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 SECURITIES
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.
Page 1 of 49
<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
execute a purchase
Page 2 of 49
<PAGE>
agreement, and if on the other hand, the Buyer notifies the Partnership that it
does not intend to, or fails to respond within the ten day period, 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.
Page 3 of 49
<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.
Page 4 of 49
<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:
Property Type Square Feet
---------------------------- ---------------------------------- -----------
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
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%.
Page 5 of 49
<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:
1998 1997 1996 1995
---- ---- ---- ----
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
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.
Page 6 of 49
<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 Services Educational Services Computer 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>
Page 7 of 49
<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 Retail HMO Supplies
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 5-year
Renewal Options option options none 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, Inland
One Carnegie Business Center Regional Circuit City
Security Vanderbilt and Promotional Retail Center Center and TGI Friday'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 of 1.80% (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
Page 8 of 49
<PAGE>
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.
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.
Page 9 of 49
<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.
Page 10 of 49
<PAGE>
Part II
Item 5. Market for Partnership's Common Equity and Related Stockholder Matters
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.
Page 11 of 49
<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:
<TABLE>
<CAPTION>
For the two For the
For the years ended months ended years 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 impairment
of 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 per Unit $ 51.58 $ ___ $ -- $ -- $ -- $ --
</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.
Page 12 of 49
<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.
Page 13 of 49
<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:
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
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
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.
Page 14 of 49
<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:
1998 1997
---------- ---------
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
========== ==========
Page 15 of 49
<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
Page 16 of 49
<PAGE>
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.
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.
Page 17 of 49
<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
None.
Page 18 of 49
<PAGE>
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.
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
- - - --------------------------------
Amount and
Nature of
Title Name of Beneficial Percent
of Class Beneficial Owner 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
Page 19 of 49
<PAGE>
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.
Page 20 of 49
<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 Prospectus dated December 29,
1986, as amended on January 5, 1987, filed pursuant
to Rule 424(b), file 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).
Page 21 of 49
<PAGE>
(3.3) Limited Partnership Agreement of RRF IV Tri-City
Limited Partnership, A Delaware limited 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
the Partnership's annual report on Form 10-K for the
year ended December 31, 1996 is incorporated herein
by reference).
(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.
Page 22 of 49
<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: March 30, 1999 By: /s/ DANIEL L. STEPHENSON
--------------------------
Daniel L. Stephenson, President
By: /s/ DANIEL L. STEPHENSON
Daniel L. Stephenson, General Partner
Page 23 of 49
<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 and 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.
Page 24 of 49
<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.
San Francisco, California
February 12, 1999
Page 25 of 49
<PAGE>
RANCON REALTY FUND IV,
A CALIFORNIA LIMITED PARTNERSHIP
Consolidated Balance Sheets
December 31, 1998 and 1997
(in thousands, except units outstanding)
Assets 1998 1997
- - - ------ ---- ----
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
========== ===========
The accompanying notes are an integral part of these financial statements
Page 26 of 49
<PAGE>
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
--------- --------- ---------
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
========= ========= =========
The accompanying notes are an integral part of these financial statements
Page 27 of 49
<PAGE>
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
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
======== ========== =========
The accompanying notes are an integral part of these financial statements
Page 28 of 49
<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>
(continued)
Page 29 of 49
<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
========= ========== ==========
The accompanying notes are an integral part of these financial statements
</TABLE>
Page 30 of 49
<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
shall the general partners be allocated more than 5% of the net income other
than net income from
Page 31 of 49
<PAGE>
RANCON REALTY FUND IV,
A CALIFORNIA LIMITED PARTNERSHIP
Notes to Consolidated Financial Statements
December 31, 1998 and 1997
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.
Page 32 of 49
<PAGE>
RANCON REALTY FUND IV,
A CALIFORNIA LIMITED PARTNERSHIP
Notes to Consolidated Financial Statements
December 31, 1998 and 1997
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
Partnership to continue to hold and operate the properties prior to their
eventual sale. Due to uncertainties inherent in the valuation process
Page 33 of 49
<PAGE>
RANCON REALTY FUND IV,
A CALIFORNIA LIMITED PARTNERSHIP
Notes to Consolidated Financial Statements
December 31, 1998 and 1997
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
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.
Page 34 of 49
<PAGE>
RANCON REALTY FUND IV,
A CALIFORNIA LIMITED PARTNERSHIP
Notes to Consolidated Financial Statements
December 31, 1998 and 1997
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 accompanying
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 Partnership 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 partner of RRF IV
Tri-City is the Partnership and the general partner is Rancon Realty Fund IV,
Inc., a corporation wholly owned by the Partnership. Since the Partnership
indirectly owns 100% of RRF IV Tri-City, the financial statements of RRF IV
Tri-City have been consolidated with those of the Partnership. All 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):
1998 1997
----------- -----------
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)
----------- -----------
Total rental property, net $ 33,781 $ 32,659
=========== ===========
At December 31, 1998 and 1997, the Partnership's rental property included ten
projects at the Tri-City Corporate Centre in San Bernardino, California.
Page 35 of 49
<PAGE>
RANCON REALTY FUND IV,
A CALIFORNIA LIMITED PARTNERSHIP
Notes to Consolidated Financial Statements
December 31, 1998 and 1997
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):
1998 1997
----------- ---------
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
========== ==========
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 and 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):
1998 1997
------------ -----------
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
=========== ===========
The decrease in the carrying value of the 17.14 acres of land in Perris,
California 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.
Page 36 of 49
<PAGE>
RANCON REALTY FUND IV,
A CALIFORNIA LIMITED PARTNERSHIP
Notes to Consolidated Financial Statements
December 31, 1998 and 1997
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 distributed 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):
1998 1997
------------- -----------
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
disposition 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
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.
Page 37 of 49
<PAGE>
RANCON REALTY FUND IV,
A CALIFORNIA LIMITED PARTNERSHIP
Notes to Consolidated Financial Statements
December 31, 1998 and 1997
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):
<TABLE>
<CAPTION>
1998 1997
----------- ----------
<S> <C> <C>
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
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
</TABLE>
Page 38 of 49
<PAGE>
RANCON REALTY FUND IV,
A CALIFORNIA LIMITED PARTNERSHIP
Notes to Consolidated Financial Statements
December 31, 1998 and 1997
<TABLE>
<CAPTION>
1998 1997
----------- ----------
<S> <C> <C>
"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):
1999 $ 5,171
2000 187
2001 2,505
2002 172
2003 188
Thereafter 7,782
------------
Total $ 16,005
============
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
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
Page 39 of 49
<PAGE>
RANCON REALTY FUND IV,
A CALIFORNIA LIMITED PARTNERSHIP
Notes to Consolidated Financial Statements
December 31, 1998 and 1997
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):
1999 $ 5,918
2000 5,717
2001 5,399
2002 4,395
2003 3,982
Thereafter 27,266
------------
Total $ 52,677
===========
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.
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.
Page 40 of 49
<PAGE>
RANCON REALTY FUND IV,
A CALIFORNIA LIMITED PARTNERSHIP
Notes to Consolidated Financial Statements
December 31, 1998 and 1997
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).
1998 1997 1996
--------- --------- --------
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)
========= ========= ========
Page 41 of 49
<PAGE>
RANCON REALTY FUND IV,
A CALIFORNIA LIMITED PARTNERSHIP
Notes to Consolidated Financial Statements
December 31, 1998 and 1997
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).
1998 1997
------------ -----------
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
============= ===========
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.
Page 42 of 49
<PAGE>
<TABLE>
<CAPTION>
RANCON REALTY FUND IV,
A CALIFORNIA LIMITED PARTNERSHIP
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
DECEMBER 31, 1998
(in thousands)
- - - -----------------------------------------------------------------------------------------------------------------------------------
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
- - - -----------------------------------------------------------------------------------------------------------------------------------
Initial Cost to Cost Capitalized Subsequent Gross Amount Carried
Partnership to Acquisition at December 31, 1998
Buildings Buildings
and Carrying and (a)
Description Encumbrances Land Improvements Improvements Cost Land Improvements Total
- - - -----------------------------------------------------------------------------------------------------------------------------------
<S> <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
Two Vanderbilt -- 443 -- 6,974 -- 443 6,974 7,417
Carnegie Business Center I (c) 380 -- 5,062 -- 380 5,062 5,442
Inland Regional Center 2,429 608 -- 7,757 -- 946 7,419 8,365
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
------- -------- -------- -------- ------ ------- ------- --------
Commercial Retail Space, San Bernardino,
County, CA:
Service Retail Center (c) 300 -- 1,724 -- 301 1,723 2,024
Provision for impairment of real
estate (b) -- -- -- (250) -- (41) (209) (250)
Promo Retail (c) 811 -- 5,975 -- 811 5,975 6,786
Provision for impairment of real
estate (b) -- -- -- (119) -- (7) (112) (119)
TGI Friday's (d) 181 1,624 -- -- 181 1,624 1,805
Circuit City (d) 284 -- 3,597 -- 454 3,427 3,881
Office Max -- 324 2,045 -- -- 324 2,045 2,369
Mimi's Cafe -- 149 675 -- -- 149 675 824
------- -------- -------- -------- ------ ------- ------- --------
11,290 2,049 4,344 10,927 -- 2,172 15,148 17,320
------- -------- -------- -------- ------ ------- ------- --------
Land Held for Development:
San Bernardino County, CA:
26 acres - Tri-City -- 4,186 -- 5,017 -- 9,203 -- 9,203
Provision for impairment of real
estate (b) -- (244) -- (7,384) -- (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
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
Provision for impairment of real
estate (b) -- (2,560) -- (1,482) -- (4,042) -- (4,042)
Temecula property 3.87 acres -- 712 -- 81 -- 793 -- 793
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
======= ======== ======== ======== ====== ======= ======= ========
</TABLE>
Page 43 of 49
<PAGE>
<TABLE>
<CAPTION>
RANCON REALTY FUND IV,
A CALIFORNIA LIMITED PARTNERSHIP
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
DECEMBER 31, 1998
(in thousands)
- - - ------------------------------------------------------------------------------------------------
COLUMN A COLUMN F COLUMN G COLUMN H COLUMN I
- - - ------------------------------------------------------------------------------------------------
Date Life
Accumulated Construction Date Depreciated
Description Depreciation Began Acquired Over
- - - ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Rental Properties:
Commercial Office Complexes,
San Bernardino County, CA:
One Vanderbilt $ 4,439 11/30/85 11/06/84 3-40 yrs.
Two Vanderbilt 3,471 1/30/86 11/06/84 3-40 yrs.
Carnegie Business Center I 2,700 7/31/86 11/06/84 3-40 yrs.
Inland Regional Center 487 1/96 6/26/87 10-40 yrs.
Provision for impairment
of real estate (b) --
---------
11,097
---------
Commercial Retail Space, San Bernardino,
County, CA:
Service Retail Center 595 7/31/86 11/06/84 3-40 yrs.
Provision for impairment of real
estate (b) --
Promo Retail 722 2/01/93 11/06/84 10-40 yrs.
Provision for impairment of real
estate (b) --
TGI Friday's 75 N/A 2/28/97 40yrs.
Circuit City 224 7/96 11/06/84 20-40yrs.
Office Max 10 7/98 11/06/84 40yrs.
Mimi's Cafe -- 7/98 11/06/84 40yrs.
---------
1,626
---------
Land Held for Development:
San Bernardino County, CA:
26 acres - Tri-City -- N/A 11/06/84 N/A
Provision for impairment of real
estate (b) --
---------
--
---------
Land Held for Sale:
Riverside County, CA:
Perris property 17.14 acres -- N/A 11/07/88 N/A
Provision for impairment of real
estate (b) --
Lake Elsinore property 24.8 acre -- N/A 7/06/88 N/A
Provision for impairment of real
estate (b) --
Temecula property 3.87 acres -- N/A 6/01/92 N/A
Provision for impairment of real
estate (b) --
--------
--
--------
$ 12,723
========
</TABLE>
(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.
Page 44 of 49
<PAGE>
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:
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
============ ============ ==========
(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.
Page 45 of 49
<PAGE>
EXHIBIT INDEX
Exhibit No. Exhibit Title
- - - ------------ -----------------------------------------------
10.1 First Amendment to Second Amended Management,
Administration and Consultation Agreement for
services rendered by Glenborough Corporation
dated August 31, 1998.
Page 46 of 49
<PAGE>
Agreement
This Agreement is made as of August 31, 1998, by and between
Glenborough Corporation, a California corporation ("GC"), Rancon Realty Fund IV,
a California limited partnership ("Fund IV"), Daniel L. Stephenson ("DLS") and
Rancon Financial Corporation, a California corporation ("RFC").
Recitals
A. DLS and RFC are general partners of Fund IV.
B. Reference is made to that certain Management, Administration and
Consulting Agreement dated December 20, 1994, by and among (among others)
Glenborough Inland Realty Corporation ("GIRC," GC's predecessor-in-interest),
Fund IV, DLS and RFC, as amended on March 30, 1995 (the "Agreement").
C. Under the Agreement, GC is required, as GIRC's
successor-in-interest, to perform services for Fund IV, and Fund IV is required
to pay to GC, among other things, (i) property management fees ("Management
Fees") and (ii) Asset Administration Fees ("Asset Fees"). The Agreement also
establishes similar contractual arrangements between GIRC and a number of other
partnerships in which DLS and/or RFC or affiliates thereof serve as general
partners (the "Other Rancon Partnerships"), and GC is also successor-in-interest
to GIRC with respect to such contractual arrangements.
D. Under Section 11.6 of the Agreement, GC is entitled to Liquidated
Damages from Fund IV in the amount of $2,110,306 ("Liquidated Damages") if the
Agreement is terminated by Fund IV prior to the date five (5) years after the
Commencement Date of January 3, 1995.
E. GC is willing to waive its right to Liquidated Damages if Fund IV
agrees to maintain the Management Fees and Asset Fees at a specified amount, and
Fund IV is willing to so maintain the amount of the Management Fees and Asset
Fees.
Agreement
Now, therefore, in consideration of the mutual promises, covenants and
agreements contained herein, it is hereby agreed as follows:
1. Liquidated Damages. GC hereby waives any and all claims to
Liquidated Damages from Fund IV.
2. Asset Fees and Management Fees. For the period beginning on the date
of this Agreement and ending December 31, 1999, Fund IV shall pay to GC Asset
Fees and Management Fees in an amount equal to the greater of (i) the amount of
Asset Fees and Management Fees in effect as of the date of this Agreement, as
set forth in Exhibit A hereto,
Page 47 of 49
<PAGE>
reduced only for such Asset Fees (in accordance with Exhibit E to the Agreement)
and Management Fees, respectively, as are applicable to the property known as
Shadowridge, which was sold in June 1998, or (ii) the amount payable under the
terms of the Agreement. Fund IV specifically guarantees that Asset Fees and
Management Fees shall be paid at these respective amounts regardless of whether
Fund IV sells any or all of its remaining properties during such time.
3. Other Compensation. All other compensation payable to GC
under the Agreement shall be paid in accordance with the terms of the Agreement.
In witness whereof, the parties have executed this Agreement as of the
date and year first above written.
Glenborough Corporation Rancon Financial Corporation,
a California corporation a California corporation
By ___________________________ By _____________________________
Rancon Realty Fund IV __________________________________
a California limited partnership Daniel L. Stephenson
By Rancon Financial Corporation,
a California corporation
its General Partner
By ___________________________
Daniel L. Stephenson, President
By _______________________________
Daniel L. Stephenson, General Partner
Page 48 of 49
<PAGE>
Exhibit A
Rancon Realty Fund IV
Asset Administration Fees
and
Property Management Fees
Asset Administration Fees: A monthly amount based on an annual total
of $805,985 per year (i.e., $67,165.42 per
month)
Property Management Fees
for the Tri-City property: A monthly amount based on an annual total
equal to actual property management fees
for the period January 1, 1998 through June
30, 1998, multiplied by 2.
Page 49 of 49
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000743870
<NAME> RANCON REALTY FUND IV
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 4,666
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 2,741
<CURRENT-ASSETS> 4,666
<PP&E> 35,356
<DEPRECIATION> 12,723
<TOTAL-ASSETS> 45,509
<CURRENT-LIABILITIES> 929
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 28,575
<TOTAL-LIABILITY-AND-EQUITY> 45,509
<SALES> 5,468
<TOTAL-REVENUES> 12,387
<CGS> 0
<TOTAL-COSTS> 3,219
<OTHER-EXPENSES> 5,613
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,651
<INCOME-PRETAX> 1,904
<INCOME-TAX> 0
<INCOME-CONTINUING> 1,904
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,904
<EPS-PRIMARY> 21.22
<EPS-DILUTED> 21.22
</TABLE>
