SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
Commission file number: 0-14207
RANCON REALTY FUND IV,
A CALIFORNIA LIMITED PARTNERSHIP
--------------------------------
(Exact name of registrant as specified in its charter)
California 33-0016355
------------------------------- -------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
400 South El Camino Real, Suite 1100
San Mateo, California 94402-1708
--------------------------- -------------
(Address of principal (Zip Code)
executive offices)
(650) 343-9300
--------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
--- ---
Total number of units outstanding as of March 31, 2000: 76,763
Page 1 of 18
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
RANCON REALTY FUND IV,
A CALIFORNIA LIMITED PARTNERSHIP
Consolidated Balance Sheets
(in thousands, except unit amounts)
<TABLE>
<CAPTION>
<S> <C> <C>
March 31, December 31,
2000 1999
(Unaudited) (Audited)
-------------- --------------
Assets
- ------
Investments in real estate:
Rental property, net of accumulated depreciation of
$14,510 and $14,144 at March 31, 2000 and December
31, 1999, respectively $ 32,336 $ 32,680
Land held for development 1,706 1,655
Land held for sale 545 545
------------- -------------
Total real estate investments 34,587 34,880
Cash and cash equivalents 6,440 6,133
Restricted cash 269 269
Deferred financing costs and other fees, net of
accumulated amortization of $1,561 and $1,486
at March 31, 2000 and December 31, 1999, respectively 1,278 1,267
Prepaid expenses and other assets 1,208 1,220
------------- -------------
Total assets $ 43,782 $ 43,769
============= =============
Liabilities and Partners' Equity (Deficit)
- ------------------------------------------
Liabilities:
Notes payable $ 15,794 $ 15,834
Accounts payable and other liabilities 714 589
------------- -------------
Total liabilities 16,508 16,423
------------- -------------
Commitments and contingent liabilities (see Note 4) -- --
Partners' Equity (Deficit):
General partners (646) (645)
Limited partners, 76,763 and 76,765 limited partnership
units outstanding at March 31, 2000 and December 31,
1999, respectively 27,920 27,991
------------- --------------
Total partners' equity 27,274 27,346
------------- -------------
Total liabilities and partners' equity $ 43,782 $ 43,769
============= =============
</TABLE>
See accompanying notes to consolidated financial statements.
Page 2 of 18
<PAGE>
RANCON REALTY FUND IV,
A CALIFORNIA LIMITED PARTNERSHIP
Consolidated Statement of Operations
(in thousands, except per unit amounts and units outstanding)
<TABLE>
<CAPTION>
<S> <C> <C>
Three months ended
March 31,
---------------------------------
2000 1999
--------------- -------------
Revenues:
Rental income $ 1,648 $ 1,623
Interest and other income 79 76
------------- -------------
Total revenue 1,727 1,699
------------- -------------
Expenses:
Operating 634 652
Interest expense 378 374
Depreciation and amortization 413 389
Loss on sales of real estate -- 4
Expenses associated with undeveloped land 119 124
General and administrative 237 243
Proposed dissolution costs 17 45
------------- -------------
Total expenses 1,798 1,831
------------- -------------
Net loss $ (71) $ (132)
============= =============
Net loss per limited partnership unit $ (0.92) $ (1.72)
============= =============
Distributions per limited partnership unit:
From net income $ -- $ --
Representing return of capital $ -- $ --
------------- ------------
Total distributions per limited partnership unit $ -- $ --
============= ============
Weighted average number of limited partnership units
outstanding during each period used to compute
net loss per limited partnership unit 76,763 76,766
============= ============
</TABLE>
See accompanying notes to consolidated financial statements.
Page 3 of 18
<PAGE>
RANCON REALTY FUND IV,
A CALIFORNIA LIMITED PARTNERSHIP
Consolidated Statement of Partners' Equity (Deficit)
For the three months ended March 31, 2000
(in thousands)
<TABLE>
<CAPTION>
<S> <C> <C> <C>
General Limited
Partners Partners Total
---------------- --------------- --------------
Balance at December 31, 1999 $ (645) $ 27,991 $ 27,346
Retirement of limited partnership units -- (1) (1)
Net loss (1) (70) (71)
-------------- -------------- --------------
Balance at March 31, 2000 $ (646) $ 27,920 $ 27,274
============== ============== ==============
</TABLE>
See accompanying notes to consolidated financial statements.
Page 4 of 18
<PAGE>
RANCON REALTY FUND IV,
A CALIFORNIA LIMITED PARTNERSHIP
Consolidated Statements of Cash Flows
(in thousands)
<TABLE>
<CAPTION>
<S> <C> <C>
Three months ended
March 31,
--------------------------------------
2000 1999
--------------------------------------
Cash flows from operating activities:
Net loss $ (71) $ (132)
Adjustments to reconcile net loss
to net cash provided by operating activities:
Loss on sales of real estate -- 4
depreciation and amortization 413 389
Amortization of loan fees, included in
interest expense 28 23
Changes in certain assets and liabilities:
Deferred financing costs and other fees (86) (166)
Prepaid expenses and other assets 12 (1)
Accounts payable and other liabilities 125 (84)
------------- -------------
Net cash provided by (used for) operating activities 421 33
------------- -------------
ws from investing activities:
Net proceeds from sales of land -- 296
Net additions to real estate investments (73) (220)
-------------- -------------
Net cash provided by (used for) investing activities (73) 76
-------------- -------------
Cash flows from financing activities:
Notes payable principal payments (40) (41)
Retirement of limited partnership units (1) (1)
-------------- --------------
Net cash provided by (used for) financing activities (41) (42)
-------------- --------------
Net increase in cash and cash equivalents 307 68
Cash and cash equivalents at beginning of period 6,133 4,297
------------- -------------
Cash and cash equivalents at end of period $ 6,440 $ 4,365
============= =============
Supplemental disclosure of cash flow information:
Cash paid for interest (exclusive of capitalized interest) $ 350 $ 352
============= =============
Interest Capitalized $ 10 $ --
============= =============
</TABLE>
See accompanying notes to consolidated financial statements.
Page 5 of 18
<PAGE>
RANCON REALTY FUND IV,
A California Limited Partnership
Notes to Consolidated Financial Statements
March 31, 2000
(Unaudited)
Note 1. THE PARTNERSHIP AND ITS SIGNIFICANT ACCOUNTING POLICIES
-------------------------------------------------------
In the opinion of Rancon Financial Corporation ("RFC") and Daniel Lee Stephenson
(the "Sponsors" or "General Partner") and Glenborough Corporation, the
Partnership's asset and property manager ("Glenborough"), the accompanying
unaudited financial statements contain all adjustments (consisting of only
normal accruals) necessary to present fairly the financial position of Rancon
Realty Fund IV, A California Limited Partnership (the "Partnership") as of March
31, 2000 and December 31, 1999, and the related statements of operations and
cash flows for the three months ended March 31, 2000 and 1999.
Asset Sale and Dissolution Proposal
- -----------------------------------
The Partnership's business strategy has been to focus on the eventual
disposition of its assets at the optimal time and sales price. A Consent
Solicitation Statement (the "Solicitation") was sent to the holders of limited
partnership units ("Unitholders" or "Limited Partners") on July 6, 1999. The
Solicitation (incorporated by reference to the Schedule 14A - Preliminary Proxy
Statement filed with the United States Securities and Exchange Commission
("Commission") in the second quarter of 1999), discussed the General Partner's
proposal to sell all of the Partnership's assets ("Asset Sale") and liquidate
the Partnership thereafter ("Dissolution Proposal"). The Partnership's
properties consist of ten rental properties and approximately 23 acres of
unimproved land in the Tri-City Corporate Centre in San Bernardino, California
(the "Tri-City Properties") and approximately 2 acres of unimproved land in
Temecula, California (the "Remaining Property"). The General Partner currently
intends to sell all of the Partnership's properties, distribute the proceeds and
liquidate the Partnership after all of the properties are sold and the cash
proceeds thereof received. The General Partner does not expect the Dissolution
to occur until at least the second half of 2000 (and potentially not until 2001)
as some of the properties may be sold with the purchase price payable on an
installment basis. The dissolution must be completed within 90 days of the final
receipt of cash proceeds from the sale of Partnership property. The period over
which the sales transactions and dissolution are to take place is not currently
known.
As of August 25, 1999, the expiration of the voting period, 76,765 limited
partnership units ("Units") were outstanding. The holders of 61,429 Units, or
80% of the Units outstanding, have voted ("Units Voted") and no response was
received from the remaining 20%. A final tabulation of the results of the
Solicitation was made on August 25, 1999, with holders of 54,010 Units, or 88%,
of the Units Voted in favor, holders of 5,783 Units, or 9%, against and holders
of 1,636 Units, or 3%, abstaining.
Subsequent to obtaining the consent of the majority of the Unitholders, the
General Partner grouped the Tri-City Properties into packages of properties
(such as separate packages of retail properties, office properties and
unimproved land) and included properties in the Tri-City Corporate Centre which
are owned by Rancon Realty Fund V ("Fund V"), a partnership also sponsored by
the
Page 6 of 18
<PAGE>
General Partner. Bidders for any package of properties containing Tri-City
Properties and Fund V properties will be required to specify how their overall
bid is allocated among the individual properties in the package, and the
proceeds and expenses from the sales of any such package will be apportioned
between the Partnership and Fund V based upon such allocation. The General
Partner hired an independent real estate firm to market the properties and to
prepare marketing materials and informational brochures. The informational
brochures were presented to a number of prospective buyers and as of the end of
September 1999, the General Partner had received 39 signed confidentiality
agreements requesting offering memorandums. The General Partner assessed all
offers on the properties in an effort to achieve the highest possible sales
price and return value for the properties. The General Partner closed the
bidding process with a request for "best and final offers" and received six
final bids on the Tri-City properties in early November 1999. In November 1999,
the General Partner entered into a due diligence period with a potential buyer.
In January 2000, this due diligence period was terminated largely due to the
impact of rising interest rates on the potential buyer's ability to fund. The
General Partner subsequently received three written offers from prospective
buyers and has selected one. Currently, this prospective buyer is completing its
due diligence on the Tri City properties, and the Partnership is preparing a
Purchase and Sale agreement for signature.
In March 2000, the Partnership entered into a contract to sell one of the
remaining lots of land (Lot 11) located in Temecula, Riverside County,
California, to an unaffiliated third party. Currently, the buyer is completing
its due diligence. The contract price for the land is $325,000 and the estimated
date for close of escrow is June 16, 2000.
In April 2000, the Partnership entered into another contract to sell the
remaining lot of land (Lot 10) located in Temecula, Riverside County,
California, to an unaffiliated third party. Currently, the buyer is completing
its due diligence. The contract price for the land is $222,000 and the estimated
date for close of escrow is July 3, 2000.
In 1997, the Partnership granted to Glenborough Realty Trust Incorporated, a
Maryland corporation ("GLB"), a right to match offers for the purchase of the
Partnership's properties ("GLB Matching Right"). GLB is not an affiliate of the
Partnership.
Pursuant to the GLB Matching Right and the right of first refusal, the General
Partner is required to give prompt written notice to GLB of the price and other
terms and conditions of any offer, received from an unaffiliated third party.
The General Partner is willing to accept to sell all or a portion of the
Partnership's properties. GLB has ten days after receipt of the Partnership's
written notice to accept or reject the purchase price and other terms and
conditions of the sale. If GLB exercises its matching right and agrees to
purchase all or a portion of the Partnership's properties at the specified price
and on the other terms and conditions, the Partnership and GLB must promptly
execute a purchase agreement, which is to contain a reasonable feasibility study
period for GLB. If, on the other hand, GLB notifies the Partnership that it does
not intend to exercise its matching right or fails to respond within the ten-day
period, then the Partnership has the right to sell all or a
Page 7 of 18
<PAGE>
portion of the Partnership's properties to the unaffiliated third party buyer as
set forth in the Partnership's properties to the unaffiliated third party buyer
as set forth in Partnership's notice to GLB. The GLB Matching Right applies to
the Tri-City Properties and the Remaining Property.
Prior to the completion of the sale of all of the Partnership's properties and
the receipt in cash of the proceeds thereof, the General Partner currently
intends, but is not obligated, to make interim distributions to the Limited
Partners, from time to time, of all or a portion of the net proceeds from the
sale of the properties. The General Partner will not receive any of the net
proceeds from the sale of the properties or upon dissolution of the Partnership
with respect to its general partnership interests. In November 1999, the General
Partner distributed $767,000 from the net proceeds of the January 1999 sale of
the Perris land.
The discussion above contains forward-looking statements regarding the
Partnership's plans, goals and expectations, including statements regarding the
Partnership's estimates of sales proceeds and future distributions resulting
from the Asset Sale, estimates of the timing of the sale of the properties, the
dissolution of the Partnership and the distribution of sales proceeds.
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. All
forward-looking statements included in this document are based on information
available to the Partnership on the date hereof, and reflect the best judgment
of the management of the Partnership. The General Partner's current plans are
subject to change, both as of result 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 the Asset
Sale and Dissolution Proposal will be consummated, or if and when the properties
will be sold that the proceeds will be distributed, and the Partnership
liquidated. The timing of any sale of the Partnership's 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
properties, liquidation of the Partnership, and distribution of proceeds
significantly beyond the time periods estimated above. Among such uncertainties
are 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.
Allocation of Net Income and Net Loss
- -------------------------------------
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.
Page 8 of 18
<PAGE>
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 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. Net loss other than net loss from
operations shall be allocated 99% to the limited partners and 1% to the general
partners.
The terms of the Partnership agreement call for the general partner to restore
any deficits that may exist in its capital account after allocation of gains and
losses from the sale of the final property owned by the Partnership, but prior
to any liquidating distributions being made to the partners.
General Partner and Management Matters
- --------------------------------------
Effective January 1, 1995, Glenborough entered into an agreement with the
Partnership and other related Partnerships (collectively, the "Rancon
Partnerships") to perform or contract on the Partnership's behalf, for
financial, accounting, data processing, marketing, legal, investor relations,
asset and development management and consulting services for the Partnership for
a period of ten years or until the liquidation of the Partnership, whichever
comes first. Effective January 1, 1998, the agreement was amended to eliminate
Glenborough's responsibility for providing investor relations services and
Preferred Partnership Services, Inc., a California Corporation unaffiliated with
the Partnership, contracted to assume these services. In August 1998, the
management agreement was further amended to provide Glenborough with a guarantee
of a specified amount of asset management and property management fees through
December 31, 1999, regardless of whether the Partnership sold 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 ($149,000 in March 31, 2000
and 1999); (ii) sales fees of 2% for improved properties and 4% for land; (iii)
a refinancing fee of 1% and (iv) a management fee of 5% of gross rental
receipts. As part of this agreement, Glenborough will perform certain duties for
the General Partner of the Rancon Partnerships. RFC agreed to cooperate with
Glenborough, should
Page 9 of 18
<PAGE>
Glenborough attempt to obtain a majority vote of the limited partners to
substitute itself as the Sponsor for the Rancon Partnerships. Glenborough is not
an affiliate of RFC or the Partnership.
Basis of Accounting
- -------------------
The accompanying consolidated financial statements have been prepared on the
accrual basis of accounting in accordance with generally accepted accounting
principles under the presumption that the Partnership will continue as a going
concern.
The consent of the partners to a proposal to sell all of the Partnership's
remaining properties and liquidate the Partnership will not impact the
accounting treatment applied by the Partnership in its consolidated 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 timing of the last cash receipt from the sale of the property is
reasonably determinable, the Partnership will adopt liquidation basis accounting
in that quarter. At that time, all assets and liabilities will be adjusted to
their settlement amounts and an amount to be distributed to the partners upon
liquidation will be estimated.
Consolidation
- -------------
In April 1996, the Partnership formed Rancon Realty Fund IV Tri-City Limited
Partnership, a Delaware limited partnership ("RRF IV Tri-City"). As required by
the lender (Bear, Stearns Funding, Inc.) of a $6,400,000 loan obtained by the
Partnership in 1996, the Partnership contributed three of its operating
properties to RRF IV Tri-City to provide a bankruptcy remote borrower for the
lender. The loan, secured by the properties in RRF IV Tri-City, has a principal
balance of $6,171,000 at March 31, 2000, 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 financial statements of RRF IV, Inc. and RRF IV
Tri-City have been consolidated with those of the Partnership. All intercompany
balances and transactions have been eliminated in the consolidation.
Reclassifications
- -----------------
Certain prior year balances have been reclassified to conform with the current
year presentation.
Page 10 of 18
<PAGE>
Note 2. REFERENCE TO 1999 AUDITED FINANCIAL STATEMENTS
----------------------------------------------
These unaudited consolidated financial statements should be read in conjunction
with the notes to consolidated financial statements included in the December 31,
1999 audited consolidated financial statements.
Note 3. SALE OF REAL ESTATE
-------------------
On January 15, 1999, the Partnership sold approximately 17 acres of land located
in Perris, Riverside County, California to an unaffiliated third party for
$334,800. The Partnership recognized a $4,000 loss on the sale, and the sale
generated net sales proceeds of $296,000.
On December 27, 1999, the Partnership sold approximately 24.8 acres in Lake
Elsinore, Riverside County, California (referred to as Lake Elsinore Plaza) to
an unaffiliated third party for $2,450,000. The Partnership recognized a
$257,000 gain on sale, and the sale generated net sales proceeds of $2,193,000.
Note 4. COMMITMENTS AND CONTINGENT LIABILITIES
--------------------------------------
The Partnership is contingently liable for subordinated real estate commissions
payable to the Sponsors in the aggregate amount of $643,000 at March 31, 2000
for sales that transpired in previous years. The subordinated real estate
commissions are payable only after the Limited Partners have received
distributions equal to their original invested capital plus a cumulative
non-compounded return of six percent per annum on their adjusted invested
capital. Since the circumstances under which these commissions would be payable
are limited, the liability has not been recognized in the accompanying
consolidated financial statements; however, the amount will be recorded when and
if it becomes payable.
The Partnership is also contingently liable for a subordinated note payable in
connection with the land in Temecula, California, that the Partnership
reacquired in June 1992 through a deed in lieu of foreclosure in satisfaction of
a $2,276,000 note receivable. The subordinated note payable and accrued interest
total $566,000 as of March 31, 2000. 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.
Page 11 of 18
<PAGE>
Note 4. SUBSEQUENT EVENTS
-----------------
In March 2000, the Partnership entered into a contract to sell one of the
remaining lots of land (Lot 11) located in Perris, Riverside County, California,
to an unaffiliated third party. Currently, the buyer is completing its due
diligence. The contract price for the land is $325,000 and the estimated date
for close of escrow is June 16, 2000.
In April 2000, the Partnership entered into another contract to sell the
remaining lot of land (Lot 10) located in Perris, Riverside County, California,
to an unaffiliated third party. Currently, the buyer is completing its due
diligence. The contract price for the land is $222,000 and the estimated date
for close of escrow is July 3, 2000.
Page 12 of 18
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
The following discussion of the Partnership's financial condition and results of
operations should be read in conjunction with the audited consolidated financial
statements and the notes to the consolidated financial statements.
At March 31, 2000, the Partnership had cash of $6,440,000 (exclusive of $269,000
in restricted cash). The remainder of the Partnership's assets consist primarily
of its net investments in real estate, totaling approximately $34,587,000, which
includes $32,336,000 in rental properties, $1,706,000 of land held for
development and $545,000 of undeveloped land held for sale. The Partnership's
primary liabilities at March 31, 2000 include notes payable, totaling
approximately $15,794,000, which consist of four secured loans encumbering
properties with an aggregate net book value of approximately $25,549,000 and
maturity dates of April 30, 2001 to May 1, 2006. Three of the Partnership's
notes payable require monthly principal and interest payments, and bear fixed
interest rates between 8.744% and 9%, and one note payable requires monthly
interest-only payments and bears interest at a variable rate of 1% over the
lender's Prime Rate.
The Partnership's restricted cash at March 31, 2000 consists of a $269,000
certificate of deposit ("CD") for Inland Regional Center's security deposit
("IRC 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.
The Partnership is contingently liable for subordinated real estate commissions
payable to the Sponsors in the aggregate amount of $643,000 at March 31, 2000
for sales that transpired in previous years. The subordinated real estate
commissions are payable only after the Limited Partners have received
distributions equal to their original invested capital plus a cumulative
non-compounded return of six percent per annum on their adjusted invested
capital. Since the circumstances under which these commissions would be payable
are limited, the liability has not been recognized in the accompanying financial
statements; however, the amount will be recorded when and if it becomes payable.
The Partnership is also contingently liable for a subordinated note payable in
connection with the land in Temecula, California, that the Partnership
reacquired in June 1992 through a deed in lieu of foreclosure in satisfaction of
a $2,276,000 note receivable. The subordinated note payable and accrued interest
totaled $566,000 at March 31, 2000. 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
Page 13 of 18
<PAGE>
which this liability would be payable are limited, the note payable and accrued
interest have not been recorded in the accompanying consolidated financial
statements; however, the amount will be recognized prior to recording any gain
on the sale of the related land.
Operationally, the Partnership's primary source of funds consists 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 distribution to the partners.
Management believes that the Partnership's cash balance as of March 31, 2000
together with cash from operations, sales and financing, will be sufficient to
finance the Partnership's and the properties' continued operations and
development plans, on a short-term basis and for the reasonably foreseeable
future. There can be no assurance that the Partnership's results of operations
will not fluctuate in the future and at times affect its ability to meet its
operating requirements.
Aside from the foregoing and the current plan to potentially sell all of the
Partnership's remaining properties and liquidate the Partnership, the
Partnership knows of no demands, commitments, events or uncertainties, which
might effect its liquidity or capital resources in any material respect. In
addition, the Partnership is not subject to any covenants pursuant to its
secured debt that would constrain its ability to obtain additional capital.
Operating Activities
- --------------------
During the period ended March 31, 2000, the Partnership's cash provided by
operating activities totaled $421,000.
The $125,000, or 22%, increase in accounts payable and other liabilities at
March 31, 2000, compared to December 31, 1999, was due primarily to an increase
in property tax accruals which prior to their payment in the second quarter of
2000.
Investing Activities
- --------------------
During the period ended March 31, 2000, the Partnership used $74,000 in cash for
investing activities which consisted of capital additions to the Partnership's
real estate properties.
Page 14 of 18
<PAGE>
Financing Activities
- --------------------
During the period ended March 31, 2000, the Partnership's cash used for
financing activities totaled $41,000, which consisted of $40,000 in principal
payments on its four notes payable, and $1,000 paid to redeem two limited
partnership units ("Units").
RESULTS OF OPERATIONS
- ---------------------
Revenues
- --------
Rental income of $1,648,000 for the three months ended March 31, 2000 varied
only slightly from $1,623,000 for the three months ended March 31, 1999.
Occupancy rates at the Partnership's Tri-City properties as of March 31, 2000
and 1999 were as follows:
March 31,
------------------------------------
2000 1999
--------------- ----------------
One Vanderbilt 88% 91%
Two Vanderbilt 100% 100%
Service Retail Center 100% 84%
Carnegie Business Center I 88% 78%
Promotional Retail Center 100% 100%
Inland Regional Center 100% 100%
TGI Friday's 100% 100%
Circuit City 100% 100%
Office Max 100% 100%
Mimi's Cafe 100% 100%
As of March 31, 2000, 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 accounted for approximately 56% of the total rental income of the
Partnership during the first quarter of 2000.
The three-percentage point decrease in occupancy from March 31, 1999 to March
31, 2000 at One Vanderbilt was due to the expiration of a 6,699 square feet
office lease in May 1999. To date, this space had not yet been re-leased but
management continues to aggressively market the
Page 15 of 18
<PAGE>
space. Slightly offsetting this decrease in occupancy was the leasing of 3,987
square feet of previously vacant space to two new tenants.
The sixteen-percentage point increase in occupancy from March 31, 1999 to March
31, 2000 at Service Retail Center was attributable to an 1,103 square feet
expansion of leased space to an existing tenant and the leasing of 2,211 square
feet of previously vacant space to two new tenants. The ten percentage point
increase in occupancy from March 31, 1999 to March 31, 2000 at Carnegie Business
Center I was attributable to an aggregate of 6,945 square feet of expansions of
leased space to three existing tenants.
Interest income remained consistent for the three months ended March 31, 2000
compared to the three months ended March 31, 1999.
Expenses
- --------
Operating expenses decreased $18,000, or 3%, for the three months ended March
31, 2000, compared to the three months ended March 31, 1999 primarily due to a
property tax refund received in the first quarter of 2000, combined with no
consulting fees for property tax appeals, which were incurred in the first
quarter of 1999.
Depreciation and amortization increased $24,000, or 6%, for the three months
ended March 31, 2000 compared to the three months ended March 31, 1999 due
primarily to depreciation related to additions to rental properties.
The loss on sale of real estate of $4,000 for the three months ended March 31,
1999 resulted from the sale of the Perris property.
Expenses associated with undeveloped land decreased $5,000, or 4%, for the three
months ended March 31, 2000 compared to the three months ended March 31, 1999
due to the elimination of property taxes as a result of the sales of the Perris
property in January 1999 and the Lake Elsinore property in December 1999.
General and administrative expenses decreased $6,000, or 2%, for the three
months ended March 31, 2000 compared to the three months ended March 31, 1999,
primarily due to a decrease in investor relations expenses.
The proposed dissolution costs of $17,000 and $45,000 for the three months ended
March 31, 2000 and 1999, respectively, consisted of expenses incurred related to
the Solicitation and the Asset Sale and Dissolution as discussed in Note 1.
Page 16 of 18
<PAGE>
Part II. OTHER INFORMATION
Item 1. Legal Proceedings
None.
Item 2. Changes in Securities and Use of Proceeds
Not applicable.
Item 3. Defaults Upon Senior Securities
Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders
None.
Item 5. Other Information
None.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
(27) Financial Data Schedule
(b) Reports on Form 8-K
None
Page 17 of 18
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or Section 15(d) of the Securities
Exchange Act of 1934, the Partnership has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
RANCON REALTY FUND IV,
a California limited partnership
By Rancon Financial Corporation
a California corporation,
its General Partner
Date: May 12, 2000 By: /s/ DANIEL L. STEPHENSON
--------------------------
Daniel L. Stephenson, President
Date: May 12, 2000 By: /s/ DANIEL L. STEPHENSON
-------------------------
Daniel L. Stephenson, General Partner
Page 18 of 18
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000743870
<NAME> RANCON REALTY FUND IV
<MULTIPLIER> 1000
<CURRENCY> U.S. Dollars
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<EXCHANGE-RATE> 1.000
<CASH> 6,709
<SECURITIES> 0
<RECEIVABLES> 161
<ALLOWANCES> 0
<INVENTORY> 545
<CURRENT-ASSETS> 6,764
<PP&E> 48,552
<DEPRECIATION> 14,510
<TOTAL-ASSETS> 43,782
<CURRENT-LIABILITIES> 714
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 27,274
<TOTAL-LIABILITY-AND-EQUITY> 43,782
<SALES> 0
<TOTAL-REVENUES> 1,727
<CGS> 0
<TOTAL-COSTS> 753
<OTHER-EXPENSES> 667
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 378
<INCOME-PRETAX> (71)
<INCOME-TAX> 0
<INCOME-CONTINUING> (71)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (71)
<EPS-BASIC> (0.92)
<EPS-DILUTED> (0.92)
</TABLE>
