Page 1 of 1
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 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 November 14,2000: 76,659
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<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>
September 30, December 31,
2000 1999
(Unaudited) (Audited)
------------------ --------------
Assets
Investments in real estate:
Rental property, net of accumulated depreciation of
$15,259 and $14,144 at September 30, 2000 and
December 31, 1999, respectively $ 32,590 $ 32,680
Land held for development 2,003 1,655
Land held for sale 219 545
------------- --------------
Total real estate investments 34,812 34,880
Cash and cash equivalents 6,113 6,133
Restricted cash 269 269
Deferred financing costs and other fees, net of
accumulated amortization of $1,702 and $1,486 at
September 30, 2000 and December 31, 1999,
respectively 1,163 1,267
Prepaid expenses and other assets 1,239 1,220
------------- --------------
Total assets $ 43,596 $ 43,769
============= ==============
Liabilities and Partners' Equity (Deficit)
Liabilities:
Notes payable $ 15,624 $ 15,834
Accounts payable and other liabilities 935 589
------------- --------------
Total liabilities 16,559 16,423
------------- --------------
Commitments and contingent liabilities (see Note 4) -- --
Partners' Equity (Deficit):
General partners (645) (645)
Limited partners, 76,671 and 76,765 limited partnership
units outstanding at September 30, 2000 and December
31, 1999, respectively 27,682 27,991
-------------- --------------
Total partners' equity 27,037 27,345
------------- --------------
Total liabilities and partners' equity $ 43,596 $ 43,769
============= ==============
See accompanying notes to consolidated financialstatements.
</TABLE>
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<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 Nine months ended
September 30, September 30,
----------------------------- ----------------------------
2000 1999 2000 1999
------------ ------------- ------------ -----------
Revenues
Rental income $ 1,633 $ 1,619 $ 5,092 $ 4,943
Interest and other income 70 40 214 150
---------- ---------- ----------- ----------
Total revenues 1,703 1,659 5,306 5,093
---------- ---------- ----------- -----------
Expenses
Operating 669 702 2,029 1,986
Interest expense 372 383 1,121 1,142
Depreciation and amortization 428 403 1,254 1,198
Loss on sales of real estate -- -- 23 4
Expenses associated with
undeveloped land 123 121 336 339
General and administrative 294 250 783 749
Proposed dissolution costs 6 138 38 292
---------- ---------- ----------- -----------
Total expenses 1,892 1,997 5,584 5,710
---------- ---------- ----------- -----------
Net loss $ (189) $ (338) $ (278) $ (617)
=========== =========== ============ ============
Net loss per limited partnership unit $ (2.46) $ (4.40) $ (3.62) $ (8.03)
=========== =========== ============ ============
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 76,688 76,765 76,734 76,765
========== ========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
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<PAGE>
RANCON REALTY FUND IV,
A CALIFORNIA LIMITED PARTNERSHIP
Consolidated Statement of Partners' Equity (Deficit) For
the nine months ended September 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 -- (31) (31)
Net loss -- (278) (278)
------------- -------------- --------------
Balance at September 30, 2000 $ (645) $ 27,682 $ 27,037
============== ============= =============
</TABLE>
See accompanying notes to consolidated financial statements.
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<PAGE>
RANCON REALTY FUND IV,
A CALIFORNIA LIMITED PARTNERSHIP
Consolidated Statements of Cash Flows
(in thousands)
(Unaudited)
<TABLE>
<CAPTION>
<S> <C> <C>
Nine months ended
September 30,
---------------------------------------
2000 1999
---------------- ---------------
Cash flows from operating activities:
Net loss $ (278) $ (617)
-
Adjustments to reconcile net loss
to net cash provided by operating activities:
Loss on sales of real estate 23 4
Depreciation and amortization 1,254 1,198
Amortization of loan fees, included in
interest expense 77 82
Changes in certain assets and liabilities:
Deferred financing costs and other fees (112) (230)
Prepaid expenses and other assets (19) 210
Accounts payable and other liabilities 346 (79)
------------- --------------
Net cash provided by operating activities 1,291 568
------------- -------------
Cash flows from investing activities:
Net proceeds from sales of land 290 296
Net additions to real estate investments (1,360) (389)
-------------- --------------
Net cash used for investing activities (1,070) (93)
-------------- --------------
Cash flows from financing activities:
Notes payable principal payments (210) (125)
Retirement of limited partnership units (31) (1)
-------------- --------------
Net cash used for financing activities (241) (126)
-------------- --------------
Net (decrease) increase in cash and cash equivalents (20) 349
Cash and cash equivalents at beginning of period 6,133 4,297
------------- -------------
Cash and cash equivalents at end of period $ 6,113 $ 4,646
============= =============
Supplemental disclosure of cash flow information:
Cash paid for interest $ 1,097 $ 1,060
============= =============
Interest capitalized $ 53 $ --
============= =============
</TABLE>
See accompanying notes to consolidated financial statements.
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<PAGE>
RANCON REALTY FUND IV
A California Limited partnership
Notes to Consolidated Financial Statements
September 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 September 30, 2000 and December 31, 1999, the related unaudited consolidated
statements of operations for the three and nine months ended September 30, 2000
and 1999, and cash flows for the nine months ended September 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"). 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 94 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 September 30, 2000, there were 76,671 Units outstanding.
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. 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 on a
build-to-suit basis.
Allocation of Net Income and Net Loss
-------------------------------------
Allocation of net income and net losses are made pursuant to the terms of the
Partnership Agreement. Generally, net 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.
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<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 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 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.
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) a
specified asset management fee ($460,000 and $448,000 as of September 30, 2000
and 1999); (ii) sales fees of 2% for improved properties and 4% for land
($13,000 as of September 30, 2000); (iii) a refinancing fee of 1% ($50,000 and
$49,750 as of September 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.
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<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.
Use of Estimates
----------------
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the results of operations during the reporting period. Actual results could
differ from those estimates.
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 $6,119,000 at September 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.
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<PAGE>
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.
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.
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 September 30,
2000 for sales that were completed 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 September 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 unaudited consolidated financial statements;
however, the amount will be recognized prior to recording any gain on the sale
of the related land.
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<PAGE>
Note 5. NOTES PAYABLE
-------------
Notes payable as of September 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. $ 6,119 $ 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. $ 2,362 $ 2,390
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. $ 2,218 $ 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" (10.5% as of September 30, 2000 and 9.5% as
of December 31, 1999), has a maturity date of April 30, 2001 and requires
monthly payments of principal and interest totaling $60. $ 4,925 $ 5,000
--------------- ------------
Total notes payable $ 15,624$ $ 15,834
=============== ============
</TABLE>
Note 6. SUBSEQUENT EVENTS
-----------------
In October 2000, the Partnership entered into a 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 $202,000 and the estimated time for close of
escrow is at February 2001. If completed, the Partnership expects a minimal loss
on this transaction.
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<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
The following discussion of the Partnership's financial condition and results of
operations should be read in conjunction with the Partnership's December 31,
1999 audited consolidated financial statements, and the notes to the audited
consolidated financial statements.
Asset Sale and 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").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 were required to
specify how their overall bid was allocated among the individual properties in
the package, and the proceeds and expenses from the sales of any such package
were to 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
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 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. 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 on a
build-to-suit basis. This aligns with the General Partner's goals of increasing
revenues at the Tri-City Properties and increasing distributions to Unitholders.
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
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<PAGE>
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.
LIQUIDITY AND CAPITAL RESOURCES
-------------------------------
At September 30, 2000, the Partnership had cash of $6,113,000 (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
$34,812,000 at September 30, 2000, which includes $32,590,000 in rental
properties, $2,003,000 of land held for development and $219,000 of land held
for sale.
The Partnership's restricted cash at September 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 September 30, 2000 include notes payable
totaling approximately $15,624,000, which consist of four secured loans
encumbering properties with an aggregate net book value of approximately
$25,171,000 and with maturity dates ranging from April 23, 2001 through May 1,
2006. These notes require monthly principal and interest payments ranging from
$20,000 to $60,000. 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 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 September 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
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<PAGE>
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 September 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 unaudited 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 and interest income from invested cash balances. 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 at September 30, 2000,
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.
The Partnership knows of no demands, commitments, events or uncertainties might
effect its 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 nine months ended September 30, 2000, the Partnership's cash provided
by operating activities totaled $1,291,000.
The $112,000 increase in deferred financing costs and other fees at September
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 $19,000 increase in prepaid expenses and other assets at September 30, 2000,
compared to December 31, 1999, was primarily due to the increase in the mortgage
impound accounts and prepayments of the fourth quarter investor service fees.
Offsetting the increase was the decrease of accounts receivable due to the
collection of tenant rents.
Page 13 of 18
<PAGE>
The $346,000 increase in accounts payable and other liabilities at September 30,
2000, compared to December 31, 1999, was primarily due to the increase in
accrued property taxes and accrual of the final construction costs for
development of the pad sites at the Partnership properties.
Investing Activities
--------------------
During the nine months ended September 30, 2000, the Partnership's cash used for
investing activities totaled $1,070,000, which consisted of $1,360,000 of
capital additions primarily to One and Two Vanderbilt, Palm court Retail #1,
Service Retail Center and Carnegie Business Center, offset by net proceeds of
$290,000 from the sale of Lot 11 in Temecula, California.
Financing Activities
--------------------
During the nine months ended September 30, 2000, the Partnership's cash used for
financing activities totaled $241,000, which consisted of $210,000 in principal
payments on its four notes payable, and $31,000 paid to redeem 94 limited
partnership units ("Units").
Results of Operations
---------------------
Revenues
--------
Rental income increased $14,000, or 1%, and $149,000, or 3%, during the three
and nine months ended September 30, 2000, compared to the three and nine months
ended September 30, 1999, respectively, primarily due to an increase in
pass-through income resulting from an increase in property operating expenses as
discussed below. During the three months ended September 30, 2000, the increase
was slightly offset by the decrease of rental income at Two Vanderbilt property
relative to the 14 % decrease in occupancy in July 2000.
Occupancy rates at the Partnership's Tri-City Properties as of September 30,2000
and 1999 were as follows:
September 30,
------------------------------------
2000 1999
--------------- ----------------
One Vanderbilt 88% 88%
Two Vanderbilt 86% 100%
Service Retail Center 100% 100%
Carnegie Business Center I 88% 77%
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%
Palm Court Retail #1 25% N/A
As of September 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
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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 57% of the
total rental income of the Partnership during the third quarter of 2000.
The 14% decrease in occupancy from September 30, 1999 to September 30, 2000 at
Two Vanderbilt was due to the expiration of a 9,504 square foot lease in July
2000. Management continues to aggressively market the space.
The 11% increase in occupancy from September 30, 1999 to September 30, 2000 at
Carnegie Business Center I was attributable to an aggregate of 6,945 square feet
of expansions for three existing tenants.
The 25% increase in occupancy from September 30, 1999 to September 30, 2000 at
Palm Court Retail #1 of the new development was attributable to the leasing of
3,089 square feet to the first new tenant.
Interest and other income increased $30,000, or 75%, and $64,000, or 43%, during
the three and nine months ended September 30, 2000, compared to the three and
nine months ended September 30, 1999, respectively, primarily due to an increase
in invested cash balances resulting from the increase in rental revenue
discussed above.
Expenses
--------
Operating expenses decreased $33,000, or 5%, for the three months ended
September 30, 2000, compared to the three months ended September 30, 1999,
primarily due to a 1998 property tax refund resulting from a tax appeal at the
One and Two Vanderbilt properties. Operating expenses increased $43,000, or 2%,
for the nine months ended September 30, 2000, compared to the nine months ended
September 30, 1999, primarily due to payments of supplementary property taxes
for the years of 1998 to 2000, which resulted from higher assessments to the
Circuit City and Mimi Cafe properties after construction was completed.
Interest expense decreased $11,000, or 3%, and $21,000, or 2%, for the three and
nine months ended September 20, 2000, compared to the three and nine months
ended September 30, 1999, respectively, primarily due to the capitalization of
interest (beginning subsequent to September 30, 1999) related to development of
pad sites at one of the Partnership's properties.
Depreciation and amortization increased $25,000, or 6%, and $56,000, or 5%, for
the three and nine months ended September 30, 2000, compared to the three and
nine months ended September 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 three months ended September
30, 2000 resulted from the sale of Lot 11 in Temecula, California. The loss on
sale of real estate of $4,000 for the nine months ended September 30, 1999
resulted from the sale of the Perris property.
Expenses associated with undeveloped land varied slightly for the three and nine
months ended September 30, 2000, compared to the three and nine months ended
September 30, 1999, respectively.
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General and administrative expenses increased $44,000, or 18%, and $34,000, or
5%, for the three and nine months ended September 30, 2000, compared to the
three and nine months ended September 30, 1999, respectively, primarily due to
an increase in investor service expenses related to the shareholder update
meetings.
The proposed dissolution costs of $38,000 and $292,000 for the nine months ended
September 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. The decrease
in these costs in 2000 was primarily due to the discontinuation of the plan to
sell the properties.
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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.
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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: November 14, 2000 By: /s/ DANIEL L. STEPHENSON
-------------------------
Daniel L. Stephenson, President
Date: November 14, 2000 By: /s/ DANIEL L. STEPHENSON
--------------------------
Daniel L. Stephenson,
General Partner
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