to its general partnership interests resulting from
the distribution of net proceeds from the sale of the Perris Land.
Reasons for the Asset Sale . The General Partner believes current
market conditions are favorable for a sale of the Properties, because (i)
although the markets in which the Properties are located and real estate markets
in general have been proven to be volatile over time, the General Partner
believes that both the market for the properties in the Tri-City Corporate
Centre area and real estate markets in general have significantly improved from
the most recent recession in real estate; (ii) the operations of the improved
properties are relatively stable; (iii) the development of the majority of the
Partnership's unimproved properties cannot be done on an economical basis for
several years; and (iv) the real estate capital markets are active. In addition,
the General Partner believes that demand for properties by real estate
investment trusts will rebound in 1999 which, if it occurs, could enhance both
the price and marketability of the Partnership's Properties. The General Partner
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believes that there are a significant number of potential buyers of the Tri-City
Properties which should help maximize the net proceeds from sales of the
Tri-City Properties.
The General Partner also believes that the Partnership will benefit
substantially by selling the Tri-City Properties in packages of properties
instead of individually. The General Partner believes that there is significant
demand for packages of properties (such as separate packages of retail
properties, office properties and unimproved land) in attractive areas such as
the Tri-City Corporate Centre by real estate investment trusts and other real
estate investors seeking to expand their portfolio of properties. Benefits of
package sales also include lower apportioned sale costs and faster liquidation
of the Partnership.
The General Partner also is mindful that the Partnership has continued
well beyond the period anticipated by its original investment objectives.
Although the General Partner believes that 1999 represents an advantageous time
for sellers of commercial properties, the General Partner believes that
conditions beyond this year are less predictable. Given the uncertainty of real
estate market conditions in 2000 and beyond, the General Partner does not
believe the possibility of continued improvements in economic and market
conditions, which could produce increased cash flow and enhance the sales price
of the Properties, justifies postponing the Asset Sale. In addition, to the
extent Partnership properties are not sold they will continue to subject the
Partnership to the risks inherent in the ownership of property such as
fluctuations in occupancy rates, operating expenses and rental rates, which in
turn may be affected by general and local economic conditions, the supply and
demand for properties of the type owned by the Partnership and federal and local
laws and regulations affecting the ownership and operation of real estate. For
the foregoing reasons, the General Partner believes that it is in the best
interests of the Partnership and the Unitholders to sell the Properties pursuant
to the Asset Sale.
The Partnership's Properties
As indicated above and described in greater detail under "Terms of the
Asset Sale" below, the General Partner intends to sell the Tri-City Properties
in packages of properties (which will include properties in the Tri-City
Corporate Centre owned by Fund V). The Partnership's Tri-City Properties
represent approximately 61% of the total assets of the Partnership reflected on
the balance sheet of the Partnership at March 31, 1999. Such Properties consist
of approximately 23 acres of undeveloped land and improved properties of
approximately 451,903 square feet as follows:
<TABLE>
<CAPTION>
Tri-City Properties
Property Square
Property Name Type Footage Acres
------------- ------ ------- -----
<S> <C> <C> <C>
Income Producing
- ----------------
Carnegie Business Center I Office/R&D 62,539 -
Circuit City Retail 39,123 -
Inland Regional Center Office 81,079 -
One Vanderbilt Office 73,730 -
Promotional Retail Center Retail 66,265 -
Service Retail Center Retail 20,780 -
TGI Friday's Retail 9,386 -
Two Vanderbilt Office 69,046 -
Mimi's Cafe Retail 6,455 -
Office Max Retail 23,500 -
------
Total: 451,903
</TABLE>
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<TABLE>
<CAPTION>
<S> <C> <C> <C>
Land
North River Tower Land - 14.67
Brier Business Center Land - 2.80
Vanderbilt Tower Land - 0.94
Inland Regional Center -
Phase II Land - 1.6
Brier Plaza Land - 2.41
South Palm Court Pad 1 Land - 0.39
South Palm Court Pad 2 Land - 0.25
- ---------------------- ---- - ----
Total: 23.06
</TABLE>
The Partnership's Remaining Properties represent approximately 5% of
the total assets of the Partnership reflected on the balance sheet of the
Partnership at March 31, 1999. The Remaining Properties consist of approximately
27 acres of undeveloped land as follows:
<TABLE>
<CAPTION>
Remaining Properties
Property
Property Name Type Acres
------------- ------ -----
<S> <C> <C>
Lake Elsinore Plaza Land 24.8
Rancon Town Village (Temecula) Land 1.8
----
Total: 26.6
</TABLE>
Terms of the Asset Sale
As of the date hereof, the Partnership has not entered into any agreement
or understanding for the sale of any the Properties, although, as described
below under "GLB Matching Right," GLB has a right to match any offer for the
Properties that the Partnership otherwise intends to accept. If the Asset Sale
and Dissolution Proposal is approved, the General Partner will be authorized to
sell the Partnership's Properties, in one or a series of (related or unrelated)
transactions, on such terms as are negotiated by the General Partner. Upon
approval of the Asset Sale and Dissolution Proposal, the General Partner will
use its best efforts to accomplish a sale or sales of the Properties upon terms
and conditions which the General Partner deems consistent with obtaining fair
values for the Properties.
The General Partner currently intends to group the Tri-City Properties into
two or more packages of properties and then solicit separate bids from qualified
potential purchasers for each package, accepting the best offer received (with
the next highest offer reserved as a back-up offer). The General Partner may
also accept bids for multiple packages or for all of the packages. The General
Partner anticipates that Tri-City Properties will be grouped in packages
consisting of similar types of properties, such as separate packages consisting
of retail properties, office properties, and unimproved land. To enhance the
value of the packages and maximize the proceeds from the sales, the packages
will include parcels in the Tri-City Corporate Centre which are owned by Fund V,
a partnership sponsored by the General Partner of the Partnership. The parcels
in the Tri-City Corporate Centre owned by Fund V consist of approximately 14
acres of undeveloped land and eight rental properties consisting of
approximately 477,703 square feet. Based upon appraisals conducted by CB Richard
Ellis, Inc. in the same manner as the appraisals of the Partnership's Tri-City
Properties (as described under "FAIRNESS OF THE ASSET SALE AND DISSOLUTION -
Appraisals of Properties" below), the market value of the leased fee interests
or fee simple interests in such properties as of January 1, 1999 is $42,406,000
(compared to $44,395,000 for the Partnership's Tri-City Properties). Bidders for
any package of properties containing Tri-City Properties and Fund V properties
will be required to specify how their overall bid is allocated among the
individual properties in the package, and proceeds from the sales of any such
package (as well as general expenses related to the sales) will be apportioned
between the two partnerships based upon such allocation. A condition to sales of
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the Tri-City Properties will be that the price at which the sale of such
Properties is made shall at least equal the appraised value of the Properties
being sold as reflected in the Appraisals. See "FAIRNESS OF THE ASSET SALE AND
DISSOLUTION - Appraisals of Properties."
As described under "Certain Information Regarding GLB" below, under an
existing agreement with the Partnership, GC is entitled to transaction fees upon
the sale of the Partnership's Properties -- 4% on the sale of the unimproved
land, and 2% upon the sale of the buildings or improved land. GC has agreed to
waive these fees for any of the Partnership's Properties that are sold to GLB.
If GLB decides to bid for any of the Properties, the Partnership will take into
account such waiver in determining the highest offers. Thus, for the sale of a
given Property, it is possible that GLB may offer a lower purchase price than a
third party, and yet the Partnership would receive greater net cash proceeds
from the GLB sale because no transaction fee would be paid to GC. In such a
case, the General Partner may elect to accept GLB's offer rather than the third
party offer based on the greater net proceeds to the Partnership, even though
the gross purchase price offered by GLB is less than that of the third party.
The Remaining Properties will not be sold with the Tri-City Properties but
will be sold separately, in one or more individual or group sales. See "Other
Offers; Recent Sales of Properties" under "Background and Reasons for the Asset
Sale" above. The precise timing, manner and terms of any sales of the Remaining
Properties will be determined by the General Partner in its discretion. A
condition to the sale of the Remaining Properties (which may take longer to sell
than the Tri-City Properties) will be that the price at which the sale of such
Properties is made shall at least equal the appraised value of the Properties
being sold as reflected in the Appraisals or in any later appraisal obtained by
the Partnership from CBRE or another independent appraiser. See "FAIRNESS OF THE
ASSET SALE AND DISSOLUTION - Appraisals of Properties."
The Properties will be sold as soon as practicable (consistent with
obtaining fair values for the Properties). The General Partner's current goal is
to complete the sale of the Properties within approximately six months after
consent to the Asset Sale and Dissolution Proposal has been obtained. However,
the time in which it takes to sell all of the Properties could be longer than
anticipated as a result of several reasons, including any delays in marketing
the Properties or closing sales of the Properties, or the inability to sell
Properties for their appraised values as reflected in the January 1999
appraisals of CBRE. In addition, difficulty or delays in disposing of the North
River Tower parcel of land, could delay dissolution of the Partnership and
distribution of proceeds. See "RISK FACTORS RELATING TO THE ASSET SALE AND
DISSOLUTION."
Although many of the actual terms of the sale of the Properties cannot be
determined at present, the General Partner currently anticipates that most of
the Properties will be sold in exchange for cash. However, the General Partner
also anticipates that some Properties (primarily some of the Properties for
which the Partnership will realize net income upon sale) will be sold on the
installment basis (also sometimes referred to as "seller financing"), under
which a portion of the sales price will be received in the year of sale with
subsequent payments paid in subsequent periods (presently anticipated to be in
2000 or 2001). The obligation of the buyer to pay such installments will be
evidenced by a promissory note or notes of the buyer in favor of the
Partnership, with terms currently anticipated to range from approximately six to
eighteen months and with the notes secured by mortgages on the Properties sold
to the buyer. In the event seller financing is granted to the buyer, the full
distribution to the Unitholders of the net proceeds of such a sale will be
delayed until the related promissory notes are paid at maturity, sold,
refinanced or otherwise paid by the buyer. As the Partnership will not be
dissolved until ninety days following the sale of all of the Properties and the
receipt in cash of the proceeds thereof, then generally the longer the term of
any installment sale, the longer it will be before the Partnership is dissolved.
Prior to completion of the sale of all of the Properties and the receipt in cash
of the proceeds thereof, the General Partner currently intends, but is not
obligated, to make interim distributions, from time to time, of all or a portion
of the net proceeds from sales of the Properties. See "BENEFITS OF THE ASSET
SALE AND DISSOLUTION AND POSSIBLE CONFLICTS OF THE GENERAL PARTNER AND ITS
AFFILIATES."
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<PAGE>
Subject to the conditions described above, there can be no assurance as to
the prices at which the Properties can be sold or disposed of, or as to the
amount of net proceeds that will be available for distribution. See
"Distribution of Net Proceeds" and "RISK FACTORS RELATING TO THE ASSET SALE AND
DISSOLUTION." The Appraisals reflect CBRE's valuation of the real estate
portfolios of the Partnership as of January 1999 (as of January 1, 1999 with
respect to the Tri-City Properties and as of January 22 and January 27, 1999,
respectively, with respect to the two Remaining Properties) in the context of
the market conditions existing as of such date and the information available on
such date. The Partnership does not intend to obtain any updated appraisals at
the time of any actual sale of the Properties (although the Partnership may, but
is not obligated to, obtain new or updated appraisals in connection with sale of
the Remaining Properties). See "RISK FACTORS RELATING TO THE ASSET SALE AND
DISSOLUTION -- No Obligation to Update January 1999 Appraisals."
As described below under "GLB Matching Right," GLB has a right to match
offers for the Properties.
The Partnership has retained Cushman & Wakefield as listing broker for the
Tri-City Properties and may also retain such a broker for some or all of the
Remaining Properties. The listing broker for the Tri-City Properties is entitled
to receive from the Partnership a fee equal to one percent of the gross purchase
price paid by a buyer for properties subject to its listing agreement. However,
if GLB exercises its matching right to purchase a listed property, the fee
relating to such property will be only one-half of one percent of the gross
purchase price if the property is sold within sixty days of the property first
being marketed and three-quarters of one percent if the property is sold
thereafter.
Abandonment; Certain Events Requiring Resolicitation or Subsequent Approval
Even if consent to the Asset Sale and Dissolution Proposal is obtained from
the Unitholders, the General Partner reserves the right, in its sole discretion,
to thereafter abandon the Asset Sale and Dissolution. For example, the General
Partner may choose to abandon the Asset Sale and Dissolution in the event of
changes in the general economy or real estate markets.
In certain circumstances as hereafter described, the Partnership will also
resolicit consents from the Unitholders or submit certain sales of Properties to
the Unitholders for their approval. If the Partnership determines at any time
prior to Dissolution that the amount of distributions resulting from the Asset
Sale and Dissolution will be more than ten percent less than the estimate set
forth in this Statement, the Partnership will provide to Unitholders an
informational supplement to this Statement. If the Partnership makes such
determination during this Solicitation of consents from Unitholders to the Asset
Sale and Dissolution Proposal or after consent to this proposal has been
obtained but prior to the Partnership having obligated itself to sell any of the
Properties (e.g., through acceptance of bids, entering into sales agreements or
otherwise), the Partnership will also resolicit consents to the Asset Sale and
Dissolution Proposal. If during the solicitation of consents from the
Unitholders to this Asset Sale and Dissolution Proposal or after consent to this
proposal has been obtained but prior to the Partnership having solicited bids
for the purchase of any of the Properties, the Partnership determines that the
amount of distributions resulting from the Asset Sale and Dissolution will be
materially less than the estimate set forth in this Statement, the Partnership
will supplement this Statement or resolicit consents, as applicable.
The Properties will not be sold to any affiliates of the Partnership or of
the General Partner. In the event the Partnership later determines that a sale
of any of the Properties to an affiliate of the Partnership or the General
Partner is in the best interests of the Partnership, such sale will be submitted
to the Unitholders for their approval. In the event that the Partnership is
unable to sell a Tri-City Property for a purchase price at least equal to the
appraised value of such Property being sold as reflected in the Appraisals (or
in the event that the Partnership is unable to sell a Remaining Property for a
purchase price at least equal to the appraised value of such Property being sold
as reflected in the Appraisals or any later new or updated appraisal from CBRE
or another independent appraiser) and the Partnership desires to sell the
Property for a lesser price, the Partnership will submit such sale to the
Unitholders for their approval. Notwithstanding the foregoing, any other sales
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of Property which are to third party buyers not affiliated with the Partnership
or the General Partner and can be made for a purchase price at least equal to
the appraised value of such Property as reflected in the Appraisals (or, in the
case of a Remaining Property, in the Appraisals or in any later new or updated
independent appraisal) shall be unaffected by such submission to the Unitholders
of a proposed Property sale for less than the appraised value (or to an
affiliate of the Partnership or the General Partner). Any such submission to
Unitholders of a proposed Property sale for less than the appraised value (or to
an affiliate of the Partnership or the General Partner) will likely delay
consummation of the Asset Sale and Dissolution of the Partnership and could
prevent complete consummation of the Asset Sale and consummation of the
dissolution if such proposed Property sale for less than the appraised value (or
to an affiliate of the Partnership or the General Partner) which is submitted to
the Unitholders is not approved. In addition, any such submission to Unitholders
(even if the matter being submitted is approved) will likely result in the
distribution to Unitholders of aggregate distributions from the Asset Sale and
Dissolution of less than the Partnership's estimate of $428 per Unit, as a
result of, among other things, the proposed sale for which approval is sought
being for less than the appraised value of the Property proposed to be sold as
reflected in the Appraisals, the costs and expenses of such submission, and any
operating loss of the Partnership during any delay occasioned by such submission
to the Unitholders.
GLB Matching Right
In 1997, the Partnership, GLB and GPLP entered into an agreement granting
to GLB a right to match offers for the purchase of the Partnership's Properties.
See "Background and Reasons for the Asset Sale," above. Pursuant to the right of
first refusal, the Partnership agreed that if it decided to sell all or any
portion of the properties, it would do so by requesting multiple party offers.
Upon the Partnership's decision to accept an offer for the purchase of the
properties, the Partnership is required to give prompt written notice to GLB of
the price and other terms and conditions of the offer upon which it is willing
to sell the properties. GLB has ten days after receipt of the Partnership's
written notice to accept or reject the purchase price and other terms and
conditions of the sale. If GLB exercises its matching right and agrees to
purchase the properties at the specified price and on the other terms and
conditions, the Partnership and GLB must promptly execute a purchase agreement
which is to contain a reasonable feasibility study period for GLB. If, on the
other hand, GLB notifies the Partnership that it does not intend to exercise its
matching right or fails to respond within the ten day period, then the
Partnership has the right to sell the properties to the third party offerer on
the identical terms and conditions as set forth in the Partnership's notice to
GLB. If GLB does not exercise its matching right and the Partnership
subsequently changes the terms and conditions upon which it will sell the
properties, then the Partnership is required to submit written notice to GLB of
the new terms and conditions and GLB has a matching right to purchase the
properties upon such terms and conditions. This matching right applies to the
Tri-City Properties and the Remaining Properties.
As described under "Certain Information Regarding GLB" below, GC, although
entitled to transaction fees upon the sale of the Partnership's Properties (4%
on the sale of unimproved land, and 2% upon the sale of buildings or improved
land), has agreed to waive these fees for any of the Partnership's Properties
that are sold to GLB. As a result, for the sale of a given Property, it is
possible that GLB may offer a lower purchase price than a third party, and yet
the Partnership would receive greater net cash proceeds from the GLB sale
because no transaction fee would be paid to GC. Therefore, GLB and the
Partnership have agreed that GLB will have matched the purchase price component
of a third party offer, if the purchase price to be paid by GLB equals or
exceeds the purchase price offered by the third party, net of the transaction
fees that would be payable to GC.
GLB waived its matching right with respect to the January 1998 sale of a
land parcel in Rancon Towne Village, the June 1998 sale of Shadowridge Woodbend
Apartments, the November 1998 offer by a third party for Lake Elsinore Plaza
(which was rejected by the Partnership as insufficient in amount) and the
January 1999 sale of the Perris Land. There can be no assurance that GLB will
waive its matching right with respect to any future sale of the Properties.
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Certain Information Regarding GLB
GLB is a Maryland corporation, with an address at 400 South El Camino Real,
San Mateo, California 94402-1708; telephone number: 650-343-9300. GLB is a
self-administered and self-managed REIT with a diversified portfolio of
properties including industrial, office, multi-family, retail and hotel
properties. In addition, two associated companies of GLB (including GC) manage
similarly diversified portfolios. Combined, the portfolios encompass
approximately 28.8 million square feet and are spread among 24 states throughout
the country.
As described under "Background and Reasons for the Asset Sale," the
Partnership has an agreement with GC, as successor by merger to GIRC, which
provides that GC is to provide partnership administration, asset administration
and property management services to the Partnership. Under its contract with GC,
the Partnership pays GC a specified asset administration fee, which is fixed for
five years (until December 31, 1999) subject to proportionate reduction in the
year following the sale of any asset (the fee equals $597,000 for 1999). Under
its contract with GC, the Partnership also pays GC: (i) sales fees of 2% for
improved properties and 4% for land (which are payable in connection with the
Asset Sale); (ii) a refinancing fee of 1% and (iii) management fees equal to 5%
of gross rental receipts. The Partnership also reimburses GC for its expenses
incurred in connection with providing its services to the Partnership. As part
of this agreement, GC performs certain responsibilities for the General Partner
of the Rancon Partnerships, and Rancon Financial Corporation agreed to cooperate
with GC should GC attempt to obtain a majority vote of the limited partners to
substitute itself as the General Partner of the Rancon Partnerships.
Under its contract with the Partnership, GC was entitled to liquidated
damages of $2,110,306 if the contract was terminated by the Partnership prior to
January 3, 2000. In August 1998, GC agreed to waive its right to such liquidated
damages in exchange for the agreement of the Partnership that from such date
through December 31, 1999, the Partnership will pay to GC asset administration
fees and management fees (regardless of whether the Partnership sells any of its
Properties during such time) in an amount equal to the greater of (a) the amount
of asset administration fees and management fees in effect as of August 1998 (an
asset administration fee equal to $67,165 per month and a monthly management fee
equal to the actual property management fees for the period January 1, 1998
through June 30, 1998 multiplied by two) reduced only for such asset
administration fees and management fees, respectively, as are applicable to the
Shadowridge Woodbend Apartments that were sold in June 1998 by the Partnership
or (b) the amount payable under the terms of the contract between GC and the
Partnership.
For the years ended December 31, 1996, 1997 and 1998, GC was paid aggregate
fees of $1,269,060, $1,347,717 and $1,422,213, respectively, by the Partnership
pursuant to such agreement. In addition, for the years ended December 31, 1996,
1997 and 1998, GC had expenses of $382,335, $393,582 and $304,437, respectively,
reimbursed by the Partnership pursuant to such agreement. The Partnership
currently estimates that for 1999 it will pay GC sales fees of approximately
$1,059,000 (assuming the Properties are sold for the values reflected in the
Appraisals), management fees of $329,537, asset administration fees of $637,726,
and no refinancing fees, although the actual amount of the sales fees may be
materially different from such estimate depending on the actual amount for which
the Partnership's Properties are sold.
Neither GLB, GC or GPLP is an affiliate of the General Partner or the
Partnership.
Effect of the Asset Sale; Dissolution
In accordance with the Partnership Agreement, ninety days following the
sale of all of the Properties and the receipt in cash of the proceeds thereof,
the Partnership will be terminated and dissolved, and the Partnership intends to
wind up its affairs as soon thereafter as possible. The Partnership currently
estimates that all the Properties will not be sold and all the proceeds from
such sales received prior to at least early 2000, and potentially not until
2001. See "Terms of the Asset Sale" above. There can be noassurance, however,
that the sale of all of the Properties and the receipt of all the proceeds from
such sales will take place in accordance with such estimated time frame. It is
possible that it will take more time than was initially estimated to sell all of
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the Properties and receive all of the proceeds from such sales, including all
proceeds from installment sales. See "RISK FACTORS RELATING TO THE ASSET SALE
AND DISSOLUTION."
Distribution of Net Proceeds
In connection with the sale of the Partnership's Properties and the
termination, dissolution and winding up of its affairs, the Partnership intends
to distribute to Unitholders (A) the net proceeds of the sale of the Properties
after deducting the expenses ofthe sale, repaying any Property Loans, and
payment of certain fees (including applicable fees to GC (see "Certain
Information Regarding GLB") and fees to any listing brokers (see "Terms of the
Asset Sale")), and (B) the net proceeds, if any, from the disposition (or
realization) of any remaining Partnership assets (such as accounts receivable)
after payment of and provision for all Partnership liabilities. The timing of
the distribution of any net proceeds from sales of the Properties will depend on
when sales of the Properties can be completed (including the receipt of the
proceeds from such sales) and the Partnership dissolved, which cannot be
predicted with certainty. There is no current agreement or understanding with
any third party to sell or dispose of any of the Properties. Under the
Partnership Agreement, the Partnership is to make annual (on or before the last
day of October of the fiscal year following the fiscal year such cash is
received by the Partnership), or more frequent distributions of cash from the
sale of properties. Given the time needed to solicit consents to the Asset Sale
and Dissolution Proposal, market the Properties, and close the sale of the
Properties, and given that the Partnership anticipates that a portion of the
purchase price for some Properties will be paid with promissory notes of the
buyers in favor of the Partnership with terms currently anticipated to range
from approximately six to eighteen months, the Partnership does not presently
anticipate that the sale of all of the Partnership's Properties will be
consummated and all of the cash proceeds thereof received by the Partnership
prior to at least early 2000, and potentially not until 2001. Prior to
completion of the sale of all of the Properties and the receipt in cash of the
proceeds thereof, the General Partner currently intends, but is not obligated,
to make interim distributions, from time to time, of all or a portion of the net
proceeds from sales of the Properties. The General Partner also intends to
distribute in 1999 the net proceeds received by the Partnership from the sale of
the Perris Land.
All distributions are subject to the following: (i) distributions may be
restricted or suspended for limited periods when the General Partner determines
in its absolute discretion that it is in the best interests of the Partnership;
and (ii) all distributions are subject to the payment of Partnership expenses
and maintenance of reasonable reserves for debt service, alterations,
improvements, maintenance, replacement of furniture and fixtures, working
capital and contingent liabilities. Pending distribution to the Partners, any
net proceeds of sales of the Properties will be held by the Partnership in
government securities and interest-bearing accounts.
Net proceeds available for distribution from the Asset Sale and Dissolution
(and net proceeds available for distribution from the sale of the Perris Land)
will be distributed to the Unitholders in proportion to and to the extent of the
positive balances of their capital accounts determined as of the date of
distribution and after making the allocations of Partnership net income and
Partnership net loss to such date. Assuming the Asset Sale and Dissolution is
consummated, the General Partner will not receive any of the net proceeds from
sale of the Properties (or from the sale of the Perris Land) or upon dissolution
with respect to its general partnership interests. See "BENEFITS OF THE ASSET
SALE AND DISSOLUTION AND POSSIBLE CONFLICTS OF THE GENERAL PARTNER AND ITS
AFFILIATES" below. Unitholders who sell their Units prior to declaration of a
distribution will not be entitled to receive any such subsequent distributions,
as distributions will only be made to holders of Units in accordance with the
Partnership Agreement.
As indicated above under "Terms of the Asset Sale," a condition to sales of
the Tri-City Properties will be that the price at which the sale of such
Properties is made shall at least equal the appraised value of the Properties
being sold as reflected in the Appraisals and a condition to the sale of the
Remaining Properties (which may take longer to sell than the Tri-City
Properties) willbe that the price at which the sale of such Properties is made
shall at least equal the appraised value of the Properties being sold as
reflected in the Appraisals or in any later new or updated appraisal obtained by
the Partnership from CBRE or another independent appraiser.
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<PAGE>
- Assuming, for purposes of illustration, that all the Partnership's
Properties are sold for an aggregate sales price for the Properties
equal to their appraised market values as of January 1999 reflected in
the Appraisals, the Partnership will receive approximately $47,350,00
in consideration.
- The consideration to be received by the Partnership from the sale
of the Properties will be reduced by the amount required to repay the
Property Loans.
- As of March 31, 1999, the aggregate outstanding balance of the Property
Loans (principal and accrued interest) was approximately $15,965,000.
As a result, assuming the Properties are sold for their appraised
values as of January 1999, the Partnership will receive approximately
$31,385,000 in consideration after repayment of the Property Loans.
- Assuming the foregoing aggregate proceeds of $31,385,000 from the
sale of the Properties after deducting the repayment of any Property
Loans, and assuming $5,324,000 in aggregate proceeds from the dis-
position (or realization) of any remaining Partnership assets after
payment of and provision for all Partnership liabilities (based on the
net assets of the Partnership (other than investments in real estate)
as of March 31, 1999), the General Partner believes that an
aggregate of approximately $36,709,000 (the "Estimated Net Proceeds")
of the foregoing amounts would be available for distribution, prior to
the costs and expenses of the Asset Sale and Dissolution.
- Assuming that the costs and expenses of the Asset Sale and Dissolution
(including, for example, sales fees, asset administration fees and
management fees to be paid to the Partnership's asset and property
manager, Glenborough Realty Trust Incorporated, and accounting fees)
equal 8% of the aggregate sales price of the Properties, the General
Partner believes that an aggregate of approximately $32,921,000 (the
"Estimated Net Distributable Cash") of the Estimated Net Proceeds
would be available for distribution to the Unitholders as a result
of the Asset Sale and Dissolution.
- Assuming Estimated Net Distributable Cash of $32,921,000, and by
dividing this amount by the number of Units issued and outstanding as
of the record date, the General Partner currently estimates that the
Unitholders would receive out of the Estimated Net Distributable Cash
approximately $428 per Unit.
Although the Estimated Net Distributable Cash takes into account an estimate of
the sales and dissolution costs to the Partnership, the Estimated Net
Distributable Cash does not otherwise take into account any operating income
(such as rental income) or certain operating expenses of the Partnership for any
period after March 31, 1999 and prior to the time the Properties are sold and
the Partnership dissolved, which is likely to affect the amount of Net
Distributable Cash actually available for distribution to the Unitholders.
Assuming consummation of the Asset Sale and Dissolution, the General Partner
will not receive any of the net proceeds from sales of the Properties or upon
dissolution with respect to its general partnership interests.
There can be no assurance that any sale or sales of the Properties will be
consummated or that any of the foregoing estimates will be realized, including
that $428 per Unit will be the actual aggregate amount distributed to
Unitholders as a result of the Asset Sale and Dissolution. Unitholders, in
determining whether to consent to the Asset Sale and Dissolution Proposal, are
cautioned not to attribute undue certainty to the foregoing estimates, which are
based on a variety of assumptions relating to the Properties, general business
and economic conditions and other matters. The amount of the proceeds from the
sale of the Properties, the estimated amount to be distributed to Unitholders,
and the date prior to which consummation of the sale of the Properties and
receipt in cash of the proceeds thereof is not anticipated to occur are based on
the Partnership's current estimates and are subject to various and significant
uncertainties, many of which are beyond the Partnership's control, that could
cause the actual results to differ materially from the Partnership's
expectations. A number of such uncertainties are described under "RISK FACTORS
RELATING TO THE ASSET SALE AND DISSOLUTION -- Estimates, Including Estimates of
the Aggregate Distributions to be Received by Unitholders as a Result of the
Asset Sale and Dissolution, May Not be Realized." THE ACTUAL DISTRIBUTIONS TO BE
RECEIVED BY UNITHOLDERS FROM THE ASSET SALE AND DISSOLUTION OF THE PARTNERSHIP
COULD, FOR THE FOREGOING REASONS, VARY MATERIALLY, FROM THE ABOVE ESTIMATE PER
UNIT, AND MAY BE SUBSTANTIALLY LESS. In certain circumstances, such as if the
Properties are sold for prices in excess of their appraised values, or if the
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costs and expenses of the Asset Sale and Dissolution are less than currently
estimated by the General Partner, the actual distributions to be received by
Unitholders from the sale of the Properties and dissolution of the Partnership
could exceed the above estimate. See "RISK FACTORS RELATING TO THE ASSET SALE
AND DISSOLUTION" and "SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS,
INCLUDING ESTIMATES." If the Partnership determines at any time prior to
Dissolution that the amount of distributions resulting from the Asset Sale and
Dissolution will be more than ten percent less than the estimate set forth in
this Statement, the Partnership will provide to Unitholders an informational
supplement to this Statement. If the Partnership makes such determination during
this Solicitation of consents from Unitholders to the Asset Sale and Dissolution
Proposal or after consent to this proposal has been obtained but prior to the
Partnership having obligated itself to sell any of the Properties (e.g., through
acceptance of bids, entering into sales agreements or otherwise), the
Partnership will also resolicit consents to the Asset Sale and Dissolution
Proposal.
The Partnership has made the following distributions since its inception:
<TABLE>
<CAPTION>
Weighted
Average Number Distributions
of Limited Per
General Partnership Limited
Partners Limited Partners Total Units Partnership
Year Distributions Distributions Distributions Outstanding Unit
- ---- ------------- ------------- ------------- ----------- ------------
<S> <C> <C> <C> <C> <C>
1985 $ 44,000 $ 400,000 $ 444,000 22,121 $ 18.08
1986 213,000 1,914,000 2,127,000 40,958 46.73
1987 252,000 8,000,000 8,252,000 63,202 126.58
1988 223,000 4,100,000 4,323,000 80,000 51.25
1989 180,000 1,619,000 1,799,000 80,000 20.24
1990 179,000 1,619,000 1,798,000 80,000 20.24
1991 270,000 2,428,000 2,698,000 80,000 30.35
1992 - - - 80,000 -
1993 - - - 79,949 -
1994 - - - 79,901 -
1995 - - - 79,850 -
1996 - - - 79,846 -
1997 - - - 79,846 -
1998 40,000 3,960,000 4,000,000 76,828 51.54
1999
(through
May 31, - - - 76,765 -
1999)
--------- ---------- ----------
Totals $1,401,000 $24,040,000 $25,441,000
========== =========== ===========
</TABLE>
Operation of the Properties Prior to the Asset Sale
Prior to any sale of the Properties, the Partnership currently intends
to operate and maintain such Properties in substantially the same manner as they
have been operated and maintained prior to the date hereof.
Regulatory Requirements
There are no federal or state regulatory requirements which must be
complied with, nor are there any such governmental consents or approvals that
must be obtained, other than the approval of the Unitholders solicited by this
Statement, in connection with the Asset Sale. There are certain regulatory
requirements under the laws of the State of California which must be complied
with in connection with the dissolution of the Partnership, principally the
winding up of the affairs of the Partnership. A Certificate of Dissolution and a
Certificate of Cancellation (canceling the Partnership's Certificate of Limited
Partnership) shall be filed with the Secretary of the State of California in
accordance with the California Uniform Limited Partnership Act. These regulatory
requirements will be complied with at the time of the dissolution.
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Accounting Treatment
The consent of the Unitholders to the Asset Sale and Dissolution
Proposal will not impact the accounting treatment applied to the Partnership in
its financial statements prepared in accordance with generally accepted
accounting principles. The Partnership will classify as "held for use" or "held
for future development," all of its operating and undeveloped properties until
such time as an acceptable buyer is identified and an offer which is reasonably
assured of consummation is obtained. At that time, the Partnership will
reclassify the appropriate portions of its assets to "held for sale," and
depreciation will be discontinued.
The Partnership performs periodic reviews of the carrying value of its
assets to consider changing market conditions and changing plans for its various
properties. As in prior periods, the Partnership may make additional adjustments
to the carrying value of certain assets to reflect estimated fair value prior to
the sale of a particular property, if conditions so warrant.
When the sale price and timing of the last property disposal is
reasonably determinable, the Partnership will adopt liquidation basis accounting
in that quarter. At that time, all assets and liabilities will be adjusted to
their settlement amounts and an amount to be distributed to the Unitholders upon
liquidation will be estimated.
Failure to Approve the Asset Sale and Dissolution Proposal
If the Unitholders fail to approve the Asset Sale and Dissolution
Proposal, the Partnership will continue to operate the Properties and attempt to
sell such properties in single or multiple sales and develop properties it deems
developable and would improve the Partnership's return on investment. Any such
sale or sales will generally not require approval of the Unitholders unless it
involves the sale of all or substantially all of the assets of the Partnership
(as defined in the Partnership Agreement) in a single sale or in multiple sales
in the same 12-month period (other than in the liquidation and winding up of the
business of the Partnership upon its termination or dissolution). See "RISK
FACTORS RELATING TO THE ASSET SALE AND DISSOLUTION."
FAIRNESS OF THE ASSET SALE AND DISSOLUTION
General Partner Recommendation
Daniel L. Stephenson, as the individual general partner and as the
Director of Rancon Financial Corporation has approved the Asset Sale and
Dissolution Proposal and directed that the Asset Sale and Dissolution Proposal
be submitted to the Partnership's Unitholders for consent with the
recommendation that Unitholders consent. In considering whether to submit the
Asset Sale and Dissolution Proposal to the Unitholders, the General Partner
considered the alternatives to a sale of the Partnership's Properties and
dissolution of the Partnership. The primary alternative is for the Partnership
to continue to operate the Properties in substantially the same manner as it has
in the past and to attempt to sell such Properties in single or multiple sales
and develop the Properties it deems developable and which would improve the
Partnership's return on investment. As indicated below, the General Partner
believes, however, that current market conditions are favorable for a sale of
the Properties. The General Partner also considered other factors in rejecting
the alternative of continuing to operate the Properties and instead proposing
the Asset Sale and dissolution. The principal factors taken into consideration
in approving the Asset Sale and Dissolution Proposal and in recommending that
Unitholders consent to the Asset Sale and Dissolution Proposal were:
(i) A condition to any sale or sales of the Tri-City Properties is that
the purchase price at least equal the appraised value of the Properties being
sold as reflected in the Appraisals, and a condition to the sale of the
Remaining Properties (which may take longer to sell than the Tri-City
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Properties) will be that the price at which any sale of such Properties is made
shall at least equal the appraised value of the Properties being sold as
reflected in the Appraisals or in any later appraisal obtained by the
Partnership;
(ii) The Asset Sale, Dissolution of the Partnership and distribution of
net proceeds will result in an accelerated return of capital to the Unitholders;
(iii) The fact that the Properties have been held longer than their
originally anticipated holding period;
(iv) The purchase price for the sale of the Properties will be achieved
by soliciting bids from multiple unaffiliated third parties and/or by arms'
length negotiations with unaffiliated third parties;
(vii) To the extent Partnership properties are not sold they will
continue to subject the Partnership to the risks inherent in the ownership of
property such as fluctuations in occupancy rates, operating expenses and rental
rates, which in turn may be affected by general and local economic conditions,
the supply and demand for properties of the type owned by the Partnership and
federal and local laws and regulations affecting the ownership and operation of
real estate;
(vi) The General Partner's belief that current market conditions are
favorable for a sale of the Properties because (i) although the markets in which
the Properties are located and real estate markets in general have been proven
to be volatile over time, the General Partner believes that both the market for
the properties in the Tri-City Corporate Centre area and real estate markets in
general have significantly improved from the most recent recession in real
estate; (ii) the operations of the improved properties are relatively stable;
(iii) the development of the majority of the Partnership's unimproved properties
cannot be done on an economical basis for several years; and (iv) the real
estate capital markets are active. In addition, the General Partner believes
that the demand for properties by real estate investment trusts will rebound in
1999 which, if it occurs, could enhance both the price and marketability of the
Partnership's Properties. The General Partner believes that there are a
significant number of potential buyers of the Tri-City Properties which should
help maximize the proceeds from sales of the Tri-City Properties. Although the
General Partner believes that 1999 represents an advantageous time for sellers
of commercial properties, the General Partner believes that conditions beyond
this year are less predictable; and
(vii) The level of distributions to the Unitholders (which have been
lower than originally anticipated).
The primary disadvantages of disposing of the Properties pursuant to
the Asset Sale and Dissolution Proposal are as follows:
(i) There can be no assurance that the Asset Sale and Dissolution will
result in greater returns to Unitholders than a continuation of the Partnership.
With respect to the Partnership's Properties, as a result of the Asset Sale and
Dissolution, the Partnership will not benefit from possible improvements in
economic and market conditions which could produce increased cash flow and
enhance the sales price of the Properties; and
(ii) Unitholders who purchased their Units during the initial public
offering of the Units may not receive aggregate distributions, including
distributions from the Asset Sale, equal to the money that they originally
invested in the Partnership. See "THE ASSET SALE AND DISSOLUTION PROPOSAL
Distribution of Net Proceeds" and "CERTAIN FEDERAL AND STATE INCOME TAX
CONSEQUENCES OF THE ASSET SALE AND DISSOLUTION."
FOR THE FOREGOING REASONS, THE GENERAL PARTNER OF THE PARTNERSHIP HAS
APPROVED THE ASSET SALE AND DISSOLUTION PROPOSAL, BELIEVES THAT THE ASSET SALE
AND DISSOLUTION PROPOSAL IS IN THE BEST INTERESTS OF THE UNITHOLDERS, AND
RECOMMENDS THAT UNITHOLDERS CONSENT TO THE ASSET SALE AND DISSOLUTION PROPOSAL.
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Appraisals of Properties
In determining the fairness of the Asset Sale and Dissolution Proposal, the
General Partner has relied in part upon appraisals (a summary of which is
attached hereto as Appendix A and incorporated herein by this reference)
prepared by an independent appraiser CB Richard Ellis, Inc. ("CBRE") to
establish the fair market value ("Appraised Value") of the Properties. As
indicated under "THE ASSET SALE AND DISSOLUTION PROPOSAL - Terms of the Asset
Sale," a condition to the sale of the Tri-City Properties will be that the price
at which the sale is made shall at least equal the appraised value of the
Properties being sold as reflected in the CBRE Appraisals. A condition to the
sale of the Remaining Properties (which may take longer to sell than the
Tri-City Properties) will be that the price at which the sale of such Properties
is made shall at least equal the appraised value of the Properties being sold as
reflected in the Appraisals or in any later independent appraisal obtained by
the Partnership. See "THE ASSET SALE AND DISSOLUTION PROPOSAL - Terms of the
Asset Sale." CBRE also appraised the properties in the Tri-City Corporate Centre
owned by Fund V. Such appraisals were conducted using the same methodology and
are subject to the same assumptions, limitations and qualifications as described
below for the Partnership's Properties. In preparing the Appraisals, CBRE was
engaged to determine the fair market value of the Properties without taking into
account the specific financial interest of any person. CBRE's Appraisals were
certified by MAI appraisers who were employees of CBRE. The General Partner
believes that the use of a single independent appraiser, applying consistent
methodology and criteria in assessing the value of the Partnership's Properties,
increased the likelihood that the value of such assets would be determined on a
fair, consistent and unbiased basis.
Selection and Qualifications of Appraiser . In April 1998, the General
Partner sought proposals from three different institutional appraisers, and
selected CBRE primarily on the basis of cost and reputation. CBRE has provided
information, research, investment banking, consulting and real estate brokerage
services to clients located throughout the United States, including financial
advisory services, asset and securities valuations, industry and company
research and analysis, litigation support and expert witness services, and due
diligence investigations in connection with both publicly registered and
privately placed securities transactions. CBRE's appraisal services division was
formed in 1944 and its practice principally involves real estate partnerships,
real estate partnership securities and real estate assets typically owned
through partnerships. CBRE has substantial experience and expertise in assessing
the value of real estate, having prepared real estate appraisals for over 54
years.
CBRE was originally engaged to provide the Appraised Values of the Tri-City
Properties as of June 1, 1998. After receipt by the Partnership of such
appraisals, the Partnership requested that CBRE (a) update the appraisals of the
Tri-City Properties (primarily by resurveying the applicable real estate
markets) to establish their fair market values as of January 1, 1999, and (b)
appraise the two Remaining Properties to establish their fair market values as
of January 1999 (the appraised value for the Lake Elsinore Plaza Property is as
of January 27, 1999 and the appraised value for the Rancon Towne Village
(Temecula) Property is as of January 22, 1999).
Summary of Methodology . Appraisers typically consider three approaches to
value: the market data or sales comparison approach, the income approach and the
cost approach. The market data or sales comparison approach involves a
comparative analysis of the subject property with other similar properties that
have sold recently or that are currently offered for sale in the market. The
income approach involves an economic analysis of the property based on its
potential to provide future net annual income. The cost approach involves an
economic analysis of the cost to produce a substitute property with equivalent
utility.
Pursuant to the request of the Partnership, the Appraisals were performed
using the income approach and the sales comparison approach for income-producing
properties. Only the sales comparison approach was used for properties
consisting of unimproved land ("Land"), since the income approach is typically
not used by buyers of such property. The Partnership's Properties were appraised
by CBRE in accordance with the Uniform Standards of Professional Appraisal
Practice ("USPAP"). The Appraisals are "limited appraisals" as defined by the
USPAP, because CBRE excluded the cost approach and abbreviated the sales
comparison approach. The cost approach, although considered, was not used by
CBRE for any Properties because (i) CBRE believes the cost approach is generally
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<PAGE>
not deemed a reliable indicator of value due to the imprecise nature of
estimating accrued depreciation affecting improvements, and (ii) CBRE determined
that participants in the real estate market in the areas where the Partnership's
Properties are located are not generally relying on such method in buying,
selling or investing in real property. Properties were appraised by CBRE
individually and not as groups or packages of Properties.
Valuation Methodology - Improved Properties Income Approach. CBRE's
-----------------------------------------------------------------
valuation has been based in part upon information supplied to it by GC, as the
manager of the Properties and the Partnership, including but not limited to:
rent rolls, building reports; lease information; financial schedules of current
lease rates, income, expenses, cash flow and related financial information;
property descriptive information; prior appraisals; and, where appropriate,
proposed sales terms, sales agreements and supporting documentation. CBRE relied
upon such information and assumed that the information provided by GC and the
Partnership was accurate and complete and did not attempt to independently
verify such information.
CBRE also interviewed and relied upon GC's management personnel to obtain
information relating to the condition of each property subject to the Asset
Sale, including any deferred maintenance, capital budgets, environmental
conditions, status of on-going or newly planned property additions,
reconfiguration, improvements, and other factors affecting the physical
condition of the property improvements. CBRE also interviewed GC's management
personnel regarding competitive conditions in property markets, trends affecting
the properties subject to the Asset Sale, certain lease and financing factors,
and historical and anticipated lease revenues and expenses. CBRE also reviewed
historical operating statements for each of the Properties subject to the Asset
Sale.
Based on the lease and market rent analysis, rental revenue projections
were developed for each income-producing property subject to the Asset Sale
based on the terms of existing leases and based on analysis of market rents and
historical rents achieved at the property).
Expenses were analyzed based upon a review of 1996, 1997 and/or 1998
(through October 31, 1998) actual expenses. CBRE also reviewed, among other
things, data on expenses for comparable properties appraised by CBRE. In
addition, CBRE consulted with CB Richard Ellis Property Managers, an affiliate
of CBRE engaged in property management. Inflation and growth rates were
estimated by CBRE based on those assumptions typically used by buyers and
sellers in the local marketplace, which were derived, in part, from published
surveys of real estate brokers and investors.
CBRE considered two methods to determine valuation under this income
approach - a direct capitalization method and a discounted cash flow method.
Direct capitalization is a method used to convert a single year's estimated
stabilized net operating income into an indication of value. Under this method,
the income producing capacity of a property on a stabilized basis is determined
by estimating market rent from comparable rentals, making deductions for vacancy
and collection losses and building expenses, and then capitalizing the net
income at a market-derived rate to yield an estimate of value. In determining an
overall capitalization rate, CBRE reviewed overall capitalization rates
indicated by comparable sales and published surveys of brokers, investors and
other real estate market participants. CBRE also interviewed various commercial
real estate brokers. Net operating income was capitalized at a capitalization
rate as estimated in accordance with the comparable sales transaction data.
Under the discounted cash flow method, periodic cash flows (consisting of net
income less leasing commissions and applicable reserves per period) and a
reversionary value, if any (based on an assumed sale at the end of the holding
period, estimated for such purpose by capitalizing the following year's net
operating income), after deducting appropriate sales expenses, are estimated and
discounted to present value. Distinct discount rates were applied to the
operating cash flow projections and the reversionary values. The discount rates
employed were based on target rates of return and capitalization criteria used
by commercial property investors. CBRE derived this information, in part, from
published surveys of brokers, investors and other real estate market
participants.
Valuation Methodology - Improved Properties - Sales Comparison Approach.
---------------------------------------------------------------------------
Based upon actual and proposed sales transactions identified in the respective
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<PAGE>
Properties' region, indices of value for the Properties were derived considering
the respective Properties' age, location and other factors. The indices of value
primarily included price per square foot. Adjustments were applied to the
indices of value derived from the comparable sales transactions. The indices of
value were applied to the Properties to estimate value in accordance with the
sales comparison method. Price per square foot as estimated by reference to
comparable sales transactions was multiplied by the rentable square footage of
the respective Properties to derive an estimate of value.
Valuation Methodology - Unimproved Land. Since certain of the
------------------------------------------------
Properties are Land, CBRE has estimated the value of the fee simple interest in
the Land based on the sales comparison approach (and has not utilized the income
or cost approaches to
valuation).
The sales comparison approach utilizes indices of value derived from actual
or proposed sales of comparable properties to estimate the value of the subject
Land. For land valuations, a unit of comparison typically analyzed for similar
properties, price per square foot of land, was utilized in applying the sales
comparison approach to the subject property.
In conducting the property valuation, representatives of CBRE performed
site inspection of the Land properties within the Tri-City Properties in May and
June 1998 and the Land properties within the Remaining Properties in December
1998 and January 1999. In the course of each Land property site visit, the
information on the local market was gathered. Information gathered during the
site inspection was supplemented by a review of published information concerning
economic, demographic and real estate trends in the subjects' market.
Based upon actual and proposed land sales transactions identified in the
respective Land's region, indices of value for the Land were derived considering
the respective location and other factors. The indices of value included price
per square foot of land which were applied to the separate Land parcels to
estimate value in accordance with the sales comparison method. Price per square
foot as estimated by reference to comparable sales transactions was multiplied
by the total square footage of the respective Land parcels to determine an
estimate of value for the unimproved Land.
No appraisal methodology, including the sales comparison approach, was
applicable to the North River Tower parcel of Land. Such parcel of Land was part
of a landfill operated by the City of San Bernardino (the "City") from
approximately 1950 to 1960. There are no records of which the Partnership is
aware disclosing that hazardous wastes exist at the landfill other than a recent
report prepared for the City by an outside consulting firm indicating small
trace amounts at the landfill which the Partnership believes at this time, based
on the information known to it, are not of material significance. The
Partnership believes that the Partnership's landfill monitoring program
currently meets or exceeds all regulatory requirements. The Partnership is
currently working with the Santa Ana Region of the California Regional Water
Quality Control Board and the City to determine the need and responsibility for
any further testing. There is no current requirement to ultimately clean up the
site, however, no assurance can be made that circumstances will not arise which
could impact the Partnership's responsibility related to the property. The
General Partner instructed CBRE that CBRE was not required as part of its
engagement to ascertain what would have to be done, and the cost thereof, to
build on such parcel of Land as the Partnership did not believe the expense of
the testing and preparatory work necessary for such an evaluation (including
determining how much of such parcel is over the actual landfill and the
composition of such landfill) to be justified. As a result, CBRE indicated that
such Land parcel is of indeterminate value.
CBRE in evaluating price per square foot considered the highest and best
use of the Land parcels as though vacant as follows:
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<TABLE>
<CAPTION>
Highest and Best Use of the
Subject Site as Though Vacant Property Name
----------------------------- -------------
<S> <C>
Hold for future development of Brier Business Center; Vanderbilt
commercial uses Tower; Brier Plaza; South Palm Court
Pad 1; South Palm Court Pad 2
Develop with commercial
retail oriented uses Rancon Towne Village; Lake Elsinore
Plaza
Hold for future development
of industrial/R&D uses Inland Regional Center -- Phase II
Attempt to donate to
government agency North River Tower
</TABLE>
Conclusions as to Value. Based upon the review as described above, it is
CBRE's opinion that the market value of the leased fee interests or fee simple
interests in the Tri-City Properties as of January 1, 1999 and in the two
Remaining Properties as of January 27, 1999 and January 22, 1999, respectively,
is:
<TABLE>
<CAPTION>
Property Name Value
------------- -----
Tri-City Properties
<S> <C>
Carnegie Business Center I $3,200,000
Circuit City 5,500,000
Inland Regional Center 6,200,000
One Vanderbilt 6,800,000
Promotional Retail Center 6,750,000
Service Retail Center 2,700,000
TGI Friday's 1,760,000
Two Vanderbilt 6,060,000
Mimi's Cafe and Office Max 3,450,000
North River Tower 0 **
Brier Business Center 295,000 *
Vanderbilt Tower 560,000 *
Inland Regional Center - Phase II 505,000 *
Brier Plaza 255,000 *
South Palm Court Pad 1 220,000 *
South Palm Court Pad 2 140,000 *
- -------
Total for Tri-City Properties: $44,395,000 +
Remaining Properties
Lake Elsinore Plaza $2,450,000
Rancon Towne Village 505,000
---------
Total for Remaining Properties: $2,955,000
TOTAL FOR ALL PROPERTIES: $47,350,000
===========
</TABLE>
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- -------------------------------------------------
* Several of the Properties are encumbered by bond assessments. In
the case of each of the asterisked Properties, one such assessment
is high enough to effect the value of the property. The bond does
not have to be paid off early, however, the payoff amount has been
used as an adjustment to determine a value of the property net of
the bond assessment, which is the amount shown in the table and
which is the amount for which the Property must be sold as a term
and condition of the Asset Sale. The value of all of the
Properties (as of January 1, 1999 for the Tri-City Properties and
as of January 27, 1999 and January 22, 1999, respectively, for the
two Remaining Properties) not deducting the aggregate bond payoff
amount is $47,757,500.
+ Appraisals of the Partnership's Tri-City Properties as of June 30,
1997, conducted by a different independent appraiser in connection
with the rescinded September 30, 1997 agreement between the Part-
nership and Glenborough (see "THE ASSET SALE AND DISSOLUTION PRO-
POSAL - Background and Reasons for the Asset Sale - Rescinded 1997
Agreement to Sell All the Properties"), indicated an aggregate
market value of the leased fee interests or fee simple interests
in such properties of $34,085,000. At the time of the June 30,
1997 appraisals, Mimi's Restaurant and the Office Max had not been
constructed and such properties were appraised as unimproved land
with an aggregate value as of June 30, 1997 of $540,000. The June
30, 1997 appraisals also appraised the Lake Elsinore Plaza land as
having a value as of June 30, 1997 of $2,200,000. Although the
June 30, 1997 appraisals also included a value for Rancon Towne
Village, the valuation of such property included nine parcels that
were subsequently sold (the existing property consists of two par-
cels). The June 30, 1997 appraisals are described in the Partner-
ship's Definitive Proxy Statement, dated October 17, 1997, copies
of which are available to Unitholders upon request to the Partner-
ship.
The appraisals of the Tri-City Properties as of June 1, 1998
conducted by CBRE and which were updated to determine the
appraised value of such Tri-City Properties as of January 1, 1999
set forth above, indicated an aggregate market value of the leased
fee interests or fee simple interests in such Tri-City Properties
as of June 1, 1998 of $41,774,000 net of applicable bond
assessments ($42,415,000 not deducting the aggregate bond payoff
amount). At the time of the June 1, 1998 appraisals, Mimi's
Restaurant and the Office Max had not been constructed and such
properties were appraised as unimproved land with an aggregate
value as of June 1, 1998 of $1,050,000 net of applicable bond
assessments ($1,250,000 not deducting the aggregate bond payoff
amount). The June 1, 1998 appraisals conducted by CBRE did not
include the Remaining Properties. The June 1, 1998 appraisals are
available for inspection by Unitholders at the Partnership's
executive offices during business hours and upon reasonable notice
to the General Partner. See "THE ASSET SALE AND DISSOLUTION
PROPOSAL - The Partnership."
** As CBRE has indicated that such parcel of Land is of indeterminate
value based upon the information regarding such parcel currently
known by the Partnership (see "Valuation Methodology - Unimproved
Land" above), such parcel was assigned no value.
Assumptions, Limitations and Qualifications of Appraisals . The Appraisals
reflect CBRE's valuation of the real estate portfolios of the Partnerships as of
January 1999 (as of January 1, 1999 with respect to the Tri-City Properties and
as of January 22 and January 27, 1999, respectively, with respect to the two
Remaining Properties) in the context of the market conditions existing as of
such date and the information available on such date. Events occurring after the
January 1999 dates of the Appraisals and before consummation of any sales of
Properties comprising the Asset Sale, such as changes in capital markets
(including changes in financing rates) that might affect demand for real
property, changes in building occupancy, changes in tenant motivation with
respect to the exercise of renewal options, or changes in real estate property
markets, could affect the Properties or the assumptions used in preparing the
Appraisals and result in higher or lower values of the
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<PAGE>
Properties if updated appraisals were conducted at such time. CBRE has no
obligation to update the Appraisals on the basis of subsequent events.
CBRE utilized certain assumptions to determine the appraised value of the
Properties. The specific assumptions, limitations and qualifications made by
CBRE in conducting the Appraisals include, among other things:
- CBRE made no recommendation in its Appraisals whether to sell or
hold the Properties at the appraised values.
- CBRE assumed for purposes of the Appraisals that the Properties
will be under prudent and competent management and ownership;
neither inefficient or super-efficient.
- CBRE generally assumed that all factual data furnished by the
Partnership and its representatives (such as land dimensions,
square footage, gross building areas, net rentable areas and
historic operational data) was accurate and correct. No surveys of
the boundaries of the Properties were undertaken by CBRE, and CBRE
generally assumed that no encroachments to the realty exist.
- All furnishings, equipment and business operations were generally
disregarded by CBRE with only real property being considered. Any
existing or proposed improvements, on or off-site, as well as any
alterations or repairs considered, were assumed by CBRE to be
completed in a workmanlike manner according to standard practices.
- CBRE assumed that there are no hazardous materials on or in the
Properties. If hazardous materials are present, the value
conclusions of CBRE could change significantly. CBRE also
generally assumed that the Partnership is in full compliance with
all applicable federal, state and local environmental and other
regulations, laws, restrictions and conditions (including those
relating to decibel levels/noise envelopes, fire hazards, hillside
ordinances, density, allowable uses, building codes, permits and
licenses).
- CBRE assumed that title to the Properties is clear and marketable
and that there are no recorded or unrecorded matters or exceptions
(including private deed restrictions) that would adversely affect
marketability or value.
- CBRE assumed that any existing improvements on the Properties are
structurally sound, seismically safe and code conforming; that all
building systems are, or will be upon completion, in good working
order with no major deferred maintenance or repair required; that
the roofs and exteriors are in good condition and free from
intrusion by the elements; that the Properties have been
engineered in such a manner that they will withstand any known
elements such as windstorm, hurricane, tornado, flooding, earth-
quake, or similar natural occurrences; and, that the improvements,
as currently constituted, conform to all applicable local, state,
and federal building codes and ordinances. Since earthquakes are
not uncommon in the areas where the Properties are located, CBRE
assumed no responsibility due to their possible effect.
The Appraisals are available for inspection by Unitholders at the
Partnership's executive offices during business hours and upon reasonable notice
to the General Partner. See "THE ASSET SALE AND DISSOLUTION PROPOSAL - The
Partnership."
Compensation and Material Relationships . In exchange for preparing all the
appraisals for the Properties and the Fund V properties, CBRE was paid a fee of
$112,000, of which $56,000 was paid by the Partnership and $56,000 was paid by
Fund V. CBRE also was paid $1,000 for its expenses in reviewing certain of the
consent solicitation materials and related documentation, of which $500 was paid
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<PAGE>
by the Partnership with the remainder paid by Fund V. In addition, CBRE is
entitled to indemnification against certain liabilities, including certain
liabilities under federal securities law. As indicated under "Selection and
Qualifications of Appraiser," CBRE and two other companies originally submitted
proposals to the General Partner, and the initial appraisal fees of CBRE were
negotiated between the General Partner and CBRE on the basis of CBRE's proposal.
Fees for the updated Appraisals were also negotiated between the General Partner
and CBRE on the basis of a subsequent proposal by CBRE. Payment of the appraisal
fees to CBRE is not dependent upon completion of the Asset Sale. Other than the
appraisals for the Partnership and Fund V described above, neither the
Partnership, the General Partner or any of their affiliates has engaged CBRE to
render other appraisal or related services within the past three years. An
affiliate of CBRE, CB Commercial Real Estate Group, Inc., serves as leasing
agent for certain of the Partnership's and Fund V's Properties, seeking tenants
for such properties and otherwise assisting the Partnership and Fund V in the
leasing of such properties. In 1998 and in the quarter ended March 31, 1999, CB
Commercial Real Estate Group, Inc. received aggregate fees of $198,526 and
$141,429, respectively, from the Partnership, for its services as leasing agent.
In 1998 and in the quarter ended March 31, 1999, CB Commercial Real Estate
Group, Inc. received aggregate fees of $144,599 and $24,870, respectively, from
Fund V for its services as leasing agent. CBRE and its affiliates have also,
from time to time, rendered appraisal and related services to GLB and related
entities and with respect to properties owned by GLB and related entities.
Neither GLB nor its affiliates participated in the selection of CBRE to conduct
the Appraisals.
BENEFITS OF THE ASSET SALE AND DISSOLUTION AND POSSIBLE CONFLICTS
OF THE GENERAL PARTNER AND ITS AFFILIATES
The General Partners will not receive any fees in connection with the Asset
Sale and Dissolution.
There is a potential conflict created by the Asset Sale because properties
of an affiliated partnership, Fund V, owns properties in the Tri-City Corporate
Centre area which may be packaged for sale with properties of the Partnership.
The General Partner is the General Partner of Fund V, as well as the
Partnership. In order to address this apparent conflict, bidders for any package
of properties containing Tri-City Properties and Fund V properties will be
required to specify how their overall bid is allocated among the individual
properties in the package, and proceeds from the sales of any such package (as
well as general expenses related to the sales) will be apportioned between the
two partnerships based upon such allocation.
Assuming the Asset Sale and Dissolution is consummated, the General
Partners will not receive any distributions in connection with the Asset Sale
and Dissolution. Assuming the Asset Sale and Dissolution is consummated, the
Unitholders will receive 100% of all distributions made by the Partnership upon
the Asset Sale and upon Dissolution. The General Partners presently have capital
account deficits (the excess of (a) allocations of loss and distributions of
cash to the General Partner over (b) allocations of income and capital
contributions since the inception of the Partnership) as of December 31, 1998 in
the aggregate amount of $556,614 (Daniel L. Stephenson: $417,309; Rancon
Financial Corporation: $139,305). The General Partners will be obligated to
contribute cash to the Partnership in connection with the dissolution of the
Partnership in the amount of the General Partners' final capital account
deficits if the Partnership does not realize net income in a particular taxable
year in an amount such that the net income allocable to the General Partners is
sufficient to eliminate the capital account deficit. The Partnership anticipates
that, upon the sale of all of the Properties, the Partnership will, in the
aggregate, realize a net loss from such sales. Under the Partnership Agreement,
the General Partners generally have authority to make all decisions with respect
to the management of the Partnership and, under the Asset Sale and Dissolution
Proposal, if approved, the General Partners will be authorized to sell the
Partnership Properties, in one or a series of (related or unrelated)
transactions, on such terms as are negotiated by the General Partner, which may
include use of installment sales and seller financing. It is anticipated that,
as permitted under the Partnership Agreement and the Asset Sale and Dissolution
Proposal, the Properties will be sold in such a manner, using the installment
method for sales of certain of the Properties, that will result in net income in
a taxable particular year sufficient to eliminate the General Partners' capital
account deficits. Specifically, it is anticipated that some Properties for which
the Partnership will realize net income upon sale will be sold on the
installment basis, under which a portion of the sales price will be received in
the year of sale (presently anticipated to be 1999) with subsequent payments
paid in subsequent periods (anticipated to be in 2000 or 2001), resulting in net
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<PAGE>
income in the subsequent period sufficient to eliminate the General Partners'
capital account deficits. See "THE ASSET SALE AND DISSOLUTION PROPOSAL - Terms
of the Asset Sale."
Conversely, the General Partner may be adversely affected by the Asset Sale
because subordinated real estate commissions, which are payable to the General
Partner in the amount of $643,000 at March 31, 1999 for sales that transpired in
previous years and for which the Partnership is contingently liable, will not be
paid and will be eliminated. The subordinated real estate commissions are
payable only after the Unitholders 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, which is not expected to be
achieved as a result of the Asset Sale. However, consummation of the Asset Sale
and dissolution of the Partnership will eliminate any liability of the General
Partner for liabilities of the Partnership which could arise in the continued
operation of the Partnership.
CERTAIN FEDERAL AND STATE INCOME TAX
CONSEQUENCES OF THE ASSET SALE AND DISSOLUTION
General
The following summary is a general discussion of certain federal income tax
consequences arising from the Asset Sale and Dissolution. The summary is based
upon the Internal Revenue Code of 1986, as amended (the "Code"), applicable
Treasury Regulations thereunder, administrative rulings, practice and procedures
and judicial authority as of the date of this Statement. All of the foregoing
are subject to change, and any such change could affect the continuing accuracy
of this summary. The summary does not address all aspects of federal income
taxation that may be relevant to a particular Unitholder in light of such
Unitholder's specific circumstances, or that may be relevant to Unitholders
subject to special treatment under the federal income tax laws (for example,
foreign persons, dealers in securities, banks, insurance companies and
tax-exempt entities), nor does it address any aspect of state, local, foreign or
other tax laws. The Asset Sale and distribution of net proceeds will be a
taxable transaction for federal income tax purposes, and may also be a taxable
transaction under applicable state, local, foreign and other tax laws. EACH
UNITHOLDER SHOULD CONSULT HIS OR HER TAX ADVISOR AS TO THE PARTICULAR TAX
CONSEQUENCES TO SUCH UNITHOLDER OF THE ASSET SALE, DISSOLUTION, AND
DISTRIBUTIONS OF NET PROCEEDS, INCLUDING, WITHOUT LIMITATION, FEDERAL, STATE AND
LOCAL TAX CONSEQUENCES.
Allocation of Income and Loss - Generally
A partnership is not a taxable entity. Therefore, no federal income tax
liability may be imposed upon a partnership. Instead, each partner is required
to take into account in computing his or her income tax liability his or her
allocable share of the partnership's items of income, gain, loss, deduction and
credit (hereinafter referred to as "income or loss") in accordance with the
partnership agreement. If the allocation of income or loss in the partnership
agreement does not have "substantial economic effect" as defined in Code Section
704(b), the law requires the partnership's income or loss to be allocated in
accordance with the partners' economic interests in the partnership. Generally,
the distribution of cash attributable to partnership income is not a taxable
event.
For federal income tax purposes, the Partnership realizes and recognizes
gain or loss separately for each Property sold (and in some cases, for each
building which is part of a property). The amount of gain recognized for federal
income tax purposes with respect to the sale of a Property, if any, will be an
amount equal to the excess of the amount realized (i.e., cash or other
consideration received reduced by the expenses of the sale) over the
Partnership's adjusted tax basis for such asset. Conversely, the amount of loss
recognized with respect to the sale of an asset, if any, will be an amount equal
to the excess of the Partnership's adjusted tax basis over the amount realized
by the Partnership for such asset. The "adjusted tax basis" of a Property is its
cost (including nondeductible capital expenditures made by the Partnership at
the time of purchase) with certain additions or subtractions for expenditures,
receipts, losses, or other items that are properly chargeable to capital
accounts during the period of time from acquisition of the Property until sale
or other disposition. To determine the gain or loss on the sale or other
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<PAGE>
disposition of a Property, tax basis must be (i) increased to include the cost
of capital expenditures such as improvements, betterments, commissions and other
nondeductible charges; and (ii) decreased by (a) items that represent a return
of capital and (b) depreciation and amortization.
Each Unitholder must report his or her allocable share of these gains and
losses in the year in which the Properties are sold. Actual gain or loss amounts
may vary from the estimates set forth below. Each Unitholder's allocable share
of any gain or loss from the Asset Sale and Partnership net income or net loss
from operations will be reflected on his or her applicable Schedule K-l (as
determined in accordance with the allocation provisions contained in the
Partnership Agreement discussed below).
Under Section 702(a)(3) of the Code, a partnership is required to
separately state, and the partners are required to account separately for, their
distributive share of all gains and losses. Accordingly, each Unitholder's
allocable share of any "Section 1231 gain or loss" and any depreciation
recapture realized by the Partnership as a result of any sale of the Properties
would be reportable by such Limited Partner on his or her individual tax return.
Section 1231 gains are those gains arising from the sale or exchange of "Section
1231 Property," which means (i) depreciable assets used in a trade or business
or (2) real property used in a trade or business and held for more than one
year. Conversely, Section 1231 losses are those losses arising from the sale or
exchange of Section 1231 Property.
If Section 1231 losses exceed Section 1231 gains, such losses would be
treated as ordinary losses by the Unitholders. To the extent that Section 1231
gains for any taxable year exceed certain Section 1231 losses for the year,
subject to certain exceptions (such as depreciation recapture discussed below),
such gains and losses shall be treated as long-term capital gains. However,
Section 1231 gains will be treated as ordinary income to the extent of prior
Section 1231 losses from any source that were treated as ordinary in any of the
previous five years.
Under the depreciation recapture rules of Sections 1245 and 1250 of the
Code, a portion of the gain recognized upon the sale or other disposition of
Section 1231 Property may, to the extent of prior depreciation deductions, be
taxed at a higher rate than the rate applicable to long-term capital gains
("Section 1245 gains" and "Section 1250 gains", respectively). The Partnership
does not anticipate that it would have Section 1250 gains as a result of the
Asset Sale, and that Section 1245 gains, if any, will be de minimis.
Capital Gains
For individuals , trusts and estates, long-term capital gains (which
include net gains recognized from the disposition of Section 1231 Property)
generally are taxed at rates lower than those applicable to ordinary income. Net
long term capital gains of such taxpayers will generally be taxed at a maximum
federal income tax rate of 25% to the extent of "unrecaptured Section 1250
gains." Unrecaptured Section 1250 gain for a Property generally will be equal to
the lesser of (a) the amount of gain recognized as a result of the sale of a
Property or (b) the depreciation deductions allowed with respect to such
Property. Remaining net long-term capital gains of such taxpayers generally will
be taxed at a maximum federal income tax rate of 20%. Ordinary income (including
Section 1245 gain and Section 1250 gain) will be taxed at a maximum federal
income tax rate of 39.6%. The determination of the tax rates for different
taxpayers will vary depending on their particular circumstances.
Allocation of Gain and Loss from Sale of Properties
In general, under Paragraph 11.3.5 of the Partnership Agreement, gain
from the sale of Properties are allocated in the following order. First,
Unitholders and General Partners having deficit capital account balances are
allocated gains in proportion to and to the extent of their respective deficit
capital account balances, provided, in no event shall the General Partners be
allocated more than 5% of gain until the earlier of (i) the "Sale or Disposition
of Substantially All of the Assets," or (ii) the distribution of cash other than
Cash From Operations in an aggregate amount equal to the Unitholders' Original
Invested Capital. The Sale or Disposition of Substantially All of the Assets
occurs upon the sale of any Property if the amount of the Original Invested
Capital capitalized as part of the cost of such Property, together with all
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<PAGE>
Original Invested Capital capitalized as part of the cost of all other
Properties previously sold, exceeds 66-2/3% of the aggregate amount of Original
Invested Capital capitalized as part of the cost of all Properties acquired by
the Partnership. "Cash From Operations" generally means, with respect to any
fiscal period, all cash receipts from operations in the ordinary course of
business (except for the sale, exchange or other disposition of real property in
the ordinary course of business). "Original Invested Capital" means the amount
of cash contributed to the Partnership by each Limited Partner in consideration
for his Units. It is anticipated that the Sale or Disposition of Substantially
All of the Assets will occur in 1999, but, depending on when the Partnership's
Properties are sold, it is possible that such event could occur in a later year.
Following the Sale or Disposition of Substantially All of the Assets, it is
anticipated that 100% of gain will be allocated to the General Partners to the
extent of their deficit capital accounts. Second, such gain generally is
allocated among the Unitholders until the capital account balance of each
Unitholder equals the sum of such Unitholder's "Adjusted Invested Capital" for
his or her Units plus the return provided for in paragraphs 11.2.1(ii), (iii),
(iv) and (v) of the Partnership Agreement. For this purpose, "Adjusted Invested
Capital" equals the Unitholder's original capital contribution less any
distributions (other than distributions of Cash From Operations) made to the
Unitholder. Third, remaining gain (if any) is allocated to the General Partners
and Unitholders as needed to first equalize the capital accounts of each
Unitholder in proportion to the number of Units owned by such Unitholder, and
then to bring (i) the capital accounts of all Unitholders (less the amount of
the second allocation described above) and (ii) the capital account of the
General Partners into a ratio of four-to-one. Thereafter, remaining gains (if
any) are allocated 80% to the Unitholders and 20% to the General Partners.
Loss from the sale of Properties generally is allocated 1% to the General
Partners and 99% to the Unitholders, with the amount allocated to Unitholders
allocated among them in proportion to the number of Units held by them. However,
if some Unitholders or General Partners have or will have as a result of an
allocation of loss a deficit balance in their capital accounts while other
Unitholders or General Partners have or will have a positive balance in their
capital accounts, then loss is not allocated to any Unitholder or General
Partner in excess of the positive balance of his capital account until the
balances of all of the Unitholders' or General Partners' capital accounts are
reduced to zero. The General Partners presently have deficit capital accounts.
It is therefore anticipated that all loss from the sale of Properties in a given
year will be allocated to the Unitholders.
The Partnership estimates it WILL recognize, in the aggregate with respect
to all of its Properties, losses of approximately $8,406,582 as a result of the
Asset Sale assuming the Properties are sold for the values reflected in the
January 1999 Appraisals (with nothing paid for the North River Tower parcel of
Land), without taking into account any depreciation for 1999 or thereafter, and
without taking into account the January 1999 sale of the Perris Land (for which
a loss of $3,119,720 was realized). However, depending on the timing of sales of
individual or groups of Properties and whether Properties are sold for cash or
for cash and promissory notes, losses may be realized in some periods and gains
in other periods. See "BENEFITS OF THE ASSET SALE AND DISSOLUTION AND POSSIBLE
CONFLICTS OF THE GENERAL PARTNER AND ITS AFFILIATES."
Distribution of Net Proceeds
In accordance with the Partnership Agreement, distributions of net proceeds
and all other available cash prior to and after dissolution is commenced will be
made in accordance with the Unitholders' and General Partners' capital accounts.
Assuming the Asset Sale and Dissolution is consummated, it is expected that the
General Partners will not receive distributions. After allocating net income or
net loss to the Unitholders, with the concomitant tax basis adjustments, such
distributions will not result in tax consequences to a Unitholder to the extent
such distributions do not exceed such Unitholder's federal income tax basis in
his or her Unit. To the extent that the amount of the distribution is in excess
of such basis, such excess will be taxed as a long-term or short-term capital
gain depending on a Unitholder's holding period.
If upon a subsequent liquidation of the Partnership, a Unitholder has a
basis remaining for his or her Units, the amount of such remaining basis will
give rise, in the year of the liquidation, to a long-term or short-term capital
loss, depending on the Unitholder's holding period. For individuals, trust and
-33-
<PAGE>
estates, the amount of net capital loss that can be utilized to offset ordinary
income will be limited to the lesser of (a) the excess of net capital losses
over the net capital gains from other sources recognized by the Unitholder
during the tax year or (b) $3,000 ($1,500 in the case of a married individual
filing a separate return). The excess amount of such net capital loss can be
carried forward to subsequent years subject to the same limitation.
Passive Loss Limitations
A Unitholder's allocable share of Partnership income or loss may be subject
to the passive activity loss limitations. Unitholders who are individuals,
trusts, estates, or personal service corporations may offset passive activity
losses only against passive activity income. Unitholders who are closely held
corporations may offset passive activity losses against passive activity income
and active income, but may not offset such losses against portfolio income. A
Unitholder's allocable share of any Partnership gain realized on the Asset Sale
will be characterized as passive activity income. Such passive activity income
may be offset by passive activity losses from other passive activity
investments. Because the sale of the last Property pursuant to the Asset Sale
will qualify as a disposition of the Partnership's activity for purposes of the
passive loss rules, a Unitholder's allocable share of any Partnership loss
realized as a result of the Asset Sale and any suspended Partnership losses from
prior years will not be subject to the passive loss limitations in the taxable
year of such sale.
Certain State Income Tax Considerations
Because each state's tax law varies, it is impossible to predict the tax
consequences to the Unitholders in all the state tax jurisdictions in which they
are already subject to tax. Accordingly, the following is a general summary of
certain common (but not necessarily uniform) principles of state income
taxation. State income tax consequences to each Unitholder will depend upon the
provisions of the state tax laws to which the Unitholder is subject. The
Partnership will generally be treated as engaged in business in each of the
states in which the Properties are located, and the Unitholders would generally
be treated as doing business in such states and therefore subject to tax in such
state. Most states modify or adjust the taxpayer's federal taxable income to
arrive at the amount of income potentially subject to state tax. Resident
individuals generally pay state tax on 100% of such state-modified income, while
corporations and other taxpayers generally pay state tax only on that portion of
state-modified income assigned to the taxing state under the state's own
apportionment and allocation rules.
SELECTED FINANCIAL DATA
(in thousands except for per Unit data)
The following selected historical financial data for the Partnership for
each of the years in the five year period ended December 31, 1998, have been
derived from the Partnership's audited financial statements. The data for the
three months ended March 31, 1999 and March 31, 1998 have been derived from
unaudited financial statements appearing in the Partnership's Quarterly Report
on Form 10-Q for its quarter ended March 31, 1999, and which, in the opinion of
the General Partner, includes all adjustments, consisting only of normal
adjustments, necessary for the fair statement of the results for the unaudited
periods. The selected financial data are qualified in their entirety by and
should be read in conjunction with the Partnership's financial statements and
related notes appearing in the Partnership's Annual Report on Form 10-K for the
year ended December 31, 1998, and in the Partnership's Quarterly Report on Form
10-Q for its quarter ended March 31, 1999. These reports (without exhibits)
appears as Appendices B and C hereto, respectively.
-34-
<PAGE>
<TABLE>
<CAPTION>
For the three For the For the one For the
months ended year ended month ended year ended
March 31, Dec. 31, Dec. 31, October 31,
------------ ----------- ----------- ------------
1999 1998 1998 1997 1996 1995 1995 1994
---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Rental Income $ 1,623 $1,910 $6,678 $7,275 $5,149 $ 768 $ 5,784 $5,465
Gain (loss)
on sale of
real estate (4) (11) 5,457 (253) --- --- --- ---
Provision for
impairment
of real
estate
investments --- --- (2,864) (947) --- --- (12,224) ---
Net income
(loss)
(132) (218) 1,904 (3,066) (1,510) (308) (13,417) (663)
Net income
(loss) allo-
cable to
Limited
Partners (132) (218) 1,631 (3,066) (1,510) (308) (13,417) (663)
Net income
(loss)
per Unit (1.72) (2.83) 21.22 (38.40) (18.91) (3.86) (168.03) (8.30)
Total assets 45,252 53,314 45,509 53,401 52,695 48,282 49,321 59,537
Long-term
obligations 15,965 21,941 16,005 22,004 17,256 11,757 11,766 8,860
Cash
distribution
per Unit $ --- $ --- $51.58 $ --- $ --- $ --- $ --- $ ---
</TABLE>
<PAGE>
VOTING SECURITIES AND PRINCIPAL HOLDERS THEREOF
Outstanding Voting Securities; Record Date
As of the Record Date, there were 76,767 Units outstanding, which represent
all of the voting securities of the Partnership. Each Unit is entitled to one
vote. Only Unitholders of record as of the Record Date, will be entitled to
notice of and to execute and deliver a Consent Form.
Security Ownership of Certain Beneficial Owners and Management
The following table sets forth, as of the Record Date, the beneficial
ownership of Units of the Partnership held by Daniel L. Stephenson, the
individual general partner of the Partnership and the sole shareholder, director
and officer of Rancon Financial Corporation, the other general partner of the
Partnership.
<TABLE>
<CAPTION>
Units
Beneficially Percent
Name and Address Owned of Class
---------------- ----- --------
<S> <C> <C>
Daniel L. Stephenson (IRA) 4 *
Daniel L. Stephenson 100 *
Family Trust
27740 Jefferson Avenue
Temecula, CA 92590
------------------
*Less than 1%.
</TABLE>
There are no Unitholders holding five percent (5%) or more of the
Partnership's issued and outstanding Units.
-35-
<PAGE>
MARKET FOR UNITS; DISTRIBUTIONS
There is no established public trading market for the Units.
During the year ended December 31, 1998, a total of 287 Units were
repurchased from Unitholders who had contacted the Partnership seeking avenues
of liquidation for their Units. The purchase prices for such Units ranged from
$290 to $316. Repurchased Units were retired.
The Partnership has not declared or paid any cash distributions to
Unitholders since 1991 except for a $4,000,000 distribution made in November
1998 as a result of the June 1998 sale of the Shadowridge Woodbend Apartments.
See "THE ASSET SALE AND DISSOLUTION PROPOSAL - Background and Reasons for the
Asset Sale - Other Offers; Recent Sales of Properties" and "THE ASSET SALE AND
DISSOLUTION PROPOSAL - Distribution of Net Proceeds."
OTHER MATTERS
There are no other matters other than as set forth in this Statement for
which Consent Forms are being solicited.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS, INCLUDING ESTIMATES
This Statement contains forward-looking statements (including those within
the meaning of the Private Securities Litigation Reform Act of 1995) with
respect to the plans and objectives of the Partnership, the Asset Sale and
Dissolution, distributions resulting from the Asset Sale and Dissolution, the
timing of the Asset Sale and Dissolution, the financial condition and results of
operations of the Partnership, general economic conditions, the real estate
market in general and in the local markets where the Partnership's Properties
are located, and other matters. Statements in this Consent Solicitation
Statement that are not historical facts are hereby identified as
"forward-looking statements" including for the purpose of the safe harbor
provided by Section 21E of the Securities Exchange Act of 1934, as amended. The
words "estimate," "anticipate," "intend," "expect," "may," "believe," "project,"
"continue" and similar expressions (including the negative of such words or
other variations thereon or comparable terminology) are intended to identify
forward-looking statements. These forward-looking statements are found at
various places throughout this Consent Solicitation Statement and the other
documents incorporated herein by reference, including, but not limited to, the
Partnership's Annual Report on Form 10-K for the year ended December 31, 1998
and the Partnership's Quarterly Report on Form 10-Q for the quarter ended March
31, 1999.
Such forward-looking statements, including, without limitation, those
relating to the future plans and objectives of the Partnership, estimates of
future distributions resulting from the Asset Sale and Dissolution, estimates of
the timing of the Asset Sale, dissolution of the Partnership, and distribution
of proceeds, future results of operations of the Partnership, and future
business and economic conditions (including, without limitation, with respect to
the real estate market in general and in the local markets where the
Partnership's Properties are located), wherever such forward-looking statements
occur in this Statement, are necessarily estimates reflecting the best judgment
of the management of the Partnership and involve a number of risks and
uncertainties that could cause actual results to differ materially from those
suggested by the forward-looking statements. All forward-looking statements are
necessarily speculative. Such forward-looking statements should, therefore, be
considered in light of various important factors, risks and uncertainties,
including those set forth in this Statement. Important factors, risks and
uncertainties that could cause actual results to differ materially from
estimates or projections contained in the forward looking statements include,
without limitation:
-36-
<PAGE>
- general economic conditions;
- the condition of the real estate markets, in general, as well
as in the Tri-City, Lake Elsinore and Temecula areas;
- amount of demand for the Partnership's Properties;
- availability of capital for potential purchasers of the Partner-
ship's Properties;
- the ability of the Partnership to sell all of the Properties for
their appraised values as reflected in the Appraisals;
- the dates when the Properties are sold and the amount of any
related Property loans at such time;
- the duration of any installment sale of any of the Properties;
- the fees and expenses of any sales of Properties and Partnership
assets;
- the fees and expenses of dissolving the Partnership; and
- the amount of Partnership liabilities which must be satisfied or
reserved for as part of the Asset Sale and Dissolution.
Readers are cautioned not to attribute undue certainty to the
forward-looking statements contained in this Statement (and in the documents
incorporated by reference herein), which speak only as of the date thereof. The
factors, risks and uncertainties that could cause actual events or results to
differ materially from those referred to in the forward-looking statements and
which are discussed above or in other sections of this Statement should not be
assumed to be the only things that could affect any forward-looking statements
and thus it should not be assumed that silence by the General Partner and the
Partnership over time means that actual events are bearing out as estimated in
such forward-looking statements. Except as may be required by applicable law,
neither the General Partner nor the Partnership undertakes any obligation to
publicly release any revisions to these forward-looking statements to reflect
events or circumstances after the date hereof or to reflect the occurrence of
unanticipated events.
INCORPORATION BY REFERENCE
The following documents, which have been previously filed by the
Partnership with the Securities and Exchange Commission, are hereby incorporated
herein by reference:
(1) The Partnership's Annual Report on Form 10-K for the year ended
December 31, 1998;
(2) The Partnership's Quarterly Report on Form 10-Q for the quarter ended
March 31, 1999, including, without limitation, the information set forth in Part
I thereof; and
(3) All other reports filed pursuant to Sections 13(a) or 15(d) of the
Securities Exchange Act of 1934, as amended, since the end of the fiscal year
covered by the Annual Report on Form 10-K referred to in (1) above.
Pursuant to the regulations of the Securities and Exchange Commission, the
Partnership will provide to each Unitholder of record on the Record Date,
without charge and upon written or oral request of such person, copies of all
reports (excluding exhibits) filed pursuant to Sections 13(a) or 15(d) of the
Securities Exchange Act of 1934, as amended, since the end of the fiscal year
covered by the Annual Report in (1) above and which are not delivered herewith.
Requests should be directed to Preferred Partnership Services, Inc., Attention:
Investor Services, 39560 Stevenson Place, #112, Fremont, California 94539-3074;
telephone no.: 1-888-909-7774 or 510-713-0241; facsimile no.: 510-713-0366.
-37-
<PAGE>
ADDITIONAL INFORMATION
A copy of the Partnership's Annual Report on Form 10-K for the year
ended December 31, 1998 and a copy of the Partnership's Quarterly Report on Form
10-Q for the quarter ended March 31, 1999, in each case without exhibits, are
included as Appendices B and C to this Statement, respectively.
Rancon Realty Fund IV,
a California limited partnership
/S/ DANIEL L STEPHENSON
------------------------------------------
Daniel L. Stephenson, General Partner, and
Chief Executive Officer of
Rancon Realty Corporation, General Partner
July 6, 1999
-38-
<PAGE>
Appendix A
APPRAISAL -CB
SERVICES Richard
Ellis,
Inc.
March 23, 1 999
3501 Jamboree Road
Rancon Realty Fund IV Suite 100
27740 Jefferson Ave., Suite 200 Newport Beach, CA 92660-2940
Temecula, CA 92590 T 949 725 8403
F 949 725 8440
RE: Appraisal of 18 Properties [email protected]
Rancon Realty Fund IV Michael W. Breul, MAI
Senior Managing Director
California State Cert. AG 001722
Dear Sir or Madam:
At your request and authorization, CB Richard Ellis, Inc. has prepared limited
appraisals presented in summary appraisal reports of 18 properties contained in
Rancon Realty Fund IV. Within the various reports and summarized below, are the
market value conclusions of the lease fee or fee simple estate as of January 1,
1999 for all properties except Lake Elsinore Plaza and Parcels 10 and 11 in
Rancon Towne Village. The date of value for Lake Elsinore Plaza is January 27,
1999 and the date of value for Parcels I 0 and 1 1 in Rancon Towne Village is
January 22, 1999.
Data, information, and analysis leading to our value conclusions are
incorporated in the various appraisal reports. This summary should be used only
in conjunction with the appraisal reports, which include all special assumptions
and limiting conditions which are an integral part of our value conclusions
Based on our research and analysis contained in the appraisal reports, our
estimate of the market value of the various properties, 'as is,' as of the dates
of value are summarized as follows:
<TABLE>
<CAPTION>
RANCON REALTY FUND IV
CB Richard Ellis Value Conclusions
File No. Property Name Inclusive of Bonds Net of Bonds
<S> <C> <C> <C>
984581 Carnegie Business Center 1 $3,200,000 N/A
GC, San Bernardino
984601 Circuit City $5,500,000 N/A
GC, San Bernardino
984571 Inland Regional Center Phase 11 $6,200,000 N/A
GC, San Bernardino
984561 One Vanderbilt Way $6,800,000 N/A
GC, San Bernardino
9846111 Promotional Retail Center $6,750,000 N/A
GC, Son Bernardino
984611 Service Retail Center $2,700,000 N/A
GC, San Bernardino
984591 TGIF Fridays $1,760,000 N/A
GC, San Bernardino
9845611 Two Vanderbilt Way $6,060,000 N/A
GC, San Bernardino
</TABLE>
Appendix A-1
<PAGE>
March 23, 1 999
Page 2
<TABLE>
<CAPTION>
CB Richard Ellis Value Conclusions
File No. Property Name Inclusive of Bonds Net of Bonds
<S> <C> <C> <C>
98462 VII Brier Business Center 1 $ 365,000 $295,000
GC, Corporate
98462 VIII Brier Plaza $ 315,000 $255,000
GC, Corporate
9846311 Inland Regional Center $ 665,500 $505,000
GC, Corporate
98465 North River Tower -0- -0-
GC, Corporate
984601 Office Max & Mimi's Cafe $ 3,450,000 $3,450,000
GC, Corporate
9846411 South Palm Court Pad 1 $230,000 $ 220,000
GC, Corporate
98464111 South Palm Court Pad 2 $147,000 $ 140,000
GC, Corporate
98462 VI Vanderbilt Tower $660,000 $ 560,000
GC, Corporate
98716 Parcels 1 0 and I 1 $505,000 NA
98717 Lake Elsinore Plaza $ 2,450,000
</TABLE>
In accordance with prior mutual agreement between CB Richard Ellis, Inc.,
Appraisal Services and Rancon Realty funds the process utilized in this
assignment is termed a Limited Appraisal. As defined by the Uniform Standards of
Professional Appraisal Practice, A Limited Appraisal Analyses is the act or
process of estimating value or an estimate of value performed under and
resulting from invoking the Department Provision of USPAP. The Limited nature of
this appraisal is that for the improved properties we have excluded the Cost
Approach and abbreviated the Sales Comparison Approach. The primary method used
to value the improved properties is the Income Capitalization Approach, with a
Discounted Cash Flow Analysis. The vacant land parcels have been valued using
only the Sales Comparison Approach.
This Limited Appraisal is presented in the form of a summary Appraisal Report,
which is intended to comply with the reporting requirements set forth under
Standards Rule 2-2(b) of the Standards of Professional Appraisal Practice. The
Summary Appraisal Report presents only summary discussions of the data,
reasoning, and analysis that were used in the appraisal process to develop our
opinions of value. Supporting documentation concerning the data, reasoning and
analysis is retained in our files. The depth of discussion contained in the
report is specific to the needs of the client and for the intended use stated in
the reports.
Appendix A-2
<PAGE>
March 23, 1999
Page 3
It has been a pleasure to assist you in this assignment. If you have any further
questions concerning the analysis, or if CB Richard Ellis, Inc. can be of
further service, please do not hesitate to contact us.
Respectfully Submitted,
CB RICHARD ELLIS
APPRAISAL SERVICES
/S/ MICHAEL W BREUL, MAI
Michael W. Breul, MAI
Senior Managing Director
California State Certification No. AGO01 722
Appendix A-3
<PAGE>
APPENDIX B
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)OF THE SECURITIE
EXCHANGE ACT OF 1934.
For the year ended December 31, 1998
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: 0-14207
RANCON REALTY FUND IV
A CALIFORNIA LIMITED PARTNERSHIP
(Exact name of registrant as specified in its charter)
California 33-0016355
---------- ----------
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
400 South El Camino Real, Suite 1100 94402-1708
- ------------------------------------ ----------
San Mateo, California (Zip Code)
(Address of principal executive offices)
Partnership's telephone number, including area code (650) 343-9300
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Units of Limited Partnership Interest
-------------------------------------
(Title of class)
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
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
State the aggregate market value of the voting stock held by non-affiliates of
the Partnership. Not applicable.
No market for the Limited Partnership Units exists and therefore a market value
for such Units cannot be determined.
DOCUMENTS INCORPORATED BY REFERENCE:
Prospectus dated December 29, 1986, as amended on January 5, 1987, filed
pursuant to Rule 424(b),File no.2-90327,is incorporated by reference in Part IV
hereof.
Appendix B-1
<PAGE>
Part I
Item 1. Business
Rancon Realty Fund IV, a California Limited Partnership, ("the Partnership") was
organized in accordance with the provisions of the California Uniform Limited
Partnership Act for the purpose of acquiring, developing, operating and
ultimately selling real property. The Partnership was organized in 1984 and
reached final funding in July, 1987. The general partners of the Partnership are
Daniel L. Stephenson ("DLS") and Rancon Financial Corp. ("RFC") collectively,
the General Partner. RFC is wholly owned by DLS. At December 31, 1998, 76,767
limited partnership units ("Units") were outstanding. The Partnership has no
employees.
In April 1996, the Partnership formed Rancon Realty Fund IV Tri-City Limited
Partnership, a Delaware limited partnership ("RRF IV Tri-City"). As required by
the lender (Bear, Stearns Funding, Inc.) of a $6,400,000 loan obtained by the
Partnership in 1996, the Partnership contributed three of its operating
properties to RRF IV Tri-City to provide a bankruptcy remote borrower for the
lender. The loan, secured by the properties in RRF IV Tri-City, has a principal
balance of $6,290,000 at December 31, 1998, and matures on May 1, 2006 with an
8.744% fixed interest rate and a 25-year amortization of principal. The limited
partner of RRF IV Tri-City is the Partnership and the general partner is Rancon
Realty Fund IV, Inc. ("RRF IV, Inc."), a corporation wholly owned by the
Partnership. Since the Partnership owns 100% of RRF IV, Inc. and indirectly owns
100% of RRF IV Tri-City, the Partnership considers all assets owned by RRF IV,
Inc. and RRF IV Tri-City to be owned by the Partnership.
In 1997, the Partnership entered into an agreement to sell all of its real
estate assets to Glenborough Realty Trust Incorporated, a Maryland corporation
("GLB") and Glenborough Properties L.P. ("GPLP") (collectively as the "Buyer"),
and then to liquidate the Partnership, as described in a Consent Solicitation
Statement sent to the Unitholders on October 17, 1997 (and filed with the
Securities and Exchange Commission on the same date under cover of Schedule 14A)
upon the completion of the sale. In November 1997, the Unitholders consented to
the sale of the Partnership's real estate assets and the subsequent liquidation
of the Partnership with sixty percent of the total outstanding Units cast in
favor of such proposal. However; in December 1997, the General Partner
determined that it would be in the best interest of the Partnership to rescind
the agreement for the sale of the real estate assets. The General Partner
experienced greater than anticipated opposition to the timing of the sale by the
Limited Partners who voted against (11% of the outstanding Units), abstained
from (1% of the outstanding Units), or did not respond to (27% of the
outstanding Units) the proposal. In addition, the General Partner, sensing the
beginning of positive changes in the real estate market, believed that holding
the Partnership's real estate assets for an additional period of time would
provide the Partnership with the opportunity to recognize an appreciation in its
value.
As part of the Partnership's agreement with the Buyer to rescind the agreement
for the sale of real estate assets, the Partnership granted to the Buyer a right
to match offers for the purchase of the Partnership's properties ("GLB Matching
Right"). Pursuant to the GLB Matching Right, the Partnership agreed that if it
decided to sell all or any portion of the properties, it would do so by
requesting multiple party offers, and upon its decision to accept an offer, the
Partnership is required to give prompt written notice to the Buyer of the price
and other terms and conditions of the offer upon which it is willing to sell the
properties. The Buyer has ten days after receipt of the written notice to accept
or reject the purchase price and other terms and conditions of the sale. If the
Buyer exercises its matching right, the Partnership and the Buyer must promptly
Appendix B-2
<PAGE>
execute a purchase agreement, and if on the other hand, the Buyer notifies
thePartnership that it does not intend to, or fails to respond within the ten
dayperiod, the Partnership has the right to sell the properties to the third
party offerer on the identical terms and conditions as set forth in the
Partnership's notice to Buyer.
The General Partner currently plans to seek the Limited Partners' consent to
sell all of the Partnership's remaining properties and liquidate the
Partnership. The General Partner hopes to mail consent solicitation materials to
the Limited Partners in the second quarter of 1999 and has filed preliminary
consent solicitation materials with the United States Securities and Exchange
Commission (the "Commission"). Assuming a proposal to sell all of the
Partnership's remaining properties and liquidate the Partnership is submitted to
and approved by the Limited Partners, the General Partner currently intends to
sell all of the Partnership's remaining properties in 1999 and distribute the
proceeds and liquidate the Partnership after all of the properties are sold and
the cash proceeds thereof received, which is not expected to occur prior to at
least early to mid-2000 (and potentially not until 2001) as some of the
properties may be sold with the purchase price payable on an installment basis.
The Partnership has not, as of the date of the filing of this Annual Report on
Form 10-K with the Commission, entered into any agreement for the sale of its
remaining properties. If the Limited Partners consent to the Partnership selling
all of its remaining properties and then liquidating, the General Partner
currently intends to offer the Partnership's remaining properties for sale by
soliciting bids from various potential purchasers.
The discussion above contains forward-looking statements regarding the
Partnership's plans, goals and expectations, including statements regarding the
Partnership's estimate of the timing of the sale of the Partnership's remaining
properties, the distribution of proceeds and the liquidation of the Partnership.
Forward-looking statements are necessarily speculative, there being certain
risks and uncertainties that could cause actual events or results to differ
materially from those referred to in the forward-looking statements. The General
Partners' current plans are subject to change, including in the event of changes
in general business and economic conditions as well as changes in the local real
estate markets where the Partnership's properties are located. There can be no
assurance that regulatory approval will be obtained, if and when consent
solicitation materials will be mailed to Limited Partners, that a proposal for
the sale of all of the Partnership's remaining properties and liquidation of the
Partnership will be approved, or if and when the properties will be sold, the
proceeds distributed and the Partnership liquidated. The timing of any sale of
the Partnership's remaining properties, the distribution of proceeds, and the
liquidation of the Partnership are subject to various and significant
uncertainties, many of which are beyond the Partnership's control and which
could delay any sale of the Partnership's remaining properties, liquidation of
the Partnership, and distribution of proceeds significantly beyond the time
periods estimated above. Among such uncertainties are the date when any consent
solicitation materials are mailed to the Limited partners, the date when consent
of the Limited Partners is obtained (assuming it is obtained), the demand for
the Partnership's properties by potential purchasers, the availability of
capital for potential purchasers, the actual dates when properties are sold, and
the duration of any installment sales of any of the properties.
If a proposal for the sale of the Partnership's properties and liquidation of
the Partnership is submitted to the Limited Partners, but not approved, the
Partnership currently intends to continue to operate the properties and attempt
to sell such properties in single or multiple sales and develop properties it
believes are developable and would improve its return on investment.
Appendix B-3
<PAGE>
At December 31, 1998, the Partnership owned ten rental properties totaling
approximately 452,000 square feet of space in a master-planned development known
as Tri-City Corporate Centre ("Tri-City") in San Bernardino, California.
Tri-City is zoned for mixed commercial, office, hotel, transportation-related,
and light industrial uses and all of the parcels thereof are separately owned by
the Partnership and Rancon Realty Fund V ("Fund V"), a partnership sponsored by
the general partners of the Partnership. At December 31, 1998, the Partnership
also owned for development or sale approximately 23.0 acres in Tri-City, 24.8
acres in Lake Elsinore, California, 17.14 acres in Perris, California and
approximately 1.80 acres in Temecula, California.
Competition Within the Market
- -----------------------------
The Partnership competes in the leasing and sale of its properties primarily
with other available properties in the local real estate market. Management is
not aware of any specific competitors of the Partnership's properties doing
business on a significant scale in the local market. Management believes that
characteristics influencing the competitiveness of a real estate project are the
geographic location of the property, the professionalism of the property manager
and the maintenance and appearance of the property, in addition to external
factors such as general economic circumstances, trends, and the existence of
new, competing properties in the vicinity. Additional competitive factors with
respect to commercial and industrial properties are the ease of access to the
property, the adequacy of related facilities, such as parking, and the ability
to provide rent concessions and tenant improvements commensurate with local
market conditions. Although management believes the Partnership properties are
competitive with comparable properties as to those factors within the
Partnership's control, over-building and other external factors could adversely
affect the ability of the Partnership to attract and retain tenants. The
marketability of the properties may also be affected (either positively or
negatively) by these factors as well as by changes in general or local economic
conditions, including prevailing interest rates. Depending on market and
economic conditions, the Partnership may be required to retain ownership of its
properties for periods longer than anticipated, or may need to sell earlier than
anticipated or refinance a property, at a time or under terms and conditions
that are less advantageous than would be the case if unfavorable economic or
market conditions did not exist.
Working Capital
- ---------------
The Partnership's practice is to maintain cash reserves for normal repairs,
replacements, working capital and other contingencies. The Partnership knows of
no statistical information, which allows comparison of its cash reserves to
those of its competitors.
Other Factors
- -------------
Approximately 15 acres of the Tri-City Corporate Centre land owned by the
Partnership was part of a landfill operated by the City of San Bernardino ("the
City") from approximately 1950 to 1960. There are no records of which the
Partnership is aware disclosing that hazardous wastes exist at the landfill. The
Partnership's landfill monitoring program currently meets or exceeds all
regulatory requirements and no material capital expenditures have been incurred
with respect thereto. The Partnership is working with the Santa Ana Region of
the California Regional Water Quality Control Board and the City to determine
the need and responsibility for any further testing. There is no current
requirement to ultimately clean up the site; however, no assurance can be made
that circumstances will not arise which could impact the Partnership's
responsibility related to the property.
Appendix B-4
<PAGE>
Item 2. Properties
Tri-City Corporate Center
- -------------------------
Between December 24, 1984 and August 19, 1985, the Partnership acquired a total
of 76.56 acres of partially developed land in Tri-City for an aggregate purchase
price of $9,917,000. During that time, Fund V acquired the remaining 76.21 acres
within Tri-City.
Tri-City is located at the northeastern quadrant of the intersection of
Interstate 10 (San Bernardino Freeway) and Waterman Avenue in the southernmost
part of the City of San Bernardino, and is in the heart of the Inland Empire,
the most densely populated area of San Bernardino and Riverside Counties.
The Partnership has constructed and owns the following ten operating properties
in Tri-City:
<TABLE>
<CAPTION>
Property Type Square Feet
-------- ---- -----------
<S> <C> <C>
One Vanderbilt Four story office building 73,730
Two Vanderbilt Four story office building 69,046
Carnegie Business Center I Two R & D buildings 62,539
Service Retail Center Two retail buildings 20,780
Promotional Retail Center Four strip center retail buildings 66,265
Inland Regional Center Two story office building 81,079
TGI Friday's Restaurant 9,386
Circuit City Retail building 39,123
Office Max Retail building 23,500
Mimi's Cafe Restaurant 6,455
</TABLE>
These properties total approximately 452,000 leasable square feet and offer a
wide range of retail, commercial, R & D and office products to the market.
The Inland Empire is generally broken down into two major markets, Inland Empire
East and Inland Empire West. Tri-City Corporate Centre is located within the
Inland Empire East market, which consists of a total of 10,440,330 square feet
of office space and an overall vacancy rate of approximately 25% as of December
31, 1998, according to research conducted by an independent broker.
Within the Tri-City Corporate Centre at December 31, 1998, the Partnership has
223,855 square feet of office space with an average vacancy rate of 3%, 165,509
square feet of retail space with an average vacancy rate of 12% and 62,539
square feet of R & D space with a vacancy rate of 22%.
Appendix B-5
<PAGE>
Occupancy levels for the Partnership's Tri-City buildings at December 31, 1998,
1997 and 1996 and October 31, 1995 and 1994, expressed as a percentage of the
total net rentable square feet are as follows:
<TABLE>
<CAPTION>
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
One Vanderbilt 91% 80% 86% 70% 100%
Two Vanderbilt 100% 93% 25% 95% 100%
Carnegie Business Center I 78% 69% 90% 97% 100%
Service Retail Center 95% 100% 100% 90% 98%
Promotional Retail Center 98% 97% 98% 97% 94%
Inland Regional Center (commenced
June 1996) 100% 100% 100% N/A N/A
TGI Friday's(commenced February 1997)100% 100% N/A N/A N/A
Circuit City (commenced May 1997) 100% 100% N/A N/A N/A
Office Max (commenced October 1998) 100% N/A N/A N/A N/A
Mimi's Cafe
(placed in service December 1998) 100% N/A N/A N/A N/A
</TABLE>
In 1998, management renewed four leases totaling 15,089 square feet of space,
expanded three existing tenants by 10,340 square feet and executed three new
leases totaling 12,458 square feet of space. Slightly offsetting these increases
in occupancy were the vacancy of five tenants, which occupied a total of 11,001
square feet of space. During 1999, there are seven leases totaling 17,748 square
feet that are due to expire. Management believes that at least two tenants,
occupying a total of 3,079 square feet will vacate when their leases expire in
1999. The remaining five tenants occupying an aggregate 14,669 square feet have
not indicated whether they will renew their lease or vacate the premises.
The annual effective rent per square foot for the years ended December 31, 1998,
1997, 1996 and October 31, 1995 were as follows:
<TABLE>
<CAPTION>
1998 1997 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
One Vanderbilt $17.38 $17.13 $18.07 $20.94
Two Vanderbilt $16.58 $15.35 $13.91 $19.16
Carnegie Business Center I $10.33 $10.51 $10.02 $11.00
Service Retail Center $16.08 $15.71 $14.37 $14.63
Promotional Retail Center $10.41 $10.10 $ 9.85 $10.49
Inland Regional Center $13.62 $13.62 $13.49 N/A
TGI Friday's $19.18 $19.18 N/A N/A
Circuit City $13.38 $13.38 N/A N/A
Office Max $11.75 N/A N/A N/A
Mimi's Cafe $13.17 N/A N/A N/A
</TABLE>
Annual effective rent is calculated by dividing the aggregate of annualized
current month rental income for each tenant by the total square feet occupied at
the property. At December 31, 1998, the Partnership's annual rental rates ranged
from $13.62 to $22.80 per square foot for office space; $9.00 to $19.18 per
square foot for commercial space; and $9.00 to $10.51 per square foot for R & D
space.
Appendix B-6
<PAGE>
The annual effective rental rate at Two Vanderbilt increased by 8% in 1998
compared to 1997 due to the expansion of leased space by an existing tenant
during 1998, totaling 8,336 square feet. This expansion resulted in an increase
in the occupancy at this property from 93% at December 31, 1997 to 100% at
December 31, 1998.
According to research conducted by the Partnership's property manager, the
average annual effective rent per square foot for office space in the
Partnership's competitive market ranges from $13.08 to $20.16. Since there is no
comparable R & D space or measurable commercial space available in the market,
management determines the asking rents based on discussions with independent
leasing brokers.
During 1998, the Partnership determined that the carrying value of the Inland
Regional Center rental property was in excess of its estimated fair value and
accordingly recorded a provision for impairment of $1,482,000.
The Partnership's Tri-City properties had the following seven tenants which
occupied a significant portion of the net rentable square footage as of December
31, 1998:
<TABLE>
<CAPTION>
Inland Regional ITT Educational Comp
Tenant Center Services USA
------ ------ -------- ---
<S> <C> <C> <C>
Inland Carnegie
Regional Business Promotional
Building Center Center I Retail
Nature of Business Social Educational Computer
Services Services Retail
Lease Term 13 yrs. 12 yrs. 10 yrs.
Expiration Date 7/16/09 12/31/04 8/31/03
Square Feet 81,079 33,551 23,000
(% of rentable total) 18% 7% 5%
Annual Rent $1,104,000 $392,268 $229,360
Future Rent Increases 6% every 3% annually 10% in
2.5 years 2003
four 5-year one 5-year three 5-year
Renewal Options options option options
</TABLE>
Appendix B-7
<PAGE>
<TABLE>
<CAPTION>
Circuit Inland Empire Office
Tenant PetsMart City Health Plan Max
------ -------- ---- ----------- ---
<S> <C> <C> <C> <C>
Promotional Circuit Two Office
Building Retail City Vanderbilt Max
Nature of Business Pet Retail Electronics HMO Supplies
Retail Retail
Lease Term 15 yrs. 20 yrs. 5 yrs. 15 yrs.
Expiration Date 1/10/09 1/31/18 3/31/02 10/31/13
Square Feet 25,015 39,123 44,094 23,500
(% of rentable total) 6% 9% 10% 5%
Annual Rent $273,840 $563,868 $591,078 $276,125
Future Rent Increases 5% in 1999 lesser of 10% 3% in 1999 5% in
and 2004 or 5 yr. CPI 2003
every 5 years
during lease
term
one 5-year four 5-year fifteen
Renewal Options option options none 5-year
options
</TABLE>
In the opinion of management,the properties are adequately covered by insurance.
The Partnership's Tri-City rental properties are owned by the Partnership, in
fee, subject to the following notes and deeds of trust:
<TABLE>
<CAPTION>
Service Retail Center,
Carnegie Business Center Inland CircuitCity
One and Regional and
Security Vanderbilt Promotional Retail Center Center TGIFriday's
- -------- ---------- ------------------------- ------ -----------
<S> <C> <C> <C> <C>
Principal balance
at December
31,1998 $2,286,000 $6,290,000 $2,429,000 $5,000,000
Interest Rate 9% 8.74% 8.75% 1% in
excess of
"Prime Rate"
Monthly Payment $20,141 $53,413 $20,771 Interest
only
Maturity Date 1/1/05 5/1/06 4/23/01 4/30/99
</TABLE>
During 1998, the Partnership's Tri-City rental properties were assessed $541,000
in property taxes based on an average realty tax rate of1.80%(which includes.69%
in additional assessments)
Tri-City Land
- -------------
Approximately 23 acres of the Tri-City property owned by the Partnership remain
undeveloped. The Partnership's intention has been to develop parcels of this
land as tenants become available or dispose of the property at the optimal time
and sales price. During 1998, management determined that the carrying value of
the land was in excess of its estimated fair value and, accordingly, recorded a
provision for impairment of the real estate of $129,000.
Appendix B-8
<PAGE>
During 1998, the Partnership's Tri-City land was assessed $304,000 in property
taxes based on an average realty tax rate of 5.53% (which includes 4.42% in
additional assessments and bonds).
Shadowridge Woodbend Apartments
- -------------------------------
On June 26, 1987, the Partnership acquired a 240-unit apartment complex known as
Shadowridge Woodbend Apartments ("Shadowridge") in an all cash transaction for
$12,850,000.
On June 4, 1998, the Partnership sold Shadowridge to an unaffiliated entity for
$16,075,000. The Partnership recognized a gain on the sale of the rental
property of $5,468,000 and realized net proceeds of $9,806,000 after paying off
the related secured debt.
Lake Elsinore Property
- ----------------------
In 1988, the Partnership acquired 17 parcels, totaling approximately 24.8 acres
in Lake Elsinore, Riverside County, California for a purchase price of
$4,475,000. The property is immediately west of Interstate 15 near the Lake
Elsinore Outlet Center. The undeveloped property is commercially zoned. The
Partnership had originally planned to develop this site as a neighborhood
shopping center, however, improvements to the property have been put on hold
indefinitely. A tentative parcel map expired and there is no development
activity planned for the near future
In the opinion of management, the property is adequately covered by insurance.
At December 31, 1998, the Lake Elsinore property is unencumbered.
During 1998, the Lake Elsinore property was assessed $37,000 in property taxes
based on an average realty tax rate of 1.71%.
Perris Property
- ---------------
In 1988, the Partnership acquired 17.14 acres of unimproved land near Perris
Lake in Perris, Riverside County, California at a purchase price of $3,000,000.
There has been no development of this property to date.
As of December 31, 1997, the Perris land had been written down to its then
estimated fair value of $1,386,000. During 1998, the Partnership determined that
the carrying value of the Perris land was further impaired and accordingly
recorded an additional provision for impairment of $1,086,000.
In December 1998, the Partnership entered into an agreement to sell the Perris
property to an unaffiliated third party for $334,800, before selling expenses.
On January 15, 1999, the Perris property was sold and the Partnership received
$297,000 of net sales proceeds, which were added to cash reserves. At December
31, 1998 and at the time of sale, the Perris property was unencumbered.
Appendix B-9
<PAGE>
During 1998, the Perris property was assessed $17,000 in property taxes based on
an average realty tax rate of 1.12%.
Temecula Property
- -----------------
In June 1992, the Partnership acquired 12.4 acres of undeveloped commercial
property in Temecula, Riverside County, California (referred to as Rancon Towne
Village). On January 2, 1996, a final map approval was received to divide the
property into twelve parcels to accommodate retail and commercial development.
This enabled the Partnership to market these smaller parcels for sale. The
Partnership completed the street utility and sewer improvements on this site,
which greatly assisted in the marketing efforts of the property. In 1997, the
Partnership sold nine of the Rancon Towne Village lots totaling approximately
8.53 acres for an aggregate sales price of $2,534,000. On January 27, 1998, the
Partnership sold one of the three remaining Rancon Towne Village lots to an
unaffiliated entity for $270,000. The Partnership recognized an $11,000 loss on
the sale and realized net proceeds of $241,000.
In 1998, management determined that the carrying value of the two remaining
Rancon Towne Village lots was in excess of its estimated fair value and,
accordingly, recorded a provision for impairment of real estate of $167,000.
At December 31, 1998, the Temecula property is unencumbered.
In the opinion of management, the property is adequately covered by insurance.
The Partnership is contingently liable for a subordinated note payable in
connection with the land in Temecula, California, that the Partnership
reacquired in June 1992 through a deed in lieu of foreclosure in satisfaction of
a $2,276,000 note receivable. The subordinated note payable and accrued interest
total $566,000 as of December 31, 1998. This amount is payable upon the sale of
the property only after the Partnership receives the full amount of the prior
note receivable with accrued and unpaid interest, costs of development, costs of
sale, and other amounts paid to obtain good title to the property, subject to
certain release provisions. Since the circumstances under which this liability
would be payable are limited, the note payable and accrued interest have not
been recorded in the accompanying financial statements; however, the amount will
be recognized prior to recording any gain on the sale of the related land.
During 1998, the Temecula property was assessed $12,000 in property taxes based
on an average realty tax rate of 3.22% (including 2.07% special assessments and
bonds).
Item 3. Legal Proceedings
None.
Item 4. Submission of Matters to a Vote of Security Holders
No matters were submitted to a vote of the Limited Partners during the fourth
quarter of 1998
Appendix B-10
<PAGE>
Part II
Item 5. Market for Partnership's Common Equity and Related Stockholder Matter
Market Information
- ------------------
There is no established trading market for the Units issued by the Partnership.
Holders
- -------
As of December 31, 1998, there were 10,952 holders of Partnership Units.
Distributions
- -------------
Distributions are paid from either Cash From Operations or Cash From Sales or
Refinancing (as such terms are defined in the Partnership Agreement).
On November 30, 1998, the Partnership declared and paid a distribution of
$40,000 and $3,960,000 to the General Partner and Limited Partners,
respectively, which resulted from the gain on sale of the Shadowridge Woodbend
Apartments. There were no distributions made by the Partnership in 1997 and
1996.
Cash from Operations includes all cash receipts from operations in the ordinary
course of business (except for the sale, refinancing, exchange or other
disposition of real property in the ordinary course of business) after deducting
payments for operating expenses. All distributions of Cash From Operations are
paid in the ratio of 90% to the Limited Partners and 10% to the General
Partners.
Cash From Sales or Refinancing is the net cash realized by the Partnership from
the sale, disposition or refinancing of any property after retirement of
applicable mortgage debt and all expenses related to the transaction, together
with interest on any notes taken back by the Partnership upon the sale of a
property. All distributions of Cash From Sales or Refinancing are generally
allocated as follows: (i) first, 1 percent to the General Partner and 99 percent
to the Limited Partners until the Limited Partners have received an amount equal
to their capital contributions, plus a 12 percent return on their unreturned
capital contributions (less prior distributions of Cash from Operations); (ii)
second, to Limited Partners who purchased their units of limited partnership
interest prior to April 1, 1985, to the extent they receive an additional return
(depending on the date on which they purchased the units) on their unreturned
capital of either 9 percent, 6 percent or 3 percent (calculated through October
31, 1985); and (iii) third, 20 percent to the General Partner and 80 percent to
the Limited Partners. A more explicit statement of these distribution policies
is set forth in the Partnership Agreement.
Appendix B-11
<PAGE>
Item 6. Selected Financial Data
The following is selected financial data for the years ended December 31, 1998,
1997 and 1996, the two months ended December 31, 1995 and the years ended
October 31, 1995 and 1994 (in thousands, except per Unit data: For the two For
the
<TABLE>
<CAPTION>
For the two For the
For the years months years
ended ended ended
December 31, December 31, October 31,
--------------- --------------- ----------------
1998 1997 1996 1995 1995 1994
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Rental Income $6,678 $7,275 $5,149 $768 $5,784 $ 5,465
Gain (loss)
on sale of
real estate $5,457 $(253) $ - $ - $ - $ -
Provision for
impairmentof real
estate investments $(2,864) $(947) $- $- $(12,224) $ -
Net income (loss) $1,904 $(3,066) $(1,510) $(308) $(13,417) $ (663)
Net income (loss)
allocable to
Limited Partners $1,631 $(3,066) $(1,510) $(308) $(13,417) $ (663)
Net income (loss)
per Unit $21.22 $(38.40) $(18.91) $(3.86) $(168.03) $ (8.30)
Total assets $45,509 $53,401 $52,695 $48,282 $49,321 $59,537
Long-term
obligations $16,005 $22,004 $17,256 $11,757 $11,766 $ 8,860
Cash distributions $51.58 $- $- $ - $- $-
per Unit
</TABLE>
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
LIQUIDITY AND CAPITAL RESOURCES
The following discussions should be read in conjunction with the financial
statements and the notes thereto in Item 14 of Part IV.
At December 31, 1998, the Partnership had cash of $4,297,000 (exclusive of
$369,000 in restricted cash). The remainder of the Partnership's assets
consisted primarily of its net investments in real estate, totaling
approximately $38,097,000 which includes $33,781,000 in rental properties,
$1,575,000 of land held for development and $2,741,000 of undeveloped land held
for sale.
The Partnership's business strategy has been to focus on the eventual
disposition of its assets at the optimal time and sales price. As discussed in
Item 1, the General Partner currently plans to seek the Limited Partners'
consent to sell all of the Partnership's remaining properties and liquidate the
Partnership, and the General Partner has filed preliminary consent solicitation
materials with the Securities and Exchange Commission.
In 1998 and 1997, management determined that the carrying values of certain
Partnership's investments in real estate were in excess of such property's
estimated fair value and, accordingly, recorded provisions for impairment
totaling $2,864,000 and $947,000 in 1998 and 1997, respectively
Appendix B-12
<PAGE>
Operationally, the Partnership's primary sources of funds consist of cash
provided by its rental activities. Other sources of funds may include permanent
financing, property sales, interest income on certificates of deposit and other
deposits of funds invested temporarily. Cash generated from property sales are
generally added to the Partnership's cash reserves, pending use in development
of other properties, or are distributed to the partners.
The Partnership's restricted cash at December 31, 1998 consists of a $269,000
certificate of deposit ("CD") for Inland Regional Center's security deposit
("IRC CD") and a $100,000 CD held as collateral for subdivision improvements and
monument bonds related to the land for sale in Temecula, California ("Temecula
CD"). Pursuant to the lease, the IRC CD will be converted to prepaid rent after
the 60th month of the lease and will be applied towards the IRC's monthly rent
until exhausted, provided that IRC is not in default of the lease and IRC
receives a five-year extension for its contract term with the State of
California. Management is currently working with the City of Temecula to obtain
release of the Temecula CD, or reduce the collateral to cover the costs of a
traffic signal installation within the property ("Traffic Signal Mitigation
Cost"). The Traffic Signal Mitigation Cost is approximately $25,000.
The Partnership's improved cash position at December 31, 1998 compared to
December 31, 1997 is primarily due to the net proceeds (after repayment of debt
and distributions to partners) from the sale of the Shadowridge Woodbend
Apartment complex in June 1998.
The Partnership is contingently liable for a subordinated note payable in
connection with the land in Temecula, California, that the Partnership
reacquired in June 1992 through a deed in lieu of foreclosure in satisfaction of
a $2,276,000 note receivable. The subordinated note payable and accrued interest
total $566,000 as of December 31, 1998. This amount is payable upon the sale of
the property only after the Partnership receives the full amount of the prior
note receivable with accrued and unpaid interest, costs of development, costs of
sale, and other amounts paid to obtain good title to the property, subject to
certain release provisions. Since the circumstances under which this liability
would be payable are limited, the note payable and accrued interest have not
been recorded in the accompanying financial statements; however, the amount will
be recognized prior to recording any gain on the sale of the related land.
The Partnership also remains contingently liable for subordinated real estate
commissions payable to the General Partner in the amount of $643,000 at December
31, 1998 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 6% per annum on their adjusted invested capital. Since
the circumstances under which these commissions would be payable are limited,
the liability has not been recognized in the accompanying financial statements;
however, the amount will be recorded when and if it becomes payable.
Aside from the foregoing and the current plan to potentially sell all of the
Partnership's remaining properties and liquidate the Partnership, the
Partnership knows of no demands, commitments, events or uncertainties, which
might effect its liquidity or capital resources in any material respect. In
addition, the Partnership is not subject to any covenants pursuant to its
secured debt that would constrain its ability to obtain additional capital.
Appendix B-13
<PAGE>
Management believes that the Partnership's cash balance as of December 31, 1998
together with the cash from operations, sales and financing, will be sufficient
to finance the Partnership's and the properties' continued operations and
development plans, on a short-term basis and for the reasonably foreseeable
future. There can be no assurance that the Partnership's results of operations
will not fluctuate in the future and at times affect its ability to meet its
operating requirements.
RESULTS OF OPERATIONS
- ---------------------
1998 versus 1997
- ----------------
Revenue
Rental income for the year ended December 31, 1998 decreased $597,000 or 8%
compared to the year ended December 31, 1997 primarily as a result of the loss
of rental income due to the June 1998 sale of Shadowridge Woodbend Apartments
("Shadowridge"). This decrease was offset by the commencement of the operations
of Office Max in October 1998 and the increased occupancy at One Vanderbilt, Two
Vanderbilt, Carnegie Business Center I, and Promotional Retail Center.
Occupancy rates at the Partnership's Tri-City properties as of December 31,
1998, 1997 and 1996, and October 31, 1995 and 1994 were as follows:
<TABLE>
<CAPTION>
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
One Vanderbilt 91% 80% 86% 70% 100%
Two Vanderbilt 100% 93% 25% 95% 100%
Carnegie
Business Center I 78% 69% 90% 97% 100%
Service Retail Center 95% 100% 100% 90% 98%
Promotional Retail Center 98% 97% 98% 97% 94%
Inland Regional Center
(commenced June 1996) 100% 100% 100% N/A N/A
TGI Friday's
(commenced February 1997) 100% 100% N/A N/A N/A
Circuit City
(commenced May 1997) 100% 100% N/A N/A N/A
Office Max
(commenced October 1998) 100% N/A N/A N/A N/A
Mimi's Cafe
(placed in service 100% N/A N/A N/A N/A
December 1998)
</TABLE>
The eleven-percent increase in occupancy from December 31, 1997 to December 31,
1998 at One Vanderbilt is attributed to leasing 15,946 square feet to a new
tenant and expanding the leased space of an existing tenant.
The seven-percent increase in occupancy from December 31, 1997 to December 31,
1998 at Two Vanderbilt is attributed to the expansion of the leased space of an
existing tenant.
The nine-percent increase in occupancy from December 31, 1997 to December 31,
1998 at Carnegie Business Center I is attributed to leasing of 3,221 square feet
of space to a new tenant and expanding another lease by 1,608 square feet.
The construction of Office Max and Mimi's Cafe, 23,500 and 6,455 square feet
build-to-suit retail buildings, were completed during 1998, with lease
commencements on October 15, 1998 and January 4, 1999, respectively.
Appendix B-14
<PAGE>
In 1998, tenants at Tri-City occupying substantial portions of leased rental
space included: (i) Inland Empire Health Plan with a lease through March 2002;
(ii) CompUSA with a lease through August 2003; (iii) ITT Educational Services
with a lease which expires in December 2004; (iv) PetsMart with a lease through
January 2009; (v) Inland Regional Center with a lease through July 2009; (vi)
Circuit City with a lease through January 2018; and (vii) Office Max with a
lease through October 2013. These seven tenants, in the aggregate, occupied
approximately 269,000 square feet of the 452,000 total leasable square feet at
Tri-City and account for approximately 54% of the rental income generated at
Tri-City and 47% of the total rental income for the Partnership in 1998.
The gain on sale of rental property resulted from the sale of Shadowridge for a
sales price of $16,075,000.
Interest and other income for the year ended December 31, 1998 increased
$218,000 from the year ended December 31, 1997 as a result of the increase in
cash reserves resulting from the sales proceeds of Shadowridge.
Expenses
- --------
Operating expenses decreased $376,000 or 12% during the year ended December 31,
1998 compared to the year ended December 31, 1997 due to the sale of
Shadowridge.
Interest expense decreased $236,000 or 13% during the year ended December 31,
1998 compared to the year ended December 31, 1997 due to the payoff of the
$5,800,000, 7.95% fixed rate loan secured by Shadowridge.
Depreciation and amortization decreased $330,000 or 19% during the year ended
December 31, 1998 compared to the year ended December 31, 1997 primarily due to
ceasing depreciation on Shadowridge upon classification of the property as
rental property held for sale effective December 31, 1997.
In 1998 and 1997, management determined that the carrying value of certain of
the Partnership's investments in real estate were in excess of the estimated
fair value of such property and, accordingly, recorded provisions for impairment
of real estate investments of $2,864,000 and $947,000, respectively. The fair
values were based on independent appraisals of the Partnership's real estate.
The Partnership made the following provisions to reduce the carrying value of
investments in real estate for the years ended December 31,1998 and December
31, 1997:
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Rental property:
Inland Regional Center $1,482,000 $ -
Land held for development:
San Bernardino, CA 129,000 275,000
Land held for sale:
Temecula, CA 167,000 672,000
Perris, CA 1,086,000 -
Total provision
for impairment of
real estate investments $2,864,000 $947,000
Appendix B-15
<PAGE>
The loss on sales of real estate of $11,000 during the year ended December 31,
1998 resulted from the sale of one parcel in Rancon Towne Village. The loss on
sales of real estate of $253,000 during the year ended December 31, 1997
resulted from the sale of eight parcels in Rancon Towne Village
Expenses associated with undeveloped land decreased $260,000 or 38% during the
year ended December 31, 1998 compared to the year ended December 31, 1997 due
to: (i) the reduction of property taxes resulting from the sale of ten parcels
in Rancon Towne Village during the period from July 1997 through December 31,
1998; (ii) the capitalization of expenses during the construction of Office Max
and Mimi's Cafe in 1998; and (iii) the decrease of maintenance association dues
in 1998
The $102,000 and $445,000 of proposed dissolution costs in 1998 and 1997,
respectively, were for work performed and expenses incurred while exploring the
possibilities of having the Partnership sell all of its real estate assets
followed by a liquidation. See Item 1 of Part I for further details.
1997 versus 1996
- ----------------
Revenue
- -------
Rental income for the year ended December 31, 1997 increased $2,126,000 or 41%
compared to the year ended December 31, 1996 primarily as a result of: (i) the
commencement of operations of the Inland Regional Center in June 1996; (ii)
ground lease revenue earned from Circuit City as the project was under
construction from September 1996 through May 1997; (iii) the commencement of the
Circuit City operating lease in May 1997; (iv) the acquisition of the TGI
Friday's property in February 1997; (v) the increased occupancy at Two
Vanderbilt; and (vi) the general increased rental rates at most properties.
These sources of increased revenue were slightly offset with a decrease in
rental income associated with decreases in occupancy at Carnegie Business Center
I and One Vanderbilt
Interest and other income for the year ended December 31, 1997 decreased $42,000
or 65% from the year ended December 31, 1996 as a result of 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.
Expenses
- --------
Operating expenses increased $524,000 or 20% during the year ended December 31,
1997 compared to the year ended December 31, 1996 due to: (i) the addition of
Inland Regional Center as an operating property in June 1996; (ii) the addition
of TGI Friday's as an operating property in February 1997; (iii) the addition of
Circuit City as an operating property in May 1997; (iv) increased utility and
operational expenses related to increased occupancy at selected properties; and
(v) property tax refunds received in 1996.
Depreciation and amortization increased $299,000 or 21% during the year ended
December 31, 1997 compared to the year ended December 31, 1996 primarily as a
result of the acquisition / commencement of operations of the Inland Regional
Center, TGI Friday's and Circuit City properties as well as additions to tenant
improvements associated with new leases over the past year.
Appendix B-16
<PAGE>
Interest expense increased $1,095,000 or 138% during the year ended December 31,
1997 compared to the year ended December 31, 1996 due to the Partnership's
increased permanent debt to finance selected properties during 1997 and 1996. In
addition, in 1996 some of the land was under development and accordingly, the
Partnership capitalized $597,000 of interest costs
In 1997, management determined that the carrying value of the Partnership's land
held for development and the land held for sale was in excess of the estimated
fair value of such property and, accordingly, recorded provisions for impairment
of real estate investments in the aggregate amount of $947,000. The fair values
were based on independent appraisals of the Partnership's real estate.
During the year ended December 31, 1997, the Partnership recognized $253,000 in
losses on sales of the eight parcels in Rancon Towne Village
Expenses associated with undeveloped land increased $107,000 or 19% during the
year ended December 31, 1997 compared to the year ended December 31, 1996, due
in large part to the capitalization of expenses the during construction of
Circuit City and Rancon Towne Village in 1996. No such provisions were recorded
in 1996.
The $445,000 for proposed dissolution costs in 1997 was for work performed and
expenses incurred while exploring the possibilities of having the Partnership
sell all of its real estate assets and then liquidate. The proposed transactions
were detailed in a Consent Solicitation Statement, sent to the Unitholders on
October 17, 1997, (and filed with the Securities and Exchange Commission on the
same date under cover of Schedule 14A).
Year 2000 Compliance
- --------------------
State of Readiness. Glenborough Corporation (Glenborough), the Partnership's
asset and property manager, utilizes a number of computer software programs and
operating systems. These programs and systems primarily comprise information
technology systems ("IT Systems") (i.e., software programs and computer
operating systems) that serve the management operations. Although the
Partnership does not utilize any significant IT Systems of its own, it does
utilize embedded systems such as devices used to control, monitor or assist the
operation of equipment and machinery systems (e.g., HVAC, fire safety and
security) at its properties ("Property Systems"). To the extent that software
applications contain a source code that is unable to appropriately interpret the
upcoming calendar year "2000" and beyond, some level of modification or
replacement of these IT Systems and Property Systems will be necessary.
IT Systems. Employing a team made up of internal personnel and third-party
consultants, Glenborough has completed an identification of IT Systems,
including hardware components that are not yet Year 2000 compliant. To the best
of Glenborough's knowledge based on available information and a reasonable level
of inquiry and investigation, such upgrading as appears to be called for under
the circumstances has been completed in accordance with prevailing industry
practice. Glenborough has commenced a testing program which will be completed
during 1999. In addition, the Partnership is currently communicating with third
parties with whom it does significant business, such as financial institutions,
tenants and vendors, to determine their readiness for Year 2000 compliance.
Appendix B-17
<PAGE>
Property Systems. An identification of Property Systems, including hardware
components, that are not yet Year 2000 compliant, has also been completed.
Upgrading of such systems as appears to be called for under the circumstances
based on available information and a reasonable level of inquiry and
investigation, and in accordance with prevailing industry practice has
commenced. Upon completion of such upgrading, a testing program will be
initiated and completed during 1999. To the best of Glenborough's knowledge, the
Partnership has no Property Systems, the failure of which would have a material
effect on its operations.
Costs of Addressing Year 2000 issues. Given the information known at this time
about systems that are non-compliant, coupled with ongoing, normal course-of
business efforts to upgrade or replace critical systems, as necessary, the
Partnership does not expect Year 2000 compliance costs to have a material
adverse impact on its liquidity or ongoing results of operations. The costs of
assessment and remediation of the Property Systems will be paid by the
Partnership as an operating expense.
Risks of Year 2000 issues. In light of the assessment and upgrading efforts to
date, and assuming completion of the planned, normal course-of-business upgrades
and subsequent testing, the Partnership believes that any residual Year 2000
risk will be limited to non-critical business applications and support hardware,
and to short-term interruptions affecting Property Systems which, if they occur
at all, will not be material to overall operations. Glenborough and the
Partnership believe that all IT Systems and Property Systems will be Year 2000
compliant and that compliance will not materially adversely affect its future
liquidity or results of operations or its ability to service debt. However,
absolute assurance that this is the case cannot be given
Contingency Plans. The Partnership is currently developing a contingency plan
for all operations which will address the most reasonably likely worst case
scenario regarding Year 2000 compliance. Such a plan, however, will recognize
material limitations on the ability to respond to major regional or industrial
failures such as power outages or communications breakdowns. Management expects
such a contingency plan to be completed during 1999.
Item 8. Financial Statements and Supplementary Data
For information with respect to this Item 8, see Financial Statements and
Schedules as listed in Item 14.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
Part III
Item 10. Directors and Executive Officers of the Partnership
Daniel Lee Stephenson and RFC are the general partners of the Partnership. The
executive officer and director of RFC is
Daniel L. Stephenson Director, President, Chief Executive Officer and Chief
Financial Officer
There is no fixed term of office for Mr. Stephenson.
Mr. Stephenson, age 55, founded RFC (formerly known as Rancon Corporation) in
1971 for the purpose of establishing itself as a commercial, industrial and
residential property syndication, development and brokerage concern. Mr.
Appendix B-18
<PAGE>
Stephenson has, from inception, held the position of Director. In addition, Mr.
Stephenson was President and Chief Executive Officer of RFC from 1971 to 1986,
from August 1991 to September 1992 and from March 31, 1995 to present. Mr.
Stephenson is Chairman of the Board of PacWest Group, Inc., a real estate firm
which has acquired a portfolio of assets from the Resolution Trust Corporation.
Item 11. Executive Compensation
The Partnership has no executive officers. For information relating to fees,
compensation, reimbursement and distributions paid to related parties, reference
is made to Item 13 below.
Item 12. Security Ownership of Certain Beneficial Owners and Management
Security Ownership of Certain Beneficial Owners
No person is known by the Partnership to be the beneficial owner of more than 5%
of the Units.
Security Ownership of Management
- --------------------------------
Title Amount and Nature of Percent
of Class Name of Beneficial Owner Beneficial Ownership of Class
-------- ------------------------ -------------------- --------
Units Daniel Lee Stephenson (I.R.A.) 4 Units (direct) *
Units Daniel Lee Stephenson Family Trust 100 Units (direct) *
* Less than 1 percent
</TABLE>
Changes in Control
- ------------------
The Limited Partners have no right, power or authority to act for or bind the
Partnership. However, the Limited Partners generally have the power to vote upon
the following matters affecting the basic structure of the Partnership, passage
of each of which requires the approval of Limited Partners holding a majority of
the outstanding Units: (i) amendment of the Partnership's Partnership Agreement;
(ii) termination and dissolution of the Partnership; (iii) sale, exchange or
pledge of all or substantially all of the assets of the Partnership; (iv)
removal of the General Partner or any successor General Partner; (v) election of
a new General Partner or General Partners upon the removal, retirement, death,
insanity, insolvency, bankruptcy or dissolution of the General Partner or any
successor General Partner; and (vi) extension of the term of the Partnership.
Item 13. Certain Relationships and Related Transactions
During the year ended December 31, 1998, the Partnership did not incur any
expenses or costs reimbursable to RFC, DLS or any other affiliate of the
Partnership.
Appendix B-19
<PAGE>
>
Part IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(a) The following documents are filed as part of the report
(1) Financial Statements:
Report of Independent Public Accountants
Consolidated Balance Sheets as of December 31, 1998 and 1997
Consolidated Statements of Operations for the years ended
December 31, 1998, 1997 and 1996
Consolidated Statements of Partners'Equity (Deficit) for the years
ended December 31, 1998,1997 and 1996
Consolidated Statements of Cash Flows for the years ended
December 31, 1998, 1997 and 1996
Notes to Consolidated Financial Statements
(2) Financial Statement Schedule:
Schedule III - Real Estate and Accumulated Depreciation as of
December 31, 1998 and Note thereto
(3) Exhibits:
(3.1) Second Amended and Restated Certificate and Agreement of Limited
Partnership of the Partnership (included as Exhibit B to the
December 29, 1986, as amended on January 5, 1987, filed pursuant
to Rule 424(b),Prospectus datedfile number 2-90327,is
incorporated herein by reference)
(3.2) First Amendment to the Second Amended and Restated
Agreement and Certificate of Limited Partnership of the
Partnership,dated March 11, 1991(included as Exhibit 3.2 to 10-K
dated October 31, 1992, File number 0-14207, is incorporated
herein by reference).
(3.3) Limited Partnership Agreement of RRF IV Tri-City Limited
Partnership, A Delawarelimited partnership of which Rancon
Realty Fund IV, A California Limited Partnership is the limited
partner (filed as Exhibit 3.3 to the Partnership's annual
report on Form 10-K for the year ended December 31, 1996 is
incorporated herein by reference).
(10.1) First Amendment to the Second Amended Management,
administration and consulting agreement and amendment thereto
for services rendered by Glenborough Corporation
dated August 31,1998.
(10.2) Management, administration and consulting agreement and
amendment thereto for services rendered by Glenborough Inland
Corporation dated December 20,1994 and March 30, 1995,
respectively (filed as Exhibit 10.2 to the Partnership's
annual report on Form 10-K for the year ended December 31, 1995
is incorporated herein by reference).
(10.3) Promissory note in the amount of $6,400,000,dated April 19,1996,
secured by Deeds of Trust on three of the Partnership
Properties (filed as Exhibit 10.6 to thePartnership's
annual report on Form 10-K for the year ended December 31,1996
is incorporated herein by reference).
Appendix B-20
<PAGE>
(27) Financial Data Schedule.
(b) Reports on Form 8-K
No report on Form 8-K was filed with the Securities and Exchange
Commission during the fourth quarter of 1998
SIGNATURES
Pursuant to the requirements of Section 13 or Section 15(d) of the Securities
Exchange Act of 1934, the Partnership 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
By: Rancon Financial Corporation
a California corporation
its General Partner
Date: March 30, 1999 By: /s/ DANIEL L. STEPHENSON
----------------------------------
Daniel L. Stephenson, President
By: /s/ DANIEL L. STEPHENSON
------------------------------------------
Daniel L. Stephenson, General Partner
Appendix B-21
<PAGE>
INDEX TO FINANCIAL STATEMENTS
AND SCHEDULE
Financial Statements and Schedule Page
--------------------------------- ----
Financial Statements:
Report of Independent Public Accountants 25
Consolidated Balance Sheets as of December 31, 1998 and 1997 26
Consolidated Statements of Operations for the years ended
December 31, 1998, 1997 and 1996 27
Consolidated Statements of Partners'Equity (Deficit)for the years
ended December 31, 1998, 1997 and 1996 28
Consolidated Statements of Cash Flows for the years ended
December 31, 1998, 1997 and 1996 29-30
Notes to Consolidated Financial Statements 31
Schedule:
III-Real Estate and Accumulated Depreciation
as of December 31, 1998 and Note thereto 43
All other schedules are omitted because they are not applicable or the required
information is shown in the financial statements or notes thereto
Appendix B-22
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Partners of
RANCON REALTY FUND IV, A CALIFORNIA LIMITED PARTNERSHIP:
We have audited the accompanying consolidated balance sheets of RANCON REALTY
FUND IV, A CALIFORNIA LIMITED PARTNERSHIP as of December 31, 1998 and 1997 and
the related statements of operations, partners' equity (deficit) and cash flows
for the years ended December 31, 1998, 1997 and 1996. These consolidated
financial statements and the schedule referred to below are the responsibility
of the Partnership's management. Our responsibility is to express an opinion on
these consolidated financial statements and schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of RANCON
REALTY FUND IV, A CALIFORNIA LIMITED PARTNERSHIP, as of December 31, 1998 and
1997 and the results of its operations and its cash flows for the years ended
December 31, 1998, 1997 and 1996, in conformity with generally accepted
accounting principles.
Our audits were made for the purpose of forming an opinion on the basic
consolidated financial statements taken as a whole. The accompanying schedule
listed in the index to financial statements and schedule is presented for
purposes of complying with the Securities and Exchange Commission's rules and is
not a required part of the basic consolidated financial statements. This
information has been subjected to the auditing procedures applied in our audits
of the basic consolidated financial statements and, in our opinion, is fairly
stated in all material respects in relation to the basic consolidated financial
statements taken as a whole.
Arthur Andersen LLP
San Francisco, California
February 12, 1999
Appendix B-23
<PAGE>
RANCON REALTY FUND IV,
A CALIFORNIA LIMITED PARTNERSHIP
Consolidated Balance Sheets
December 31, 1998 and 1997
(in thousands, except units outstanding)
<TABLE>
<CAPTION>
Assets 1998 1997
- ------ ---- ----
<S> <C> <C>
Investments in real estate:
Rental property, net of accumulated depreciation of $12,723
and $11,474 as of December 31, 1998 and 1997, respectively $33,781 $32,659
Land held for development 1,575 4,666
Rental property held for sale, net - 10,179
Land held for sale 2,741 2,310
----- -----
Total real estate investments 38,097 49,814
------ ------
Cash and cash equivalents 4,297 788
Restricted cash 369 369
Deferred financing costs and other fees, net of
accumulated amortization of $1,195 and $1,039 as of
December 31, 1998 and 1997, respectively 1,312 1,373
Prepaid expenses and other assets 1,434 1,056
===== =====
Total assets $45,509 $53,401
======= =======
Liabilities and Partners' Equity (Deficit)
- ------------------------------------------
Notes payable $16,005 $22,004
Accounts payable and accrued expenses 929 631
--- ---
Total liabilities 16,934 22,635
------ ------
Commitments and contingent liabilities (see Note 8)
Partners' equity (deficit):
General partners (658) (891)
Limited partners,76,767 and 77,054 limited partnership units
outstanding at December 31, 1998 and 1997, respectively 29,233 31,657
--- ---- ----- ------ ------
Total partners' equity 28,575 30,766
------ ------
Total liabilities and partners' equity $ 45,509 $53,401
======== =======
</TABLE>
The accompanying notes are an integral part of these financial statement
Appendix B-24
<PAGE>
<TABLE>
<CAPTION>
RANCON REALTY FUND IV,
A CALIFORNIA LIMITED PARTNERSHIP
Consolidated Statements of Operations
For the years ended December 31, 1998, 1997 and 1996
(in thousands, except per unit amounts and units outstanding)
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Revenue:
Rental income $6,678 $7,275 $5,149
Gain on sale of rental property 5,468 - -
Interest and other income 241 23 65
--- -- --
Total revenue 12,387 7,298 5,214
------ ----- -----
Expenses:
Operating 2,790 3,166 2,642
Interest expense 1,651 1,887 792
Depreciation and amortization 1,418 1,748 1,449
Provision for impairment of investments
in real estate 2,864 947 -
Loss on sales of land 11 253 -
Expenses associated with undeveloped land 418 678 571
General and administrative 1,229 1,240 1,270
Proposed dissolution costs 102 445 -
--- ---
Total expenses 10,483 10,364 6,724
------ ------ -----
Net income (loss) $1,904 $(3,066) $ (1,510)
====== ======= ========
Net income(loss) per limited partnership unit $21.22 $(38.40) $ (18.91)
====== ======= ========
Weighted average number of limited partnership
units outstanding during each period 76,828 79,846 79,846
====== ====== ======
</TABLE>
The accompanying notes are an integral part of these financial statements
Appendix B-25
<PAGE>
<TABLE>
<CAPTION>
RANCON REALTY FUND IV,
A CALIFORNIA LIMITED PARTNERSHIP
Consolidated Statements of Partners' Equity (Deficit)
For the years ended December 31, 1998, 1997 and 1996
(in thousands)
General Limited
Partners Partners Total
-------- -------- -----
<S> <C> <C> <C>
Balance at December 31, 1995 $(891) $37,060 $36,169
Net loss - (1,510) (1,510)
------ ------ ------
Balance at December 31, 1996 (891) 35,550 34,659
Retirement of limited partnership units - (827) (827)
Net loss - (3,066) (3,066)
------ ------ ------
Balance at December 31, 1997 (891) 31,657 30,766
Retirement of limited partnership units - (95) (95)
Net income 273 1,631 1,904
Distributions (40) (3,960) (4,000)
--- ------ ------
Balance at December 31, 1998 $(658) $29,233 $28,575
===== ======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements
Appendix B-26
<PAGE>
<TABLE>
<CAPTION>
RANCON REALTY FUND IV,
A CALIFORNIA LIMITED PARTNERSHIP
Consolidated Statements of Cash Flows
For the years ended December 31, 1998, 1997 and 1996
(in thousands)
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 1,904 $(3,066) $(1,510)
Adjustments to reconcile net income (loss) to
net cash provided by(used for)
operating activities:
Net (gain) loss on sales of real estate (5,457) 253 -
Depreciation and amortization 1,418 1,748 1,449
Amortization of loan fees,
included in interest expense 98 105 68
Provision for impairment of investments in
real estate 2,864 947 -
Changes in certain assets and liabilities:
Deferred financing costs and other fees (207) (292) (596)
Prepaid expenses and other assets (377) (247) (25)
Accounts payable and accrued expenses 298 (149) 424
--- ---- ---
Net cash provided by (used for)
operating activities 541 (701) (190)
--- ---- ----
Cash flows from investing activities:
Net proceeds from sales of real estate 15,896 1,890 248
Net additions to real estate investments (2,834) (4,030) (7,166)
------ ------ ------
Net cash provided by (used for)
investing activities 13,062 (2,140) (6,918)
------ ------ ------
Cash flows from financing activities:
Net loan proceeds - 6,500 5,687
Notes payable principal payments (5,999) (1,752) (196)
Decrease (increase) in restricted cash, net - (267) 824
Payment of loan fees - (122) (406)
Cash distribution to partners (4,000) - -
Retirement of limited partnership units (95) (827) -
---- --- ----
Net cash provided by (used for)
financing activities $(10,094) $3,532 $5,909
</TABLE>
Appendix B-27
<PAGE>
<TABLE>
<CAPTION>
RANCON REALTY FUND IV,
A CALIFORNIA LIMITED PARTNERSHIP
Consolidated Statements of Cash Flows (continued)
For the years ended December 31, 1998, 1997 and 1996
(in thousands)
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Net increase(decrease)in cash and cash
equivalents $3,509 $ 691 $(1,199)
Cash and cash equivalents at beginning of year 788 97 1,296
--- -- -----
Cash and cash equivalents at end of year $4,297 $ 788 $ 97
====== ===== =======
Supplemental disclosure of cash flow information:
Cash paid for interest(exclusive of capitalized
interest costs) $ 1,555 $1,783 $ 1,254
======= ====== =======
Interest capitalized $ 103 $ - $ 597
======= ====== =======
Supplemental disclosure of non-cash financing
activity
New financing $ - $7,700 $11,273
Original financing paid-off in escrow - (1,200) (5,586)
------ ------
Net loan proceeds $ - $6,500 $ 5,687
====== ====== =======
</TABLE>
The accompanying notes are an integral part of these financial statements
Appendix B-28
<PAGE>
RANCON REALTY FUND IV,
A CALIFORNIA LIMITED PARTNERSHIP
Notes to Consolidated Financial Statements
December 31, 1998 and 1997
Note 1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
------------------------------------------------
Organization
Rancon Realty Fund IV, a California Limited Partnership, ("the Partnership"),
was organized in accordance with the provisions of the California Uniform
Limited Partnership Act for the purpose of acquiring, developing and operating
real property. The general partners of the Partnership are Daniel L. Stephenson
and Rancon Financial Corporation ("RFC"), hereinafter referred to as the Sponsor
or the General Partner. RFC is wholly-owned by Daniel L. Stephenson. The
Partnership reached final funding in July 1987. As of December 31, 1997, a total
of 2,946 limited partnership units ("Units") were repurchased and retired as a
result of the Partnership's offer to redeem limited partnership units. During
the year ended December 31, 1998, an additional 287 Units were repurchased and
retired resulting in 76,767 Units outstanding as of December 31, 1998.
The General Partner currently plans to seek the Limited Partners' consent to
sell all of the Partnership's remaining properties and liquidate the Partnership
and has filed preliminary consent solicitation materials with the United States
Securities and Exchange Commission with the goal of mailing consent solicitation
materials to the Limited Partners in the second quarter of 1999. Assuming a
proposal to sell all of the Partnership's remaining properties and liquidate the
Partnership is submitted to and approved by the limited partners, the General
Partner currently intends to sell all of the Partnership's remaining properties
in 1999 and distribute the proceeds and liquidate the Partnership after all of
the properties are sold and the cash proceeds thereof received, which the
General Partner does not expect will occur prior to at least early to mid-2000
(and potentially not until 2001) as some of the properties may be sold with the
purchase price payable on an installment basis.
The Partnership has not, as of the date hereof, entered into any agreement for
the sale of its remaining properties. If the limited partners consent to the
Partnership selling all of its remaining properties and then liquidating, the
General Partner currently intends to offer the Partnership's remaining
properties for sale by soliciting bids from various potential purchasers.
If a proposal for the sale of the Partnership's properties and liquidation of
the Partnership is submitted to the limited partners, but not approved, the
Partnership currently intends to continue to operate the properties and attempt
to sell such properties in single or multiple sales and develop properties it
believes are developable and would improve its return on investment.
Allocation of profits and losses are made pursuant to the terms of the
Partnership Agreement. Generally, net income from operations is allocated 90% to
the limited partners and 10% to the general partners. Net losses from operations
are allocated 99% to the limited partners and 1% to the general partners until
such time as a partner's capital account is reduced to zero. Additional losses
will be allocated entirely to those partners with positive capital account
balances until such balances are reduced to zero. Net income other than net
income from operations shall be allocated as follows: (i) first, to the partners
who have a deficit balance in their capital account, provided that, in no event
Appendix B-29
<PAGE>
shall the general partners be allocated more than 5% of the net income other
than net income from operations until the earlier of sale or disposition of
substantially all of the assets or the distribution of cash (other than cash
from operations) equal to the Unitholder's original invested capital; (ii)
second, to the limited partners in proportion to and to the extent of the
amounts to increase their capital accounts to an amount equal to the sum of the
adjusted invested capital of their units plus an additional cumulative
non-compounded 6% return per annum (plus additional amounts depending on the
date Units were purchased); (iii) third, to the partners in the minimum amount
required to first equalize their capital account in proportion to the number of
units owned, and then, to bring the sum of the balances of the capital accounts
of the limited partners and the general partners into the ratio of 4 to 1; and
(iv) the balance, if any, 80% to the limited partners and 20% to the general
partners. In no event shall the general partners be allocated less than 1% of
the net income for any period.
General Partner and Management Matters
- --------------------------------------
Effective January 1, 1995, Glenborough Corporation (successor by merger with
Glenborough Inland Realty Corporation) ("Glenborough") entered into an 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 a period of ten years or
until the liquidation of the Partnership, whichever comes first. Effective
January 1, 1998, the agreement was amended to eliminate Glenborough's
responsibility for providing investor relation services and Preferred
Partnership Services, Inc., a California Corporation unaffiliated with the
Partnership, contracted to assume these services. In August 1998, the management
agreement was further amended to provide Glenborough with a guarantee of a
specified amount of asset management and property management fees through
December 31, 1999, regardless of whether the Partnership sells any or all of its
properties prior to such date. In exchange, Glenborough waived any and all
claims related to liquidated damages under the agreement to which it may have
otherwise been entitled.
According to the contract, the Partnership will pay Glenborough for its services
as follows: (i) a specified asset administration fee ($806,000 in 1998, $989,000
in 1997 and $993,000 in 1996); (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 duties for the General Partner of the Rancon Partnerships. RFC agreed to
cooperate with Glenborough, should Glenborough attempt to obtain a majority vote
of the limited partners to substitute itself as the Sponsor for the Rancon
Partnerships. Glenborough is not an affiliate of RFC or the Partnership
Note 2. Significant Accounting Policies
------------------------------
Basis of Accounting - The accompanying financial statements have been prepared
- -------------------
on the accrual basis of accounting in accordance with generally accepted
accounting principles under the presumption that the Partnership will continue
as a going concern.
Appendix B-30
<PAGE>
The consent of the Unitholders to a proposal to sell all of the Partnership's
remaining properties and liquidate the Partnership will not impact the
accounting treatment applied by the Partnership in its financial statements
prepared in accordance with generally accepted accounting principles as the
liquidation proceeds and the timing thereof are not currently estimable. The
Partnership will classify as "held for use" or "held for development", all of
its operating and undeveloped properties until such time as an acceptable buyer
is identified and an offer which is reasonably assured of consummation is
obtained. At that time, the Partnership will reclassify the appropriate portions
of its assets to "held for sale" and depreciation of those assets will be
discontinued.
When the sale price and timing of the last property disposal is reasonably
determinable, the Partnership will adopt liquidation basis accounting in that
quarter. At that time, all assets and liabilities will be adjusted to their
settlement amounts and an amount to be distributed to the Unitholders upon
liquidation will be estimated.
Use of Estimates - The preparation of financial statements in conformity with
- -----------------
generally accepted accounting principles requires management
to make estimates and assumptions that effect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported results of operations during the
reporting period. Actual results could differ from those estimates.
Risks and Uncertainties - The Partnership's ability to (i) achieve positive cash
- -----------------------
flow from operations, (ii) meet its debt obligations, (iii) provide
distributions either from operations or the ultimate disposition of the
Partnership's properties or (iv) continue as a going concern, may be impacted by
changes in interest rates, property values, geographic economic conditions, or
the entry of other competitors into the market. The accompanying financial
statements do not provide for adjustments with regard to these uncertainties.
New Accounting Pronouncement - In June 1997, the Financial Accounting Standards
- -----------------------------
Board issued Statement of Financial Accounting Standards No. 131 (SFAS 131),
"Disclosures about Segments of an Enterprise and Related Information." SFAS 131
is effective for fiscal years beginning after December 15, 1997. As the
Partnership operates in only one geographic location and one industry, and
allocates resources solely for the optimization of the Partnership's overall
return, management has determined that no additional disclosure in the
Partnership's financial statements is necessary.
Rental Property - Rental properties, including the related land, are stated
- ---------------
at cost unless events or circumstances indicate that cost cannot be recovered,
in which case, the carrying value of the property is reduced to its estimated
fair value. Estimated fair value: (i) is based upon the Partnership's plans for
the continued operations of each property; and (ii) is computed using estimated
sales price, as determined by prevailing market values for comparable properties
and/or the use of capitalization rates multiplied by annualized rental income
based upon the age, construction and use of the building. The fulfillment of the
Partnership's plans related to each of its properties is dependent upon, among
other things, the presence of economic conditions which will enable the
Appendix B-31
<PAGE>
Partnership to continue to hold and operate the properties prior to their
eventual sale. Due to uncertainties inherent in the valuation process and in the
economy, it is reasonably possible that the actual results of operating and
disposing of the Partnership's properties could be materially different than
current expectations.
Depreciation is provided using the straight line method over the useful lives of
the respective assets.
Land Held for Development - Land held for development is stated at cost
- --------------------------
unless events or circumstances indicate that cost cannot be recovered in which
case the carrying value is reduced to estimated fair value. Estimated fair
value: (i) is based on the Partnership's plans for the development of each
property; (ii) is computed using estimated sales price, based upon market values
for comparable properties; and (iii) considers the cost to complete and the
estimated fair value of the completed project. The fulfillment of the
Partnership's plans related to each of its properties is dependent upon, among
other things, the presence of economic conditions which will enable the
Partnership to either hold the properties for eventual sale or obtain financing
to further develop the properties.
Interest and property taxes related to property constructed by the
Partnership are capitalized during periods of construction. Interest of $103,000
and property taxes of $44,000 related to the construction of Office Max and
Mimi's Cafe, two build-to-suit retail buildings which were completed in October
1998 and December 1998, respectively, were capitalized during the year ended
December 31, 1998.
Rental Property Held for Sale - Rental property held for sale is stated at
- ------------------------------
the lower of cost or estimated fair value less costs to sell. Estimated fair
value is based upon prevailing market values for comparable properties and/or
the use of capitalization rates multiplied by annualized rental income based
upon the age, construction and use of the building. The fulfillment of the
Partnership's plans to dispose of property is dependent upon, among other
things, the presence of economic conditions which will enable the Partnership to
hold the property for eventual sale. The Partnership discontinues depreciating
rental property once it is classified as held for sale.
Land Held for Sale - Land held for sale is stated at the lower of cost or
- -------------------
estimated fair value less costs to sell. Estimated fair value is based upon
independent appraisals or prevailing market rates for comparable properties.
Appraisals are estimates of fair value based upon assumptions about the property
and the market in which it is located.
Cash and Cash Equivalents - The Partnership considers short-term
- -----------------------------
investments (including certificates of deposit and money market funds) with a
maturity of less than ninety days at the time of investment to be cash
equivalents.
Fair Value of Financial Instruments - Statement of Financial Accounting
- ------------------------------------
Standards No. 107 requires disclosure about fair value for all financial
instruments. Based on the borrowing rates currently available to the Company,
the carrying amount of debt approximates fair value. Cash and cash equivalents
Appendix B-32
<PAGE>
consist of demand deposits, certificates of deposit and short-term investments
with financial institutions. The carrying amount of cash and cash equivalents
approximates fair value.
Deferred Financing Costs and Other Fees - Deferred loan fees are amortized
- ------------------------------------------
on a straight-line basis over the life of the related loan and deferred lease
commissions are amortized over the initial fixed term of the related lease
agreement.
Rental Income - Rental income is recognized as earned over the term of the
- -------------
related lease.
Net Income/Loss Per Limited Partnership Unit - Net income or loss per
- -------------------------------------------------
limited partnership unit is calculated using the weighted average number of
limited partnership units outstanding during the period and the Limited
Partners' allocable share of the net income or loss.
Income Taxes - No provision for income taxes is included in the accompany-
- -------------
ing financial statements, as the Partnership's results of operations are
allocated to the partners for inclusion in their respective income tax returns.
Net loss and partners' equity (deficit) for financial reporting purposes
will differ from the Partnership income tax return because of different
accounting methods used for certain items, including depreciation expense,
provisions for impairment of investments in real estate, capitalization of
development period interest and income and loss recognition.
Consolidation - In April, 1996, the Partnership formed Rancon Realty Fund IV
- -------------
Tri-City Limited Partnership, a Delaware limited partnership ("RRF IV Tri-
City") as required by the lender of a $6,400,000 loan obtained by the Partner-
ship in 1996. The loan is secured by three of the Partnership's properties
which were contributed to RRF IV Tri-City by the Partnership. The limited part-
ner 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 statement
of RRF IV Tri-City have been consolidated with those of the Partnership. All
inter-company transactions and balances have been eliminated in consolidation.
Reclassifications - Certain prior year balances have been reclassified to
- -----------------
conform with the current year presentation.
Note 3. INVESTMENTS IN REAL ESTATE
--------------------------
Rental property components at December 31, 1998 and 1997 are as follows
(in thousands):
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Land $ 4,318 $ 3,845
Buildings 31,031 29,671
Leasehold and other improvements 11,155 10,617
------ ------
46,504 44,133
Less: accumulated depreciation (12,723) (11,474)
------- -------
</TABLE>
Appendix B-33
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
Total rental property, net $ 33,781 $ 32,659
</TABLE>
At December 31, 1998 and 1997, the Partnership's rental property included ten
projects at the Tri-City Corporate Centre in San Bernardino, California.
The increase in Land and Buildings is due to the completion of the construction
of Office Max and Mimi's Cafe in 1998.
Land held for development consists of the following at December 31, 1998 and
1997 (in thousands):
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
23.0 acres at Tri-City Corporate Centre,
San Bernardino, CA $ 1,575 $ 2,730
24.8 acres in Lake Elsinore, CA -- 1,936
--------- ---------
Total land held for development $ 1,575 $ 4,666
</TABLE>
The 24.8 acres of land in Lake Elsinore, CA was reclassified to land held for
sale during the first quarter of 1998.
The decrease in land held for development in San Bernardino, CA is due to the
reclassification of Office Max and Mimi's Cafe to rental property during the
year ended December 31, 1998.
The above land held for development is unencumbered.
Rental property held for sale at December 31, 1997:
As of December 31, 1997 the Partnership was marketing for sale its 240-unit
apartment complex, the Shadowridge Woodbend Apartment complex, located in Vista,
California. On June 4, 1998, the Partnership sold the Shadowridge Woodbend
Apartment complex to an unaffiliated entity for $16,075,000. The Partnership
recognized a gain on the sale of the rental property of $5,468,000 nd realized
net proceeds of $9,806,000 after paying off the related secured debt and closing
costs.
Land held for sale consists of the following at December 31, 1998 and 1997
(in thousands):
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
17.14 acres in Perris, CA $ 300 $ 1,386
1.80 acres and 3.87 acres in Temecula, CA
in 1998 and 1997, respectively 505 924
24.8 acres in Lake Elsinore, CA 1,936 --
- ---- -----
Total land held for sale $ 2,741 $ 2,310
=========== ===========
</TABLE>
Appendix B-34
<PAGE>
The decrease in the carrying value of the 17.14 acres of land in Perris, Calif-
ornia is due to the provision for
impairment recorded during the year ended December 31, 1998 as discussed
below. On January 15, 1999, the Partnership sold the Perris land for $334,800
see Note 10.
On January 27, 1998, the Partnership sold 2.07 acres of the land held for
sale in Temecula, California and realized a loss on the sale of $11,000, which
is reflected in the accompanying 1998 statement of operations.
The Partnership does not intend to develop the remaining sites held for sale.
The proceeds generated from future sales would be added to the Partnership's
cash reserves, pending use in development of other properties, or distri-
buted to the partners.
The above land held for sale is unencumbered.
Provisions for impairment of real estate investments:
During the years ended December 31, 1998 and 1997, the Partnership recorded
the following provisions to reduce the carrying value of investments in real
estate (in thousands):
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Rental property:
Inland Regional Center $ 1,482 $ --
Land held for development:
San Bernardino, CA $ 129 $ 275
Land held for sale:
Perris, CA 1,086 --
Temecula, CA 167 672
------------- ---------
Total provision for impairment
of real estate investments $ 2,864 $ 947
============== ==========
The Partnership's business strategy has been to focus on the eventual disposi-
tion of its assets at the optimal time and sales price. In 1998 and 1997,
management determined that the carrying values of certain of the Partnership's
investments in real estate were in excess of the estimated fair value of such
property and accordingly,recorded provisions for impairment as shown above.
Approximately 15 acres of the Tri-City Corporate Centre land owned by the
Partnership was part of a landfill operated by the City of San Bernardino
("the City") from approximately 1950 to 1960. There are no records of which
the Partnership is aware disclosing that hazardous wastes exist at the landfill.
The Partnership's landfill monitoring program currently meets or exceeds all
regulatory requirements and no material capital expenditures have been incurred.
The Partnership is working with the Santa Ana Region of the California Regional
Appendix B-35
<PAGE>
Water Quality Control Board and the City to determine the need and responsibil-
ity for any further testing. There is no current requirement to ultimately clean
up the site; however, no assurance can be made that circumstances will not arise
which could impact the Partnership's responsibility related to the property.
Note 4. RESTRICTED CASH
---------------
On March 12, 1997, pursuant to the Inland Regional Center ("IRC") lease, a
$269,000 certificate of deposit ("CD") was opened. The $269,000 CD represents a
security deposit, that the Partnership will retain in the event of default by
IRC. Provisions in the lease allow for the security deposit plus accrued
interest to be converted to prepaid rent after the 60th month (June 2001) of the
lease if the tenant is not in default of the provisions of the lease.
In addition, a $100,000 CD at December 31, 1998 is held as collateral for
subdivision improvement bonds related to the land held for development in
Temecula, California. The Partnership is in the process of obtaining a release
of this CD.
Note 5. NOTES PAYABLE
-------------
Notes payable as of December 31, 1998 and 1997 was as follows (in thousands):
1998 1997
---- ----
Note payable secured by first deed of trust on Service
Retail Center, Promotional Retail Center and Carnegie
Business Center I. The loan, which matures May 1, 2006, is
a 10-year, 8.744% fixed rate loan with a 25-year
amortization requiring monthly payments of principal and
interest totaling $53. $ 6,290 $ 6,377
Note payable secured by first deed of trust on the IRC
building. Interest accrues at a fixed rate of 8.75% per
annum. Monthly payments of $21 of principal and interest
are due until the loan matures on April 23, 2001. 2,429 2,458
Note payable secured by first deed of trust on the One
Vanderbilt building. The note bears interest at a fixed
rate of 9% per annum. Monthly installments of $20 of
principal and interest are due until January 1, 2005, at
which time the unpaid principal and interest are payable in
full. 2,286 2,320
</TABLE>
Appendix B-36
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
Note payable secured by first deed of trust on the
Shadowridge Woodbend Apartments. The note was paid-off in
June 1998 upon the sale of the Shadowridge Woodbend
Apartments. -- 5,849
Note payable secured by first deeds of trust on Circuit
City and TGI Friday's. Interest is payable monthly at one
percent (1%) per annum in excess of the lender's "Prime
Rate" until the loan matures on April 30, 1999 at which time
the unpaid principal and interest are due. 5,000 5,000
----- -----
Total notes payable $16,005 $22,004
======= =======
</TABLE>
The Partnership has an option to extend for one year from the maturity date,
subject to an extension fee of 0.05% of the loan ($25,000), the note payable
secured by first deeds of trust on Circuit City and TGI Friday's. The
Partnership will exercise its one-year extension right on the secured loan.
The annual maturities of the Partnership's notes payable subsequent to December
31, 1998 (not taking into effect the extension option on the Circuit City and
TGI Fridays loan, discussed above) are as follows (in thousands):
<TABLE>
<CAPTION>
<S> <C>
1999 $ 5,171
2000 187
2001 2,505
2002 172
2003 188
Thereafter 7,782
-----
Total $ 16,005
============
</TABLE>
Note 6. PROPOSED DISSOLUTION COSTS
--------------------------
In 1997, the Partnership entered into an agreement to sell all of its real
estate assets and then to liquidate the Partnership, as described in a Consent
Solicitation Statement sent to the Unitholders on October 17, 1997 (and filed
with the Securities and Exchange Commission on the same date under cover of
Schedule 14A) upon the completion of the sale. In November 1997, the Unitholders
consented to the sale of the Partnership's real estate assets and the subsequent
liquidation of the Partnership with sixty percent of the total outstanding Units
cast in favor of such proposal. However; in December 1997, the General Partner
determined that it would be in the best interest of the Partnership to rescind
the agreement for the sale of the real estate assets. The General Partner
experienced greater than anticipated opposition by the Limited Partners to the
timing of the sale. In addition, the General Partner believed that holding the
Partnership's real estate assets for an additional period of time would provide
the Partnership with the opportunity to recognize an appreciation in its value.
Costs totaling $445,000 related to the sale and proposed dissolution were
Appendix B-37
<PAGE>
expensed in 1997.
The General Partner currently plans to seek the Limited Partners' consent to
sell all of the Partnership's remaining properties and liquidate the
Partnership, and the General Partner has filed preliminary consent solicitation
materials with the Securities and Exchange Commission. The Partnership's
remaining properties consist of ten rental properties and approximately 23 acres
of unimproved land it owns in the Tri-City Corporate Center in San Bernardino,
California, 24.8 acres in Lake Elsinore, California and 1.80 acres in Temecula,
California. Costs totaling $102,000 related to the proposal to sell all of the
Partnership's remaining properties and liquidate the Partnership have been
incurred and are expensed in the accompanying statement of operations for the
year ended December 31, 1998.
Note 7. LEASES
------
The Partnership's rental properties are leased under non-cancelable operating
leases that expire at various dates through January, 2018. In addition to
monthly base rents, several of the leases provide for additional rents based
upon a percentage of sales levels attained by the tenants. Contingent rentals of
$9,800 were realized during the year ended December 31, 1998; however, no
contingent rentals were realized during the years ended December 31, 1997 or
1996. Future minimum rents under non-cancelable operating leases as of December
31, 1998 are as follows (in thousands):
<TABLE>
<CAPTION>
<S> <C>
1999 $ 5,918
2000 5,717
2001 5,399
2002 4,395
2003 3,982
Thereafter 27,266
------
Total $52,677
=======
</TABLE>
Note 8. COMMITMENTS AND CONTINGENT LIABILITIES
--------------------------------------
The Partnership is contingently liable for a subordinated note payable in
connection with the land in Temecula, California, that the Partnership
reacquired in June 1992 through a deed in lieu of foreclosure in satisfaction of
a $2,276,000 note receivable. The subordinated note payable and accrued interest
total $566,000 as of December 31, 1998. This amount is payable upon the sale of
the property only after the Partnership receives the full amount of the prior
note receivable with accrued and unpaid interest, costs of development, costs of
sale, and other amounts paid to obtain good title to the property, subject to
certain release provisions. Since the circumstances under which this liability
would be payable are limited, the note payable and accrued interest have not
been recorded in the accompanying financial statements; however, the amount will
be recognized prior to recording any gain on the sale of the related land.
Appendix B-38
<PAGE>
The Partnership also remains contingently liable for subordinated real estate
commissions payable to the General Partner in the amount of $643,000 at December
31, 1998 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 6% per annum on their adjusted invested capital. Since
the circumstances under which these commissions would be payable are limited,
the liability has not been recognized in the accompanying financial statements;
however, the amount will be recorded when and if it becomes payable.
Note 9. TAXABLE INCOME (LOSS)
--------------------
The Partnership's tax returns, the qualification of the Partnership as a
partnership for federal income tax purposes, and the amount of income or loss
are subject to examination by federal and state taxing authorities. If such
examinations result in changes to the Partnership's taxable income or loss, the
tax liability of the partners could change accordingly.
The Partnership's tax returns are filed on a calendar year basis. As such, the
following reconciliation has been prepared using tax amounts estimated on a
calendar year basis.
The following is a reconciliation for the years ended December 31, 1998, 1997
and 1996 of the net income (loss) for financial reporting purposes to the
estimated taxable income (loss) determined in accordance with accounting
practices used in preparation of federal income tax returns (in thousands).
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Net income (loss) per financial statements $ 1,904 $ (3,066) $ (1,510)
Gain on sale of property in excess of
recognized gain for tax (362) -- --
Financial reporting depreciation in excess
of tax reporting depreciation (28) 200 191
Provision for impairment of investments
in real estate 2,864 672 --
Operating expenses recognized in a
different period for financial reporting
than for income tax reporting, net (81) 432 (692)
Property taxes capitalized for tax 391 388 465
-------- -------- --------
Net income (loss) for federal
income tax purposes $ 4,688 $ (1,374) $ (1,546)
</TABLE>
Appendix B-39
<PAGE>
The following is a reconciliation of partner's equity for financial reporting
purposes to estimated partners' capital for federal income tax purposes as of
December 31, 1998 and 1997 (in thousands).
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Partners' equity per financial statements $ 28,575 $ 30,766
Cumulative provision for impairment of
investments in real estate 17,610 14,946
Financial reporting depreciation in excess
of tax reporting depreciation 4,537 4,586
Operating expenses recognized in a
different period for financial reporting
than for income tax reporting, net 51 305
Property taxes capitalized for tax 932 1,329
------------ ----------
Partners' capital for federal
income tax purposes $ 51,705 $ 51,932
============= ===========
</TABLE>
Note 10. SUBSEQUENT EVENT
- -------------------------
On January 15, 1999, the Partnership sold approximately 17 acres of land located
in Perris, Riverside County, California, to an unaffiliated entity for $334,800.
The Partnership realized a $4,000 loss on the sale which will be reflected in
its 1999 financial statements. The sale generated net proceeds of approximately
$297,000, which were added to the Partnership's cash reserves.
Appendix B-40
<PAGE>
<TABLE>
<CAPTION>
RANCON REALTY FUND IV,
A CALIFORNIA LIMITED PARTNERSHIP
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
DECEMBER 31, 1998
(in thousands)
- ------------------------------------------------------------------------------------------------------------------------------------
A B C D E F G H I
Cost Capitalized
Initial Cost to Subsequent to Gross Amount Carried
Partnership Acquisition at December 31, 1998
--------------- ------------ --------------------
Buildings Buildings Accumu- Date Life
and and lated Construc- Deprec-
Improve- Improve- Carrying Improve- (A) Depre- tion Date iated
Description Encumbrances Land ments ments Cost Land ments Total ciation Began Acquired Over
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Rental Properties:
Commercial Office Complexes,
San Bernardino County, CA:
One Vanderbilt $ 2,286 $ 572 -- $ 9,066 $ -- $ 573 $ 9,065 $ 9,638 $ 4,439 11/30/85 11/06/84 3-40
yrs.
Two Vanderbilt -- 443 -- 6,974 -- 443 6,974 7,417 3,471 1/30/86 11/06/84 3-40
yrs.
Carnegie Business Center I (c) 380 -- 5,062 -- 380 5,062 5,442 2,700 7/31/86 11/06/84 3-40
yrs.
Inland Regional Center 2,429 608 -- 7,757 -- 946 7,419 8,365 487 1/96 6/26/87 10-40
yrs.
Provision for impairment
of real estate (b) -- (196) -- (1,482) -- (196) (1,482) (1,678) --
------ ------ ------ ------ ------ ----- ------ ------ ------
4,715 1,807 -- 27,377 -- 2,146 27,038 29,184 11,097
------ ------ ------ ------ ------ ----- ------ ------ ------
Commercial Retail Space,
San Bernardino, County, CA:
Service Retail Center (c) 300 -- 1,724 -- 301 1,723 2,024 595 7/31/86 11/06/84 3-40
yrs.
Provision for impairment
of real estate (b) -- -- -- (250) -- (41) (209) (250) --
Promo Retail (c) 811 -- 5,975 -- 811 5,975 6,786 722 2/01/93 11/06/84 10-40
yrs.
Provision for impairment
of real estate (b) -- -- -- (119) -- (7) (112) (119) --
TGI Friday's (d) 181 1,624 -- -- 181 1,624 1,805 75 N/A 2/28/97 40
yrs.
Circuit City (d) 284 -- 3,597 -- 454 3,427 3,881 224 7/96 11/06/84 20-40
yrs.
Office Max -- 324 2,045 -- -- 324 2,045 2,369 10 7/98 11/06/84 40
yrs.
Mimi's Cafe -- 149 675 -- -- 149 675 824 -- 7/98 11/06/84 40
yrs.
------ ------ ------- ------ ----- ----- ------ ------ ------
11,290 2,049 4,344 10,927 -- 2,172 15,148 17,320 1,626
------ ------ ------- ------ ----- ----- ------ ------ ------
Land Held for Development:
San Bernardino County, CA:
26 acres - Tri-City -- 4,186 -- 5,017 -- 9,203 -- 9,203 -- N/A 11/06/84 N/A
Provision for impairment
of real estate (b) -- (244) -- (7,384) -- (7,628) -- (7,628) --
-- 3,942 -- (2,367) -- 1,575 -- 1,575 --
Land Held for Sale:
Riverside County, CA:
Perris property 17.14 acres -- 3,005 -- 405 -- 3,410 -- 3,410 -- N/A 11/07/88 N/A
Provision for impairment
of real estate (b) -- (1,697) -- (1,413) -- (3,110) -- (3,110) --
Lake Elsinore property 24.8
acres -- 4,495 -- 1,483 -- 5,978 -- 5,978 -- N/A 7/06/88 N/A
Provision for impairment
of real estate (b) -- (2,560) -- (1,482) -- (4,042) -- (4,042) --
Temecula property 3.87
acres -- 712 -- 81 -- 793 -- 793 -- N/A 6/01/92 N/A
Provision for impairment
of real estate (b) -- -- -- (288) -- (288) -- (288) --
------ ------ ------ ------- ------ ----- ------ ------- ------
-- 3,955 -- (1,214) -- 2,741 -- 2,741 --
------ ------ ------- ------- ------ ----- ------ ------- -------
$16,005 $11,753 $ 4,344 $34,723 $ -- $8,634 $42,186 $50,820 $12,723
======= ======= ======== ======= ====== ====== ======= ======= =======
<FN>
(a) The aggregate cost for federal income tax purposes is $ 69,378.
(b) See Note 3 to Financial Statements.
(c) Service Retail Centre, Carnegie Business Center I and Promotional Retail Center are collateral for the
debt in the aggregate amount of $6,290.
(d) TGI Friday's and Circuit City are collateral for the debt in the aggregate amount of $5,000.
</FN>
</TABLE>
Appendix B-41
<PAGE>
<TABLE>
<CAPTION>
RANCON REALTY FUND IV,
A CALIFORNIA LIMITED PARTNERSHIP
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
(in thousands)
Reconciliation of gross amount at which real estate was carried:
For the years ended
December 31,
1998 1997 1996
---- ---- ----
Investment in real estate
<S> <C> <C> <C>
Balance at beginning of period $ 64,480 $ 63,135 $ 56,216
Additions during period:
Purchases and improvements 2,834 4,030 7,166
Capitalized carrying costs - - -
Provision for impairment of
investments in real estate (2,864) (947) -
Retirements during period (13,630) (1,738) (247)
------- ------ ----
Balance at end of period $ 50,820 $ 64,480 $ 63,135
========== ========== ========
Accumulated Depreciation
Balance at beginning of period $ 14,666 $ 13,077 $ 11,799
Additions charged to expense 1,249 1,589 1,278
Retirements during period (3,192) -- --
------ -------- --------
Balance at end of period $ 12,723 $ 14,666 (1) $ 13,077
============ ========== ========
<FN>
(1) Included in the accumulated depreciation balance at December 31, 1997
is $3,192 of accumulated depreciation of the Shadowridge Woodbend Apartment
complex, which is classified as rental property held for sale in the
accompanying consolidated balance sheet as of December 31, 1997.
</FN>
</TABLE>
Appendix B-42
<PAGE>
APPENDIX C
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, 1999
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 94402-1708
------------------------------------ ----------
(Address of principal (Zip Code)
executive offices)
(650) 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, 1999: 76,765
Appendix C-1
<PAGE>
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
RANCON REALTY FUND IV,
A CALIFORNIA LIMITED PARTNERSHIP
Consolidated Balance Sheets
(in thousands, except unit amounts)
March 31, December 31,
1999 1998
(Unaudited) (Audited)
-------------- ------------
Assets
- ------
<S> <C> <C>
Investments in real estate:
Rental property, net of accumulated
depreciation of $13,069 and $12,723
at March 31, 1999 and December
31, 1998, respectively $ 33,651 $ 33,781
Land held for development 1,579 1,575
Land held for sale 2,441 2,741
------------ -----------
Total real estate investments 37,671 38,097
Cash and cash equivalents 4,365 4,297
Restricted cash 369 369
Deferred financing costs and other fees,
net of accumulated amortization of $1,261
and $1,195 at March 31, 1999 and December
31, 1998, respectively 1,412 1,312
Prepaid expenses and other assets 1,435 1,434
------------ -----------
Total assets $ 45,252 $ 45,509
============= ===========
Liabilities and Partners' Equity (Deficit)
- ------------------------------------------
Liabilities:
Notes payable $ 15,965 $ 16,005
Accounts payable and other liabilities 845 929
------------ ---------
Total liabilities 16,810 16,934
------------ ---------
Commitments and contingent liabilities
(see Note 4) -- --
Partners' Equity (Deficit):
General partners (658) (658)
Limited partners, 76,765 and 76,767
limited partnership units
outstanding at March 31, 1999 and
December 31, 1998, respectively 29,100 29,233
------------- ----------
Total partners' equity 28,442 28,575
------------- ----------
Total liabilities and partners' equity $ 45,252 $ 45,509
------------- ==========
</TABLE>
See accompanying notes to financial statements.
Appendix C-2
<PAGE>
<TABLE>
<CAPTION>
RANCON REALTY FUND IV,
A CALIFORNIA LIMITED PARTNERSHIP
Consolidated Statement of Operations
(in thousands, except per unit amounts and units outstanding)
Three months ended
March 31,
---------------------------------
1999 1998
--------------- -------------
<S> <C> <C>
Revenues:
Rental income $ 1,623 $ 1,910
Interest and other income 76 10
------------- ------------
Total revenues 1,699 1,920
------------- ------------
Expenses:
Operating 652 823
Interest expense 374 508
Depreciation and amortization 389 347
Loss on sales of real estate 4 11
Expenses associated with
undeveloped land 124 139
General and administrative 243 288
Proposed dissolution costs 45 22
------------- ------------
Total expenses 1,831 2,138
------------- ------------
Net loss $ (132) $ (218)
============= =============
Net loss per limited partnership unit $ (1.72) $ (2.83)
============= ============
Weighted average number of limited
partnership units outstanding during each
period used to compute net loss per
limited partnership unit 76,766 76,940
============= ============
</TABLE>
See accompanying notes to financial statements.
Appendix C-3
<PAGE>
<TABLE>
<CAPTION>
RANCON REALTY FUND IV,
A CALIFORNIA LIMITED PARTNERSHIP
Consolidated Statement of Partners' Equity (Deficit)
For the three months ended March 31, 1999
(in thousands)
General Limited
Partners Partners Total
--------- ----------- ---------
<S> <C> <C> <C>
Balance at December 31, 1998 $ (658) $ 29,233 $ 28,575
Retirement of limited partnership units -- (1) (1)
Net loss -- (132) (132)
---------- --------
Balance at March 31, 1999 $ (658) $ 29,100 $ 28,442
======== ========= ========
</TABLE>
See accompanying notes to financial statements.
Appendix C-4
<PAGE>
<TABLE>
<CAPTION>
RANCON REALTY FUND IV,
A CALIFORNIA LIMITED PARTNERSHIP
Consolidated Statements of Cash Flows
(in thousands)
Three months ended
March 31,
--------------------------------
1999 1998
----------- ---------
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (132) $ (218)
Adjustments to reconcile net loss
to net cash provided by
operating activities:
Loss on sales of real estate 4 11
Depreciation and amortization 389 347
Amortization of loan fees,
included in interest expense 23 28
Changes in certain assets
and liabilities:
Accounts and interest receivable -- (75)
Deferred financing costs
and other fees (166) (71)
Prepaid expenses and other assets (1) (51)
Accounts payable and other
liabilities (84) 263
Interest payable -- 17
---------- ---------
Net cash provided by
operating activities 33 251
---------- ---------
Cash flows from investing activities:
Net proceeds from sales of land 296 241
Net additions to real estate investments (220) (174)
----------- ----------
Net cash provided by investing
activities 76 67
---------- ---------
Cash flows from financing activities:
Notes payable principal payments (40) (63)
Retirement of limited partnership units (1) (86)
----------- -----------
Net cash used for financing activities (41) (149)
----------- -----------
Net increase in cash and cash equivalents 68 169
Cash and cash equivalents at beginning
of period 4,297 788
---------- ---------
Cash and cash equivalents at end of period $ 4,365 $ 957
========== =========
Supplemental disclosure of cash
flow information:
Cash paid for interest $ 352 $ 463
========== =========
</TABLE>
See accompanying notes to financial statements.
Appendix C-5
<PAGE>
RANCON REALTY FUND IV,
A CALIFORNIA LIMITED PARTNERSHIP
Notes to Consolidated Financial Statements
March 31, 1999
(Unaudited)
Note 1. THE PARTNERSHIP AND ITS SIGNIFICANT ACCOUNTING POLICIES
In the opinion of Rancon Financial Corporation ("RFC") and Daniel Lee Stephenson
(the "Sponsors" or "General Partner") and Glenborough Corporation, the
Partnership's asset and property manager ("Glenborough"), 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, 1999 and December 31, 1998, and the related statements of operations and
cash flows for the three months ended March 31, 1999 and 1998.
Proposed Asset Sale and Dissolution - The General Partner currently plans to
- ------------------------------------
seek the Limited Partners' consent to sell all of the Partnership's remaining
properties and liquidate the Partnership and has filed preliminary consent
solicitation materials with the United States Securities and Exchange Commission
(the "Commission") with the goal of mailing consent solicitation materials to
the Limited Partners in the quarter ending June 30, 1999. Assuming a proposal to
sell all of the Partnership's remaining properties and liquidate the Partnership
is submitted to and approved by the Limited Partners, the General Partner
currently intends to sell all of the Partnership's remaining properties in 1999,
distribute the proceeds and liquidate the Partnership after all of the
properties are sold and the cash proceeds thereof received, which the General
Partner does not expect to occur prior to at least early 2000 (and potentially
not until 2001) as some of the properties may be sold with the purchase price
payable on an installment basis.
The Partnership has not, as of the date of the filing of this Quarterly Report
on Form 10-Q with the Commission, entered into any agreement for the sale of its
remaining properties. If the Limited Partners consent to the Partnership selling
all of its remaining properties and then liquidating, the General Partner
currently intends to offer the Partnership's remaining properties for sale by
soliciting bids from various potential purchasers.
If a proposal for the sale of the Partnership's properties and liquidation of
the Partnership is submitted to the Limited Partners, but not approved, the
Partnership currently intends to continue to operate the properties and attempt
to sell such properties in single or multiple sales and develop properties it
believes are developable and would improve its return on investment.
Allocation of Net Income and Net Loss - Allocation of net income and net losses
- --------------------------------------
are made pursuant to the terms of the Partnership Agreement. Generally, net
losses from operations are allocated 99% to the limited partners and 1% to the
general partners until such time as a partner's capital account is reduced to
zero. Additional losses will be allocated entirely to those partners with
positive capital account balances until such balances are reduced to zero.
Net income from operations is allocated 90% to the limited partners and 10% to
the general partners. Net income other than net income from operations shall be
allocated as follows: (i) first, to the partners who have a deficit balance in
their capital account, provided that, in no event shall the general partners be
Appendix C-6
<PAGE>
allocated more than 5% of the net income other than net income from operations
until the earlier of sale or disposition of substantially all of the assets or
the distribution of cash (other than cash from operations) equal to the
Unitholder's original invested capital; (ii) second, to the limited partners in
proportion to and to the extent of the amounts required to increase their
capital accounts to an amount equal to the sum of the adjusted invested capital
of their units plus an additional cumulative non-compounded 6% return per annum
(plus additional amounts depending on the date Units were purchased); (iii)
third, to the partners in the minimum amount required to first equalize their
capital accounts in proportion to the number of units owned, and then, to bring
the sum of the balances of the capital accounts of the limited partners and the
general partners into the ratio of 4 to 1; and (iv) the balance, if any, 80% to
the limited partners and 20% to the general partners. In no event shall the
general partners be allocated less than 1% of the net income other than net
income from operations for any period.
Management Matters - Effective January 1, 1995, Glenborough entered into an
- -------------------
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. Effective January 1, 1998, the agreement was amended to eliminate
Glenborough's responsibility for providing investor relations services and
Preferred Partnership Services, Inc., a California Corporation unaffiliated with
the Partnership, contracted to assume these services. In August 1998, the
management agreement was further amended to provide Glenborough with a guarantee
of a specified amount of asset management and property management fees through
December 31, 1999, regardless of whether the Partnership sells any or all of its
properties prior to such date. In exchange, Glenborough waived any and all
claims related to liquidated damages under the agreement to which it may have
otherwise been entitled. According to the contract, the Partnership will pay
Glenborough for its services as follows: (i) a specified asset administration
fee which is fixed for five years subject to reduction in the year following the
sale of assets ($597,000 in 1999); (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 duties for the General Partner of the Rancon Partnerships. RFC agreed to
cooperate with Glenborough, should Glenborough attempt to obtain a majority vote
of the limited partners to substitute itself as the Sponsor for the Rancon
Partnerships. Glenborough is not an affiliate of RFC or the Partnership.
Basis of Accounting - The accompanying financial statements have been prepared
- -------------------
on the accrual basis of accounting in accordance with generally accepted
accounting principles under the presumption that the Partnership will continue
as a going concern.
The consent of the partners to a proposal to sell all of the Partnership's
remaining properties and liquidate the Partnership will not impact the
accounting treatment applied by the Partnership in its financial statements
prepared in accordance with generally accepted accounting principles as the
Appendix C-7
<PAGE>
liquidation proceeds and the timing thereof are not currently estimable. The
Partnership will classify as "held for use" or "held for development", all of
its operating and undeveloped properties until such time as an acceptable buyer
is identified and an offer which is reasonably assured of consummation is
obtained. At that time, the Partnership will reclassify the appropriate portions
of its assets to "held for sale" and depreciation of those assets will be
discontinued.
When the sale price and timing of the last property disposal is reasonably
determinable, the Partnership will adopt liquidation basis accounting in that
quarter. At that time, all assets and liabilities will be adjusted to their
settlement amounts and an amount to be distributed to the partners upon
liquidation will be estimated.
Consolidation - In April 1996, the Partnership formed Rancon Realty Fund IV
Tri-City Limited Partnership, a Delaware limited partnership ("RRF IV
Tri-City"). As required by the lender (Bear, Stearns Funding, Inc.) of a
$6,400,000 loan obtained by the Partnership in 1996, the Partnership contributed
three of its operating properties to RRF IV Tri-City to provide a bankruptcy
remote borrower for the lender. The loan, secured by the properties in RRF IV
Tri-City, has a principal balance of $6,268,000 at March 31, 1999, and matures
on May 1, 2006 with an 8.744% fixed interest rate and a 25-year amortization of
principal. The limited partner of RRF IV Tri-City is the Partnership and the
general partner is Rancon Realty Fund IV, Inc. ("RRF IV, Inc."), a corporation
wholly owned by the Partnership. Since the Partnership owns 100% of RRF IV, Inc.
and indirectly owns 100% of RRF IV Tri-City, the Partnership considers all
assets owned by RRF IV, Inc. and RRF IV Tri-City to be owned by the Partnership.
Reclassifications - Certain prior year balances have been reclassified to
- -----------------
conform with the current year presentation.
Note 2. REFERENCE TO 1998 AUDITED FINANCIAL STATEMENTS
----------------------------------------------
These unaudited financial statements should be read in conjunction with the
Notes to Financial Statements included in the December 31, 1998 audited
consolidated financial statements.
Note 3. SALE OF REAL ESTATE
-------------------
On January 15, 1999, the Partnership sold approximately 17 acres of land located
in Perris, Riverside County, California to an unaffiliated entity for $334,800.
The Partnership recognized a $4,000 loss on the sale and the net proceeds of
approximately $296,000 were added to the Partnership's operating cash reserves.
Appendix C-8
<PAGE>
Note 4. COMMITMENTS AND CONTINGENT LIABILITIES
--------------------------------------
The Partnership is contingently liable for subordinated real estate commissions
payable to the Sponsors in the aggregate amount of $643,000 at March 31, 1999
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. Since the circumstances under which these commissions would be payable
are limited, the liability has not been recognized in the accompanying financial
statements; however, the amount will be recorded when and if it becomes payable.
The Partnership is also contingently liable for a subordinated note payable in
connection with the land in Temecula, California, that the Partnership
reacquired in June 1992 through a deed in lieu of foreclosure in satisfaction of
a $2,276,000 note receivable. The subordinated note payable and accrued interest
total $566,000 as of March 31, 1999. This amount is payable upon the sale of the
property only after the Partnership receives the full amount of the prior note
receivable with accrued and unpaid interest, costs of development, costs of
sale, and other amounts paid to obtain good title to the property, subject to
certain release provisions. Since the circumstances under which this liability
would be payable are limited, the note payable and accrued interest have not
been recorded in the accompanying financial statements; however, the amount will
be recognized prior to recording any gain on the sale of the related land.
Appendix C-9
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
At March 31, 1999, the Partnership had cash of $4,365,000 (exclusive of $369,000
in restricted cash). The remainder of the Partnership's assets consist primarily
of its net investments in real estate, totaling approximately $37,671,000 at
March 31, 1999, which includes $33,651,000 in rental properties, $1,579,000 of
land held for development and $2,441,000 of land held for sale.
The Partnership's business strategy has been to focus on the eventual
disposition of its assets at the optimal time and sales price. As discussed in
Note 1 of Item 1, the General Partner currently plans to seek the Limited
Partners' consent to sell all of the Partnership's remaining properties and
liquidate the Partnership and has filed preliminary consent solicitation
materials with the United States Securities and Exchange Commission (the
"Commission") with the goal of mailing consent solicitation materials to the
Limited Partners in the quarter ending June 30, 1999. Assuming a proposal to
sell all of the Partnership's remaining properties and liquidate the Partnership
is submitted to and approved by the Limited Partners, the General Partner
currently intends to sell all of the Partnership's remaining properties in 1999,
distribute the proceeds and liquidate the Partnership after all of the
properties are sold and the cash proceeds thereof received, which the General
Partner does not expect to occur prior to at least early 2000 (and potentially
not until 2001) as some of the properties may be sold with the purchase price
payable on an installment basis.
The Partnership has not, as of the date of the filing of this Quarterly Report
on Form 10-Q with the Commission, entered into any agreement for the sale of its
remaining properties. If the Limited Partners consent to the Partnership selling
all of its remaining properties and then liquidating, the General Partner
currently intends to offer the Partnership's remaining properties for sale by
soliciting bids from various potential purchasers.
If a proposal for the sale of the Partnership's properties and liquidation of
the Partnership is submitted to the Limited Partners, but not approved, the
Partnership currently intends to continue to operate the properties and attempt
to sell such properties in single or multiple sales and develop properties it
believes are developable and would improve its return on investment.
The discussion above contains forward-looking statements regarding the
Partnership's plans, goals and expectations, including statements regarding the
Partnership's estimate of the timing of the sale of the Partnership's remaining
properties, the distribution of proceeds and the liquidation of the Partnership.
Forward-looking statements are necessarily speculative, there being certain
risks and uncertainties that could cause actual events or results to differ
materially from those referred to in the forward-looking statements. The General
Partners' current plans are subject to change, including in the event of changes
in general business and economic conditions as well as changes in the local real
estate markets where the Partnership's properties are located. There can be no
assurance that regulatory approval will be obtained, if and when consent
solicitation materials will be mailed to Limited Partners, that a proposal for
the sale of all of the Partnership's remaining properties and liquidation of the
Partnership will be approved, or if and when the properties will be sold, the
proceeds distributed and the Partnership liquidated. The timing of any sale of
the Partnership's remaining properties, the distribution of proceeds, and the
liquidation of the Partnership are subject to various and significant
Appendix C-10
<PAGE>
uncertainties, many of which are beyond the Partnership's control and which
could delay any sale of the Partnership's remaining properties, liquidation of
the Partnership, and distribution of proceeds significantly beyond the time
periods estimated above. Among such uncertainties are the date when any consent
solicitation materials are mailed to the Limited Partners, the date when consent
of the Limited Partners is obtained (assuming it is obtained), the demand for
the Partnership's properties by potential purchasers, the availability of
capital for potential purchasers, the actual dates when properties are sold, and
the duration of any installment sales of any of the properties.
Operationally, the Partnership's primary source of funds consist of cash
provided by its rental activities. Other sources of funds may include permanent
financing, property sales, interest income from certificates of deposit, and
other deposits of funds invested temporarily. Cash generated from property sales
are generally added to the Partnership's cash reserves, pending use in the
development of properties, or are distributed to the partners.
The majority of the Partnership's assets are located in the Tri-City Corporate
Centre, in San Bernardino, California. Tri-City is in the heart of the Inland
Empire, a submarket of Southern California and is the most densely populated
area of San Bernardino and Riverside counties. The Partnership's Tri City "Class
A" office buildings such as One Vanderbilt and Two Vanderbilt experienced strong
leasing activity over the past two quarters. Tri City's retail space continued
to experience strong leasing activity during the first quarter ended March 31,
1999 even though the retail sector in general has been adversely affected by the
presence of outlet retailers. The market for industrial space appears to be
improving due to the demand for space for both warehouse and distribution
facilities. Management currently believes that the overall real estate market in
the Inland Empire remains strong through 1999, with conditions beyond such time
being less predictable.
Tri-City
- --------
The Partnership currently owns the following ten properties in Tri-City
Corporate Center:
<TABLE>
<CAPTION>
Property Type Square Feet
- ---------------------------- ---------------------------------- -----------
<S> <C> <C>
One Vanderbilt Four story office building 73,730
Two Vanderbilt Four story office building 69,046
Carnegie Business Center I Two R & D buildings 62,539
Service Retail Center Two retail buildings 20,780
Promotional Retail Center Four strip center retail buildings 66,265
Inland Regional Center Two story office building 81,079
TGI Friday's Restaurant 9,386
Circuit City Retail building 39,123
Office Max Retail building 23,500
Mimi's Cafe Restaurant 6,455
</TABLE>
The Partnership also owns approximately 23 acres of unimproved land in the
Tri-City area.
Lake Elsinore Property
The Partnership owns approximately 24.8 acres of undeveloped, commercially zoned
land in Lake Elsinore, Riverside County, California. The Lake Elsinore property
is reflected as land held for sale in the accompanying consolidated balance
sheets.
Appendix C-11
<PAGE>
Perris
- ------
On January 15, 1999, the Partnership sold approximately 17 acres of land located
in Perris, Riverside County, California, to an unaffiliated third party for
$334,800. The Partnership realized a $4,000 loss on the sale and $296,000 of net
sales proceeds, which were added to cash reserves.
Temecula Property
- -----------------
The Partnership owns two parcels of undeveloped, commercially zoned land in
Temecula, Riverside County, California (referred to as Rancon Towne Village),
and is reflected as land held for sale in the accompanying consolidated balance
sheets.
General Matters
- ---------------
The $300,000 or 11% decrease in land held for sale at March 31, 1999 compared
to December 31, 1998 was due to the sale of the Perris property.
The $100,000 or 8% increase in deferred financing costs and other fees at March
31, 1999 compared to December 31, 1998 is due to the payment of lease
commissions relating to new tenants at One Vanderbilt and the new leases for
Office Max and Mimi's Cafe.
Management believes that the Partnership's cash balance at March 31, 1999
together with the cash from operations, sales and financing, will be sufficient
to finance the Partnership's and the properties' continued operations and
development plans, on a short- term basis and for the reasonably foreseeable
future. There can be no assurance that the Partnership's results of operations
will not fluctuate in the future and at times affect its ability to meet its
operating requirements.
Aside from the foregoing and the current plan to potentially sell all of the
Partnership's remaining properties and liquidate the Partnership, the
Partnership knows of no demands, commitments, events or uncertainties, which
might effect its liquidity or capital resources in any material respect. In
addition, the Partnership is not subject to any covenants pursuant to its
secured debt that would constrain its ability to obtain additional capital.
Results of Operations
- ---------------------
Revenues
Rental income decreased $287,000 or 15% for the three months ended March 31,
1999 compared to the three months ended March 31, 1998, primarily as a result
of: (i) the loss of rental income due to the June 1998 sale of Shadowridge
Woodbend Apartments ("Shadowridge"); and (ii) the decrease in occupancy at
Service Retail Center. This decrease in rental revenue was partially offset by
the commencement of operations of Office Max and Mimi's Cafe and the increased
occupancy at One Vanderbilt, Two Vanderbilt and Carnegie Business Center I.
Appendix C-12
<PAGE>
Occupancy rates at the Partnership's Tri-City properties as of March 31, 1999
and 1998 were as follows:
<TABLE>
<CAPTION>
March 31,
------------------------------------
1999 1998
--------------- ----------------
<S> <C> <C>
One Vanderbilt 91% 75%
Two Vanderbilt 100% 93%
Service Retail Center 84% 100%
Carnegie Business Center I 78% 69%
Promotional Retail Center 100% 100%
Inland Regional Center 100% 100%
TGI Friday's 100% 100%
Circuit City 100% 100%
Office Max (commenced October 1998) 100% N/A
Mimi's Cafe (commenced January 1999) 100% N/A
</TABLE>
As of March 31, 1999, tenants at the Tri-City occupying substantial portions of
leased rental space included: (i) Inland Empire Health Plan with a lease through
March 2002; (ii) CompUSA with a lease through August 2003; (iii) ITT Educational
Services with a lease which expires in December 2004; (iv) PetsMart with a lease
through January 2009; (v) Inland Regional Center with a lease through July 2009;
(vi) Circuit City with a lease through January 2018; and (vii) Office Max with a
lease through October 2013. These seven tenants, in the aggregate, occupied
approximately 269,000 square feet of the 452,000 total leasable square feet at
Tri-City and accounted for approximately 57% of the total rental income of the
Partnership during the first quarter of 1999.
The sixteen percentage point increase in occupancy from March 31, 1998 to March
31, 1999 at One Vanderbilt is attributed to the expansion of the leased space of
two existing tenants.
The seven percentage point increase in occupancy from March 31, 1998 to March
31, 1999 at Two Vanderbilt is attributed to the expansion of the leased space of
an existing tenant.
The sixteen percentage point decrease in occupancy from March 31, 1998 to March
31, 1999 at Service Retail Center is a result of three tenants, occupying 3,314
square feet of space in the aggregate, vacating their space upon their
respective lease terminations. Management has executed a lease expansion for
1,103 square feet, with construction to commence in May 1999. Management is
currently negotiating lease terms with a prospective tenant for approximately
1,100 square feet of space, and has been marketing other vacant space to
potential tenants.
The nine percentage point increase in occupancy from March 31, 1998 to March 31,
1999 at Carnegie Business Center is attributed to leasing of 5,730 square feet
of space to three new tenants.
The construction of Office Max and Mimi's Cafe, 23,500 and 6,455 square feet
build-to-suit retail buildings, were completed during 1998, with lease
commencements in October, 1998 and January, 1999, respectively.
Appendix C-13
<PAGE>
Interest income increased $66,000 for the three months ended March 31, 1999
compared to the three months ended March 31, 1998 as a result of the increase in
cash reserves resulting from the sale of Shadowridge.
Expenses
- --------
Operating expenses decreased $171,000 or 21% for the three months ended March
31, 1999, compared to the three months ended March 31, 1998 primarily due to the
sale of Shadowridge. This increase is partially offset by an increase in
property operating expenses attributable to the commencement of operations of
Office Max and Mimi's Cafe.
Interest expense decreased $134,000 or 26% for the three months ended March 31,
1999 compared to the three months ended March 31, 1998 due to the payoff of the
$5,800,000, 7.95% fixed rate loan secured by Shadowridge.
Depreciation and amortization increased $42,000 or 12% for the three months
ended March 31, 1999 compared to the three months ended March 31, 1998 due
primarily to the commencement of operations of Office Max and Mimi's Cafe and
depreciation of additions to rental properties.
The loss on sale of real estate of $4,000 for the three months ended March 31,
1999 resulted from the sale of Perris property. The loss on sale of real estate
of $11,000 for the three months ended March 31, 1998 resulted from the sale of a
Rancon Towne Village parcel.
Expenses associated with undeveloped land decreased $15,000 or 11% for the three
months ended March 31, 1999 compared to the three months ended March 31, 1998
due to: (i) the reduction of property taxes as a result of the sale of the
Perris property in January 1999; and (ii) the reduction of expenses upon
completion of construction of Office Max and Mimi's Cafe during the last quarter
of 1998.
General and administrative expenses decreased $45,000 or 16% for the three
months ended March 31, 1999 compared to the three months ended March 31, 1998
primarily due to a decrease in asset management fees resulting from the 1998
sale of Shadowridge.
The proposed dissolution costs of $45,000 and $22,000 for the three months ended
March 31, 1999 and 1998, respectively, represent charges for work performed and
expenses incurred while exploring the possibilities of having the Partnership
sell of all of its properties and then liquidate, and preparation of preliminary
proxy materials in the quarter ended March 31, 1999. See Item 1 of Part I for
further details.
Year 2000 Compliance
State of Readiness. Glenborough Corporation ("Glenborough"), the Partnership's
asset and property manager, utilizes a number of computer software programs and
operating systems. These programs and systems primarily comprise information
technology systems ("IT Systems") (i.e., software programs and computer
operating systems) that serve the management operations. Although the
Partnership does not utilize any significant IT Systems of its own, it does
utilize embedded systems such as devices used to control, monitor or assist the
operation of equipment and machinery systems (e.g., HVAC, fire safety and
security) at its properties ("Property Systems"). To the extent that software
Appendix C-14
<PAGE>
applications contain a source code that is unable to appropriately interpret the
upcoming calendar year "2000" and beyond, some level of modification or
replacement of these IT Systems and Property Systems will be necessary.
IT Systems. Employing a team made up of internal personnel and third-party
consultants, Glenborough has completed an identification of IT Systems,
including hardware components that are not yet Year 2000 compliant. To the best
of Glenborough's knowledge based on available information and a reasonable level
of inquiry and investigation, such upgrading as appears to be called for under
the circumstances has been completed in accordance with prevailing industry
practice. Glenborough has commenced a testing program which will be completed
during 1999. In addition, the Partnership is currently communicating with third
parties with whom it does significant business, such as financial institutions,
tenants and vendors, to determine their readiness for Year 2000 compliance.
Property Systems. An identification of Property Systems, including hardware
components, that are not yet Year 2000 compliant, has also been completed.
Upgrading of such systems as appears to be called for under the circumstances
based on available information and a reasonable level of inquiry and
investigation, and in accordance with prevailing industry practice has
commenced. Upon completion of such upgrading, a testing program will be
initiated and completed during 1999. To the best of Glenborough's knowledge, the
Partnership has no Property Systems, the failure of which would have a material
effect on its operations.
Costs of Addressing Year 2000 issues. Given the information known at this time
about systems that are non-compliant, coupled with ongoing, normal course-of
business efforts to upgrade or replace critical systems, as necessary, the
Partnership does not expect Year 2000 compliance costs to have a material
adverse impact on its liquidity or ongoing results of operations. The costs of
assessment and remediation of the Property Systems will be paid by the
Partnership as an operating expense.
Risks of Year 2000 issues. In light of the assessment and upgrading efforts to
date, and assuming completion of the planned, normal course-of-business upgrades
and subsequent testing, the Partnership believes that any residual Year 2000
risk will be limited to non-critical business applications and support hardware,
and to short-term interruptions affecting Property Systems which, if they occur
at all, will not be material to overall operations. Glenborough and the
Partnership believe that all IT Systems and Property Systems will be Year 2000
compliant and that compliance will not materially adversely affect its future
liquidity or results of operations or its ability to service debt. However,
absolute assurance that this is the case cannot be given.
Contingency Plans. The Partnership is currently developing a contingency plan
for all operations which will address the most reasonably likely worst case
scenario regarding Year 2000 compliance. Such a plan, however, will recognize
material limitations on the ability to respond to major regional or industrial
failures such as power outages or communications breakdowns. Management expects
such a contingency plan to be completed during 1999.
Appendix C-15
<PAGE>
Part II. OTHER INFORMATION
Item 1. Legal Proceedings
None.
Item 2. Changes in Securities and Use of Proceeds
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:
On March 31, 1999, the Partnership filed Amendment No. 1 on
Form 8-K/A relating to its Current Report on Form 8-K dated
July 6, 1998 and filed with the Commission on July 9, 1998
relating to the sale of the Shadowridge Woodbend Apartments.
The Form 8-K/A:(i)amends Item 7 of the Form 8-K to incorporate
notes to the pro forma financial statements contained in the
Form 8-K and amend certain pro forma adjustments; and (ii)
restates Items 2 and 7 of the Form 8-K in their entirety.
Appendix C-16
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or Section 15(d) of the Securities
Exchange Act of 1934, the Partnership 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
By Rancon Financial Corporation
a California corporation,
its General Partner
Date: May 12, 1999 By: /s/ DANIEL L. STEPHENSON
--------------------------
Daniel L. Stephenson, President
Date: May 12, 1999` By: /s/ DANIEL L. STEPHENSON
-------------------------------------
Daniel L. Stephenson, General Partner
Appendix C-17
<PAGE>
RANCON REALTY FUND IV,
a California Limited Partnership
CONSENT FORM REGARDING SALE OF ALL OR SUBSTANTIALLY ALL OF
THE PROPERTIES OF THE PARTNERSHIP AND DISSOLUTION OF THE PARTNERSHIP
The undersigned, a holder of units of limited partnership interests
("Units") (as set forth on the reverse side hereof) in Rancon Realty Fund IV, a
California limited partnership (the "Partnership"), hereby
______ CONSENTS
______ DOES NOT CONSENT
______ ABSTAINS
to the sale of all or substantially all of the properties of the Partnership
(the "Asset Sale") and dissolution of the Partnership (the "Dissolution"), all
in the manner and, with respect to the Dissolution, at the time as described in
the Partnership's Consent Solicitation Statement dated July 6, 1999 (the
"Solicitation Statement"). The Units represented by this Consent will be voted
in accordance with the election specified by the holder named below. If no
election is specified, any otherwise properly completed and signed Consent Form
will be deemed to be a consent to the Asset Sale and Dissolution. By execution
hereof, the undersigned acknowledges receipt of the Solicitation Statement.
(continued and to be executed on reverse side)
<PAGE>
RANCON REALTY FUND IV,
a California Limited Partnership
This Consent is solicited by the General Partner on behalf of the
Partnership. The Partnership reserves the right to waive any conditions to, or
modify the terms of, the Solicitation (as defined in the Solicitation
Statement). A Consent Form given, if effective, will be binding upon the holder
of the Units who gives such Consent Form and upon any subsequent transferees of
such Units, subject only to revocation by the delivery of a written notice of
revocation by the Unitholder, executed and filed in the manner and within the
time period described in the Solicitation Statement. In order to count, this
Consent Form must be received by the Partnership prior to 5:00 P.M., Pacific
Time, on August 25, 1999. This fully completed and executed Consent Form should
be sent by mail in the self-addressed, postage-paid envelope enclosed for that
purpose, or by overnight courier, or by facsimile, to the Partnership's
Soliciting Agent, Preferred Partnership Services, Inc., as follows:
PREFERRED PARTNERSHIP SERVICES, INC.
39560 Stevenson Place, #112 Facsimile Number: 510-713-0366
Fremont, California 94539-3074 Telephone Number: 1-888-909-7774 or 510-713-0241
Please sign your name below exactly in the same manner as the name(s) in which
ownership of the Units is registered. When Units are held by two or more joint
holders, all such holders should sign. When signing as attorney-in-fact,
executor, administrator, trustee or guardian, please give full title as such. If
a corporation, please sign in full corporate name by the President or other
authorized officer. If a partnership, please sign in partnership name by an
authorized person.
Date:___________________ , 1999
________________________ Signature
________________________ Signature if held jointly
