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 June 30, 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 August 11, 2000: 76,674
Page 1 of 19
<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>
June 30, December 31,
2000 1999
(Unaudited) (Audited)
-------------- -------------
Assets
------
Investments in real estate:
Rental property, net of accumulated depreciation of
$14,879 and $14,144 at June 30, 2000 and December
31, 1999, respectively $ 32,064 $ 32,680
Land held for development 2,076 1,655
Land held for sale 219 545
------------- -------------
Total real estate investments 34,359 34,880
Cash and cash equivalents 6,507 6,133
Restricted cash 269 269
Deferred financing costs and other fees, net of
accumulated amortization of $1,626 and $1,486
at June 30, 2000 and December 31, 1999, respectively 1,232 1,267
Prepaid expenses and other assets 1,150 1,220
------------- -------------
Total assets $ 43,517 $ 43,769
============= =============
Liabilities and Partners' Equity (Deficit)
------------------------------------------
Liabilities:
Notes payable $ 15,715 $ 15,834
Accounts payable and other liabilities 552 589
------------- -------------
Total liabilities 16,267 16,423
------------- -------------
Commitments and contingent liabilities (see Note 4) -- --
Partners' Equity (Deficit):
General partners (645) (645)
Limited partners, 76,745 and 76,765 limited partnership
units outstanding at June 30, 2000 and December 31,
1999, respectively 27,895 27,991
------------- -------------
Total partners' equity 27,250 27,346
------------- -------------
Total liabilities and partners' equity $ 43,517 $ 43,769
============= =============
See accompanying notes to consolidated financial statements.
</TABLE>
Page 2 of 19
<PAGE>
RANCON REALTY FUND IV,
A CALIFORNIA LIMITED PARTNERSHIP
Consolidated Statements of Operations
(in thousands, except per unit amounts and units outstanding)
(Unaudited)
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Three months ended Six months ended
June 30, June 30,
-------------------------- ----------------------------
2000 1999 2000 1999
---------- ---------- ----------- -----------
Revenues
--------
Rental income $ 1,811 $ 1,701 $ 3,459 $ 3,324
Interest and other income 65 34 144 110
---------- ---------- ----------- -----------
Total revenues 1,876 1,735 3,603 3,434
---------- ---------- ----------- -----------
Expenses
--------
Operating 726 632 1,360 1,284
Interest expense 371 385 749 759
Depreciation and amortization 413 406 826 795
Loss on sales of real estate 23 -- 23 4
Expenses associated with
undeveloped land 94 94 213 218
General and administrative 252 256 489 499
Proposed dissolution costs 15 109 32 154
---------- ---------- ----------- -----------
Total expenses 1,894 1,882 3,692 3,713
---------- ---------- ----------- -----------
Net loss $ (18) $ (147) $ (89) $ (279)
========== ========== =========== ===========
Net loss per limited partnership unit $ (0.22) $ (1.91) $ (1.16) $ (3.63)
========== ========== =========== ===========
Distributions per limited partnership unit:
From net income $ -- $ -- $ -- $ --
Representing return of capital -- -- -- --
---------- ---------- ----------- -----------
Total distributions per limited
partnershipb unit $ -- $ -- $ -- $ --
========== =========== =========== ===========
Weighted average number of limited
partnership units outstanding during
each period used to compute net loss
per limited partnership unit 76,748 76,765 76,756 76,765
========== =========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
Page 3 of 19
<PAGE>
RANCON REALTY FUND IV,
A CALIFORNIA LIMITED PARTNERSHIP
Consolidated Statement of Partners' Equity (Deficit)
For the six months ended June 30, 2000
(in thousands)
(Unaudited)
<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 -- (7) (7)
Net loss -- (89) (89)
-------------- -------------- -------------
Balance at June 30, 2000 $ (645) $ 27,895 $ 27,250
============== ============== =============
</TABLE>
See accompanying notes to consolidated financial statements.
Page 4 of 19
<PAGE>
RANCON REALTY FUND IV,
A CALIFORNIA LIMITED PARTNERSHIP
Consolidated Statements of Cash Flows
(in thousands)
(Unaudited)
<TABLE>
<CAPTION>
<S> <C> <C>
Six months ended
June 30,
---------------------------------------
2000 1999
---------------- ---------------
Cash flows from operating activities:
Net loss $ (89) $ (279)
Adjustments to reconcile net loss
to net cash provided by operating activities:
Net loss on sales of real estate 23 4
Depreciation and amortization 826 795
Amortization of loan fees, included in
interest expense 49 55
Changes in certain assets and liabilities:
Deferred financing costs and other fees (105) (223)
Prepaid expenses and other assets 70 242
Accounts payable and other liabilities (37) (316)
-------------- -------------
Net cash provided by operating activities 737 278
------------- -------------
Cash flows from investing activities:
Net proceeds from sales of land 290 296
Net additions to real estate investments (527) (290)
-------------- -------------
Net cash (used for) provided by investing activities (237) 6
-------------- -------------
Cash flows from financing activities:
Notes payable principal payments (119) (83)
Retirement of limited partnership units (7) (1)
-------------- -------------
Net cash used for financing activities (126) (84)
-------------- -------------
Net increase in cash and cash equivalents 374 200
Cash and cash equivalents at beginning of period 6,133 4,297
------------- -------------
Cash and cash equivalents at end of period $ 6,507 $ 4,497
============= =============
Supplemental disclosure of cash flow information:
Cash paid for interest $ 726 $ 704
============= =============
Interest capitalized $ 26 $ --
============= =============
</TABLE>
See accompanying notes to consolidated financial statements.
Page 5 of 19
<PAGE>
RANCON REALTY FUND IV
A California Limited Partnership
Notes to Consolidated Financial Statements
June 30, 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 consolidated 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 June 30, 2000 and December 31, 1999, and the related consolidated statements
of operations and cash flows for the six months ended June 30, 2000 and 1999.
Asset Sale and Dissolution Proposal
-----------------------------------
At the beginning of 1999, the Partnership's business strategy had 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 (approximately 13,000 square feet in construction phase) in the
Tri-City Corporate Centre in San Bernardino, California (the "Tri-City
Properties") and approximately 1 acre of unimproved land in Temecula, California
(the "Remaining Property").
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, had 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. A total of 20 and 2 Units in 2000 and 1999,
respectively, were repurchased as a result of Unitholders' requests for the
Partnership to take over such Units. As of June 30, 2000, there were 76,745
Units outstanding.
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 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
Page 6 of 19
<PAGE>
and informational brochures. The informational brochures were presented to a
number of prospective buyers and at 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 purchase price. The General Partner
subsequently received three written offers from prospective buyers and had
selected one. In June 2000, this prospective buyer was completing its due
diligence on the Tri City properties, and the Partnership was preparing a
Purchase and Sale Agreement for signature. Interest rates continued to rise, and
the buyer determined that it was unable to fund the acquisition due to the
changing economic conditions.
After extensive work on the potential sale of the Assets, the General Partner
has determined that, at this time, it is not possible to sell the Tri City
properties to the most qualified bidders primarily due to the increase in
interest rates. The General Partner currently intends to retain the Tri City
properties and has begun an assessment of various opportunities to develop
additional parcels of undeveloped land. This aligns with the General Partner's
goals of increasing revenues at the Tri-City Properties and increasing
distributions to Unitholders.
The Partnership has not, as of the date of the filing of this Quarterly Report
on Form 10-Q with the Commission, entered into any agreement for the sale of its
properties, although the Partnership has, in 1997, 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. 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, 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 portion of the Partnership's properties to the
unaffiliated third party buyer as set forth in the Partnership's notice to GLB.
The GLB Matching Right applies to the Tri-City Properties and the Remaining
Property.
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
Page 7 of 19
<PAGE>
properties. The General Partner will notreceive 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 a 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 could be 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.
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 limited partner's original
invested capital; (ii) second, to the limited partners in proportion to and to
the extent of the amounts required to increase
Page 8 of 19
<PAGE>
their capital accounts to an amount equal to the sum of the adjusted invested
capital of their units plus an additional cumulative non-compounded 6% return
per annum (plus additional amounts depending on the date units were purchased);
(iii) third, to the partners in the minimum amount required to first equalize
their capital accounts in proportion to the number of units owned, and then, to
bring the sum of the balances of the capital accounts of the limited partners
and the general partners into the ratio of 4 to 1; and (iv) the balance, if any,
80% to the limited partners and 20% to the general partners. In no event shall
the general partners be allocated less than 1% of the net income other than net
income from operations for any period. 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 Agreement
----------------------------------------
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.
The Partnership will pay Glenborough for its services as follows: (i) an
specified asset management fee ($306,000 and $299,000 as of June 30, 2000 and
1999); (ii) sales fees of 2% for improved properties and 4% for land ($13,000 as
of June 30, 2000 and 1999) (iii) a refinancing fee of 1% ($50,000 and $49,750 as
of June 30, 2000 and 1999) 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.
Page 9 of 19
<PAGE>
Basis of Accounting
-------------------
The accompanying unaudited consolidated financial statements have been prepared
on the accrual basis of accounting in accordance with generally accepted
accounting principles under the assumption that the Partnership will continue as
a going concern.
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 $6,145,000 at June 30, 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 inter-company
balances and transactions have been eliminated in the consolidation.
Note 2. REFERENCE TO 1999 AUDITED FINANCIAL STATEMENTS
----------------------------------------------
These unaudited consolidated financial statements should be read in conjunction
with the Notes to Financial Statements included in the December 31, 1999 audited
consolidated financial statements.
Note 3. SALES OF REAL ESTATE
--------------------
On January 15, 1999, the Partnership sold approximately 17 acres of land located
in Perris, Riverside County, California to an unaffiliated entity for $334,800.
The Partnership recognized a $4,000 loss on the sale, and the sale generated net
sale proceeds of $296,000.
On June 30, 2000, the Partnership sold one of the two remaining lots of land
(Lot 11) located in Temecula, Riverside County, California, to an unaffiliated
third party for $325,000. The Partnership recognized a $23,000 loss on sale, and
the sale generated net sales proceeds of $290,000.
In April 2000, the Partnership entered into a contract to sell one of the two
remaining lots of land (Lot 10) located in Temecula, Riverside County,
California, to an unaffiliated third party. The escrow was cancelled in June
2000 due to the buyer's inability to obtain parking clearances from the City of
Temecula for the buyer's intended use.
Page 10 of 19
<PAGE>
Note 4. COMMITMENTS AND CONTINGENT LIABILITIES
--------------------------------------
The Partnership is contingently liable for subordinated real estate commissions
payable to the Sponsors in the aggregate amount of $643,000 at June 30, 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 if and when 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 June 30, 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 consolidated financial statements; however,
the amount will be recognized prior to recording any gain on the sale of the
related land.
Note 5. NOTES PAYABLE
-------------
Notes payable as of June 30, 2000 and December 31, 1999 were as follows (in
thousands):
<TABLE>
<CAPTION>
<S> <C> <C>
2000 1999
-------------- ---------------
Note payable secured by first deeds of trust on Service Retail Center,
Promotional Retail Center and Carnegie Business Center I. The note, 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.
$ 6,145 $ 6,196
Note payable secured by first deed of trust on the IRC building with a fixed
interest rate of 8.75%, monthly payments of principal and interest totaling $21
and a maturity date of April 23, 2001.
2,372 2,390
Page 11 of 19
<PAGE>
2000 1999
-------------- ---------------
Note payable secured by first deed of trust on the One Vanderbilt building. The
note bears a fixed interest rate of 9%. Monthly payments of principal and
interest totaling $20 are due until the maturity date of January 1, 2005.
2,228 2,248
Note payable secured by first deeds of trust on Circuit City and TGI Friday's.
The note bears interest at a variable rate of one percent (1%) per annum in
excess of the lender's "Prime Rate", has a maturity date of April 30, 2001 and
requires monthly payments ofprincipal and interest totaling $15. 4,970 5,000
-------------- ---------------
Total notes payable
$ 15,715 $ 15,834
============= ===============
</TABLE>
Page 12 of 19
<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 June 30, 2000, the Partnership had cash of $6,507,000 (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 $34,359,000 at
June 30, 2000, which includes $32,064,000 in rental properties, $2,076,000 of
land held for development, and $219,000 of undeveloped land held for sale.
The Partnership's restricted cash at June 30, 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 (July 17, 2001) 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's liabilities at June 30, 2000 include notes payable totaling
approximately $15,715,000, which consist of four secured loans encumbering
properties with an aggregate net book value of approximately $25,390,000 and
maturity dates of April 23, 2001 to May 1, 2006. These notes require monthly
principal and interest payments ranging from $15,000 to $53,000. Three notes
bear fixed interest rates between 8.744% and 9%, and one note bears interest at
a variable rate of 1% over the lender's Prime Rate.
On January 15, 1999, the Partnership sold approximately 17 acres of land located
in Perris, Riverside County, California to an unaffiliated entity for $334,800.
The Partnership recognized a $4,000 loss on the sale, and the sale generated net
sale 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. On June 30, 2000, the Partnership
sold one of the two remaining lots of land (Lot 11) located in Temecula,
Riverside County, California, to an unaffiliated third party for $325,000. The
Partnership recognized a $23,000 loss on sale, and the sale generated net sales
proceeds of $290,000
The Partnership is contingently liable for subordinated real estate commissions
payable to the Sponsors in the aggregate amount of $643,000 at June 30, 2000 for
sales that transpired in
Page 13 of 19
<PAGE>
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
totaled $566,000 at June 30, 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 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 from certificates of deposit, and
other deposits of funds invested temporarily. Cash generated from property sales
is generally added to the Partnership's cash reserves, pending use in the
development of properties, or is distributed to the partners.
Management believes that the Partnership's cash balance as of June 30, 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 discontinue the sale and retain
the Tri- City properties, and to begin an assessment of various opportunities to
develop the additional parcels within the Project, 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 14 of 19
<PAGE>
Operating Activities
--------------------
During the six months ended June 30, 2000, the Partnership's cash provided by
operating activities totaled $737,000.
The $105,000 increase in deferred financing costs and other fees at June 30,
2000, compared to December 31, 1999 was primarily due to the payment of loan
fees relating to the refinancing of the note payable secured by first deeds of
trust on Circuit City and TGI Friday's, and payments of lease commissions
relative to new and renewal leases.
The $70,000 decrease in prepaid expenses and other assets at June 30, 2000,
compared to December 31, 1999, was primarily due to the collection of tenant
receivables.
The $37,000 decrease in accounts payable and other liabilities at June 30, 2000,
compared to December 31, 1999, was primarily due to the payment of audit and tax
fees in the second quarter of 2000.
Investing Activities
--------------------
During the six months ended June 30, 2000, the Partnership's cash used for
investing activities totaled $237,000, which consisted of $540,000 of capital
additions to properties offset by net proceeds of $290,000 from the sale of Lot
11 in Temecula, California.
Financing Activities
--------------------
During the six months ended June 30, 2000, the Partnership's cash used for
financing activities totaled $126,000, which consisted of $119,000 in principal
payments on its four notes payable, and $7,000 paid to redeem twenty limited
partnership units ("Units").
Results of Operations
---------------------
Revenues
--------
Rental income increased $135,000, or 4%, and $110,000, or 6%, during the six and
three months ended June 30, 2000, compared to the six and three months ended
June 30, 1999, respectively, primarily due to an increase in pass-through income
resulting from an increase in property operating expenses as discussed below.
Page 15 of 19
<PAGE>
Occupancy rates at the Partnership's Tri-City properties as of June 30, 2000 and
1999 were as follows:
June 30,
------------------------------------
2000 1999
--------------- ----------------
One Vanderbilt 88% 95%
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 June 30, 2000, tenants at the Tri-City occupying substantial portions of
leased rental space included: (i) Inland Empire Health Plan with a lease through
March 2002; (ii) CompUSA with a lease through August 2003; (iii) ITT Educational
Services with a lease through 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 275,000 square feet of the 452,000 total leasable square feet at
Tri-City and accounted for approximately 55% of the total rental income of the
Partnership during the second quarter of 2000.
The seven-percentage point decrease in occupancy from June 30, 1999 to June 30,
2000 at One Vanderbilt was due to the expiration of a 6,699 square foot lease in
May 1999. Management continues to aggressively market the space. Slightly
offsetting this decrease was the leasing of 1,615 square feet of previously
vacant space to a new tenant.
The sixteen-percentage point increase in occupancy from June 30, 1999 to June
30, 2000 at Service Retail Center was attributable to an expansion of 1,103
square feet for 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 June 30, 1999 to June 30,
2000 at Carnegie Business Center I was attributable to an aggregate of 6,945
square feet of expansions for three existing tenants.
Interest and other income increased $34,000, or 31%, and $31,000, or 91%, during
the six and three months ended June 30, 2000, compared to the six and three
months ended June 30, 1999,
Page 16 of 19
<PAGE>
respectively, primarily due to an increase in invested cash balances resulting
from the increase in rental revenue discussed above.
Expenses
--------
Operating expenses increased $76,000, or 6%, and $94,000, or 15%, for the six
and three months ended June 30, 2000, compared to the six and three months ended
June 30, 1999, respectively, primarily due to payments of supplementary property
taxes for the years of 1998 to 2000, which resulted from the higher assessments
to the Circuit City and Mimi Cafe properties after construction was completed.
Interest expense remained consistent for the six and three months ended June 30,
2000, compared to the six and three months ended June 30, 1999, respectively.
Depreciation and amortization increased $31,000, or 4%, and $7,000, or 2%, for
the six and three months ended June 30, 2000, compared to the six and three
months ended June 30, 1999, respectively, primarily due to depreciation related
to additions to rental properties.
The loss on sale of real estate of $23,000 for the six and three months ended
June 30, 2000 resulted from the sale of Lot 11 in Temecula, California. The loss
on sale of real estate of $4,000 for the six months ended June 30, 1999 resulted
from the sale of the Perris property.
Expenses associated with undeveloped land varied slightly for the six and three
months ended June 30, 2000, compared to the six and three months ended June 30,
1999, respectively.
General and administrative expenses remained consistent for the six and three
months ended June 30, 2000, compared to the six and three months ended June 30,
1999, respectively.
The proposed dissolution costs of $32,000 and $154,000 for the six months ended
June 30, 2000 and 1999, respectively, consisted of expenses incurred related to
the Solicitation and the Asset Sale and Dissolution as discussed in Note 1 of
the Notes to Consolidated Financial Statements in Part I.
Page 17 of 19
<PAGE>
RANCON REALTY FUND IV
A California Limited Partnership
Notes to Consolidated Financial Statements
June 30, 2000
(Unaudited)
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
Incorporated herein by reference to Note 1 of the Notes to
Consolidated Financial Statements.
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 (incorporated herein by reference):
None.
Page 18 of 19
<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: August 11, 2000 By: /s/ DANIEL L. STEPHENSON
--------------------------
Daniel L. Stephenson, President
Date: August 11, 2000 By: /s/ DANIEL L. STEPHENSON
--------------------------
Daniel L. Stephenson, General Partner
Page 19 of 19
