SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE
SECURITIES EXCHANGE ACT OF 1934
(Amendment No. ______________)
Filed by the Registrant /X/
Filed by a party other than the Registrant / /
Check the appropriate box:
/ / Preliminary proxy statement
/ / Confidential, for use of the Commission only (as permitted by
Rule 14a-6(e)(2))
/X/ Definitive proxy statement
/ / Definitive additional materials
/ / Soliciting material pursuant to Sec. 240.14a-11(c) or Sec. 240.14a-12
Rancon Realty Fund V, a California Limited Partnership
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(Name of Registrant as Specified in Its Charter)
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(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of filing fee (Check the appropriate box):
/ / No fee required.
/ / $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
/X/ Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transactions applies:
Units of Limited Partnership Interest ("Units")
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(2) Aggregate number of securities to which transactions applies:
99,765 Units
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing
fee is calculated and state how it was determined):
The filing fee of $8,953 has been calculated in accordance with Rule 0-11 under
the Exchange Act and is equal to 1/50 of 1% of $44,765,000 (the aggregate amount
of cash to be received by Registrant).
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(4) Proposed maximum aggregate value of transaction:
$44,765,500
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(5) Total fee paid:
$8,953
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/ / Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration
statement number, or the Form or Schedule and the date of its filing.
(1) Amount previously paid:
- ----------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
- ----------------------------------------------------------------------------
(3) Filing party:
- ----------------------------------------------------------------------------
(4) Date filed:
- ----------------------------------------------------------------------------
<PAGE>
[RANCON LOGO]
October 17, 1997
Dear Unitholder:
We are writing to request your consent to sell Rancon Realty Fund V's
("Fund V") interests in its remaining properties to Glenborough Realty Trust
Incorporated and Glenborough Properties, L.P., the transfer of the General
Partners' interests in Fund V to Glenborough Properties, L.P. and to complete
the liquidation of Fund V. A majority of Fund V's outstanding units must consent
to the proposal for the transaction to proceed.
The enclosed materials discuss the transaction in detail, but we would
like to summarize our reasons for recommending that you consent to proceeding
with the sale.
o Fund V has held the properties for a longer period than anticipated
when Fund V was organized, administrative costs have the effect of
reducing Fund V's total assets and therefore are too high to justify
continuing operations, and current market conditions appear favorable
for a sale.
o Fund V expects to benefit substantially by selling properties in bulk
instead of individually. Benefits include lower aggregate sale costs,
more certainty as to the sale price, and faster liquidation of Fund V.
o The price to be paid by Glenborough is equal to the recent appraised
value of the properties as determined in an appraisal performed by
Robert A. Stanger & Co., Inc.
o The General Partner has obtained a "Fairness Opinion" from Robert A.
Stanger & Co., Inc., indicating that the consideration offered in the
sale is fair to Fund V and to its Unitholders from a financial point of
view.
After carefully weighing the facts and circumstances associated with
the proposed sale to Glenborough transaction as well as alternative courses of
action, we concluded that the bulk property sale to Glenborough and subsequent
liquidation of Fund V is an opportunity to maximize value for investors.
Therefore, we recommend that you approve the proposed transaction by
signing and returning the Consent Form in the postage-paid envelope. Your
participation is extremely important and your early response could save Fund V
the substantial costs associated with a follow-up mailing. If you have any
questions, please feel free to call The Arlen Group at (800) 891-4105.
Sincerely,
Daniel L. Stephenson
General Partner and Chief Executive Officer of
Rancon Financial Corporation, General Partner
Questions about the enclosed material? Please call The Arlen Group,
toll-free, at (800) 891-4105.
<PAGE>
NOTICE OF CONSENT SOLICITATION
To the Unitholders of Rancon Realty Fund V, a California Limited Partnership
NOTICE IS HEREBY GIVEN to limited partners ("Unitholders") holding
units of limited partnership interest ("Units") in Rancon Realty Fund V, a
California Limited Partnership (the "Partnership") that Daniel L. Stephenson and
Rancon Financial Corporation (collectively, the "General Partner") are
soliciting written consents to approve a single proposal consisting of (i) the
sale of substantially all of the assets of the Partnership for cash (the
"Sale"), as contemplated by the Purchase Agreement, dated as of September 30 ,
1997, ("Purchase Agreement"), with Glenborough Realty Trust Incorporated and
Glenborough Properties, L.P., as to the buyers ("Purchaser"), (ii) the transfer
of the General Partner's interest in the Partnership to Glenborough Properties,
L.P. (the "Transfer"), and (iii) the complete liquidation and dissolution of the
Partnership (the "Liquidation"), in the manner described in the accompanying
Consent Solicitation Statement. Such Liquidation will result in (a) the
distribution to the Unitholders of all net cash proceeds of the Sale, (b) the
net cash proceeds from the sale of the remaining Partnership assets after
payment of all Partnership expenses, and (c) the payment by the General Partner
of the General Partner's negative capital account balance, all as more fully
described in the accompanying Consent Solicitation Statement.
The Sale, Transfer and Liquidation must be approved by Unitholders
holding a majority of the outstanding Units. Only Unitholders of record at the
close of business on September 30, 1997, are entitled to notice of the
solicitation of consents and to give their consent to the Sale, Transfer and
Liquidation. In order to be valid, all consents must be received before 5:00
P.M., Pacific time, on November 21, 1997, (unless such date or time is
extended). The vote will be obtained through the solicitation of written
consents and no meeting of Unitholders will be held. A consent may be revoked by
written notice of revocation or by a later dated consent containing different
instructions at any time on or before the expiration of the time by which the
consent card must be received.
Your Approval is Important. Please read the Consent Solicitation
Statement carefully and then complete, sign and date the enclosed Consent Form
and return it in the self-addressed postage-paid envelope. Any Consent Form
which is signed and does not specifically disapprove the Sale, Transfer and
Liquidation will be treated as approving the Sale, Transfer and Liquidation.
Your prompt response will be appreciated.
Dated October 17, 1997 RANCON REALTY FUND V,
a California Limited Partnership
By:
Daniel L. Stephenson,
General Partner and
Chief Executive Officer of
Rancon Financial Corporation,
General Partner
<PAGE>
CONSENT SOLICITATION STATEMENT
This Consent Solicitation Statement (this "Statement") is being
furnished to holders of record ("Unitholders") of units of limited partnership
interests ("Units") in Rancon Realty Fund V, a California limited partnership
(the "Partnership"), as of the close of business on September 30, 1997, (the
"Record Date"), in connection with the solicitation (this "Solicitation") of
consents, upon the terms and subject to the conditions of this Statement and the
accompanying form of consent (the "Consent Form"), by Daniel L. Stephenson, an
individual, and Rancon Financial Corporation, a California corporation, the
general partners of the Partnership (collectively hereinafter referred to as the
"General Partner"), on behalf of the Partnership, to (i) the proposed sale of
all of the real estate assets of the Partnership to Glenborough Realty Trust
Incorporated, a Maryland corporation and Glenborough Properties, L.P., a
California limited partnership (collectively, the "Purchaser") pursuant to a
Purchase Agreement dated as of September 30, 1997, between the Partnership and
the Purchaser (the "Purchase Agreement"), (the sale of all of the Partnership's
real estate assets (the "Properties") and the other transactions contemplated by
the Purchase Agreement are hereinafter referred to collectively as the "Sale"),
and (ii) concurrently with the liquidation of the Partnership, the Transfer of
the General Partner's interests in the Partnership to Glenborough Properties,
L.P. (the "Transfer") and, (iii) the dissolution and liquidation of the
Partnership thereafter (the "Liquidation").
Upon consummation of the Sale, the Partnership will receive $44,765,000
in cash consideration (the "Purchase Price,") subject to reduction by the amount
of any mortgages which are secured by the Properties (the "Loans") and certain
adjustments and prorations. After the consummation of the Sale, the Partnership
intends to liquidate and distribute to Unitholders (A) the net proceeds of the
Sale after deducting the expenses of the Sale, (B) the net cash proceeds from
the sale of the remaining Partnership assets after payment of all Partnership
liabilities and (C) the payment by the General Partner of the General Partner's
negative capital account balance. Based on the sum of items (A), (B) and (C)
above and by dividing this amount by the number of Units issued and outstanding
as of the Record Date, the General Partner currently estimates that such
distribution will equal approximately $340 per Unit. There can, however, be no
assurances that this will be the actual amount distributed to Unitholders.
Furthermore, as more fully described under the caption entitled "LIQUIDATION OF
PARTNERSHIP; DISTRIBUTION OF PROCEEDS," the actual amount distributed per Unit
may vary from one Unitholder to another depending on the date of the
Unitholder's admission to the Partnership.
From 1985 through 1991, the Partnership has made aggregate
distributions to the Unitholders of approximately $8,403,000 and $655,000 to the
General Partner.
See "LIQUIDATION OF PARTNERSHIP; DISTRIBUTION OF PROCEEDS."
This Statement, and the enclosed Consent Form are being first mailed to
Unitholders of the Partnership on or about October 17, 1997.
This Statement, including the Fairness Opinion and Summary Appraisal,
attached hereto as Exhibits, contain important information which should be read
before any decision is made with respect to the Solicitation. All statements in
this Statement are qualified in their entirety by reference to the Fairness
Opinion and Summary Appraisal. Unitholders are urged also to read the text of
each of those documents.
The General Partner of the Partnership recommends that Unitholders
consent to the Sale, Transfer and the Liquidation.
THIS SOLICITATION FOR CONSENT FORMS WILL EXPIRE AT 5:00 P.M. PACIFIC
TIME, NOVEMBER 21, 1997, (THE "EXPIRATION DATE"), UNLESS EXTENDED BY THE GENERAL
PARTNER IN ITS SOLE DISCRETION. CONSENT FORMS MAY BE REVOKED AT ANY TIME UNTIL
THE EXPIRATION DATE, BUT MAY NOT BE REVOKED THEREAFTER.
Questions and requests for assistance or additional copies of the
Solicitation documents may be directed to The Arlen Group, (800) 891-4105;
Facsimile Number (619) 686-2056.
<PAGE>
<TABLE>
Rancon Realty Fund V
a California Limited Partnership
<CAPTION>
TABLE OF CONTENTS
<S> <C>
DESCRIPTION OF THE TERMS OF THE SOLICITATION..................................................................1
Purpose of Solicitation..............................................................................1
Expiration Date; Extension; Amendment................................................................1
Record Date; Requisite Consents......................................................................1
Consent Procedures...................................................................................2
Revocation of Instructions...........................................................................2
No Dissenting Unitholders' Rights....................................................................3
DESCRIPTION OF THE SALE.......................................................................................3
Background and Reasons for the Sale..................................................................3
DESCRIPTION OF THE TERMS OF THE PURCHASE AGREEMENT............................................................4
Parties to the Purchase Agreement....................................................................5
Properties Transferred...............................................................................5
Purchase Price.......................................................................................5
Liabilities..........................................................................................5
Closing and Conditions to Closing....................................................................6
Representations and Warranties.......................................................................6
Indemnification......................................................................................6
Nonconsummation of the Purchase Agreement: Risk of Loss.............................................6
Proration............................................................................................7
Operation of the Properties Prior to Closing.........................................................7
Condition of the Properties; Purchaser's Review of the Properties....................................7
Regulatory Requirements..............................................................................7
FAIRNESS OF SALE..............................................................................................7
General Partner Recommendation.......................................................................7
Failure to Approve the Sale..........................................................................9
Appraisals...........................................................................................9
Summary of Methodology...............................................................................9
Valuation Methodology -- Improved Properties Income Approach.........................................10
Valuation Methodology -- Improved Properties -- Sales Comparison Approach............................10
Valuation Methodology -- Unimproved Land.............................................................10
Conclusions as to Value..............................................................................10
Assumptions, Limitations and Qualifications of Appraisals............................................11
Fairness Opinion from Stanger........................................................................11
TRANSFER OF GENERAL PARTNER'S INTEREST........................................................................13
LIQUIDATION OF PARTNERSHIP; DISTRIBUTION OF PROCEEDS..........................................................14
Distribution of Proceeds.............................................................................14
BENEFITS OF THE SALE AND TRANSFER TO AND POSSIBLE CONFLICTS
OF THE GENERAL PARTNER AND ITS AFFILIATES............................................................15
CERTAIN FEDERAL AND STATE INCOME TAX CONSEQUENCES OF THE SALE.................................................15
General..............................................................................................15
Taxation Prior to Liquidation........................................................................15
Taxation of Liquidation..............................................................................16
Capital Gains........................................................................................17
Passive Loss Limitations.............................................................................17
<PAGE>
Certain State Income Tax Considerations..............................................................17
Tax Conclusion.......................................................................................17
SELECTED FINANCIAL DATA.......................................................................................17
VOTING SECURITIES AND PRINCIPAL HOLDERS THEREOF...............................................................18
Outstanding Voting Securities; Record Date...........................................................18
Security Ownership of Certain
Beneficial Owners and Management ....................................................................18
MARKET FOR UNITS; DISTRIBUTIONS...............................................................................19
OTHER MATTERS.................................................................................................19
INCORPORATION BY REFERENCE....................................................................................19
CONSENT FORM REGARDING SALE OF ASSETS, TRANSFER AND LIQUIDATION...............................................20
Exhibit A: Stanger Property Valuation.............................................................Exhibit A-1
Exhibit B: Stanger Fairness Opinion...............................................................Exhibit B-1
Appendix A: Financial Report on Form 10-K for Year Ended December 31, 1996.......................Appendix A-1
Appendix B: Financial Report on Form 10-Q for Year Ended June 30, 1997...........................Appendix B-1
</TABLE>
<PAGE>
DESCRIPTION OF THE TERMS OF THE SOLICITATION
Purpose of Solicitation
Upon the terms and subject to the conditions set forth in this
Statement and in the accompanying Consent Form, the General Partner on behalf of
the Partnership is soliciting consents from Unitholders for the purpose of
approving the proposed Sale, the Transfer and the Liquidation. See "FAIRNESS OF
THE SALE," "DESCRIPTION OF THE TERMS OF THE PURCHASE AGREEMENT," "DESCRIPTION OF
THE SALE," "TRANSFER OF GENERAL PARTNER INTEREST," and "LIQUIDATION OF
PARTNERSHIP; DISTRIBUTION OF PROCEEDS."
The cost of preparing, assembling, printing and mailing this Statement
and the enclosed Consent Form, and the cost of soliciting Consent Forms, will be
borne by the Partnership. Solicitation of the Consent Forms will be made
initially by mail. In addition to solicitation by mail, Consent Forms may also
be solicited personally, by telephone, by facsimile or by telegraph by the
director, officer or other regular employees of the General Partner and The
Arlen Group, the Soliciting Agent. No additional compensation will be paid to
the director, officer or other regular employees of the General Partner for such
services.
Expiration Date; Extension; Amendment
This Statement is furnished in connection with the solicitation of
Consent Forms by the General Partner to the Sale as contemplated by the Purchase
Agreement, the Transfer and the Liquidation. This Solicitation for Consent Forms
will expire at 5:00 P.M., Pacific Time, on the Expiration Date, unless extended
by the General Partner in its sole discretion. The Partnership expressly
reserves the right, in the sole discretion of the General Partner, (i) to extend
the Expiration Date, from time to time, until the Requisite Consents (as defined
below) have been obtained, and (ii) to amend, at any time or from time to time
before the Requisite Consents are obtained, the terms of this Solicitation. As
promptly as practicable following any such extension or amendment, notice
thereof shall be given by the Partnership to each Unitholder in writing.
Record Date; Requisite Consents
The Partnership has fixed the close of business on September 30, 1997,
(the "Record Date"), as the Record Date for determining the Unitholders entitled
to notice of and to consent to the Sale, the Transfer and the Liquidation. Only
Unitholders on the Record Date or their duly designated proxies may execute and
deliver a Consent Form. As of the Record Date, there were 99,765 Units
outstanding held by approximately 12,880 holders of record. Holders of Units are
entitled to one vote per Unit.
The Sale, Transfer, and the Liquidation must be approved by at least a
majority of the issued and outstanding Units (the "Requisite Consents") as
required by the Partnership's Second Amended and Restated Agreement of Limited
Partnership, as amended (the "Partnership Agreement").
Units represented by "broker non-votes" (i.e., Units held in record
name by brokers or nominees as to which (i) an executed Consent Form has not
been received from the beneficial owners or persons entitled to Consent, (ii)
the broker or nominee does not have discretionary voting authority under
applicable rules or the instrument under which it serves in such capacity, or
(iii) the recordholder has indicated on the Consent Form or has otherwise
notified the Partnership that it does not have authority to vote the Units with
respect to the Sale, the Transfer and the Liquidation) will not be included in
the vote totals, and therefore will have no effect on this Solicitation.
If the Partnership fails to receive the Requisite Consents on or before
the Expiration Date, or any extension thereof, then the Partnership will
continue with its present objective of maximizing the return to Unitholders by
actively managing and operating its Properties over a short holding period. In
that event, the Partnership's Properties will be disposed of at an appropriate
time while pursuing development opportunities for certain properties. See
"DESCRIPTION OF THE SALE."
1
<PAGE>
Consent Procedures
UNITHOLDERS WHO DESIRE TO CONSENT TO THE SALE, THE TRANSFER AND THE
LIQUIDATION SHOULD SO INDICATE BY MARKING THE APPROPRIATE BOX ON THE CONSENT
FORM INCLUDED HEREWITH, AND COMPLETING, SIGNING, DATING AND DELIVERING THE
CONSENT FORM TO THE ARLEN GROUP BY MAIL IN THE SELF-ADDRESSED, POSTAGE-PAID
ENVELOPE ENCLOSED FOR THAT PURPOSE, BY OVERNIGHT COURIER OR BY FACSIMILE AT THE
ADDRESS OR FACSIMILE NUMBER SET FORTH ABOVE AND ON THE CONSENT FORM, ALL IN
ACCORDANCE WITH THE INSTRUCTIONS CONTAINED HEREIN AND THEREIN. A UNITHOLDER MUST
CONSENT TO EACH OF THE SALE, THE PURCHASE AGREEMENT, THE TRANSFER AND THE
LIQUIDATION IF IT WISHES TO GRANT ITS CONSENT.
All Consent Forms that are properly completed, signed and delivered to
the Partnership and not properly revoked (See "Revocation of Instructions"
below) prior to the Expiration Date, will be given effect in accordance with the
specifications thereof. If a Consent Form is delivered and none of the "CONSENT"
nor the "DOES NOT CONSENT" nor the "ABSTAIN" box is marked with respect to the
Sale, the Transfer and the Liquidation, but the Consent Form is otherwise
properly completed and signed, the Unitholder will be deemed to have consented
to each of the Sale, the Transfer and the Liquidation.
Consent Forms should be executed in exactly the same manner as the
name(s) in which ownership of the Units is registered. If the Units to which a
Consent Form relates are held by two or more joint holders, all such holders
should sign the Consent Form. If a Consent Form is signed by a trustee, partner,
executor, administrator, guardian, attorney-in-fact, officer of a corporation or
other person acting in a fiduciary, agency or representative capacity, such
person must so indicate when signing and must submit with the Consent Form
evidence satisfactory to the Partnership of authority to execute the Consent
Form.
The execution and delivery of a Consent Form will not affect a
Unitholder's right to sell or transfer the Units. All Consent Forms received by
the Partnership (and not properly revoked) prior to the Expiration Date will be
effective notwithstanding a record transfer of such Units subsequent to the
Record Date, unless the Unitholder revokes such Consent Form prior to 5:00 P.M.,
Pacific Time, on the Expiration Date by following the procedures set forth under
"Revocation of Instructions" below.
All questions as to the validity, form and eligibility (including time
of receipt) regarding the consent procedures will be determined by the General
Partner in its sole discretion, which determination will be conclusive and
binding. The Partnership reserves the right to reject any or all Consent Forms
that are not in proper form. The Partnership also reserves the right to waive
any defects, irregularities or conditions of delivery as to particular Consent
Forms. Unless waived, all such defects or irregularities in connection with
deliveries of Consent Forms must be cured within such time as the General
Partner determines. Neither the General Partner nor any of its affiliates or any
other persons shall be under any duty to give any notification of any such
defects or irregularities or waivers, nor shall any of them incur any liability
for failure to give such notification. Deliveries of Consent Forms will not be
deemed to have been made until any irregularities or defects therein have been
cured or waived. The interpretations of the terms and conditions of this
Solicitation by the General Partner shall be conclusive and binding.
Revocation of Instructions
Any Unitholder who has delivered a Consent Form to the Partnership may
revoke the instructions set forth in such Consent Form by delivering to the
General Partner a written notice of revocation prior to 5:00 P.M., Pacific Time,
on the Expiration Date. In order to be effective, a notice of revocation of the
instructions set forth in a Consent Form must (i) contain the name of the person
who delivered the Consent Form, (ii) be in the form of a subsequent Consent Form
marked either as "CONSENT" or "DOES NOT CONSENT" or "ABSTAIN," as the case may
be, (iii) be signed by the Unitholder thereof in the same manner as the original
signature on the Consent Form, and (iv) be received by the General Partner prior
to 5:00 P.M., Pacific Time, on the Expiration Date at its address set forth on
the Consent Form. A purported notice of revocation that lacks any of the
required information, is dispatched to an improper address or is not received in
a timely manner will not be effective to revoke the instructions set forth in a
Consent Form previously given. A revocation of the instructions set forth in a
Consent Form can only be accomplished in accordance with the foregoing
procedures. No Unitholder may revoke the instructions set forth in a Consent
Form after 5:00 P.M., Pacific Time, on the Expiration Date.
2
<PAGE>
No Dissenting Unitholders' Rights
Under the California Uniform Limited Partnership Act and under the
Partnership Agreement, Unitholders do not have dissenter's appraisal rights in
connection with the Sale and the Purchase Agreement.
Suspension of Transfers of Units
Pending completion of the consent process, the General Partner has
suspended the transfer of Units by Unitholders.
DESCRIPTION OF THE SALE
Background and Reasons for the Sale
Prior to 1995, the Partnership's business strategy was to hold its
Properties for future development and operation. In 1995, the Partnership
modified its strategy to focus on eventual disposition of its Properties while
pursuing development opportunities for certain sites.
At its inception in 1986, the Partnership estimated that its Properties
would be developed and sold after a period of seven years of ownership after
completion of development or construction. The Partnership purchased one
Property which it sold and used the proceeds of that sale and proceeds from its
offering of Units to develop commercial offices, restaurant, retail, hotel,
transportation and light industrial facilities, primarily in the Tri-City
Corporate Center of San Bernardino, California and in Ontario, California.
After acquisition and development of some of its Properties, the
Partnership's Properties experienced a decrease in market value due to a
substantial weakening of the markets for commercial real estate in the Inland
Empire area of California, where the majority of the Partnership Properties are
located and in the United States real estate markets in general. Although the
markets in which the Partnership Properties are located and real estate markets
in general have improved from the bottom of the cycle, these markets have proven
to be volatile over time. Furthermore, it is an appropriate time for the sale of
the Partnership's Properties because (1) the operations of all the improved
Properties are relatively stable; (2) the real estate capital markets are
active; (3) development of the majority of the Partnership's unimproved
properties cannot be done on an economical basis for several years, and (iv) the
administrative costs of operating the Partnership have increased as a percentage
of such assets having the effect of reducing such assets.
In December 1994, Rancon Financial Corporation ("RCF"), a general
partner of the Partnership, entered into an agreement with Glenborough Inland
Realty Corporation ("GIRC"), whereby RFC sold to GIRC, for the assumption of
$1,715,000 of RFC's debt and approximately $4,466,000, the contract to perform
the rights and responsibilities under RFC's 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 to the liquidation of the Partnership, whichever comes first. Under the
contract, the Partnership was required to pay GIRC for its services as follows:
(i) a specified asset administration fee of $967,000 per year, which is fixed
for five years subject to reduction in the year following the sale of assets;
(ii) sales fees of 2% for improved properties and 4% for land (which is not
payable in connection with the Sale); (iii) a refinancing fee of 1% and (iv) a
management fee of 5% of gross rental receipts. When Glenborough's REIT was
formed on December 31, 1995, GIRC was merged into Glenborough Corporation
("GC"), in which Glenborough also held, and continues to hold, 100% of the
non-voting preferred stock. As part of this agreement, GIRC performed (and GC
now performs) certain responsibilities for the General Partner of the Rancon
Partnerships and RFC agreed to cooperate with GIRC, should GIRC attempt to
obtain a majority vote of the limited partners to substitute itself as the
Sponsor for the Rancon Partnerships. The compensation payable to GIRC under the
agreement will terminate when the Sale, Transfer and Liquidation are completed.
None of GIRC, GC or Glenborough is an affiliate of RFC.
RFC entered into the transaction with Glenborough described above, when
it determined to sell that portion of its business relating to investor
relations services, property management services and asset management services,
and those services are now rendered to the Partnership, eight other related
partnerships and third parties by Glenborough.
3
<PAGE>
In late 1994, during negotiations of the agreement described above,
Glenborough proposed that the Partnership contribute its properties to
Glenborough's real estate investment trust ("REIT") then being formed, in return
for securities of the new REIT. The Partnership elected not to do so because of
the risk of investing in a startup REIT. In addition, by contracting with GIRC
to perform services, the Partnership would establish a relationship to determine
its performance as a manager. Finally, the Partnership was of the opinion that
the bottom of the real estate cycle was near and did not want to consider a sale
until the cycle moved in a positive direction. Approximately 18 months later,
Glenborough's REIT has begun operations and its stock had begun trading, and
Glenborough once again proposed to acquire the Partnership's properties in
exchange for securities of the REIT. For the same reasons stated above, the
Partnership again declined Glenborough's proposal.
In April 1997, Glenborough again proposed to acquire the Partnership's
properties, but this time for cash rather than securities. For this reason, and
because the partnership's general partner believed that the real estate cycle
had moved in a positive direction, it requested that Glenborough submit a formal
proposal.
In May 1997, an offer was made to buy the Properties for $42,600,000 in
cash, subject to obtaining a fairness opinion as to the terms and conditions of
the Sale from the financial point of view of the Unitholders.
In June 1997, the Partnership and the Purchaser executed a letter of
intent setting forth an agreement in principle on the terms and conditions of
the Sale.
In July 1997, the Partnership received an appraisal that the fair
market value of the Properties was $44,765,000. Following receipt of the
appraisal, the Partnership made a counter-offer to Glenborough to sell the
properties for a price equal to the appraised fair market value. Glenborough
accepted the counter-offer.
On September 30, 1997, the Partnership and the Purchaser entered into
the Purchase Agreement. Under the terms of the Purchase Agreement, the Purchaser
will purchase all of the real estate assets of the Partnership for an aggregate
Purchase Price of $44,765,000 to be paid in the form of cash and/or assumption
of debt.
DESCRIPTION OF THE TERMS OF THE PURCHASE AGREEMENT
The following is a summary of the material terms of the Purchase
Agreement, dated as of September 30, 1997. This summary does not purport to be
complete. A complete copy of the Purchase Agreement will be forwarded to each
Unitholder, at no cost to the Unitholder, upon request. Capitalized terms used
but not defined have the meaning ascribed to them in the Purchase Agreement.
Parties to the Purchase Agreement
The Purchase Agreement has been entered into between the Partnership,
as the seller, and the Purchaser, as purchaser. Pursuant to the Purchase
Agreement, the Partnership has agreed to sell all of its Properties to the
Purchaser.
The Partnership is a California limited partnership with its principal
executive office at 27740 Jefferson Avenue, Temecula, California 92590;
Telephone Number (909) 676-6664. For a description of the Partnership and the
Properties see the Partnership's Annual Report on Form 10-K for the fiscal year
ended December 31, 1996, (the "Partnership's 10-K"), and the Partnership's
Quarterly Report on Form 10-Q for the quarter ended June 30, 1997, (the
"Partnership's 10-Q"), copies of which are being mailed to Unitholders together
with this Statement and are incorporated herein by reference.
The Purchaser is a Maryland corporation and a California limited
partnership, with an address at 400 South El Camino Real, San Mateo, California
94402-1708; Telephone Number: (415) 343-9300. The Purchaser is a
self-administered and self-managed real estate investment trust with a
diversified portfolio of properties including industrial, office, multi-family,
retail and hotel properties. In addition, two associated companies of Purchaser
control similarly diversified portfolios. Combined, the portfolios encompass
approximately 11 million square feet and are spread among 26 states throughout
the country.
4
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<TABLE>
Properties Transferred
The Purchase Agreement provides that at the closing of the Sale (the
"Closing") the Partnership will transfer and convey to the Purchaser all of the
Properties of the Partnership, which consist of approximately 145 acres of
undeveloped land and improved properties of approximately 721,949 square feet.
<CAPTION>
Property Square
Property Name Type Footage Acres
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Income Producing
Bally's Total Fitness Retail 25,000 -
Carnegie Business Center II Office/R&D 50,804 -
Lakeside Tower Office 112,717 -
One Carnegie Plaza Office 107,276 -
One Parkside Office 70,069 -
Outback Restaurant Retail 6,500 -
Rancon Center Ontario Office 245,000 -
Santa Fe Railway Building Office 36,288 -
Two Carnegie Plaza Office 68,295 -
Land
Three Carnegie Land - 3.48
East Lake Office Pad Land - 2.02
West Lake Office Pad Land - 2.02
Brier Business Center II Land - 5.20
East Lake Restaurant Pad Land - 0.27
Harriman Plaza Land - 1.57
South Palm Court Pad 3 Land - .58
Two Parkside Land - 2.05
West Lakeside Tower Land - 2.09
East Lakeside Tower Land - 1.66
Perris 83 (Nuevo) Land - 60.41
Perris 24 (Ethanac) Land - 23.76
Ontario Land - 41.02
</TABLE>
The Purchaser is not acquiring any of the accounts receivable relating
to the Properties existing as of the Closing Date or cash reserves or other
similar assets of the Partnership such as prepaid expenses, if any. The net cash
proceeds from the sale of the remaining Partnership assets after payment of the
Partnership's liabilities will be distributed to Unitholders along with the net
proceeds of the Sale (after deducting expenses of the Sale, the amount of
mortgage loans on the Properties ("Loans")) and the payment by the General
Partner of the amount of the General Partner's negative capital account balance.
See "TRANSFER OF THE GENERAL PARTNER INTEREST" and "LIQUIDATION OF PARTNERSHIP;
DISTRIBUTION OF PROCEEDS."
Purchase Price
The Purchase Price for the Properties is $44,765,000, $480,000 of which
has been deposited by the Purchaser in escrow as earnest money with Chicago
Title Insurance Company, and the remainder of which will be paid in cash,
reduced by Loans and certain adjustments and prorations at the Closing. The
Partnership will pay for the Fairness Opinion, Appraisals, filing fees, legal
fees and similar expenses, which the General Partner estimates to be
approximately $310,000.
Liabilities
The Purchaser will assume all obligations of the Partnership relating
to the Properties, including obligations under leases, and may assume the Loans
on the Properties at the Closing.
5
<PAGE>
Closing and Conditions to Closing
The Purchase Agreement provides that the Closing will occur on the
first day that is not less than five days after the date the Partnership has
received the approval of the Partnership's Unitholders to the Sale and the
Transfer (the "Closing Date").
Under the Purchase Agreement, the consummation of the Sale is subject
to the satisfaction of, among others, the following conditions: (i) the approval
of the Sale and the Liquidation by Daniel L. Stephenson, as the individual
general partner and as the Director of Rancon Financial Corporation (which
approvals were given on September 30, 1997), (ii) the requisite approval by the
Partnership's Unitholders of the Sale and the Transfer, (iii) the Partnership's
receipt of the Fairness Opinion and Appraisal, (iv) the Purchaser's approval of
title to the Properties, (v) that the physical condition of the Properties at
Closing shall be substantially the same, wear and tear excepted as when the
Purchase Agreement was executed, and (vi) the delivery by the Partnership to the
Purchaser of appropriate instruments of conveyance and certain documents
relating to the Properties.
Representations and Warranties
The Purchase Agreement contains representations and warranties with
respect to the Partnership and the Properties which are generally customary in a
transaction of this type and relate to, among other things, (i) due organization
and authority to enter into the Purchase Agreement, (ii) the absence of any
conflicts under the documents to which it is a party and violation of agreements
and organizational documents by which it is formed, (iii) the absence of legal
proceedings, government investigation and violations of law, (iv) environmental
matters, (v) title matters, and (vi) the status of the Loans.
The Purchaser's representations and warranties relate to, among other
things, (i) due organization and ability to perform its obligations under the
Purchase Agreement, (ii) the absence of conflicts under any documents to which
it is a party and violation of agreements and organizational documents by which
it is formed, and (iii) no litigation is pending or threatened against the
Purchaser that might materially and detrimentally affect the ability to perform
its obligations under the Purchase Agreement.
Indemnification
The Partnership and the Purchaser have agreed to indemnify each other
from and against all costs, charges and expenses related to the breach of any of
the representations and warranties they have made in the Purchase Agreement.
The Partnership has agreed to indemnify the Purchaser from and against
all costs, charges and expenses related to the operation of the Properties
(other than as a consequence of acts or omissions of Purchaser), or failure to
perform any obligation under the Loan Documents prior to the Closing Date.
The Purchaser has agreed to indemnify the Partnership from and against
all costs, charges and expenses related to the ownership, management and
operation of the Properties and the payment of the Loans after the Closing Date.
Nonconsummation of the Purchase Agreement: Risk of Loss
If there is any damage or destruction to, or condemnation of, any
Properties as to which the cost of repair or the value of the portion taken
exceeds $447,650.00, the Purchaser may, at its option, within twenty days of
receiving notice thereof, elect to (i) terminate the Purchase Agreement as to
the damaged or condemned Property which would then reduce the Purchase Price by
the fair market value of the damaged or condemned Property, or (ii) consummate
the acquisition of the Property for all of the consideration provided the
Purchaser is given a credit against the consideration equal to the amount of any
insurance proceeds or condemnation awards collected by the Partnership as a
result of such loss. If any damage or destruction or condemnation of any of the
Properties does not exceed $447,650.00, the Purchaser must purchase the
Properties but will receive as a credit against the Purchase Price in an amount
equal to the insurance proceeds or condemnation awards provided and the Loan
does not result in a default because of such loss or condemnation.
6
<PAGE>
If the Sale is not consummated for a reason other than a default by the
Partnership or the Purchaser, then the earnest money shall be returned to the
Purchaser with interest thereon, and the Partnership and Purchaser shall each
bear one-half of any escrow cancellation charges.
If the Sale is not consummated as a result of a default by the
Partnership, the Purchaser may terminate the Agreement and the earnest money and
interest thereon shall be returned to it and the Partnership shall pay all the
title, escrow, legal and inspection fees incurred by the Purchaser, or the
Purchaser may continue the Purchase Agreement pending the Purchaser's action for
specific performance and/or damages.
If the Sale is not consummated as a result of a default by the
Purchaser, the Purchaser shall pay all escrow cancellation charges and the
earnest money deposit of $480,000, plus interest thereon will be paid to the
Partnership as liquidated damages and the Partnership will not have any further
remedies. If that occurs, the Partnership will distribute the $480,000 (after
deducting expenses incurred by the Partnership in respect of the Sale) to
Unitholders, and will continue with its present objective of disposing of the
Properties at an appropriate time while pursuing development opportunities for
certain Properties. See "DESCRIPTION OF THE SALE."
Proration
All prorations shall be calculated as of 12:01 A.M. on the first day of
the month that the Sale closes.
Operation of the Properties Prior to Closing
Prior to the Closing, the Partnership shall operate and maintain the
Properties in substantially the same manner as they were operated prior to the
execution of the Purchase Agreement provided, however, that without the prior
written approval of the Purchaser, the Partnership shall not execute, renew or
terminate any lease or modify or waive any material term of any lease; enter
into any contract with respect to the property requiring payments to be made by
the Partnership in excess of $5,000 per year, or waive or modify any Loan
Documents.
Condition of the Properties; Purchaser's Review of the Properties
The Purchaser shall have the right to contact and interview Tenants and
inspect the surveys, title, use and zoning matters with respect to each of the
Properties. Purchaser shall have fifteen days after the receipt of the foregoing
materials to approve or disapprove of the due diligence materials. If the
Purchaser does not approve such materials, the Purchase Agreement may be
terminated and the Purchaser will be entitled to all amounts paid for earnest
money and any interest thereon.
Regulatory Requirements
There are no federal or state regulatory requirements which must be
complied with, nor are there any such governmental consents or approvals that
must be obtained, other than the approval of the Unitholders solicited by this
Statement, in connection with the Sale and the other transactions contemplated
by the Purchase Agreement. There are certain regulatory requirements under the
laws of the State of California which must be complied with in connection with
the Liquidation, principally the winding up of the affairs of the Partnership
and the filing of a Certificate of Cancellation (canceling the Partnership's
Certificate of Limited Partnership) with the Secretary of State of California in
accordance with the California Uniform Limited Partnership Act. These regulatory
requirements will be complied with at the time of the Liquidation.
FAIRNESS OF SALE
General Partner Recommendation
Daniel L. Stephenson, as the individual general partner and as the
Director of Rancon Financial Corporation has approved the Sale to the Purchaser
pursuant to the Purchase Agreement and the Liquidation, and directed that the
Sale, Transfer, and the Liquidation be submitted to the Partnership's
Unitholders for consent with the recommendation that Unitholders consent. The
principal factors taken into consideration in approving the Sale, Purchase
Agreement and the Liquidation and in recommending that Unitholders consent
thereto were:
7
<PAGE>
(i) The Purchase Price was achieved by arm's length negotiations and is
equal to the Properties' Appraised Value;
(ii) The Fairness Opinion of Robert A. Stanger & Co., Inc. ("Stanger")
that the consideration offered to the Partnership in connection with the Sale is
fair to the Partnership and the Unitholders from a financial point of view;
(iii) Prior to entering into the Purchase Agreement, the General
Partner determined that the Purchaser has a reputation for completing purchases
it contracts to make and for doing so in a timely and expeditious manner;
(iv) The terms and conditions of the Purchase Agreement described under
"Description of the Terms of the Purchase Agreement," in particular: (a) the
Purchaser's obligations are not subject to obtaining financing; (b) the
Purchaser will forfeit its $480,000 earnest money deposit if it fails to
consummate the Sale other than for the due diligence reasons discussed under
"Description of the Terms of the Purchase Agreement"; and (c) it is unlikely
that there will be any significant adjustment to the Purchase Price because the
Purchaser had early access to information and because of the timing of the due
diligence review;
(v) No brokerage commissions are required to be paid by the Partnership
in connection with the Sale therefor providing higher net proceeds to the
Unitholders;
(vi) Selling all of the Properties at one time will result in lower
aggregate Sale costs;
(vii) Selling all of the Properties at one time will eliminate the need
for the Partnership to incur the ongoing administrative and other expenses of
continuing to operate the Partnership and certain Properties during an extended
sales period;
(viii) Selling the Properties at one time provides certainty as to the
sales price of the Properties, whereas selling the Properties over a period of
time would not provide such certainty;
(ix) The Sale and Liquidation will result in the more accelerated
return of capital to the Unitholder; and
(x) The Sale and Liquidation is anticipated to result in the
opportunity for the Unitholders to receive their final Schedules K-1 for the
fiscal year 1997 and avoid future inconvenience and expense from the requirement
to reflect such schedules in their federal income tax returns in subsequent
years.
The General Partner considered the following additional factors with
respect to the disposition of the Properties in general:
(i) The fact that the Properties have been held longer than their
originally anticipated holding period;
(ii) The General Partner's belief that current market conditions are
favorable for a sale of the Properties due to the favorable interest rate
environment, the increased availability of investor capital and the improvement
in certain of the marketplaces in which the Partnership's Properties are
located.
(iii) The liquidity the Sale will provide to Unitholders that the
retention of Units does not provide. At present, there is no established public
trading market for Units and liquidity is limited to sporadic sales that occur
within an informal secondary market and pursuant to occasional tender offers for
Units.
(iv) The level of distributions to the Unitholders (which have been
lower than originally anticipated; no distributions have been made for five
years); and
(v) Retaining the Properties will continue to subject the Partnership
to the risks inherent in the ownership of property such as the development of
properties, fluctuations in occupancy rates, operating expenses and rental
rates, which in turn may be affected by general and local economic conditions,
the supply and demand for properties of the type owned by the Partnership and
federal and local laws and regulations affecting the ownership and operation of
real estate.
8
<PAGE>
The primary disadvantages of disposing of the Properties pursuant to
the Sale are as follows:
(i) The Partnership will not benefit from possible improvements in
economic and market conditions which could produce increased cash flow and
enhance the sales price of the Properties. The concern in continuing to hold the
Properties in an improving market is that the market conditions which led to
this improvement may encourage an increasing supply of new properties (including
development of certain of the Partnership's Properties) which could eventually
lead to oversupply of the Properties and weakening of prices;
(ii) The sales of all the Properties at one time may not result in as
high a sale price as if they were sold individually; and
(iii) Unitholders who purchased their Units during the initial public
offerings of the Units may not receive aggregate distributions, including
distributions from the Sale, equal to the money that they originally invested in
the Partnership. See "CERTAIN FEDERAL AND STATE INCOME TAX CONSEQUENCES OF THE
SALE -- Taxation Prior to Liquidation."
For the foregoing reasons, the General Partner of the Partnership has
approved the Sale, and the Liquidation and recommends that Unitholders consent
to the Sale, Transfer and the subsequent Liquidation.
Failure to Approve the Sale
If the Unitholders fail to approve the Sale, Transfer and Liquidation,
the Partnership will continue to operate the Properties and attempt to sell the
Properties in single or multiple sales and develop properties deemed
developable.
Appraisals
In determining the fairness of the Sale, the General Partner has relied
in part upon appraisals (a summary of which is attached hereto as Exhibit "A"
and incorporated herein by this reference) prepared by Stanger to establish the
fair market value ("Appraised Value") of the Partnership's Properties and such
Appraised Values were utilized in establishing whether the Purchase Price
offered by the Purchaser constitutes fair consideration in exchange for such
Properties. In preparing the Appraisals, Stanger was engaged to determine the
fair market value of the Properties without taking into account the specific
financial interest of any person. Stanger's Appraisals were certified by an MAI
appraiser.
Stanger has substantial experience and expertise in assessing the value
of real estate, having prepared real estate appraisals for over 10 years and
having appraised or rendered confirming opinions of value for a variety of
clients real estate assets with a value of over $10 billion. Furthermore, the
General Partner believes that the use of a single independent appraiser,
applying consistent methodology and criteria in assessing the value of the
Partnership's Properties, increased the likelihood that the value of such assets
would be determined on a fair, consistent and unbiased basis.
Summary of Methodology
Appraisers typically consider three approaches to value: the cost
approach, the market data or sales comparison approach, and the income approach.
The market data or sales comparison approach involves a comparative analysis of
the subject property with other similar properties that have sold recently or
that are currently offered for sale in the market. The income approach involves
an economic analysis of the property based on its potential to provide future
net annual income.
Pursuant to the request of the Partnership, the Appraisals were
performed using the income approach and sales comparison approach for
income-producing properties and the sales comparison approach for land
properties.
Valuation Methodology -- Improved Properties -- Income Approach. Stanger's
valuation has been based in part upon information supplied to it by the
Purchaser, as the manager of the Properties, and the Partnerships, including but
not limited to: rent rolls, building reports; lease information; financial
schedules of current lease rates, income, expenses,
9
<PAGE>
cash flow and related financial information; property descriptive information;
prior appraisals; and, where appropriate, proposed sales terms, sales agreements
and supporting documentation. Stanger relied upon such information and assumed
that the information provided by Purchaser and the Partnership was accurate and
complete and did not attempt to independently verify such information.
Stanger also interviewed and relied upon Purchaser's management
personnel to obtain information relating to the condition of each property,
including any deferred maintenance, capital budgets, environmental conditions,
status of on-going or newly planned property additions, reconfiguration,
improvements, and other factors affecting the physical condition of the property
improvements.
Stanger also interviewed Purchaser's management personnel regarding
competitive conditions in property markets, trends affecting the properties,
certain lease and financing factors, and historical and anticipated lease
revenues and expenses. Stanger also reviewed historical operating statements for
each of the properties.
Based on the lease and market rent analysis, rental revenue projections
were developed for each income-producing property based on the terms of existing
leases and based on an analysis of market rents and historical rents achieved at
the property.
Expenses were analyzed based upon a review of actual expenses for 1995
and 1996. Stanger also reviewed 1997 budgeted expenses and published data on
expenses for comparable properties.
In its income approach analysis, Stanger utilized a ten year discounted
cash flow analysis. To determine residual value, year eleven net operating
income estimate was capitalized. The residual value was discounted, after
deducting appropriate sales expenses to a present value. The discount rate
employed was based on current acquisition criteria and target rates of return
among commercial property investors.
Valuation Methodology -- Improved Properties -- Sales Comparison Approach. Based
upon actual and proposed sales transactions identified in the respective
Properties' region, indices of value for the Properties were derived considering
the respective Properties' age, location and other factors. The indices of value
included price per square foot. The indices of value were applied to the
Properties to estimate value in accordance with the Sales Comparison Method.
Price per square foot as estimated by reference to comparable sales transactions
was multiplied by the rentable square footage of the respective Properties to
derive an estimate of value.
Valuation Methodology -- Unimproved Land. Since certain of the Properties are
unimproved land, Stanger has estimated the value of the fee simple interest in
the Land based on the Sales Comparison Approach, and has not utilized the Income
or Cost Approaches to valuation.
The Sales Comparison Approach utilizes indices of value derived from
actual or proposed sales of comparable properties to estimate the value of the
subject Land. For land valuations, a unit of comparison typically analyzed for
similar properties, price per square foot of land or price per buildable square
foot, was utilized in applying the Sales Comparison Approach to the subject
Property.
In conducting the property valuation, representatives of Stanger
performed site inspection of the Properties in June, 1997. In the course of each
Property site visit, the information on the local market was gathered.
Information gathered during the site inspection was supplemented by a review of
published information concerning economic, demographic and real estate trends in
the subjects' market.
Conclusions as to Value
Based upon the review as described above, it is Stanger's opinion that
the market value of the leased fee interests or fee simple interests in the
Properties as of June 30, 1997, is:
10
<PAGE>
Property Name Value
- ------------- -----
Bally's Total Fitness $3,200,000
Carnegie Business Center II 1,800,000
Lakeside Tower 8,800,000
One Carnegie Plaza 5,500,000
One Parkside 5,200,000
Outback Restaurant 840,000
Rancon Center Ontario 4,700,000
Santa Fe Railway Building 2,500,000
Two Carnegie Plaza 4,000,000
Three Carnegie 460,000
East Lake Office Pad 800,000
West Lake Office Pad 800,000
East Lake Restaurant Pad 270,000
Brier Business Center II 215,000
Harriman Plaza 170,000
South Palm Court Pad 3 180,000
Two Parkside 285,000
West Lakeside Tower 280,000
East Lakeside Tower 280,000
Perris 83 (Nuevo) 145,000
Perris 24 (Ontario) 775,000
Ontario 3,565,000
-----------
TOTAL $44,765,000
===========
Assumptions, Limitations and Qualifications of Appraisals
Stanger utilized certain assumptions to determine the appraised value
of the portfolios under the income approach. See Exhibit A for a discussion of
the specific assumptions, limitations and qualification of the Appraisals.
The Appraisals reflect Stanger's valuation of the real estate
portfolios of the Partnerships as of June 30, 1997, in the context of the
information available on such date. Events occurring after June 30, 1997, and
before the Closing of the Sale could affect the Properties or assumptions used
in preparing the Appraisals. Stanger has no obligation to update the Appraisals
on the basis of subsequent events. In connection with preparing the Appraisals,
Stanger was not engaged to, and consequently did not, prepare any written report
or compendium of its analysis for internal or external use beyond the analysis
set forth in Exhibit A. Stanger will not deliver any additional written summary
of the analysis.
Fairness Opinion from Stanger
Stanger was engaged by the General Partner on behalf of the
Partnership, to provide an opinion as to the fairness to the limited partners of
the Partnership from a financial point of view of the consideration to be
received in the Sale. The full text of the fairness opinion, which contains
descriptions of the assumptions and qualifications made, matters considered and
limitations on the review and opinion, is set forth in Exhibit B to this
Statement and should be read in its entirety. Certain of the material
assumptions, qualifications and limitations to the fairness opinion are set
forth below. The summary set forth below does not purport to be a complete
description of the analysis used by Stanger in rendering the fairness opinion.
Arriving at a fairness opinion is a complex analytical process not necessarily
susceptible to partial analysis or amenable to summary description.
In connection with its analysis, Stanger made certain assumptions,
described more fully below, which the General Partner and the Partnership
advised Stanger it would be reasonable to make. The General Partner and the
Partnership imposed no conditions or limitations on the scope of Stanger's
investigation or with respect to the methods and procedures to be followed in
rendering the fairness opinion. The General Partner and the Partnership have
agreed to
11
<PAGE>
indemnify Stanger against certain liabilities arising out of its engagement to
render financial advisory services and to prepare and deliver the fairness
opinion.
Experience of Stanger. Stanger, founded in 1978, has provided
information, research, investment banking and consulting services to clients
located throughout the United States, including major New York Stock Exchange
member firms and insurance companies and over 70 companies engaged in the
management and operation of partnerships and real estate investment trusts. The
investment banking activities of Stanger include financial advisory services,
asset and securities valuations, industry and company research and analysis,
litigation support and expert witness services, and due diligence investigations
in connection with both publicly registered and privately placed securities
transactions.
Stanger, as part of its investment banking business, is regularly
engaged in the valuation of business and their securities in connection with
mergers, acquisitions, reorganizations and for estate, tax, corporate and other
purposes. In particular, Stanger's valuation practice principally involves
partnerships, partnership securities and the assets typically owned through
partnerships including, but not limited to, real estate, oil and gas reserves,
cable television systems and equipment leasing assets.
Summary of Materials Considered. In the course of Stanger's analysis to
render its opinion regarding the Transaction, Stanger: (i) reviewed the consent
solicitation statement (the "Statement") relating to the Sale; (ii) reviewed
historical operating statements for each income producing property for the two
years ended December 31, 1996, and the six months ended June 30, 1997; (iii)
reviewed the current rent roll, occupancy report and quoted rents at each income
producing property; (iv) conducted a site inspection of each Property; (v)
reviewed the most recent property tax assessment for each Property; (iv)
reviewed the master summary appraisal report prepared by Stanger, as of June 30,
1997, for the Properties; (vii) reviewed the letter of intent between the
Partnership and Glenborough; (viii) reviewed the operating history and financial
statements of the Partnership for the years ended December 31, 1995, and 1996 as
summarized on Forms 10-K filed with the Securities & Exchange Commission (the
"SEC") and for the quarter ended March 31, 1997, as summarized on Form 10-Q as
filed with the SEC; (ix) conducted such other studies, analyses and inquiries
Stanger deemed appropriate.
Summary of Analysis. Stanger observed that the purchase price paid is
equal to the appraised value of the real estate assets as of June 30, 1997, and
that no sales commission will be paid in connection with the transaction. Such
sales commissions can range from 2% to 5% of sales price, depending upon the
total value of assets sold in a single transaction. Stanger further observed
that the purchase price paid in the transaction ($44,765,000) exceeds the amount
included in the original letter of intent of ($42,600,000) by $2,165,000 or
5.1%.
Conclusions. Based on the foregoing, Stanger concluded that, based upon
its analysis and assumptions, and as of the date of the fairness opinion, the
consideration to be received in the Sale is fair to the limited partners of the
Partnership from a financial point of view.
Assumptions. In evaluating the Transaction, Stanger relied upon and
assumed, without independent verification, the accuracy and completeness of all
financial and other information contained in the Statement or that was furnished
or otherwise communicated to Stanger. Stanger did not perform an independent
appraisal of the non-real estate assets and liabilities of the Partnership and
relied upon and assumed the accuracy of the information provided. Stanger also
relied on the assurances of the General Partner, the Partnership and
Glenborough, as property manager, that any financial statements, proforma
statements or adjustments contained in the Statement or otherwise provided to
Stanger were reasonably prepared on a basis consistent with actual historical
experience and reflect the best currently available estimates and good faith
judgments; that no material changes have occurred in the value of the properties
or the information reviewed between the date of the appraisal and the date of
the opinion; and that the General Partner, the Partnership and Glenborough are
not aware of any information or facts that would cause the information supplied
to Stanger to be incomplete or misleading in any material respect.
In connection with preparing the fairness opinion, Stanger was not
engaged to, and consequently did not, prepare any written report or compendium
of its analysis for internal or external use beyond the analysis set forth in
Exhibit B. Stanger does not intend to deliver any additional written summary of
its analysis.
Compensation and Prior Relationships. For preparing the fairness
opinion in connection with the Transaction, Stanger is being paid a fee of
$120,000 by the Partnership. For the appraisal services, Stanger was paid a fee
equal to
12
<PAGE>
$60,000, plus certain reimbursements for out-of-pocket expenses for travel. An
affiliated partnership paid Stanger a fee of $130,000 for preparing a fairness
opinion and $65,000 for appraisal services. In addition, Stanger will be
reimbursed for certain out-of-pocket expenses, including legal fees, and will be
indemnified against certain liabilities including certain liabilities under the
Federal securities laws.
Stanger has provided financial advisory services and appraisal services
to Glenborough Realty Trust Incorporated and affiliates during the past three
years as follows: (i) Stanger appraised the real estate assets and issued
opinions regarding the fairness of the allocation of shares in Glenborough
Realty Trust Incorporated to Partnerships affiliated with Glenborough, at the
time of formation of Glenborough in January 1996 for which Stanger was paid
$600,000, plus reimbursement of certain out-of-pocket expenses; (ii) Stanger was
paid a finders fee in connection with the acquisition by Glenborough of certain
rights to management contracts of Rancon Financial Corporation for which Stanger
was paid a fee equal to $350,000 by Glenborough; (iii) Stanger was engaged by
Trust Realty Advisors and affiliates in connection with a sale of certain assets
to Glenborough in 1996 for which Trust Realty Advisors and affiliates, an entity
not previously affiliated with Glenborough, paid Stanger a fee equal to $165,000
for opinions regarding the fairness of the allocation of consideration in the
transaction; (iv) during 1995 and 1996, Glenborough and certain Rancon
Partnerships (including the Partnership) retained Stanger to appraise
approximately thirty real estate assets. The aggregate fees paid to Stanger
approximated $200,000 plus out-of-pocket expenses; (v) Stanger was engaged by
entities affiliated with Ellis & Lane, an entity not previously affiliated with
Glenborough, to represent such entities in the sale or disposition of assets.
Such Ellis & Lane assets were sold or contributed to Glenborough in April 1997
and Stanger was paid a fee equal to approximately $430,000; (vi) in February
1997, Stanger was engaged by Glenborough to represent Glenborough in the
acquisition of a real estate portfolio owned by partnerships affiliated with T.
Rowe Price for which Glenborough has agreed to pay Stanger a fee equal to
$1,000,000 upon the closing of such transaction.
Limitations and Qualifications. Stanger was not requested to, and
therefore did not: (i) select method of determining or determine the
consideration offered in the Sale; (ii) make any recommendation to limited
partners as to whether to approve or reject the Sale; (iii) express any opinion
as to the business decision to effect the Sale, alternatives to the Sale, or tax
factors resulting from the Sale; or (iv) whether or not alternative methods of
determining the consideration would have also provided fair results or results
substantially similar to the method used. Stanger's opinion is based on
business, economic, real estate and securities markets, and other conditions as
of the date of its analysis. Events occurring after that date may materially
affect the assumptions used in preparing the Fairness Opinion.
Among the factors considered by the General Partner in its selection of
Stanger were Stanger's experience in connection with real estate assets and
mergers, acquisitions and reorganizations of real estate partnerships and its
expertise in real estate valuations and transactions.
TRANSFER OF GENERAL PARTNER'S INTEREST
Pursuant to a Contribution Agreement dated September 30, 1997, the
General Partner agreed to contribute to Glenborough its general partner interest
in the Partnership, and in return Glenborough agreed to issue to the General
Partner $12,900 of partnership interests in Glenborough Properties, L.P., and to
assume and pay to the Partnership the General Partner's negative capital account
obligation of $1,028,770 ($771,577 of which is allocated to Daniel L. Stephenson
and $257,192 of which is allocated to Rancon Financial Corporation). It was also
agreed that the General Partner would provide a guaranty of up to $1,028,770 of
the mortgage debt of Glenborough or one of its affiliates. The transfer of the
general partner interest will take place only if all conditions for the Sale of
the Partnership's Properties to Glenborough have been satisfied, and the Sale of
the Properties will take place concurrently with the transfer of the general
partner interest. Thus, Glenborough will not actually perform any duties as
general partner of the Partnership other than executing documentation required
to complete the ultimate liquidation and winding up the Partnership.
The Transfer will not have any effect on the amount of liquidation
proceeds to be distributed to the Unitholders. See "LIQUIDATION OF PARTNERSHIP;
DISTRIBUTIONS OF PROCEEDS." The Unitholders will receive an amount which is
equal to the fair market value of the Properties as determined by the Appraisal
and is fair, to the Unitholders, from a financial point of view, as set forth in
the Fairness Opinion. See "FAIRNESS OF SALE."
13
<PAGE>
LIQUIDATION OF PARTNERSHIP; DISTRIBUTION OF PROCEEDS
Distribution of Proceeds
The General Partner estimates that the net proceeds from the Sale
(after deduction of the amount of the Loans and estimated expenses of the Sale)
together with the net cash from the payment by the General Partner of its
negative capital account of balance of $1,028,770 and the net cash proceeds from
the sale of the remaining assets of the Partnership after payment of all
Partnership liabilities, will be approximately $340 per Unit. See "CERTAIN
FEDERAL AND STATE INCOME TAX CONSEQUENCES OF THE SALE-TAXATION PRIOR TO
LIQUIDATION." This amount was determined dividing the net proceeds described
above by the number of issued and outstanding Units.
<TABLE>
The Partnership has made the following distributions since its
inception:
FUND V
<CAPTION>
Weighted
Average Number Distributions Per
General Partners Limited Partners Total of Limited Partnership Limited Partnership
Year Distributions Distributions Distributions Units Outstanding Unit
- ------------- ------------------ ------------------ ---------------- ------------------------ ----------------------
<S> <C> <C> <C> <C> <C>
1986 $ 6,000 $ 50,000 $ 56,000 15,436 $ 3.24
1987 40,000 360,000 400,000 41,130 8.75
1988 79,000 1,859,000 1,938,000 63,711 29.18
1989 112,000 2,052,000 2,164,000 99,918 20.54
1990 191,000 2,041,000 2,232,000 100,000 20.41
1991 227,000 2,041,000 2,268,000 100,000 20.41
1992 - - - 99,973 -
1993 - - - 99,916 -
1994 - - - 99,852 -
1995 - - - 99,783 -
1996 - - - 99,767 -
1997 - - - 99,765 -
-------- ---------- ----------
Totals $655,000 $8,403,000 $9,058,000
======== ========== ==========
</TABLE>
Any remaining accounts receivable and accounts payable of the
Partnership relating to the Properties after the Sale will be sold and/or paid
and distributed to the partners.
The Partnership intends to liquidate as soon as possible, but no later
than December 31, 1997, after the consummation of the Sale and distribute the
net proceeds of the Sale, the cash payment by the General Partner of its
negative capital account balance, along with the net cash proceeds from the sale
of the remaining assets of the Partnership to the Unitholders. There can be no
assurances, however, that the liquidation of the Partnership will take place
within the estimated time frame. It is possible that it will take more time than
was initially estimated to wind up the affairs of the Partnership and dissolve,
but it is the Partnership's intention to do so as quickly as events allow.
After the Closing and pending the distribution to Unitholders, the
proceeds of the Sale will be held by the Partnership in short-term,
interest-bearing liquid investments.
14
<PAGE>
BENEFITS OF THE SALE AND TRANSFER TO AND POSSIBLE CONFLICTS
OF THE GENERAL PARTNER AND ITS AFFILIATES
Pursuant to the provisions of the Partnership Agreement, the General
Partner will receive a distribution of 1% of the distributions made in
connection with the Sale of the Properties.
There was a potential conflict created by the Sale because the
Purchaser simultaneously offered to purchase all of the real estate assets of an
affiliate of the Partnership, Rancon Realty Fund IV, a California limited
partnership ("Fund IV"). The General Partner is the general partner of Fund IV,
as well as the Partnership. The apparent conflict was addressed by insisting
that the Purchaser negotiate and sign separate contracts with the Partnership
and Fund IV. In order to further confirm the fairness of these third party
contracts, the General Partner has obtained from Stanger an Appraisal of the
Properties for the Partnership and Fund IV and has obtained a Fairness Opinion
from Stanger that the consideration to be received by the Partnership and Fund
IV from the Sale to the Purchaser of the Partnership's and Fund IV's properties
is fair, from a financial view point, to the Unitholders of the Partnership, the
Unitholders of Fund IV and Fund V.
The General Partner is obligated to contribute to the Partnership for
distribution to the Unitholders and General Partner an amount not in excess of
$1,028,770 (the amount of the General Partner's negative capital account
deficit) in connection with the Liquidation. The Transfer by the General Partner
and the payment of such amount by Glenborough Properties, L.P., will enable the
General Partner to meet this obligation.
Conversely, the General Partner may be adversely affected by the Sale
because distributions which it would be entitled to receive will be eliminated
(however, it has not received any distributions since 1991). However, the
consummation of the Sale, Transfer and Liquidation will also eliminate any
liability of the General Partner for liabilities of the Partnership which could
arise from the continued operation of the Partnership.
CERTAIN FEDERAL AND STATE INCOME TAX CONSEQUENCES OF THE SALE
General
The Sale, if approved, will have certain tax implications to the
Unitholders that must be considered. The following summarizes the material
estimated federal income tax consequences arising from the Sale and provides a
general overview of certain state income tax considerations. This summary is
based upon the Internal Revenue Code of 1986, as amended (the "Code"), Treasury
regulations, court decisions and published positions of the Internal Revenue
Service (the "Service"), each as in effect on the date of this Statement. There
can be no assurance that the Service will agree with the conclusions stated
herein or that future legislation or administrative changes or court decisions
will not significantly modify the federal or state income tax law regarding the
matters described herein, potentially with retroactive effect. This summary is
not intended to, and should not, be considered an opinion respecting the federal
or state income tax consequences of the Sale. Further, this summary is not
intended to provide tax or other legal advice to any Unitholder.
Taxation Prior to Liquidation
A partnership is not a taxable entity; therefore, no federal income tax
liability may be imposed upon a partnership. Instead, each partner is required
to take into account in computing his or her income tax liability his or her
allocable share of the Partnership's items of income, gain, loss, deduction and
credit (hereinafter referred to as "income or loss") in accordance with the
partnership agreement. If the allocation of income or loss in the partnership
agreement does not have "substantial economic effect" as defined in Code Section
704(b), the law requires the partnership's income or loss to be allocated in
accordance with the limited partners' or partners' economic interest in the
partnership. Generally, the distribution of cash attributable to partnership
income is generally not a separate taxable event.
For tax purposes, the Partnership realizes and recognizes gain or loss
separately for each Property sold (and in some cases, for each building which is
part of a Property). The amount of gain recognized for tax purposes with respect
to an asset, if any, will be an amount equal to the excess of the amount
realized (i.e., cash or consideration received
15
<PAGE>
reduced by the expenses of the Sale) over the Partnership's adjusted tax basis
for such asset. Conversely, the amount of loss recognized with respect to an
asset, if any, will be an amount equal to the excess of the Partnership's
adjusted tax basis over the amount realized by the Partnership for such asset.
The "adjusted tax basis" of a Property is its cost (including nondeductible
capital expenditures made by the Partnership at the time of purchase) or other
basis with certain additions or subtractions for expenditures, receipts, losses,
or other items that are properly chargeable to capital accounts during the
period of time from acquisition of the Property until the sale or other
disposition. To determine the gain or loss on the sale or other disposition of a
Property the unadjusted basis must be (i) increased to include the cost of
capital expenditures such as improvements, betterments, commissions and other
nondeductible charges; and (ii) decreased by (a) items that represent a return
of capital and (b) depreciation and amortization.
Each Unitholder must report his or her allocable share of these gains
and losses in the year in which the Properties are sold. Actual gain or loss
amounts may vary from the estimates set forth below. Each Unitholder's allocable
share of any Section 1245 gain, Section 1231 gain or loss and Partnership net
taxable income or loss from operations will be reflected on his or her
applicable Schedule K-l (as determined in accordance with the allocation
provisions contained in the Partnership Agreement discussed below).
Under Section 702(a)(3) of the Code, a partnership is required to
separately state, and the partners are required to account separately for, their
distributive share of all gains and losses. Accordingly, each Unitholder's
allocable share of any Section 1231 gain or loss and depreciation recapture
realized by the Partnership as a result of the Sale would be reportable by such
Limited Partner on his or her individual tax return. Section 1231 gains are
those gains arising from the sale or exchange of "Section 1231 Property" which
means (i) depreciable assets used in a trade or business or (2) real properly
used in a trade or business and held for more than one (1) year. Conversely,
Section 1231 losses are those losses arising from the sale or exchange of
Section 1231 Property. If Section 1231 losses exceed Section 1231 gains, such
losses would be treated as ordinary losses by the Unitholders.
To the extent that Section 1231 gains for any taxable year exceed
certain Section 1231 losses for the year, subject to certain exceptions (such as
depreciation recapture, as discussed below), such gains and losses shall be
treated as long-term capital gains. However, Section 1231 gains will be treated
as ordinary income to the extent of prior Section 1231 losses from any source
that were treated as ordinary in any of the previous five years.
Under Sections 1245 and 1250 of the Code, a portion of the amount
allowed as depreciation expense with respect to Section 1231 Property may be
"recaptured" as ordinary income upon sale or other disposition rather than as
long-term capital gains ("Section 1245 gains" and "Section 1250 gains",
respectively). The Partnership does not anticipate that it would have Section
1250 gains as a result of the Sale, and that Section 1245 gains, if any, will be
de minimis.
In general, under Paragraph 11.3.5 of the Partnership Agreement, gains
from the sale of properties are allocated first to Unitholders having negative
capital account balances in proportion to and to the extent of their respective
negative capital account balances prior to making distributions of the sale
proceeds. Thereafter, any gain generally will be allocated among the Unitholders
until the capital account balance of each Unitholder equals the sum of the
Unitholder's "Adjusted Invested Capital," of his or her Unit plus the return
provided for in paragraph 11.2.1 of the Partnership Agreement. For this purpose,
Adjusted Invested Capital equals the Unitholder's original capital contribution
less any distributions (other than distributions of cash from operations) made
to the Unitholder. Thereafter, if any amount of unallocated gain remains, the
remainder shall be allocated pursuant to subparagraphs (i)(c) and (i)(d) of
Paragraph 11.3.5 of the Partnership Agreement. In the event, any portion of the
gain is characterized as ordinary income pursuant to the recapture provisions of
the Code then such income shall be allocated in the same ratio as prior
allocations of loss attributable to depreciation deductions.
In accordance with the Partnership Agreement, distributions upon
termination and dissolution of the Partnership are determined based on positive
capital account balances for the Unitholder. The Partnership expects to
recognize taxable losses of approximately $30,500,000 as a result of the Sale.
The expected distributions as a result of the Sale and Liquidation are
anticipated to be approximately $340 per Unit.
Taxation of Liquidation
After allocating income or loss to the Unitholders, with the
concomitant tax basis adjustments, the distribution
16
<PAGE>
of proceeds from the Sale and Liquidation will reduce each Unitholder's federal
income tax basis in his or her Unit. To the extent that the amount of the
distribution is in excess of that basis, such excess will be taxed as a
long-term or short-term capital gain depending on a Unitholder's holding period.
If upon the subsequent termination of the Partnership a Unitholder has a basis
remaining for his or her Unit, the amount of such remaining basis will give
rise, in the year of the termination, to a long-term or short-term capital loss,
depending on the Unitholder's holding period.
Capital Gains
Pursuant to the Taxpayer Relief Act of 1997 net long-term capital gains
of individuals, trusts and estates will be taxed at a maximum rate of 20%, while
ordinary income (such as Section 1245 gain or Section 1250 gain) will be taxed
at a maximum rate of up to 39.6%. Long-term capital gain is defined as the gain
realized from the disposition of a capital asset that was held for at least
eighteen (18) months. The amount of net capital loss that can be utilized to
offset income will be limited to the sum of net capital gains from other sources
recognized by the Unitholder during the tax year, plus $3,000 ($1,500 in the
case of a married individual filing a separate return). The excess amount of
such net long-term capital loss may be carried forward and utilized in
subsequent years subject to the same limitations.
Passive Loss Limitations
Unitholders who are individuals, trusts, estates, or personal service
corporations are subject to the passive activity loss limitations rules. A
Unitholder's allocable share of Partnership income or loss is treated as derived
from a passive activity. A Unitholder's allocable share of any Partnership gain
realized on the Sale will be characterized as passive activity income. Such
passive activity income may be offset by passive activity losses from other
passive activity investments. Moreover, because the Sale and Liquidation will
terminate the Unitholder's interest in the passive activity, a Unitholder's
allocable share of any Partnership loss realized on the sale of its investments,
or loss realized by the Unitholder upon liquidation of his or her Units, will
not be subject to the loss limitations.
Certain State Income Tax Considerations
Because each state's tax law varies, it is impossible to predict the
tax consequences to the Unitholders in all the state tax jurisdictions in which
they are already subject to tax. Accordingly, the following is a general summary
of certain common (but not necessarily uniform) principles of state income
taxation. State income tax consequences to each Unitholder will depend upon the
provisions of the state tax laws to which the Unitholder is subject. The
Partnership will generally be treated as engaged in business in each of the
states in which the Properties are located, and the Unitholders would generally
be treated as doing business in such states and therefore subject to tax in such
state. Most states modify or adjust the taxpayer's federal taxable income to
arrive at the amount of income potentially subject to state tax. Resident
individuals generally pay state tax on 100% of such state-modified income, while
corporations and other taxpayers generally pay state tax only on that portion of
state-modified income assigned to the taxing state under the state's own
apportionment and allocation rules.
Tax Conclusion
The discussion set forth above is only a summary of the material
federal income tax consequences to the Unitholders from the Sale of the
Properties and of certain state income tax considerations. It does not address
all potential tax consequences that may be applicable to a Unitholder and may
not be applicable to certain categories of Unitholders, such as non-United
States persons, corporations, insurance companies, subchapter S corporations,
partnerships, tax-exempt entities or financial institutions. It also does not
address the state, local or foreign tax consequences of the transactions.
ACCORDINGLY, UNITHOLDERS SHOULD CONSULT THEIR OWN TAX ADVISORS REGARDING THE
SPECIFIC INCOME TAX CONSEQUENCES OF THE SALE AND LIQUIDATION TO THEM, INCLUDING
THE APPLICABILITY AND EFFECT OF FEDERAL, STATE, LOCAL AND FOREIGN TAX LAWS.
<TABLE>
SELECTED FINANCIAL DATA
(in thousands except for per Unit data)
The following selected historical financial data for the Partnership
for each of the years in the five year period ended December 31, 1996, have been
derived from the Partnership's financial statements, which have been audited by
17
<PAGE>
Arthur Anderson LLP, and Price Waterhouse independent accountants. The data for
the quarter ended June 30, 1997, and June 30, 1996, have been derived from
unaudited financial statements appearing in the Partnership's 10-Q, and which,
in the opinion of the General Partner, includes all adjustments, consisting only
of normal adjustments, necessary for the fair statement of the results for the
unaudited periods. The selected financial data are qualified in their entirety
by and should be read in conjunction with the Partnership's financial statements
and related notes appearing in the Partnership's 10-K, and in the Partnership's
10-Q.
<CAPTION>
For the For the one
Form the six months year ended month ended
Ended June 30, Dec. 31, Dec. 31, For the years ended October 31,
1997 1996 1996 1995 1995 1994 1993 1992
---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Rental Income $ 3,516 $ 3,438 $ 6,969 $ 461 $ 6,200 $ 6,023 $ 5,949 $ 5,629
Gain on sale of $ -- $ -- $ -- $ -- $ -- $ (391) $ 39 $ --
real estate
Provision for
impairment $ -- $ -- $ -- $ -- $(14,760) $ (2,965) $ -- $ (4,000)
of real estate
investments
Net loss $ (396) $ (867) $ (1,307) $ (199) $(16,148) $ (5,558) $ (1,934) $ (5,131)
Net loss Allocable
to Limited $ (396) $ (867) $ (1,294) $ (197) $(15,986) $ (5,503) $ (1,916) $ (5,080)
Partners
Net loss per Unit $ (3.93) $ (8.60) $ (12.97) $ (1.97) $(160.18) $ (55.11) $ (19.18) $ (50.81)
Total assets $ 53,750 $ 56,200 $ 54,193 $ 50,175 $ 51,347 $ 64,771 $ 69,548 $ 71,872
Long-term $ 13,766 $ 15,416 $ 13,845 $ 8,615 $ 8,621 $ 6,209 $ 5,933 $ 5,970
obligations
Cash distribution $ -- $ -- $ -- $ -- $ -- $ -- $ -- $ --
per Unit
</TABLE>
VOTING SECURITIES AND PRINCIPAL HOLDERS THEREOF
Outstanding Voting Securities; Record Date
As of the Record Date, there were 99,765 Units outstanding, which
represent all of the voting securities of the Partnership. Each Unit is entitled
to one vote. Only Unitholders of record as of the Record Date, will be entitled
to notice of and to execute and deliver a Consent Form.
Security Ownership of Certain
Beneficial Owners and Management
The following table sets forth, as of the Record Date, the beneficial
ownership of Units of the Partnership held by Daniel L. Stephenson, the
individual general partner and the sole shareholder, director and officer of
Rancon Financial Corporation.
Units
Beneficially Percent
Name and Address Owned of Class
---------------- ----- --------
Daniel L. Stephenson (IRA) 3 *
Daniel L. Stephenson 100 *
Family Trust
27740 Jefferson Avenue
Temecula, CA 92590
*Less than 1%.
18
<PAGE>
There are no Unitholders holding five percent (5%) or more of the Partnership's
issued and outstanding Units.
MARKET FOR UNITS; DISTRIBUTIONS
There is no established public trading market for the Units.
The Partnership has not declared or paid any cash distributions to Unitholders
since 1991. See "LIQUIDATION OF THE PARTNERSHIP; DISTRIBUTIONS OF PROCEEDS."
OTHER MATTERS
There are no other matters other than as set forth in this Statement
for which Consent Forms are being solicited.
INCORPORATION BY REFERENCE
The following documents, which have been previously filed by the
Partnership with the Securities and Exchange Commission, are hereby incorporated
herein by reference:
(1) The Partnership's 1996 10-K;
(2) The information set forth in Part 1 of the Partnership's Quarterly
Report on Form 10-Q for the quarter ended June 30, 1997; and
(3) All other reports filed pursuant to Sections 13(a) or 15(d) of the
Securities Exchange Act of 1934, as amended, since the end of the fiscal year
covered by the Annual Report referred to in (1) above.
Pursuant to the regulations of the Securities and Exchange Commission, the
Partnership will provide to each Unitholder of record on the Record Date,
without charge and upon written or oral request of such person, copies all
reports (excluding exhibits) filed pursuant to Sections 13(a) or 15(d) of the
Securities Exchange Act of 1934, as amended, since the end of the fiscal year
covered by the Annual Report in (1) above.
A copy of the Partnership's 10-K, and a copy of the Partnership's Quarterly
Report on Form 10-Q for the quarter ended June 30, 1997, are being sent to
Unitholders concurrently with this Statement.
Rancon Realty Fund V,
a California limited partnership
Daniel L. Stephenson,
General Partner and
Chief Executive Officer of
Rancon Financial Corporation,
General Partner
October 17, 1997
19
<PAGE>
RANCON REALTY FUND IV,
a California Limited Partnership
CONSENT FORM REGARDING SALE OF ASSETS,
TRANSFER AND LIQUIDATION
The undersigned, a holder of units of limited partnership interests
("Units") (as set forth below) in Rancon Realty Fund IV, a California limited
partnership (the "Partnership"), hereby
[ ] CONSENTS [ ] DOES NOT CONSENT [ ] ABSTAINS
(i) to the sale of all of the real estate assets of the Partnership
(the "Sale") pursuant to the Purchase Agreement dated as of September 30, 1997,
between the Partnership, and Glenborough Realty Trust Incorporated and
Glenborough Properties, L.P. (the "Purchase Agreement"), (ii) the transfer of
the General Partner's interest in the Partnership to Glenborough Properties,
L.P., and (iii) the dissolution and liquidation of the Partnership (the
"Liquidation") as described in the Partnership's Consent Solicitation Statement
dated October 17, 1997, (the "Solicitation Statement"). The Units represented by
this Consent will be voted in accordance with the election specified by the
holder named below. If no election is specified, any otherwise properly
completed and signed Consent Form will be deemed to be a consent to each of the
Sale, Transfer and the Liquidation. By execution hereof, the undersigned
acknowledges receipt of the Solicitation Statement.
This Consent is proposed and solicited by the General Partner on behalf
of the Partnership. The Partnership reserves the right to waive any conditions
to, or modify the terms of, the Solicitation (as defined in the Solicitation
Statement). A Consent Form given, if effective, will be binding upon the holder
of the Units who gives such Consent Form and upon any subsequent transferees of
such Units, subject only to revocation by the delivery of a written notice of
revocation by the Unitholder, executed and filed in the manner and within the
time period described in the Solicitation Statement. In order to count, this
Consent Form must be received by the Partnership prior to 5:00 P.M., Pacific
Time, on November 21, 1997.
This fully completed and executed consent form should be sent by mail
in the self-addressed, postage-paid envelope enclosed for that purpose, or by
overnight courier, or by facsimile, to the Partnership, as follows:
If delivered by mail or by courier, to: If delivered by facsimile, to:
The Arlen Group The Arlen Group
1650 Hotel Circle North, Suite 200 Facsimile Number: (619) 686-2056
San Diego, California 92108 Telephone Number: (800) 891-4105
Please sign your name below exactly in the same manner as the name(s)
in which ownership of the Units is registered. When Units are held by two or
more joint holders, all such holders should sign. When signing as
attorney-in-fact, executor, administrator, trustee or guardian, please give full
title as such. If a corporation, please sign in full corporate name by the
President or other authorized officer. If a partnership, please sign in
partnership name by an authorized person.
Date:___________________________________________, 1997
Signature__________________________________________________________________
Signature if held jointly__________________________________________________
Address____________________________________________________________________
City/State/Zip_____________________________________________________________
Number of Units_________________________________
20
<PAGE>
EXHIBIT A
- --------------------------------------------------------------------------------
1129 Broad Street
ROBERT A STANGER & CO., INC Shrewsbury, NJ 07702-4314
FINANCIAL AND MANAGEMENT CONSULTANTS (908) 389-3600
FAX: (908) 389-1751
(908) 544-0779
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
July 21, 1997
Rancon Realty Fund IV
27740 Jefferson Avenue, Suite 200
Temecula, CA 92596
Gentlemen:
You have engaged Robert A. Stanger & Co., Inc. ("Stanger") to estimate the
market value of the real properties (the "Property") owned by Rancon Realty Fund
V (hereinafter the "Partnership"). Such appraisal reflects the estimated market
value of the leased fee interests or, where appropriate, fee simple interests in
the properties (the "Portfolio Valuation") as of June 30, 1997.
This report is prepared in accordance with an agreement between Robert A.
Stanger & Co., Inc. and the Partnership, dated June 5, 1997. Pursuant to the
agreement, Stanger has been engaged to perform the appraisal on a limited scope
basis in conformity with the departure provisions of the Uniform Standards of
Professional Appraisal Practice of the Appraisal Institute, relying upon the
Income Approach and Sales Comparison Approach to value for income-producing
properties and the Sales Comparison Approach to Value for land assets. We have
been engaged to deliver to the Partnership a master limited summary appraisal
report for the Portfolio.
Our valuation has been based in part upon information supplied to us by
Glenborough Realty Trust ("Glenborough"), as manager of the Properties, and the
Partnerships including but not limited to: rent rolls, building reports; lease
information; financial schedules of current lease rates, income, expenses, cash
flow and related financial information; property descriptive information; prior
appraisals; and, where appropriate, proposed sales terms, sales agreements and
supporting documentation. We have also interviewed relevant property management
personnel. We have relied upon such information and have assumed that the
information provided by Glenborough and the Partnership is accurate and
complete. We have not attempted to independently verify such information.
We are advised by the Partnership that the purpose of the appraisal is to
estimate the value of the leased fee interests or, where appropriate, fee simple
interests in the Partnership's properties under present market conditions, and
that the Portfolio Valuation will be used in connection with a proposed sale of
such Properties to Glenborough (the "Transaction"). Stanger understands that the
Portfolio Valuation may be reviewed and utilized in connection with the
Exhibit A-1
<PAGE>
ROBERT A. STANGER & CO. INC.
Transaction and Stanger agrees to the use of the appraisal for this purpose
subject to the terms and conditions of the agreements related thereto.
For these purposes, this master limited summary appraisal report was
prepared stating our opinion as to the market value of the Properties as of June
30, 1997. This report may be summarized and referenced in the proxy statement
for the Partnership relating to the Transaction, subject to prior review by
Stanger. However, the attached summary appraisal report should be reviewed in
its entirety and is subject to the assumptions and limiting conditions contained
herein. Background information and analysis upon which value conclusions are
based has been retained in our files.
Our review was undertaken solely for the purpose of providing an opinion of
value, and we make no representation as to the adequacy of such review for any
other purpose. Our opinion is expressed with respect to the total value of the
Properties, in which the Partnership has an interest and not with respect to
joint venture participation or to limited partners' allocations. Stanger has no
present or contemplated future interest in the Properties or the Partnership.
The appraisal is only an estimate of the aggregate market value of the
leased fee interests or, where appropriate, fee simple interests in each
Property as of the date of valuation and should not be relied upon as being the
equivalent of the price that would necessarily be received in the event of a
sale or other disposition of each Property. Changes in corporate financing rates
generally, changes in individual tenant creditworthiness, changes in tenant
motivation with respect to the exercise of renewal options, or changes in real
estate property markets may result in higher or lower values of real property.
The use of other valuation methodologies might produce a higher or lower value.
Our opinion is subject to the assumptions and limiting conditions set forth
herein. We have used methods and assumptions deemed appropriate in our
professional judgment; however, future events may demonstrate that the
assumptions were incorrect or that other, different methods or assumptions may
have been more appropriate.
This summary appraisal report provides our value conclusion with respect to
each Property, definitions of value, and discussions of the valuation
methodology employed, assumptions, and limiting conditions.
Sincerely,
/s/Robert A. Stanger & Co., Inc.
--------------------------------
Robert A. Stanger & Co., Inc.
Shrewsbury, New Jersey
Exhibit A-2
<PAGE>
ROBERT A. STANGER & CO. INC.
IDENTIFICATION OF SUBJECT PORTFOLIO
The subject of this appraisal is the real property portfolio in which the
Partnership owns leased fee or fee simple interests. The Portfolio is comprised
of twenty-two properties, including office, research and development,
industrial, health club, restaurant, and land assets. (A description of each of
the Properties in the Portfolio is provided in the "Portfolio Information"
section of this report.)
PURPOSE OF APPRAISAL
The purpose of this appraisal is to estimate the market value of the
leased fee or fee simple interests in the Properties under market conditions as
of June 30, 1997.
FUNCTION OF APPRAISAL
The function of this appraisal is to provide a current estimate of market
value of the Properties for use solely by the Partnership in connection with the
proposed sale of the Properties to Glenborough Realty Trust or an affiliate
thereof ("Glenborough").
SCOPE OF APPRAISAL
The Portfolio Valuation has been prepared on a limited scope basis in
conformity with the departure provisions of the Uniform Standards of
Professional Appraisal Practice of the Appraisal Institute, in accordance with
agreements between Robert A. Stanger & Co., Inc. and the Partnership, dated June
5, 1997. Pursuant to the agreements, Stanger has relied upon the income approach
and sales comparison approach to value for the income-producing properties and
the sales comparison approach to value for the land assets and did not employ
the "cost" approach (as described below).
In estimating the value of a property, appraisers typically consider three
approaches to value: the cost approach, the market data or sales comparison
approach, and the income approach. The value estimate by the cost approach
incorporates separate estimates of the value of the unimproved site under its
highest and best use and the value of the improvements less observed accrued
depreciation resulting from physical wear and tear and functional and/or
economic obsolescence. The market data or sales comparison approach involves a
comparative analysis of the subject property with other similar properties that
have sold recently or that are currently offered for sale in the market. The
income approach involves an economic analysis of the property based on its
potential to provide future net annual income. For this purpose, a discounted
cash flow analysis ("DCF") is commonly utilized. The DCF method ascribes a
present value to the future cash flows associated with operating the property
and the ultimate reversion value of the property, based upon a discount rate
commensurate with the risks inherent
Exhibit A-3
<PAGE>
ROBERT A. STANGER & CO. INC.
in ownership of the property and with rates of return offered by alternative
investment opportunities.
Pursuant to the terms of our engagement, the Portfolio Valuations were
performed using the income approach and sales comparison approach for
income-producing properties and the sales comparison approach for land
properties. Since a primary buyer group for the income-producing properties of
the type appraised herein is investors, the income approach was deemed an
appropriate valuation methodology. Further, given the primary criteria used by
buyers of income-producing properties of the type appraised herein, the cost
approach was considered less reliable than the income approach. The sales
comparison approach was considered for all Properties valued herein as there was
sufficient reliable data involving comparable properties. In addition, unless
otherwise noted in the "Portfolio Information" section of this report, the
income-producing properties have been valued utilizing a discounted cash flow
analysis. Changes in corporate financing rates generally, in individual tenant
creditworthiness, in tenant motivation with respect to the exercise of renewal
options, or in real estate property markets may result in higher or lower values
of real property. The use of other valuation methodologies might produce a
higher or lower value. Our opinion is subject to the assumptions and limiting
conditions set forth herein.
DATE OF VALUATION
The date of valuation for the Properties is June 30, 1997.
Exhibit A-4
<PAGE>
ROBERT A. STANGER & CO. INC.
VALUE DEFINITION
Market value, as defined by the Appraisal Institute, is the most probable
price as of a specified date, in cash, in terms equivalent to cash, or in other
precisely revealed terms, for which the specified property rights should sell
after reasonable exposure in a competitive market under all conditions requisite
to a fair sale, with the buyer and seller each acting prudently, knowledgeably
and for self-interest, and assuming that neither is under undue duress.
Implicit in this definition is the consummation of a sale as of a
specified date and the passing of title from seller to buyer under conditions
whereby:
(a) buyer and seller are typically motivated;
(b) both parties are well informed or well advised, and each acts in a manner
he considers in his own best interest;
(c) a reasonable time is allowed for exposure in the open market;
(d) payment is made in terms of cash; and
(e) the price represents the normal consideration for the property sold
unaffected by special sales concessions granted by anyone associated with
the sale.
The property rights appraised in this report are leased fee interests or
fee simple interests. Leased fee interest is defined as an ownership interest
held by a landlord with the right to use and occupancy conveyed by lease to
others, and usually consists of the right to receive rent and the right to
repossession at the termination of the lease. Fee simple interest is defined as
absolute ownership unencumbered by any other interest or estate, subject only to
the limitations of eminent domain, escheat, police power, and taxation.
The appraisal includes the value of land, land improvements such as
paving, fencing, on-site sewer and water lines, and the buildings as of June 30,
1997. It does not include supplies, materials on hand, inventories, furniture,
equipment or other personal property, company records, or current or intangible
assets that may exist. It pertains only to items considered as real estate.
Exhibit A-5
<PAGE>
ROBERT A. STANGER & CO. INC.
VALUATION METHODOLOGY
Pursuant to the terms of this engagement, Stanger has estimated the value
of the leased fee or fee simple interests in the income producing properties
based on the income approach to valuation. The income approach is based on the
assumption that the value of a property or portfolio of properties can be
represented by the present worth of future cash flows. In each income-producing
property valuation, a discounted cash flow ("DCF") analysis is used to determine
the value of the leased fee interests in the portfolio of properties. The
indicated value by the income approach represents the amount an investor would
probably pay for the expectation of receiving the net cash flow from the
Property during the holding period (usually ten years, unless, due to the terms
of net leases, a longer term was deemed appropriate) and the proceeds from the
ultimate sale of the properties.
Unless otherwise noted in the "Portfolio Information" section, in applying
the DCF analysis, we utilized pro forma statements of operations for each of the
income-producing properties prepared in accordance with the leases which
currently encumber such properties. The income-producing properties are assumed
to be sold at the end of a ten year holding period or, for certain net lease
properties, after the expiration of the initial lease term.
The reversion value of the income-producing properties which can be realized
upon sale is calculated based on the current economic rental rate and expenses
deemed reasonable for each income-producing property, escalated at a rate
indicative of current expectations in the marketplace for the property. The
market-rate net operating income of the properties at the year of sale is then
capitalized at an appropriate rate reflecting the age, and anticipated
functional and economic obsolescence and competitive position of the properties
to determine the reversion value. Net proceeds to equity owners were determined
by deducting appropriate costs of sale.
Finally, the discounted present value of the equity cash flow stream from
operations and net proceeds from sale were summed to arrive at a total estimated
value for each income-producing Property pursuant to the income approach.
For each income-producing property and each land property, the Sales
Comparison Approach was utilized. The Sales Comparison Approach utilizes indices
of value derived from actual or proposed sales of comparable properties to
estimate the value of a Property. For income-producing properties, the unit of
comparison utilized is price per net rentable square foot of building space. For
land assets, the unit of comparison is price per square foot of land and
buildable square footage of property.
The following describes more fully the steps involved in the valuation
methodology.
Exhibit A-6
<PAGE>
ROBERT A. STANGER & CO. INC.
Site Inspections & Data Gathering
In conducting the Valuations, representatives of Stanger performed site
inspections for each of the properties during June, 1997. In the course of these
site visits, the physical facilities of each property were inspected, current
market rental rates for competing income-producing properties were obtained,
information on the local market was gathered, and where appropriate, the
facilities manager was interviewed concerning the income-producing property.
Information gathered during the site inspection was supplemented by a review of
published information concerning economic, demographic and real estate trends in
local, regional and national markets.
In conducting the valuations, Stanger also interviewed and relied upon
Glenborough management personnel to obtain information relating to the condition
of each property, including any deferred maintenance, capital budgets,
environmental conditions, status of on-going or newly planned property
additions, reconfigurations, improvements, and other factors affecting the
physical condition of the property improvements.
Stanger also interviewed Glenborough's management personnel regarding
competitive conditions in property markets, trends affecting the properties,
certain lease and financing factors, and historical and anticipated lease
revenues and expenses. Stanger also reviewed historical operating statements for
each of the properties.
In addition, Stanger reviewed the acquisition criteria and projection
parameters used by real estate investors. Such reviews included a search of real
estate data sources and publications concerning real estate buyer's criteria,
interviews with sources deemed appropriate in certain local markets (including
local appraisers and real estate brokers) to confirm acquisition criteria used
and to investigate the interaction of such factors as required equity rates of
return, initial equity yield requirements, and property type preferences.
Stanger also compiled data on actual transactions involving similar
properties, from which acquisition criteria and parameters were extracted.
Information on actual property transactions was also obtained during the site
inspections and from direct telephonic interviews of local appraisers and real
estate brokers.
Rent Roll Review
Rent Rolls were provided by Glenborough and the Partnership and were relied
upon in the preparation of operational projections for each income-producing
property (as discussed below). Stanger reviewed such rent rolls and interviewed
Glenborough management personnel to ascertain any renegotiated terms and
modifications and the status of various options and other factors. Provisions
considered and incorporated into the operational projections included current
lease rates, escalation factors, renewal options and terms.
Exhibit A-7
<PAGE>
ROBERT A. STANGER & Co. INC.
Market Rental Rates
In the course of conducting the site inspections, representatives of
Stanger collected available data on rental rates at competing properties in each
local or regional market. Data collected at the time of the site inspection was
supplemented, where appropriate, with published data and direct telephonic
surveys of local leasing agents.
Highest and Best Use - Income-Producing Property
Highest and best use is defined as:
The reasonably probable and legal use of vacant land or an improved
property, which is physically possible, appropriately supported,
financially feasible, and that results in the highest value. The four
criteria the highest and best use must meet are legal permissibility,
physical possibility, financial feasibility, and maximum profitability.
In conformity with the provisions of its engagement, Stanger evaluated
each improved site's highest and best use as currently improved. Based upon the
review of each of the sites, the highest and best use of each of the properties
remains as currently improved, unless otherwise noted in the "Portfolio
Information" section herein.
Operational Projections
Based on the lease and market rent analysis, rental revenue projections
were developed for each income-producing property in the Portfolio based on the
terms of existing leases. Lease renewals were analyzed based on escalated
current market rental rates. The annual market rent escalation rate utilized was
based on local market conditions in the area of each property, considering such
factors as inflation rates, current supply and demand and the projected holding
period of the property.
Where appropriate, vacancy and collection losses were factored into the
analysis. A property management fee deemed appropriate for retaining a
professional real estate organization to manage the specific type of property
was included in the projections. Expenses relating solely to partnership
investor reporting and accounting were excluded.
Expenses were analyzed based upon a review of actual expenses for 1995 and
1996. Stanger also reviewed 1997 budgeted expenses and published data on
expenses for comparable properties. Finally, where a capital expense reserve,
tenant improvements, leasing commissions, deferred maintenance or extraordinary
capital expenditures were required for an individual income-producing property,
the cash flows and value were adjusted accordingly.
Exhibit A-8
<PAGE>
ROBERT A. STANGER & CO. INC.
Reversion
In the course of performing the appraisals, Stanger reviewed available
sales transactions of similar investment properties as well as market data
relating to overall capitalization rates for similar properties in the general
location of each Property. As described above, acquisition criteria used by
buyers of similar properties were also reviewed. Based upon these reviews and
considering such factors as age, quality, anticipated functional and economic
obsolescence and competitive position of the property, the projected date of
sale, and buyers' acquisition criteria, appropriate terminal capitalization
rates were selected.
Based upon current market rate rents, estimated escalation factors, and
the estimated vacancy rate and other property operating expenses incurred by the
owner, net operating income during the eleventh year was estimated. The
resulting net operating income estimate was capitalized to determine residual
value.
Selection of Discount Rates
The selection of the appropriate discount rate for determining the present
value of future operating cash flow streams from each income-producing property
was based primarily upon such factors as the acquisition criteria and the
projection parameters in use in the marketplace, creditworthiness of tenants,
and the general interest rate environment.
With respect to properties subject to a long term net lease, Stanger
conducted an analytical review of the financial statements of the tenants under
the subject leases. In the course of this review, Stanger analyzed the most
recent available financial statements of the tenants, focusing primarily on the
balance sheet, profit and loss statement, cash flow statement and management's
discussion of capital resources and liquidity. Various measures of financial
strength were derived and reviewed to evaluate the tenant's ability to fulfill
the lease obligation. These factors encompassed size, leverage of capital
structure, profitability, cash flow, debt service and fixed charges coverage and
liquidity. Stanger also investigated each tenant's corporate debt ratings, if
any, issued by Standard & Poors and/or Moody's, and financial strength ratings
assigned by Value Line.
Stanger also reviewed the interest rate environment as of the date of the
Portfolio Valuation, including long-term corporate bond yields. In particular,
data sources were screened to determine the yield-to-maturity among corporate
bonds based on various maturities and credit ratings. This analysis was
conducted to establish a base discount rate, determined by the marketplace, to
reflect the risk of holding corporate debt with credit quality commensurate with
the tenant's creditworthiness and a term approximately equal to the remaining
lease term for each property. Discount premiums deemed appropriate were then
added to the base discount rate to reflect the risks associated with real
estate.
Exhibit A-9
<PAGE>
ROBERT A. STANGER & CO. INC.
With respect to properties which were not subject to long term net leases,
forecasted cash flows and residual value estimates were discounted to present
value at various internal rates of return (discount rates) required by investors
at mid-year 1997 for similar quality real property. Several national appraisal
firms survey real estate investors to determine their investment objectives
including Korpacz & Associates ("Korpacz"), Real Estate Research Corporation
("RERC") and Cushman & Wakefield Inc. ("C&W"). A summary of the identified
average rate of return and residual capitalization rate on net operating income
for each property type may be summarized as follows:
Residual
Discount Capitalization
Rate Rate
---- ----
Shopping Center
Korpacz 11.53% 9.92%
RERC 11.40% 9.80%
C&W 12.00% 10.20%
----- -----
Average Rounded 11.75% 10.00%
===== =====
Suburban Office
Korpacz 11.48% 9.60%
RERC 11.50% 9.40%
C&W 11.40% 9.60%
----- -----
Average Rounded 11.50% 9.50%
===== =====
Industrial
Korpacz 11.14% 9.37%
RERC 11.20% 9.40%
C&W 10.95% 9.60%
----- -----
Average Rounded 11.00% 9.50%
===== =====
Apartment
Korpacz 11.23% 9.32%
RERC 11.10% 9.30%
C&W 11.45% 9.30%
----- -----
Average Rounded 11.25% 9.25%
===== =====
The above discount rates and residual capitalization rates were adjusted
as appropriate for a given property.
Exhibit A-10
<PAGE>
ROBERT A. STANGER & CO. INC.
Sales Comparison Approach - Income Producing Property
Based upon actual and proposed sales transactions identified in the
respective Properties' region, indices of value for the Properties were derived
considering the respective Properties' age, location and other factors. The
indices of value included price per square foot. The indices of value were
applied to the Properties to estimate value in accordance with the Sales
Comparison Method. Price per square foot as estimated by reference to comparable
sales transactions was multiplied by the rentable square footage of the
respective Properties to derive an estimate of value.
VALUATION METHODOLOGY - UNIMPROVED LAND
Since certain of the Portfolio Properties are unimproved land ("Land"),
Stanger has estimated the value of the fee simple interest in the Land based on
the Sales Comparison Approach, and has not utilized the Income or Cost
Approaches to valuation.
The Sales Comparison Approach utilizes indices of value derived from
actual or proposed sales of comparable properties to estimate the value of the
subject Land. For land valuations, a unit of comparison typically analyzed for
similar properties, price per square foot of land and buildable square footage
of potential improvements, was utilized in applying the Sales Comparison
Approach to the subject Property.
The following describes more fully the steps involved in the valuation of
the subject Land.
Site Inspections & Data Gathering
In conducting the property valuation, representatives of Stanger performed
site inspection of the Land Properties in June, 1997. In the course of each Land
Property site visit, the information on the local market was gathered.
Information gathered during the site inspection was supplemented by a review of
published information concerning economic, demographic and real estate trends in
the subjects' market.
Sales Comparison Approach - Unimproved Land
Based upon actual and proposed land sales transactions identified in the
respective Land's region, indices of value for the Land were derived considering
the respective location and other factors. The indices of value included price
per square foot of land and price per buildable square footage of improvements
which were applied to the separate Land parcels to estimate value in accordance
with the Sales Comparison Method. Price per square foot as estimated by
reference to comparable sales transactions was multiplied by the total square
footage and buildable square footage of the respective Land parcels to derive an
estimate of value for the unimproved Land.
Exhibit A-11
<PAGE>
ROBERT A. STANGER & CO. INC.
PORTFOLIO VALUE CONCLUSION
Based upon the review as described above, it is our opinion that the market
value of the leased fee interests or fee simple interests in the Properties as
of June 30, 1997 is:
Property Name Value
------------- -----
Bally's Total Fitness 3,200,000
Carnegie Business Center II 1,800,000
Lakeside Tower 8,800,000
One Carnegie Plaza 5,500,000
One Parkside 5,200,000
Outback Restaurant 840,000
Rancon Center Ontario 4,700,000
Santa Fe Railway Building 2,500,000
Two Carnegie Plaza 4,000,000
Three Carnegie 460,000
East Lake Office Pad 800,000
West Lake Office Pad 800,000
East Lake Restaurant Pad 270,000
Brier Business Center II 215,000
Harriman Plaza 170,000
South Palm Court Pad 3 180,000
Two Parkside 285,000
West Lakeside Tower 280,000
East Lakeside Tower 280,000
Perris 83 (Nuevo) 145,000
Perris 24 (Ontario) 775,000
Ontario 3,565,000
-----------
TOTAL $44,765,000
===========
Exhibit A-12
<PAGE>
<TABLE>
ROBERT A. STANGER & CO. INC.
<CAPTION>
PORTFOLIO INFORMATION
Sale
Ownership Final Income Comparison
Property Name/ Property Percent/ Square Value Approach Approach
Address Type Type Footage Conclusion Value Value
------- ---- ---- ------- ---------- ----- -----
<S> <C> <C> <C> <C> <C> <C>
Income Producing
Bally's Total Fitness Retail (1) 25,000 $3,200,000 $3,185,000 $3,175,000
Carnegie Business Center II Office/R&D (1) 50,804 1,800,000 1,835,000 1,829,000
Lakeside Tower Office (1) 112,717 8,800,000 8,812,000 8,792,000
One Carnegie Plaza Office (1) 107,276 5,500,000 5,540,000 5,578,000
One Parkside Office (1) 70,069 5,200,000 5,207,000 5,185,000
Outback Restaurant Retail (1) 6,500 840,000 836,000 839,000
Rancon Center Ontario Office (1) 245,000 4,700,000 4,675,000 4,655,000
Santa Fe Railway Building Office (1) 36,288 2,500,000 2,495,000 2,504,000
Two Carnegie Plaza Office (1) 68,295 4,000,000 4,029,000 4,029,000
Land
Three Carnegie Land (2) 3.48 acres 460,000 N/A 460,000
East Lake Office Pad Land (2) 2.02 acres 800,000 N/A 800,000
West Lake Office Pad Land (2) 2.02 acres 800,000 N/A 800,000
Brier Business Center II Land (2) 5.20 acres 215,000 N/A 215,000
East Lake Restaurant Pad Land (2) .5 acres 270,000 N/A 270,000
Harriman Plaza Land (2) 1.57 acres 170,000 N/A 170,000
South Palm Court Pad 3 Land (2) .58 acres 180,000 N/A 180,000
Two Parkside Land (2) 2.05 acres 285,000 N/A 285,000
West Lakeside Tower Land (2) 2.09 acres 280,000 N/A 280,000
East Lakeside Tower Land (2) 1.66 acres 280,000 N/A 280,000
Perris 83 (Nuevo) Land (2) 60.41 acres 145,000 N/A 145,000
Perris 24 (Ethanac) Land (2) 23.76 acres 775,000 N/A 775,000
Ontario Land (2) 41.02 acres 3,565,000 N/A 3,565,000
------------- ------------
Total Square Footage 721.949 44,765,000
============= ============
Total Land 146.26 acres
============
<FN>
(1) 100% Leased Fee interest.
(2) 100% Fee Simple interest.
</FN>
</TABLE>
Exhibit A-13
<PAGE>
ROBERT A. STANGER & Co. INC.
ASSUMPTIONS AND LIMITING CONDITIONS
This appraisal report is subject to the assumptions and limiting
conditions as set forth below.
1. No responsibility is assumed for matters of a legal nature affecting the
portfolio properties or the titles thereto. Titles to the properties are assumed
to be good and marketable and the properties are assumed free and clear of all
liens unless otherwise stated.
2. The Appraisal assumes (a) responsible ownership and competent management of
the properties; (b) there are no hidden or unapparent conditions of the
properties' subsoil or structures that render the properties more or less
valuable (no responsibility is assumed for such conditions or for arranging for
engineering studies that may be required to discover them); (c) full compliance
with all applicable federal, state and local zoning, access and environmental
regulations and laws, unless noncompliance is stated, defined and considered in
the Appraisal; and (d) all required licenses, certificates of occupancy and
other governmental consents have been or can be obtained and renewed for any use
on which the value estimate contained in the Appraisal is based.
3. The Appraiser shall not be required to give testimony or appear in court
because of having made the appraisal with reference to the portfolio in
question, unless arrangements have been previously made therefore.
4. The information contained in the appraisal or upon which the appraisal is
based has been provided by or gathered from sources assumed to be reliable and
accurate. Some of such information has been provided by the owner or manager of
the properties. The Appraiser shall not be responsible for the accuracy or
completeness of such information, including the correctness of estimates,
opinions, dimensions, exhibits and other factual matters. The Appraisal and the
opinion of value stated herein are as of the date stated in the appraisal.
Changes since that date in portfolio, external and market factors can
significantly affect property value.
5. Disclosure of the contents of the appraisal report is governed by the Bylaws
and Regulations of the professional appraisal organization with which the
Appraiser is affiliated.
6. Neither all, nor any part of the content of the report, or copy thereof
(including conclusions as to the portfolios' values, the identity of the
Appraiser, professional designations, reference to any professional appraisal
organizations, or the firm with which the Appraiser is connected) shall be used
for any purpose by anyone other than the client specified in the report,
including, but not limited to, the mortgagee or its successors and assignees,
mortgage insurers, consultants, professional appraisal organizations, any state
or federally approved financial institution, any department, agency or
instrumentality without the previous written consent of the Appraiser; nor shall
it be conveyed by anyone to the public through advertising, public relations,
news sales or other media, without the written consent and approval of the
Appraiser.
Exhibit A-14
<PAGE>
ROBERT A. STANGER & CO. INC.
ASSUMPTIONS AND LIMITING CONDITIONS (Continued)
7. On all appraisals subject to completion, repairs or alterations, the
appraisal report and value conclusions are contingent upon completion of the
improvements in a workmanlike manner.
8. The physical condition of the improvements considered by the appraisal is
based on visual inspection by the Appraiser or other representatives of Stanger
and on representations by the owner. Stanger assumes no responsibility for the
soundness of structural members or for the condition of mechanical equipment,
plumbing or electrical components. The Appraiser has made no survey of the
Properties.
9. The projections of income and expenses and the valuation parameters utilized
are not predictions of the future. Rather, they are the Appraiser's best
estimate of current market thinking relating to future income and expenses. The
Appraiser makes no warranty or representations that these projections will
materialize. The real estate market is constantly fluctuating and changing. It
is not the Appraiser's task to predict or in any way warrant the conditions of a
future real estate market; the Appraiser can only reflect what the investment
community, as of the date of the appraisal, envisions for the future in terms of
rental rates, expenses, supply and demand. We have used methods and assumptions
deemed appropriate in our professional judgment; however, future events may
demonstrate that the assumptions were incorrect or that other different methods
or assumptions may have been more appropriate.
10. The Appraisal represents a normal consideration for the Properties sold
unaffected by special terms, services, fees, costs, or credits incurred in the
transaction.
11. Certain land parcels were allocated acreage associated with a common area
parking lot. Such information was provided by the Partnership and Glenborough
and our values herein rely in part on such allocations.
12. Unless otherwise stated in the report, the existence of hazardous materials,
which may or may not be present on the Properties, was not disclosed to the
Appraiser by the owner. The Appraiser has no knowledge of the existence of such
materials on or in the Properties. However, the Appraiser is not qualified to
detect such substances. The presence of substances such as asbestos,
unreaformaldehyde foam insulation, oil spills, or other potentially hazardous
materials may affect the value of the portfolio. The value estimates are
predicated on the assumption that there is no such material on or in the
portfolio properties that would cause a loss of value. No responsibility is
assumed for such conditions, or for any expertise or engineering knowledge
required to discover them. The client is urged to retain an expert in this
field, if desired.
Exhibit A-15
<PAGE>
ROBERT A. STANGER & CO. INC.
ASSUMPTIONS AND LIMITING CONDITIONS (Continued)
13. For purposes of this report, it is assumed that each Property is free of any
negative impact with regard to the Environmental Cleanup Responsibility Act
(ECRA) or any other environmental problems or with respect to non-compliance
with the Americans with Disabilities Act (ADA). No investigation has been made
by the Appraiser with respect to any potential environmental or ADA problems.
Environmental and ADA compliance studies are not within the scope of this
report.
14. Pursuant to the Engagement Agreement, the Portfolio Valuation has been
prepared on a limited summary basis in conformity with the departure provisions
of the Uniform Standards of Professional Appraisal Practice of the Appraisal
Institute, relying solely on the income approach and sales comparison to value
for income-producing properties and the sales comparison approach for land
assets. Further, the engagement calls for delivery of a limited summary
appraisal report in which the content has been limited to that data presented
herein.
15. The Valuation reported herein may not reflect the premium or discount a
potential buyer may assign to an assembled portfolio of properties or to a group
of properties in a particular local market which provides opportunities for
enhanced market presence and penetration. In addition, where properties are
owned jointly with other entities affiliated with the general partner, minority
interest discounts were not applied.
16. The appraisal is solely for the purpose of providing our opinion of the
value of the Portfolio, and we make no representation as to the adequacy of such
a review for any other purpose. The use of other valuation methodologies might
produce a higher or lower value.
Exhibit A-16
<PAGE>
ROBERT A. STANGER & CO. INC.
CERTIFICATION OF APPRAISAL
The undersigned hereby certify that to the best of their knowledge and belief:
1. The statements of fact contained in this report are true and correct.
2. The reported analyses, opinions, and conclusions are limited only by the
reported assumptions and limiting conditions, and are our personal,
unbiased professional analyses, opinions and conclusions.
3. We have no present or prospective interest in the Portfolio that is the
subject of this report, and we have no personal interest or bias with
respect to the parties involved.
4. Our compensation is not contingent upon the reporting of a predetermined
value or direction in value that favors the cause of the client, the amount
of the value estimate, the attainment of a stipulated result, or the
occurrence of a subsequent event. Furthermore, this appraisal assignment
was not based on a requested minimum valuation, a specific valuation or the
approval of a loan.
5. Our analyses, opinions and conclusions were developed, and this summary
appraisal report has been prepared on a limited scope basis, in conformity
with the departure provisions of the Uniform Standards of Professional
Appraisal Practice, as well as the requirements of the Code of Professional
Ethics of the Appraisal Institute.
6. The use of this report is subject to the requirements of the Appraisal
Institute relating to review by its duly authorized representatives.
7. Pursuant to the terms of our engagement, a site inspection of each
Portfolio Property has been performed by representatives of Robert A.
Stanger & Co., Inc. Cornelius J. Guiney, MAI, has not made a personal
inspection of the Portfolio Properties. However, Mr. Guiney has reviewed
all pertinent data and information contained in this report.
8. In addition to the undersigned, representatives of Robert A. Stanger & Co.,
Inc. made contributions to the preparation of the analysis, conclusions and
opinions contained in this appraisal report.
9. The Appraisal Institute conducts a program of continuing education for its
designated members. MAI's who meet the minimum standards of this program
are awarded periodic educational certification. Cornelius J. Guiney, MAI,
is currently certified under this program.
/s/ Cornelius J. Guiney, MAI
-----------------------------
Cornelius J. Guiney, MAI
Exhibit A-17
<PAGE>
EXHIBIT B
- --------------------------------------------------------------------------------
1129 Broad Street
ROBERT A STANGER & CO., INC Shrewsbury, NJ 07702-4314
FINANCIAL AND MANAGEMENT CONSULTANTS (908) 389-3600
FAX: (908) 389-1751
(908) 544-0779
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
September 9, 1997
Rancon Realty Fund V
27740 Jefferson Avenue, Suite 200
Temecula, CA 92590
Gentlemen:
We have been advised by the general partner ("the General Partner") of
Rancon Realty Fund V (the "Partnership") that the Partnership is contemplating a
transaction (the "Transaction") in which Glenborough Realty Trust, Inc. or an
affiliate ("Glenborough") will acquire nine income producing real estate assets
and thirteen land parcels (the "Properties") from the Partnership for an
aggregate purchase price of $44,765,000 (the "Consideration"), payable in cash
upon the closing of the Transaction. We have also been advised that the limited
partners (the "Limited Partners") of the Partnership will be asked to approve
the Transaction pursuant to which they will receive the Consideration.
The General Partner has requested that Robert A. Stanger & Co., Inc.
("Stanger") provide its opinion to the Partnership, as to the fairness, from a
financial point of view to the Limited Partners, of the Consideration to be
received by the Partnership in the Transaction.
Stanger, founded in 1978, has provided information, research, investment
banking and consulting services to clients located throughout the United States,
including major New York Stock Exchange member firms and insurance companies and
over seventy companies engaged in the management and operation of partnerships.
The investment banking activities of Stanger include financial advisory
services, asset and securities valuations, industry and company research and
analysis, litigation support and expert witness services, and due diligence
investigations in connection with both publicly registered and privately placed
securities transactions.
Stanger, as part of its investment banking business, is regularly
engaged in the valuation of businesses and their securities in connection with
mergers, acquisitions, and reorganizations and for estate, tax, corporate and
other purposes. In particular, Stanger's valuation practice principally involves
partnerships, partnership securities and the assets typically owned through
partnerships including, but not limited to, real estate, oil and gas reserves,
cable television systems, and equipment leasing assets.
Exhibit B-1
<PAGE>
ROBERT A. STANGER & CO. INC.
In arriving at the opinion set forth below, we have:
o Reviewed the consent solicitation statement (the "Consent Statement")
relating to the Transaction;
o Reviewed historical operating statements for each income producing property
for the two years ended December 31, 1996 and the six months ended June 30,
1997;
o Reviewed the current rent roll, occupancy report and quoted rents at each
income producing property;
o Conducted a site inspection of each Property;
o Reviewed the most recent property tax assessment for each Property;
o Reviewed the master summary appraisal report prepared by Robert A. Stanger
& Co., Inc., as of June 30, 1997, for the Properties;
o Reviewed the letter of intent between the Partnership and Glenborough;
o Reviewed the operating history and financial statements of the Partnership
for the years ended December 31, 1995 and 1996 as summarized on Forms 10-K
filed with the Securities & Exchange Commission (the "SEC") and for the
quarter ended March 31, 1997 as summarized on Form 10-Q as filed with the
SEC;
o Conducted such other studies, analyses and inquiries as we deemed
appropriate.
In rendering this opinion, we have relied, without independent
verification, on the accuracy and completeness of all financial and other
information contained in the consent statement or that was otherwise publicly
available or furnished or otherwise communicated to us. We have not made an
independent evaluation or appraisal of the non-real estate assets and
liabilities of the Partnership. We have also relied on the assurance of
Glenborough, the Partnership and the General Partners that any financial
projections or pro forma statements or adjustments provided to us were
reasonably prepared or adjusted on bases consistent with actual historical
experience or reflected the best currently available estimates and good faith
judgments; that no material changes have occurred in the value of the
Partnership's real estate portfolio between June 30, 1997 (the date of the
appraisal) and the date of this Opinion; and that Glenborough, the Partnership,
and the General Partners are not aware of any information or facts regarding the
Partnership that would cause the information supplied to us to be incomplete or
misleading in any material respect.
Exhibit B-2
<PAGE>
ROBERT A. STANGER & CO. INC.
We have not been requested to, and therefore did not: (i) select the method
of determining the amount of Consideration offered to the Partnership
(Glenborough and the General Partners initiated and structured the Transaction
and selected the method of determining the amount of Consideration); (ii) make
any recommendation to the Limited Partners, the General Partner or Glenborough
with respect to whether to approve or reject the Transaction; (iii) express an
opinion as to the business decision to affect the Transaction, alternatives to
the Transaction or the tax consequences of the Transaction for Limited Partners
in the Partnership; or (iv) whether or not alternative methods of determining
the Consideration would have also provided fair results or results substantially
similar to that method used. Our opinion is based upon business, economic, real
estate markets, securities markets and other conditions as they existed and
could be evaluated on the date of our analysis. Events occurring after that date
may materially affect the assumptions used in preparing this opinion.
Based upon and subject to the foregoing, it is our opinion that, as of the
date of the information considered in this analysis, the Consideration offered
to the Partnership for its Properties pursuant to the Transaction is fair to the
Limited Partners of the Partnership from a financial point of view.
The preparation of a fairness opinion is a complex process and is not
necessarily susceptible to partial analysis or summary description. Stanger has
advised the Partnership and the General Partner that its entire analysis must be
considered as a whole and that selecting portions of its analyses and the
factors considered by it, without considering all analyses and factors, could
create an incomplete view of the evaluation process underlying this opinion.
Sincerely,
/s/ Robert A. Stanger & Co., Inc.
---------------------------------
Robert A. Stanger & Co., Inc.
Shrewsbury, New Jersey
Exhibit B-3
<PAGE>
APPENDIX A
Financial Report on Form 10-K
for the Year Ended December 31, 1996
Part I
Item 1. Business
Rancon Realty Fund V, a California Limited Partnership, ("the Partnership") was
organized in accordance with the provisions of the California Revised Limited
Partnership Act for the purpose of acquiring, developing, operating and
ultimately selling real property. The Partnership was organized in 1985 and
completed its public offerings of limited partnership units ("Units") in
February, 1989. The general partners of the Partnership are Daniel L. Stephenson
("DLS") and Rancon Financial Corporation ("RFC"). RFC is wholly owned by DLS. At
December 31, 1996, 99,767 Units were outstanding. The Partnership has no
employees.
The Partnership's initial acquisition of property in June, 1985 was for
approximately 76.21 acres of partially developed and unimproved land located in
San Bernardino, California. The property is part of a master-planned development
of 153 acres known as Tri-City Corporate Centre ("Tri-City") and is zoned for
mixed commercial, office, hotel, transportation-related, and light industrial
uses. The balance of Tri-City is owned by Rancon Realty Fund IV ("Fund IV"), a
partnership sponsored by the General Partners of the Partnership. Since the
acquisition of the land, the Partnership has constructed eight projects at
Tri-City consisting of five office projects (one of which has two buildings),
one industrial property (consisting of two buildings), a 25,000 square foot
health club, and a 6,500 square foot restaurant, all of which are more fully
described in Item 2. Fund IV has constructed three office buildings, one
industrial property (consisting of two buildings), a service retail center, and
four buildings in the Promotional Retail Center at Tri-City. Fund IV currently
has under development a 38,600 square foot build-to-suit building.
Subsequent acquisitions have included approximately 56.3 acres of unimproved
land in Ontario, California (known as Rancon Centre Ontario) in May, 1987, a
portion of which has since been developed, approximately 23.8 acres of
unimproved land in Perris, California (known as Perris-Ethanac Road) in March,
1989 and approximately 83 acres of unimproved land in Perris, California (known
as Perris-Nuevo Road) in December, 1989. Each of these properties are further
described in Item 2.
During 1988 and 1990, the Partnership sold approximately 19.2 acres of
undeveloped land at Tri-City. An additional 10,300 square feet of undeveloped
land was sold to Fund IV.
During 1988 and 1989, two buildings totaling 81,000 square feet at Rancon Centre
Ontario were sold. During 1991, the Partnership sold approximately 4.9 acres of
the Perris-Nuevo Road property to Riverside County for construction of the Nuevo
Road freeway interchange and a pump station.
In May, 1996, the Partnership formed Rancon Realty Fund V Tri-City Limited
Partnership, a Delaware limited partnership ("RRF V Tri-City") to satisfy
certain lender requirements for a loan obtained in 1996. This loan is secured by
three properties (see Item 2) which have been contributed to RRF V Tri-City by
the Partnership. The limited partner of RRF V Tri-City is the Partnership and
the general partner is Rancon Realty Fund V, Inc. ("RRF V, Inc."), a corporation
wholly owned by the Partnership. Since the Partnership owns 100% of RRF V, Inc.
and indirectly owns 100% of RRF V Tri-City, the Partnership considers all assets
owned by RRF V, Inc. and RRF V Tri-City to be owned by the Partnership.
Competition Within the Market
Management believes that characteristics influencing the competitiveness of a
real estate project are the geographic location of the property, the
professionalism of the property manager and the maintenance and appearance of
the property, in addition to external factors such as general economic
circumstances, trends, and the existence of new, competing properties in the
vicinity. Additional competitive factors with respect to commercial and
industrial properties are the ease of access to the property, the adequacy of
related facilities, such as parking, and the ability to provide rent concessions
and tenant improvements commensurate with local market conditions. Although
management believes the Partnership properties are competitive with comparable
properties as to those factors within the Partnership's control, over-building
and other external factors could adversely affect the ability of the Partnership
to attract and retain tenants. The marketability of the properties may also be
affected (either positively or negatively) by these factors as well as by
changes in general or local economic conditions,
Appendix A-1
<PAGE>
including prevailing interest rates. Depending on market and economic
conditions, the Partnership may be required to retain ownership of its
properties for periods longer than anticipated, or may need to sell earlier than
anticipated or refinance a property, at a time or under terms and conditions
that are less advantageous than would be the case if unfavorable economic or
market conditions did not exist.
Working Capital
The Partnership's practice is to maintain cash reserves for normal repairs,
replacements, working capital and other contingencies. The Partnership knows of
no statistical information which allows comparison of its cash reserves to those
of its competitors.
Item 2. Properties
Tri-City Corporate Centre
On June 3, 1985, the Partnership acquired 76.21 acres on seven parcels of
partially developed land in Tri-City for a total acquisition price of
$14,118,000. In 1984 and 1985, a total of 73.5 acres within Tri-City was
acquired by Fund IV.
Tri-City is located at the northeastern quadrant of the intersection of
Interstate 10 (San Bernardino Freeway) and Waterman Avenue in the southernmost
part of the City of San Bernardino.
The Partnership has constructed and owns the following eight operating
properties in Tri-City:
Property Type Square Feet
- - ---------------------------- ------------------------------ -----------
One Carnegie Plaza Two, two story garden-style
office buildings 102,693
Two Carnegie Plaza Two story garden-style
office building 68,925
Carnegie Business Center II Two light industrial buildings 50,804
Santa Fe One story office building 36,288
Lakeside Tower Six story office building 112,814
One Parkside Four story office building 70,069
Bally's Health Club Health club facility 25,000
Outback Steakhouse Restaurant 6,500
These properties total approximately 473,000 leasable square feet and offer a
wide range of commercial and industrial office product to the market.
TheI-10/San Bernardino corridor consists of approximately 2,865,000 square feet
of office space, with a vacancy rate of 28% as of October, 1996, and
approximately 12,806,000 square feet of light industrial space, with a vacancy
rate of 23% as of October, 1996 (the vacancy rates and square feet amounts are
according to research conducted by the Partnership's property manager).
Within the Tri-City Corporate Centre at December 31, 1996, the Partnership has
390,789 square feet of office space with a vacancy rate of 13%, 50,804 square
feet of light industrial space with a vacancy rate of 35% and 31,500 square feet
of commercial space with a 0% vacancy rate.
The following are the occupancy levels for the Partnership's Tri-City buildings
at December 31, 1996, November 30, 1995, 1994 and 1993, expressed as a
percentage of the total net rentable square feet:
December 31, November 30, November 30, November 30,
1996 1995 1994 1993
----------- ----------- ----------- -----------
One Carnegie Plaza 87% 93% 66% 56%
Two Carnegie Plaza 83% 87% 86% 86%
Carnegie Business Center II 65% 68% 76% 77%
Santa Fe 100% 100% 100% 100%
Lakeside Tower 90% 69% 76% 84%
One Parkside 92% 83% 83% 83%
Bally's Health Club 100% N/A N/A N/A
Outback Steakhouse 100% N/A N/A N/A
Appendix A-2
<PAGE>
In 1996, management renewed several leases totaling 31,274 square feet of space
and executed several new leases totaling 33,321 square feet of space. Management
is currently in various stages of negotiation for three new leases totaling
13,029 square feet of space and is negotiating six lease renewals totaling
23,716 square feet of space.
The annual effective rent per square foot for the years ended December 31, 1996
and November 30, 1995 were:
1996 1995
------- -------
One Carnegie Plaza $ 14.85 $ 13.57
Two Carnegie Plaza $ 15.91 $ 16.50
Carnegie Business Center II $ 10.91 $ 11.11
Santa Fe $ 16.64 $ 16.50
Lakeside Tower $ 16.72 $ 18.58
One Parkside $ 17.86 $ 18.23
Bally's Health Club $ 9.85 N/A
Outback Steakhouse $ 13.85 N/A
At December 31, 1996, annual rental rates ranged from $9.36 (for light
industrial space) to $23.21 per square foot (for highly desirable office space
at Lakeside Tower).
The Lakeside Tower property's annual effective rental rate decreased by 10% in
fiscal year 1996 compared to fiscal year 1995 due to a slight general decrease
in rental rates in 1996.
According to research conducted by the property manager, the average annual
effective rent per square foot in the Partnership's competitive market ranges
from $12.00 to $18.60 for office space and $9.36 to $12.39 for light industrial
space.
Tri-City's rental properties had the following five tenants which occupied a
significant portion of the net rentable square footage of the Partnership's
Tri-City properties as of December 31, 1996:
California Holiday Spa
Department of Santa Fe Sterling Chicago Health
Tenant Transportation Railway Software Title Club
One Bally's
Carnegie One Health
Building [a] Santa Fe Plaza Parkside Club
Governmental Trans- Real Estate Health
Nature of Business Agency portation Software Services Club
Lease Term 5 yrs. 10 yrs. 5 yrs. 10 yrs. 14 yrs.
Expiration Date 7/31/98 9/30/99 11/30/00 2/03/04 12/31/10
Square Feet 36,359 35,000 26,144 29,389 25,000
(% of rentable total) 8% 7% 6% 6% 5%
Annual Rent $564,492 $603,883 $360,304 $531,633 $246,250
Future Rent Increases None None 8.7% in 1998 None 15% in 2001
and 2006
Renewal Options None None Two 3-yr. None Three 5-yr.
options options
[a] The California Department of Transportation occupies space at One Carnegie
Plaza and Carnegie Business Center II.
In the opinion of management, the properties are adequately covered by
insurance.
The Partnership's Tri-City rental properties are owned by the Partnership, in
fee, subject to the following notes and deeds of trust:
Appendix A-3
<PAGE>
One Lakeside Tower
Carnegie One Parkside and
Security Plaza Two Carnegie Plaza
Principal balance
at December 31, 1996 $4,294,000 $9,551,000
Interest Rate 8.25% 9.39%
Monthly Payment $33,995 $83,142
Maturity Date 12/01/01 8/1/06
Approximately 14 acres of the Tri-City property owned by the Partnership remain
undeveloped. It is the Partnership's intention to develop parcels of this
property as tenants become available or dispose of the property at the optimal
time and sales price.
During 1996, the Partnership's Tri-City properties were assessed $798,000 of
property taxes based on an average realty tax rate of 1.78% (including
additional assessments).
Rancon Centre Ontario
In 1987, the Partnership acquired approximately 56.3 acres of undeveloped land
in Ontario, San Bernardino, California, for a purchase price of $5,905,000.
The property is immediately north of Interstate 10 near Interstate 15 and is
zoned for industrial and light manufacturing use.
The Partnership completed the first of three phases of development in 1988,
consisting of seven distribution-center buildings totaling 326,000 square feet
of which two buildings totaling 81,000 square feet have been sold. Phase II was
originally planned to consist of 39 buildings, each ranging between 4,000 and
8,000 square feet. However, as there is currently no demand for such properties,
it is likely that the Partnership will attempt to identify users interested in
large build-to-suit buildings for the Phase II land. In an effort to facilitate
build-to-suits, the Partnership purchased a 5.76 acre parcel previously held by
Southern California Edison as an easement in December, 1995 that was located
between Phase II and Phase III. This purchase also protected the value of the
Partnership's investment and prevents development adverse to the Partnership's
interests. Further development of the unimproved land remaining at Rancon Centre
Ontario will coincide with market demands. As of December 31, 1996, the
Partnership does not yet have definitive plans for further development.
The occupancy percentages at December 31, 1996, November 30, 1995 and 1994 for
the five buildings at this property were 100%, 92% and 100%, respectively. The
lease for one tenant occupying 50,000 square feet of space at this property
expired on January 31, 1997. The tenant has indicated its intention of vacating,
however is currently on a holdover lease. Management is currently marketing this
space for lease. At December 31, 1996, the Partnership's annual rental rates
ranged from $2.52 per square foot (for tenants with leases that commenced in
1993 and who occupy significant square footage) to $4.20 per square foot for
newer and/or smaller tenants.
According to research conducted by the Partnership's Ontario property manager,
there is 105,500,000 square feet of light industrial space in the immediate
market area. The average occupancy was 91% and the average annual rental rate
per square foot ranged from $3.84 to $4.56 at December 31, 1996.
United Pacific Mills, whose five year lease expires on April 30, 1998, and has
an option to renew the lease for five additional years, occupies 74,850 square
feet or 31% of Rancon Centre Ontario. Their annual rent during 1996 was $184,880
with 5% annual increases through the term of the lease.
In the opinion of management, the property is adequately covered by insurance.
At December 31, 1996, the Rancon Centre Ontario property is unencumbered.
During 1996, the Rancon Centre Ontario property was assessed $143,000 in
property taxes based on an average realty tax rate of 1.21%.
Perris-Ethanac Road
In 1989, the Partnership purchased 23.8 acres of unimproved land at the
intersection of Ethanac Road and Interstate 215 in Perris, Riverside County,
California for a purchase price of $2,780,000.
Appendix A-4
<PAGE>
The property is zoned for commercial uses and is adjacent to a freeway
interchange. There has been no development of this property to date.
The Partnership currently holds this property for sale.
In the opinion of management, the property is adequately covered by insurance.
At December 31, 1996, the Perris-Ethanac Road property is unencumbered.
During 1996, the Perris-Ethanac Road property was assessed $23,000 in property
taxes based on an average realty tax rate of 1.06%.
Perris-Nuevo Road
On December 28, 1989, the Partnership acquired 83 acres of undeveloped property
at the intersection of Nuevo Road and Interstate 215 in Perris, Riverside
County, California for a purchase price of $5,140,000 in an all cash
transaction. The property has been zoned for light industrial, commercial and
retail use. In 1991, the Partnership sold approximately 4.6 acres and .3 acres
of Perris-Nuevo Road to the Riverside County for construction of the Nuevo Road
freeway interchange and a pump station, respectively. There has been no
development of this property to date. Total developable land is 60.41 acres at
December 31, 1996.
The Partnership currently holds this property for sale.
In the opinion of management, the property is adequately covered by insurance.
At December 31, 1996, the Perris-Nuevo Road Property is unencumbered.
During 1996, the Perris-Nuevo Road property was assessed $179,000 in property
taxes based on an average realty tax rate of 1.01% (including additional
assessments).
Item 3. Legal Proceedings
On September 19, 1994, the Partnership (incorrectly referred to as "Rancon
Realty") was served by mail with a Summons and Complaint in connection with an
action filed by a single four-unit Partnership investor, in the Circuit Court of
Mobile County, Alabama. In this action (George Jones v. Wallace Quinn; Life
Cycle Financial Planning; Rancon Realty; Phoenix Leasing, Incorporated; First
Securities Corporation et. al; Civil Action No. CV94-3053), the plaintiff
alleged that the defendants, primarily the plaintiff's investment advisors, gave
improper investment advice and misrepresented the suitability of certain
investments, including the Partnership, for the plaintiff's investment
portfolio. The Partnership retained Alabama counsel to represent it in this
action. Such action was settled in December, 1995 resulting in the Partnership
repurchasing the plaintiff's investment of four units.
Item 4. Submission of Matters to a Vote of Security Holders
None.
Part II
Item 5. Market for Partnership's Common Equity and Related Stockholder Matters
Market Information
There is no established trading market for the Units issued by the Partnership.
Holders
As of February 11, 1997, there were 12,881 holders of Partnership Units.
Dividends
Distributions are paid from either Cash From Operations or Cash From Sales or
Refinancing.
Appendix A-5
<PAGE>
Cash From Operations generally is defined in the Partnership Agreement as all
cash receipts from operations in the ordinary course of business (except for the
sale, exchange or other disposition of real property in the ordinary course of
business) after deducting payments for operating expenses. All distributions of
Cash From Operations are paid in the ratio of 90% to the Limited Partners and
10% to the General Partners.
Cash From Sales or Refinancing is defined in the Partnership Agreement as the
net cash realized by the Partnership from the sale, disposition or refinancing
of any property after retirement of applicable mortgage debt and all expenses
related to the transaction, together with interest on any notes taken back by
the Partnership upon the sale of a property. All distributions of Cash From
Sales or Refinancing are generally allocated as follows (a more explicit
statement of these distribution policies is set forth in the Partnership
Agreement): (i) First, 1 percent to the General Partners and 99 percent to the
Limited Partners until the Limited Partners have received an amount equal to
their capital contributions; (ii) Second, 1 percent to the General Partners and
99 percent to the Limited Partners until the Limited Partners have received a 12
percent return on their unreturned capital contributions (less prior
distributions of Cash From Operations); (iii) Third, 1 percent to the General
Partners and 99 percent to the Limited Partners who purchased their Units prior
to April 1, 1986, an additional return (depending on the date on which they
purchased the Units) on their unreturned capital of either 9 percent, 6 percent
or 3 percent (calculated through the anniversary date of the purchase of the
Units); (iv) Fourth, 99 percent to the General Partners and 1 percent to the
Limited Partners until the General Partners have received an amount equal to 20
percent of all distributions of Cash From Sales or Refinancing previously made
under clauses (ii) and (iii) above, reduced by the amount of prior distributions
made to the General Partners under clauses (ii) and (iii); and (v) Fifth, the
balance 20 percent to the General Partners and 80 percent to the Limited
Partners.
There were no distributions made by the Partnership during the three most recent
fiscal years (including the one month stub period ended December 31, 1995).
Item 6. Selected Financial Data
<TABLE>
The following is selected financial data for the year ended December 31, 1996,
the one month ended December 31, 1995, and the years ended November 30, 1995,
1994, 1993 and 1992 (in thousands, except per Unit data).
<CAPTION>
For the For the one
year ended month ended For the years ended November 30,
Dec. 31, Dec. 31, ---------------------------------------
1996 1995 1995 1994 1993 1992
------ ------ ------ ------ ------ -----
<S> <C> <C> <C> <C> <C> <C>
Rental Income $ 6,969 $ 461 $ 6,200 $ 6,023 $ 5,949 $ 5,629
Gain (loss) on sale of real estate $ -- $ -- $ -- $ (391) $ 39 $ --
Provision for impairment
of real estate investments $ -- $ -- $(14,760) $(2,965) $ -- $ (4,000)
Net loss $(1,307) $ (199) $(16,148) $(5,558) $ (1,934) $ (5,131)
Net loss Allocable to
Limited Partners $(1,294) $ (197) $(15,986) $(5,503) $ (1,916) $ (5,080)
Net loss per Unit $(12.97) $ (1.97) $(160.18) $(55.11) $ (19.18) $ (50.81)
Total assets $54,193 $50,175 $ 51,347 $64,771 $ 69,548 $ 71,872
Long-term obligations $13,845 $ 8,615 $ 8,621 $ 6,209 $ 5,933 $ 5,970
Cash distributions per Unit $ -- $ -- $ -- $ -- $ -- $ --
</TABLE>
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
LIQUIDITY AND CAPITAL RESOURCES:
As of December 31, 1996, the Partnership had cash of $5,007,000. The remainder
of the Partnership's assets consists primarily of its investments in real estate
totaling approximately $46,590,000 at December 31, 1996.
Appendix A-6
<PAGE>
The Partnership's primary sources of funds consist of cash provided by its
rental activities. Other sources of funds include permanent financing, property
sales, interest income on certificates of deposit and other deposits of funds
invested temporarily, pending their use in the development of properties.
All of the Partnership's assets are located within the Inland Empire, a
submarket of Southern California, and have been directly affected by the
economic weakness of the region. Management believes, however, that the market
has flattened and is no longer falling in terms of sales prices. While prices
have not increased significantly, the Southern California real estate market
appears to be improving. Management continues to evaluate the real estate
markets in which the Partnership's assets are located in an effort to determine
the optimal time to dispose of them and realize their maximum value.
The Partnership owns and operates eight properties within the Tri-City Corporate
Centre project in San Bernardino, California ("Tri-City") totaling approximately
473,000 leasable square feet, including a 25,000 square foot building for
Bally's Health Club completed in 1995 and the most recently constructed 6,500
square foot restaurant for Outback Steakhouse in 1996.
On May 10, 1996, the Partnership obtained new permanent financing of $9,600,000,
secured by Two Carnegie Plaza, Lakeside Tower and One Parkside, to fund the
payoff of a $2,764,000 loan, including accrued interest, and replenish cash
reserves for future development and fund final construction costs for Bally's
Health Club and Outback Steakhouse. This loan is a 10-year fixed rate loan with
a 25-year amortization, bearing interest at 9.39%. The loan terms provide for a
maturity date of August 1, 2006 and requires monthly principal and interest
payments of $83,142, commencing July 1, 1996. After paying refinancing fees of
$19,000, funding $49,000 into a reserve/escrow account and paying of the
$2,764,000 loan balance, the Partnership netted $6,768,000. The proceeds were
added to the Partnership's cash reserves to allow management greater flexibility
in exploring different options for strengthening the Partnership's financial
position.
On August 30, 1996, the Partnership refinanced its note payable secured by One
Carnegie Plaza. The new agreement required a $1,500,000 principal paydown in
exchange for a reduction in the stated interest rate from 10% to 8.25%.
Accordingly, on August 30, 1996, the Partnership made a $1,500,000 principal
payment plus paid $57,000 of accrued interest and loan fees. The new loan terms
provide for monthly principal and interest payments totaling $33,995 (reduced
from $53,000) commencing November 1, 1996, and a maturity date of December 1,
2001.
Phase I of Rancon Centre Ontario is completed, with the Partnership continuing
to own approximately 245,000 leasable square feet. Phase II received final
approval from the Ontario Planning Commission during November, 1992. Phase II
was originally scheduled to be subdivided into small lots suitable for
approximately 39 buildings, each ranging between 4,000 and 8,000 square feet.
There is currently no demand for properties such as this and the Partnership has
allowed the tentative map (which would have subdivided the property into small
lots) to expire. It is likely that the Partnership will attempt to identify
users interested in large build-to-suit buildings of approximately 250,000
square feet. In an effort to facilitate such build-to-suits, the Partnership
purchased a 5.76 acre parcel in December, 1995 that was located between Phase II
and an also undeveloped Phase III. This purchase also protected the value of the
Partnership's investment by providing the Partnership ownership of contiguous
land and preventing development adverse to the Partnership's interests. Further
development of the unimproved land remaining at Rancon Centre Ontario will
coincide with market demand.
There has been no development to date at the Partnership's Perris-Ethanac Road
or Perris-Nuevo Road projects. Both properties are being marketed for sale by
the Partnership.
Portions of the land at Tri-City that sold during fiscal 1990 included lots sold
to Home Depot, Office Club and General Mills Restaurants, Inc. Cash generated
from future property sales may be utilized in the development of other
properties or distributed to the partners. The General Partners continue to
assess the real estate market in Southern California in an effort to determine
an appropriate time to liquidate the Partnership and realize the maximum value
for its assets.
The Partnership is contingently liable for subordinated real estate commissions
payable to the Sponsor in the amount of $102,000 at December 31, 1996. 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.
Aside from the foregoing, the Partnership knows of no demands, commitments,
events or uncertainties which might effect its liquidity or capital resources in
any material respect. The effect of inflation on the Partnership's business
should be no greater than its effect on the economy as a whole.
Appendix A-7
<PAGE>
Management believes that the Partnership's cash balance as of December 31, 1996,
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.
RESULTS OF OPERATIONS:
In 1995, the Partnership's reporting year end changed from November 30 to
December 31. Since the Partnership's operations are not seasonal, the analysis
of results of operations compares the fiscal years ended December 31, 1996 and
November 30, 1995.
Revenues
Rental income for the year ended December 31, 1996 increased $769,000 or 12%
from the year ended November 30, 1995, due primarily to the commencement of
operations of the Bally's Health Club on January 1, 1996 and the increased
average occupancy at two of the Partnership's larger properties, One Carnegie
Plaza and Lakeside Tower. The increase in average occupancy had a smaller impact
on rental revenue than operating expenses due to amortizing free rent over the
term of the related lease whereby rental revenue during the year ended December
31, 1996 was reduced by free rent given in prior years.
Occupancy rates at the Partnership's Tri-City and Rancon Centre Ontario
properties as of December 31, 1996, November 30, 1995, 1994 and 1993 were as
follows:
December 31, November 30, November 30, November 30,
1996 1995 1994 1993
----------- ----------- ----------- -----------
One Carnegie Plaza 87% 93% 66% 56%
Two Carnegie Plaza 83% 87% 86% 86%
Carnegie Business
Center II 65% 68% 76% 77%
Lakeside Tower 90% 69% 76% 84%
Santa Fe 100% 100% 100% 100%
One Parkside 92% 83% 83% 83%
Rancon Centre Ontario 100% 92% 100% 100%
Bally's Health Club 100% N/A N/A N/A
Outback Steakhouse 100% N/A N/A N/A
Tenants at Tri-City occupying substantial portions of leased space include
Medisco Pharmacy, New York Life Insurance, the California Department of
Transportation, State of California Health Services, MacLachlan Burford and
Arias, the Atchison Topeka and Santa Fe Rail Company, Sterling Software, Chicago
Title and Bally's Health Club, with leases expiring at various dates between
June, 1997 and December, 2010. These nine tenants, in the aggregate, occupy
approximately 212,000 square feet of the 473,000 total leasable square feet at
Tri-City and account for approximately 52% of the rental income generated at
Tri-City and approximately 47% of the total rental income for the Partnership.
United Pacific Mills, with a lease expiration date of April, 1998, occupies
74,850 square feet of the 245,000 total leasable square feet at Rancon Centre
Ontario and accounts for 26% of the rental income generated at Rancon Centre
Ontario and the 3% of total rental income for the Partnership.
In addition to the leases existing at December 31, 1996, the Partnership is in
various stages of negotiation for three new leases totaling 13,029 square feet,
six lease renewals for 23,716 square feet of space at Tri-City, as well as
marketing 50,000 square feet of space at Rancon Centre Ontario which will become
available in 1997.
The loss on sale of real estate for the year ended November 30, 1994 of $391,000
resulted from the sale of 25,700 square feet of retail space in Tri-City to Home
Depot. The property was sold to enable Home Depot to enlarge their garden
department. The sales price was negotiated at $12.50 per square foot for a total
of $321,000, however, allocable costs attributable to this parcel exceeded the
sales price and resulted in the loss on sale. The sale of the original Home
Depot site, which took place in 1990, resulted in a gain on sale of $1,458,000,
whereby the two transactions generated a net gain on sale $1,067,000.
Interest and other income for the year ended December 31, 1996 increased
$106,000 or 106% from the year ended November 30, 1995 due to the increase in
cash reserves as a result of the proceeds of the permanent financing obtained by
the Partnership in 1996 as described in the Liquidity and Capital Resources
section above.
Appendix A-8
<PAGE>
Expenses
Operating expenses increased $212,000 or 7% during the year ended December 31,
1996 compared to the year ended November 30, 1995 as a result of increased
operating costs associated with increased occupancy at Lakeside Tower and One
Parkside.
Interest expense increased $603,000 or 90% for the year ended December 31, 1996
over the year ended November 30, 1995 and $71,000 or 12% and for the year ended
November 30 , 1995 over the comparable period in 1994 as a result of additional
debt obtained during those years.
Prior to 1995, the Partnership's business strategy was to hold its properties
for future development and operations. Conclusions about the carrying value of
the Partnership's properties were based upon this strategy. In 1995, the
Partnership modified this strategy to focus on eventual disposition of its
assets at the optimal time and sales price, however, development opportunities
will be pursued for certain sites. The Partnership revalued certain of its
assets based upon the change in strategy, independent appraisals and
management's estimates of development value. Appraisals and development values
are estimates of fair value based upon assumptions about the property and the
market in which it is located. Due to the uncertainties inherent in these
processes, these valuations do not purport to be the price at which a sale
transaction involving these properties can or will take place.
The Partnership made the following provisions to reduce the carrying value of
investments in real estate for the years ended November 30:
1995 1994
-------- ------
Rental Properties:
One Carnegie Plaza $ -- $ 1,657,000
Carnegie Business Center II -- 299,000
Rancon Centre Ontario -- 1,009,000
---------- -----------
-- 2,965,000
Land Held for Development:
San Bernardino, CA 5,775,000 --
Land Held for Sale:
78.1 acres in Perris, CA $ 6,778,000 $ --
23.8 acres in Perris, CA 2,207,000 --
----------- ----------
14,760,000 --
----------- ----------
Total Provision for Impairment
of Real Estate Investments $14,760,000 $2,965,000
=========== ==========
No such provisions were recorded in 1996.
Expenses associated with undeveloped land include property taxes for the
Partnership's non-operating properties that are not currently under construction
as well as maintenance association fees in connection with non-operating
properties. Any expenses associated with land currently under construction
(i.e., undergoing activities necessary to get it ready for its intended use)
have been capitalized pursuant to Statement of Financial Accounting Standards
No. 67 (SFAS 67) "Accounting for Costs and Initial Rental Operations of Real
Estate Projects". These expenses decreased $83,000 or 12% in the year ended
December 31, 1996 from the year ended November 30, 1995 due to the increased
amount capitalized in 1996.
Administrative expenses increased $76,000 or 7% during the year ended December
31, 1996 over the year ended November 30, 1995 primarily due to an
administrative expense refund from the Sponsor in 1995. Administrative expenses,
prior to capitalization, for the year ended November 30, 1995 decreased 4% from
the prior year. The decrease in 1995 is primarily the result of the
administrative expense refund from the Sponsor in 1995 and the one-time payment
of severance totaling $194,000 to RFC's terminated employees in 1994 offset by:
(i) an increase in investor update meetings and the associated costs; (ii) an
increase in legal and consulting fees related to matters involving the
disposition of Partnership assets in 1995; and (iii) the payment and expense of
1994 audit and tax return fees in 1995. Since January 1, 1995, audit and tax
fees have been accrued in the year to which they relate.
In December 1994, RFC entered into an agreement with Glenborough Inland Realty
Corporation ("Glenborough") whereby RFC sold to Glenborough, for approximately
$4,466,000 and the assumption of $1,715,000 of RFC's debt, the contract to
perform the rights and responsibilities under RFC's 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 to the liquidation of the Partnership, whichever comes first.
According to the contract, the Partnership will pay Glenborough for its services
as follows: (i) a specified asset administration fee of $967,000 per year, which
is fixed for five years subject to reduction in the year following the sale of
assets; (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 responsibilities for
the General Partner of the Rancon Partnerships and RFC agreed to cooperate with
Appendix A-9
<PAGE>
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.
RFC entered into the transaction with Glenborough described above, when it
determined to sell that portion of its business relating to investor relations
services, property management services and asset management services, and those
services are now rendered to the Partnership, eight other related partnerships
and third parties by Glenborough.
Item 8. Financial Statements and Supplementary Data
For information with respect to this Item 8, see Financial Statements and
Schedules as listed in Item 14.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
On June 6, 1995, Price Waterhouse LLP was dismissed as the principal independent
accountant for the Partnership. The decision to dismiss Price Waterhouse LLP was
made by the Partnership's General Partner.
The reports of Price Waterhouse LLP on the Partnership's financial statements
for the period ending November 30, 1994, do not contain an adverse opinion or a
disclaimer of an opinion, nor were such opinions modified as to uncertainty,
audit scope, or accounting principles.
During the fiscal year ended November 30, 1994 and the subsequent interim period
from December 1, 1994 to June 6, 1995, there were no disagreements between the
Partnership and Price Waterhouse LLP on any matter of accounting principles or
practices, financial statement disclosure, or auditing scope or procedure,
which, if not resolved to the satisfaction of Price Waterhouse LLP, would have
caused it to make a reference to the subject matter of the disagreement in
connection with its reports. For this purpose the term disagreement does not
include initial differences of opinion based on incomplete facts or preliminary
information that were later resolved to the satisfaction of Price Waterhouse LLP
by obtaining additional relevant facts or information.
During the fiscal year ended November 30, 1994 and the subsequent interim period
from December 1, 1994 to June 6, 1995, there were no "reportable events" of the
type described in Rule 304(a)(1)(v)(A) through (D) of Regulation S-K.
On June 6, 1995, the Partnership engaged Arthur Andersen LLP as its new
principal independent accountant. During the fiscal year ended November 30, 1994
and the subsequent interim period from December 1, 1994 through June 6, 1995,
the Partnership did not consult with Arthur Andersen LLP as to the application
of accounting principles to a specified transaction or the type of audit opinion
that might be rendered on the Partnership's financial statements.
Part III
Item 10. Directors and Executive Officers of the Partnership
Daniel Lee Stephenson and RFC are the General Partners of the Partnership. The
executive officer and director of Rancon is:
Daniel L. Stephenson Director, President, Chief Executive Officer and Chief
Financial Officer
There is no fixed term of office for Mr. Stephenson.
Mr. Stephenson, age 53, founded RFC (formerly known as Rancon Corporation) in
1971 for the purpose of establishing itself as a commercial, industrial and
residential property syndication, development and brokerage concern. Mr.
Stephenson has, from inception, held the position of Director. In addition, Mr.
Stephenson was President and Chief Executive Officer of RFC from 1971 to 1986,
from August 1991 to September 1992 and from March 31, 1995 to present. Mr.
Stephenson is Chairman of the Board of PacWest Group, Inc., a real estate firm
which has acquired a portfolio of assets from the Resolution Trust Corporation.
Rancon Development Fund VII (RDFVII), a partnership sponsored by the General
Partners filed for protection under Chapter 11 of Federal Bankruptcy Law on May
6, 1994 in order to put an automatic stay on RDFVII's property and to forestall
the pending foreclosure. In March, 1994, the General Partners were approached by
a non-affiliated party interested in acquiring the interests of RDFVII's general
partners and attempting to restructure the partnership and its secured debt.
Although the necessary majority-in-interest of RDFVII's limited partners was
received, an agreement regarding the terms of the transfer and the plan of
reorganization could not be reached. The holder of the note secured by RDFVII's
property filed for and was granted a relief from the stay thereby allowing the
foreclosure sale to proceed. Such sale took place on September 15, 1994 and the
bankruptcy was dismissed, as the property was RDFVII's only asset.
Appendix A-10
<PAGE>
Six Stoneridge L.P. (SSRLP), a partnership formed by Rancon Development Fund VI
(RDFVI), a partnership sponsored by the General Partners filed for protection
under Chapter 11 of Federal Bankruptcy Law in December, 1992. Efforts to
negotiate a modification of the purchase agreement of Stoneridge I, to obtain
loans, joint venture partners or other vehicles to meet or modify the cash
payment requirements were unsuccessful. In February, 1993, an adversary
complaint was filed against SSRLP in the bankruptcy court to determine the
nature and extent of SSRLP's interest in Stoneridge I and the debt associated
with the property. A tentative agreement has been reached and the bankruptcy was
dismissed effective November 8, 1995. As of December 31, 1996, SSRLP and RDFVI
have been dissolved.
Item 11. Executive Compensation
The Partnership has no executive officers. For information relating to fees,
compensation, reimbursement and distributions paid to related parties, reference
is made to Item 13 below.
Item 12. Security Ownership of Certain Beneficial Owners and Management
Security Ownership of Certain Beneficial Owners
No person is known by the Partnership to be the beneficial owner of more than 5%
of the Units.
Security Ownership of Management
Amount and
Nature of
Title Beneficial Percent
of Class Name of Beneficial Owner Ownership of Class
- ---------- --------------------------------- ---------------- --------
Units Daniel Lee Stephenson (IRA) 3 Units (direct) *
Units Daniel Lee Stephenson Family Trust 100 Units (direct) *
* Less than 1 percent
Changes in Control
The Limited Partners have no right, power or authority to act for or bind the
Partnership. However, the Limited Partners have the power to vote upon the
following matters affecting the basic structure of the Partnership, each of
which shall require the approval of Limited Partners holding a majority of the
outstanding Units: (i) amendment of the Partnership's Partnership Agreement;
(ii) termination and dissolution of the Partnership; (iii) sale, exchange or
pledge of all or substantially all of the assets of the Partnership; (iv)
removal of the General Partners or any successor General Partner; (v) election
of a new General Partner or General Partners upon the removal, retirement,
death, insanity, insolvency, bankruptcy or dissolution of the General Partners
or any successor General Partner; (vi) modification of the terms of any
agreement between the Partnership and the General Partners or an affiliate of
the General Partners; and (vii) extension of the term of the Partnership.
Item 13. Certain Relationships and Related Transactions
There were no related party transactions during the year ended December 31,
1996, or the one month ended December 31, 1995.
Part IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(a) The following documents are filed as part of the report
(1) Financial Statements:
Reports of Independent Accountants
Consolidated Balance Sheets as of December 31, 1996 and 1995
and November 30, 1995
Consolidated Statements of Operations for the year ended
December 31, 1996, the one month ended December 31, 1995, and
the years ended November 30, 1995 and 1994
Consolidated Statements of Partners' Equity (Deficit) for the
year ended December 31, 1996, the one month ended December
31, 1995, and the years ended November 30, 1995 and 1994
Consolidated Statements of Cash Flows for the year ended
December 31, 1996, the one month ended December 31, 1995, and
the years ended November 30, 1995 and 1994
Notes to Consolidated Financial Statements
Appendix A-11
<PAGE>
(2) Financial Statement Schedule:
Schedule III -- Real Estate and Accumulated Depreciation as
of December 31, 1996 and Note thereto
All other schedules are omitted because they are not
applicable or the required information is shown in the
financial statements or notes thereto.
(3) Exhibits:
(3.1) Amended and Restated Agreement of Limited Partnership
of the Partnership (included as Exhibit B to the
Prospectus dated March 3, 1988, filed pursuant to
Rule 424(b), File Number 2-97837, is incorporated
herein by reference).
(3.2) Third Amendment to the Amended and Restated Agreement
of Limited Partnership of the Partnership, dated
April 1, 1989 (filed as Exhibit 3.2 to the
Partnership's annual report on Form 10-K for the
fiscal year ended November 30, 1991 is incorporated
herein by reference).
(3.3) Fourth Amendment to the Amended and Restated
Agreement of Limited Partnership of the Partnership,
dated March 11, 1992 (filed as Exhibit 3.3 to the
Partnership's annual report on Form 10-K for the
fiscal year ended November 30, 1991 is incorporated
herein by reference).
(3.4) Limited Partnership Agreement of RRF V Tri-City
Limited Partnership, A Delaware limited partnership
of which Rancon Realty Fund V, A California Limited
Partnership is the limited partner (filed as Exhibit
3.4 to the Partnership's annual report on Form 10-K
for the year ended December 31, 1996 is incorporated
herein by reference).
(10.1) Documents related to the sale of a portion of Lot 28
at Tri-City Corporate Centre (25,700 square feet sold
to Home Depot) (filed as Exhibit 10.1 to the
Partnership's annual report on Form 10-K for the
fiscal year ended November 30, 1994 is incorporated
herein by reference).
(10.2) Management, administration and consulting agreement
and amendment thereto for services rendered by
Glenborough Inland Realty Corporation dated December
20, 1994 and March 30, 1995, respectively.
(10.3) Promissory note in the amount of $9,600,000 dated May
9, 1996 secured by Deeds of Trust on three of the
Partnership Properties (filed as Exhibit 10.3 to the
Partnership's annual report on Form 10-K for the year
ended December 31, 1996 is incorporated herein by
reference).
(27) Financial Data Schedule
(b) Reports on Form 8-K
None.
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 V,
a California Limited Partnership
(Partnership)
Date: March 27, 1997 By: /s/ DANIEL L. STEPHENSON
--------------------------
Daniel L. Stephenson, General Partner and
Director, President, Chief Executive Officer and
Chief Financial Officer of
Rancon Financial Corporation,
General Partner
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed by the following persons on behalf of the Partnership and in the
capacities and on the dates indicated.
Date: March 27, 1997 By: /s/ DANIEL L. STEPHENSON
--------------------------
Daniel L. Stephenson, General Partner and
Director, President, Chief Executive Officer and
Chief Financial Officer of
Rancon Financial Corporation,
General Partner
Appendix A-12
<PAGE>
INDEX TO FINANCIAL STATEMENTS
AND SCHEDULE
Financial Statements and Schedule Page
------
Financial Statements:
Reports of Independent Accountants ...................... Appendix A-14 and A-15
Consolidated Balance Sheets as of December 31, 1996 and
1995 and November 30, 1995 ....................................... Appendix A-16
Consolidated Statements of Operations for the year ended
December 31, 1996, the one month ended December 31, 1995, and
the years ended November 30, 1995 and 1994 ....................... Appendix A-17
Consolidated Statements of Partners' Equity (Deficit) for the
year ended December 31, 1996, the one month ended December
31, 1995, and the years ended November 30, 1995 and 1994 ......... Appendix A-18
Consolidated Statements of Cash Flows for the year ended
December 31, 1996, the one month ended December 31, 1995, and
the years ended November 30, 1995 and 1994 ....................... Appendix A-19
Notes to Consolidated Financial Statements ....................... Appendix A-20
Schedule:
III - Real Estate and Accumulated Depreciation
as of December 31, 1996 and Note thereto ................... Appendix A-27
All other schedules are omitted because they are not applicable or the
required information is shown in the financial statements or notes
thereto.
Appendix A-13
<PAGE>
ARTHUR ANDERSEN LLP
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Partners of
RANCON REALTY FUND V, A CALIFORNIA LIMITED PARTNERSHIP:
We have audited the accompanying consolidated balance sheets of RANCON REALTY
FUND V, A CALIFORNIA LIMITED PARTNERSHIP as of December 31, 1996 and 1995 and
November 30, 1995, and the related consolidated statements of operations,
partners' equity (deficit) and cash flows for the year ended December 31, 1996,
the one month ended December 31, 1995 and year ended November 30, 1995. These
consolidated financial statements and the schedule referred to below are the
responsibility of the Partnership's management. Our responsibility is to express
an opinion on these consolidated financial statements and schedule based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of RANCON REALTY FUND
V, A CALIFORNIA LIMITED PARTNERSHIP, as of December 31, 1996 and 1995 and
November 30, 1995, and the results of its operations and its cash flows for the
year ended December 31, 1996, the one month ended December 31, 1995 and year
ended November 30, 1995, in conformity with generally accepted accounting
principles.
/s/ Arthur Andersen LLP
San Francisco, California
February 12, 1997
Appendix A-14
<PAGE>
[PRICE WATERHOUSE LETTERHEAD]
REPORT OF INDEPENDENT ACCOUNTANTS
February 8, 1995
To the General and Limited Partners of
Rancon Realty Fund V
In our opinion, the accompanying statements of operations, of partners' equity
and of cash flows present fairly, in all material respects, the results of
operations and cash flows of Rancon Realty Fund V for the year ended November
30, 1994, in conformity with generally accepted accounting principles. These
financial statements are the responsibility of the Partnership's management; our
responsibility is to express an opinion on these financial statements based on
our audit. We conducted our audit of these statements in accordance with
generally accepted auditing standards which require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audit provides a reasonable basis for the opinion expressed
above. We have not audited the financial statements of Rancon Realty Fund V for
any period subsequent to November 30, 1994.
/s/ PRICE WATERHOUSE LLP
San Diego, California
February 8, 1995
Appendix A-15
<PAGE>
<TABLE>
RANCON REALTY FUND V,
A CALIFORNIA LIMITED PARTNERSHIP
Consolidated Balance Sheets
December 31, 1996 and 1995 and November 30, 1995
(in thousands, except units outstanding)
<CAPTION>
December 31, December 31, November 30,
Assets 1996 1995 1995
------ ------------ ------------ ----------
<S> <C> <C> <C>
Investments in real estate:
Rental property, net of accumulated
depreciation of $15,180 as of December
31, 1996, $13,405 as of December 31, 1995,
and $13,244 as of November 30, 1995 $ 35,999 $ 36,000 $ 35,833
Land held for development 9,586 9,799 9,166
Land held for sale 1,005 1,005 1,005
---------- ---------- ----------
Total real estate investments 46,590 46,804 46,004
---------- ---------- ----------
Cash and cash equivalents 5,007 676 2,467
Pledged cash 353 351 351
Accounts receivable 145 169 204
Deferred financing costs and other fees,
net of accumulated amortization of
$1,565 as of December 31, 1996, $1,233 as
of December 31, 1995 and $1,203
as of November 30, 1995 1,301 1,218 1,155
Prepaid expenses and other assets 797 957 1,166
---------- ---------- ----------
Total assets $ 54,193 $ 50,175 $ 51,347
========== ========== ==========
Liabilities and Partners' Equity (Deficit)
Liabilities:
Notes payable $ 13,845 $ 8,615 $ 8,621
Accounts payable and accrued expenses 276 256 1,207
Interest payable 75 -- 13
----------- ----------- -----------
Total liabilities 14,196 8,871 9,841
----------- ----------- -----------
Commitments and contingent liabilities (see Note 7)
Partners' equity (deficit):
General partners (921) (908) (906)
Limited partners, 99,767 limited partnership
units outstanding at December 31, 1996
and 1995 and 99,783 limited partnership
units outstanding at November 30, 1995 40,918 42,212 42,412
---------- ----------- ----------
Total partners' equity 39,997 41,304 41,506
---------- ----------- ----------
Total liabilities and partners' equity $ 54,193 $ 50,175 $ 51,347
========== =========== ==========
<FN>
The accompanying notes are an integral part of these financial statements.
</FN>
</TABLE>
Appendix A-16
<PAGE>
<TABLE>
RANCON REALTY FUND V,
A CALIFORNIA LIMITED PARTNERSHIP
Consolidated Statements of Operations
For the year ended December 31, 1996, the one month ended
December 31, 1995, and the years ended November 30, 1995 and 1994
(in thousands, except per unit amounts and units outstanding)
<CAPTION>
For the year For the one For the year For the year
ended month ended ended ended
Dec. 31, Dec. 31, Nov. 30, Nov. 30,
1996 1995 1995 1994
----------- ------------ ----------- -----------
<S> <C> <C> <C> <C>
Revenues:
Rental income $ 6,969 $ 461 $ 6,200 $ 6,023
Loss on sale of real estate -- -- -- (391)
Interest and other income 206 1 100 105
---------- ---------- ---------- ----------
Total revenues 7,175 462 6,300 5,737
---------- ---------- ---------- ----------
Expenses:
Operating, including $27 and $314 paid to
Sponsor for the years ended November 30,
1995 and 1994, respectively 3,257 257 3,045 3,186
Depreciation and amortization 2,087 189 2,101 2,707
Interest expense 1,271 68 668 597
Provision for impairment of
real estate investments -- -- 14,760 2,965
Expenses associated with undeveloped land 629 58 712 712
Administrative, including $84 and $1,117 paid
to Sponsor in 1995 and 1994, respectively 1,238 89 1,162 1,128
---------- ---------- ---------- ----------
Total expenses 8,482 661 22,448 11,295
---------- ---------- ---------- ----------
Net loss $ (1,307) $ (199) $ (16,148) $ (5,558)
=========== =========== =========== ===========
Net loss per limited partnership unit $ (12.97) $ (1.97) $ (160.18) $ (55.11)
========== =========== ========== ===========
Weighted average number of limited partnership
units outstanding during each period used
to compute net loss per limited partnership unit 99,767 99,775 99,800 99,852
========== ========== ========== ===========
<FN>
The accompanying notes are an integral part of these financial statements
</FN>
</TABLE>
Appendix A-17
<PAGE>
RANCON REALTY FUND V,
A CALIFORNIA LIMITED PARTNERSHI
Consolidated Statements of Partners' Equity
(Deficit) For the year ended December 31,
1996, the one month ended
December 31, 1995, and the years ended November 30, 1995 and 1994
(in thousands)
General Limited
Partners Partners Total
--------- ---------- ---------
Balance at November 30, 1993 $ (689) $ 63,945 $ 63,256
Retirement of Limited Partnership Units -- (35) (35)
Net loss (55) (5,503) (5,558)
-------- --------- ---------
Balance at November 30, 1994 (744) 58,407 57,663
Retirement of Limited Partnership Units -- (9) (9)
Net loss (162) (15,986) (16,148)
-------- --------- ---------
Balance at November 30, 1995 (906) 42,412 41,506
Retirement of Limited Partnership Units -- (3) (3)
Net loss (2) (197) (199)
-------- --------- ---------
Balance at December 31, 1995 (908) 42,212 41,304
Net loss (13) (1,294) (1,307)
-------- --------- ---------
Balance at December 31, 1996 $ (921) $ 40,918 $ 39,997
======== ========= =========
The accompanying notes are an integral part of these financial statements
Appendix A-18
<PAGE>
<TABLE>
RANCON REALTY FUND V,
A CALIFORNIA LIMITED PARTNERSHI
Consolidated Statements of Cash
Flows For the year ended December 31, 1996,
the one month ended
December 31, 1995, and the years ended November 30, 1995 and 1994
(in thousands)
<CAPTION>
For the year For the one For the year For the year
ended month ended ended ended
Dec. 31, Dec. 31, Nov. 30, Nov. 30,
1996 1995 1995 1994
----------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net loss $ (1,307) $ (199) $ (16,148) $ (5,558)
Adjustments to reconcile net loss to net
cash provided by (used for)
operating activities:
Depreciation and amortization 2,087 189 2,101 2,693
Amortization of loan fees, included in
interest expense 87 1 22 14
Loss on sale of real estate -- -- -- 391
Provision for impairment of real
estate investments -- -- 14,760 2,965
Changes in certain assets and liabilities:
Deferred fees (158) (70) (303) (341)
Accounts receivable 24 35 34 59
Prepaid expenses and other assets 209 209 288 279
Accounts payable and accrued expenses 20 (951) 305 424
Interest payable 75 (13) (37) 1
Payable to Sponsor -- -- (194) 189
----------- ---------- ---------- -----------
Net cash provided by (used for)
operating activities 1,037 (799) 828 1,116
----------- ----------- ---------- -----------
Cash flows from investing activities:
Pledged cash (2) -- -- --
Property acquisition and development costs (1,561) (960) (3,023) (1,564)
Deposit on pending property acquisition -- -- (50) --
Cash proceeds from sale of real estate -- -- -- 303
----------- ---------- ---------- -----------
Net cash used for investing activities (1,563) (960) (3,073) (1,261)
------------ ----------- ----------- -----------
Cash flows from financing activities:
Net loan proceeds $ 6,768 $ -- $ 2,484 $ 250
Loan fees paid (305) (23) -- (66)
Notes payable principal payments (1,606) (6) (72) (40)
Retirement of Limited Partnership Units -- (3) (9) (35)
Other liabilities -- -- -- (18)
----------- ----------- ---------- -----------
Net cash provided by (used for)
financing activities 4,857 (32) 2,403 91
----------- ------------ ---------- -----------
Net increase (decrease) in cash and
cash equivalents 4,331 (1,791) 158 (54)
Cash and cash equivalents at
beginning of period 676 2,467 2,309 2,363
----------- ----------- ---------- ------------
Cash and cash equivalents at
end of period $ 5,007 $ 676 $ 2,467 $ 2,309
========== ========== ========= ===========
Supplemental disclosure of cash flow information:
Cash paid for interest $ 1,135 $ 79 $ 861 $ 596
========== ========== ========= ==========
Interest capitalized $ 26 $ -- $ 178 $ --
========== ========== ========= ==========
Supplemental disclosure of refinancing activity:
New financing $ 9,600 $ -- $ -- $ --
Original financing paid off in escrow (2,764) -- -- --
Increase in other assets and loan fees paid (68) -- -- --
------------ ---------- ---------- ----------
Net loan proceeds $ 6,768 $ -- $ -- $ --
=========== ========== ========== ==========
<FN>
The accompanying notes are an integral part of these financial statements
</FN>
</TABLE>
Appendix A-19
<PAGE>
RANCON REALTY FUND V,
A California Limited Partnership
Notes to Consolidated Financial Statements
December 31, 1996, November 30, 1995 and 1994
Note 1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Organization
Rancon Realty Fund V, a California Limited Partnership, ("the Partnership"), was
organized in accordance with the provisions of the California Revised Limited
Partnership Act for the purpose of acquiring, developing and operating real
property. The General Partners of the Partnership are Daniel L. Stephenson and
Rancon Financial Corporation ("RFC"), hereinafter referred to as the Sponsor.
RFC is wholly-owned by Daniel L. Stephenson. The Partnership reached final
funding in February, 1989. 99,767 Partnership Units ("Units") were outstanding
at December 31, 1996 and 1995 and 99,783 Units were outstanding at November 30,
1995.
Allocation of profits, losses and cash distributions from operations and cash
distributions from sale or financing are made pursuant to the terms of the
Partnership Agreement. Generally, net income and distributions from operations
are 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 account is reduced to zero.
Additional losses will be allocated entirely to those partners with positive
account balances until such balances are reduced to zero. In no event will the
General Partners be allocated less than 1% of net loss for any period.
All of the Partnership's assets are located within the Inland Empire, a
submarket of Southern California, and have been directly affected by the
economic weakness of the region. Management believes, however, that the market
has flattened and is no longer falling in terms of sales prices. While prices
have not increased significantly, the Southern California real estate market
appears to be improving. Management continues to evaluate the real estate
markets in which the Partnership's assets are located in an effort to determine
the optimal time to dispose of them and realize their maximum value.
General Partner and Management Matters
Effective January 1, 1994 the Partnership contracted with RFC 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. These services were provided by RFC
subject to the provisions of the Partnership Agreement.
In December 1994, RFC entered into an agreement with Glenborough Inland Realty
Corporation ("Glenborough") whereby RFC sold to Glenborough the contract to
perform the rights and responsibilities under RFC's 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 to the liquidation of the Partnership, whichever comes first.
According to the contract, the Partnership will pay Glenborough for its services
as follows: (i) a specified asset administration fee of $967,000 per year, which
is fixed for five years subject to reduction in the year following the sale of
assets; (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 responsibilities for
the General Partner of the Rancon Partnerships and 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. This
agreement became effective January 1, 1995. Glenborough is not an affiliate of
RFC or the Partnership.
As a result of this agreement, RFC terminated several of its employees between
December 31, 1994 and February 28, 1995. Also as a result of this agreement,
certain of the officers of RFC resigned from their positions effective February
28, 1995, March 31, 1995 and July 1, 1995.
Significant Accounting Policies
Basis of Accounting - The accompanying financial statements have been prepared
on the accrual basis of accounting in accordance with generally accepted
accounting principles under the presumption that the Partnership will continue
as a going concern.
Use of Estimates - The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that effect the reported amounts of assets and liabilities and
disclosure of
Appendix A-20
<PAGE>
RANCON REALTY FUND V,
A California Limited Partnership
Notes to Consolidated Financial Statements
December 31, 1996, November 30, 1995 and 1994
contingent assets and liabilities at the date of the financial statements and
the reported results of operations during the reporting period. Actual results
could differ from those estimates.
Risks and Uncertainties - The Partnership's ability to (i) achieve positive cash
flow from operations, (ii) meet its debt obligations, (iii) provide
distributions either from operations or the ultimate disposition of the
Partnership's properties or (iv) continue as a going concern, may be impacted by
changes in interest rates, property values, geographic economic conditions, or
the entry of other competitors into the market. The accompanying financial
statements do not provide for adjustments with regard to these uncertainties.
Investments in Real Estate - In March, 1995, the Financial Accounting Standards
Board issued Statement of Financial Accounting Standards No. 121 (SFAS 121),
"Accounting for Impairment of Long-Lived Assets and Long-Lived Assets to be
Disposed Of." The Partnership adopted SFAS 121 in the fourth quarter of fiscal
year 1995. SFAS 121 requires that an evaluation of an individual property for
possible impairment must be performed whenever events or changes in
circumstances indicate that an impairment may have occurred and that long-lived
assets to be disposed of be carried at the lower of carrying amount or fair
value. There was no impact on the financial position or results of operations of
the Partnership from the initial adoption of SFAS 121. The specific accounting
policies for assets to be held and used and those to be disposed of are
described in more detail below.
Rental Property - Rental properties, including the related land, are stated at
cost unless events or circumstances indicate that cost cannot be recovered in
which case carrying value is reduced to estimated fair value. Estimated fair
value: (i) is based upon the Partnership's plans for the continued operations of
each property; (ii) is computed using estimated sales price, as determined by
prevailing market values for comparable properties and/or the use of
capitalization rates multiplied by annualized rental income based upon the age,
construction and use of the building, and (iii) does not purport, for a specific
property, to represent the current sales price that the Partnership could obtain
from third parties for such property. The fulfillment of the Partnership's plans
related to each of its properties is dependent upon, among other things, the
presence of economic conditions which will enable the Partnership to continue to
hold and operate the properties prior to their eventual sale. Due to
uncertainties inherent in the valuation process and in the economy, it is
reasonably possible that the actual results of operating and disposing of the
Partnership's properties could be materially different than current
expectations.
Depreciation is provided using the straight line method over the useful lives of
the respective assets.
Land Held for Development - Land held for development is stated at cost unless
events or circumstances indicate that cost cannot be recovered in which case the
carrying value is reduced to estimated fair value. Estimated fair value: (i) is
based on the Partnership's plans for the development of each property; (ii) is
computed using estimated sales price, based upon market values for comparable
properties, (iii) considers the cost to complete and the estimated fair value of
the completed project; and (iv) does not purport, for a specific property, to
represent the current sales price that the Partnership could obtain from third
parties for such property. The fulfillment of the Partnership's plans related to
each of its properties is dependent upon, among other things, the presence of
economic conditions which will enable the Partnership to either hold the
properties for eventual sale or obtain financing to further develop the
properties.
Land Held for Sale - Land held for sale is stated at the lower of cost or
estimated fair value less costs to sell. During fiscal year ended November 30,
1995, the Partnership wrote down the carrying value of the land held for sale
based upon independent appraisals obtained in 1995. Appraisals are estimates of
fair value based upon assumptions about the property and the market in which it
is located. Due to the uncertainties inherent in the appraisal process, these
valuations do not purport to be the price at which a sale transaction involving
these properties can or will take place.
Cash and Cash Equivalents - The Partnership considers certificates of deposit
and money market funds with original maturities of less than ninety days to be
cash equivalents.
Deferred Financing Costs and Other Fees - Deferred loan fees are amortized on a
straight-line basis over the life of the related loan and deferred lease
commissions are amortized over the initial fixed term of the related lease
agreement.
Rental Income - Rental income is recognized as earned over the life of the
respective leases.
Appendix A-21
<PAGE>
RANCON REALTY FUND V,
A California Limited Partnership
Notes to Consolidated Financial Statements
December 31, 1996, November 30, 1995 and 1994
Sales of Real Estate - Gain or loss from sales of real estate is recognized at
the close of escrow, when title has passed, minimum down payment requirements
are met, the terms of any notes received by the Partnership satisfy continuing
payment requirements, and the Partnership is relieved of any requirements for
continued involvement with the property.
Net Loss Per Limited Partnership Unit - Net loss per limited partnership unit is
calculated using the weighted average number of limited partnership units
outstanding during the period and the Limited Partners' allocable share of the
net loss.
Income Taxes - No provision for income taxes is included in the accompanying
financial statements, as the Partnership's results of operations are allocated
to the partners for inclusion in their respective income tax returns. Net loss
and partners' equity (deficit) for financial reporting purposes will differ from
the Partnership income tax return because of different accounting methods used
for certain items, including depreciation expense, capitalization of development
period interest, income recognition and provisions for impairment of investments
in real estate.
Consolidation - In order to satisfy certain lender requirements for the
Partnership's 1996 loan secured by Two Carnegie Plaza, Lakeside Tower and One
Parkside (see Note 5), Rancon Realty Fund V Tri-City Limited Partnership, a
Delaware limited partnership ("RRF V Tri-City") was formed in May, 1996. The
three properties securing the loan were contributed to RRF V Tri-City by the
Partnership. The limited partner of RRF V Tri-City is the Partnership and the
general partner is Rancon Realty Fund V, Inc., a corporation wholly owned by the
Partnership. Since the Partnership indirectly owns 100% of RRF V Tri-City, the
financial statements of RRF V Tri-City have been consolidated with those of the
Partnership. All intercompany transactions have been eliminated in the
consolidation.
Reclassifications - Certain 1995 and 1994 balances have been reclassified to
conform with the current year presentation.
Note 2. RELATED PARTY TRANSACTIONS
Payable to Sponsor - As a result of the agreement between RFC and Glenborough
(see Note 1), RFC terminated certain employees who were previously responsible
for performing the administrative, legal and development services to the
Partnership. Upon termination, certain employee costs including severance
benefits were allocated to the various Rancon Partnerships. Such costs allocated
to the Partnership aggregated $194,000, and were accrued by the Partnership in
fiscal year 1994 and paid in the first quarter of fiscal year 1995.
Reimbursable Expenses and Management Fees to Sponsor - Through December 31,
1994, the Partnership had an agreement with the Sponsor for property management
services. The agreement provided for a management fee equal to 5% of gross
rentals collected while managing the properties. Fees incurred under this
agreement totaled $27,000 and $314,000 for the years ended November 30, 1995 and
1994, respectively. Effective January 1, 1995, the Partnership contracted with
Glenborough to provide these services to the Partnership (see Note 1).
The Partnership Agreement also provides for the reimbursement of actual costs
incurred by the Sponsor in providing certain administrative, legal and
development services necessary for the prudent operation of the Partnership.
Effective January 1, 1995, such services are being provided by Glenborough as
described in Note 1.
Reimbursable costs incurred by the Partnership totaled $84,000 and $1,117,000
for the years ended November 30, 1995 and 1994, respectively, of which the
Partnership capitalized $11,000 and $173,000 in 1995 and 1994, respectively. No
such reimbursable costs were incurred during 1996. The amount incurred in the
fiscal year 1995 is reduced by an $83,000 rebate of the amounts paid by the
Partnership for services provided by the Sponsor during the 1994 calendar year.
Note 3. PLEDGED CASH
Pledged cash of $353,000 represents a $351,000 certificate of deposit held as
collateral for subdivision improvement bonds related to the 78.1-acre Perris
property owned by the Partnership. As the Perris property is now being held for
sale by the Partnership, this pledged cash would be a factor in computing the
sales price of such property and would therefore be recovered in the event of a
sale. Pledged cash as of December 31, 1996 also includes a $2,000 certificate of
deposit pledged as security to a utility district for construction of a sewer
crossing.
Note 4. INVESTMENTS IN REAL ESTATE
Rental property components are as follows (in thousands):
Appendix A-22
<PAGE>
RANCON REALTY FUND V,
A California Limited Partnership
Notes to Consolidated Financial Statements
December 31, 1996, November 30, 1995 and 1994
December 31, December 31, November 30,
1996 1995 1995
------------- ------------ ------------
Land $ 6,586 $ 6,514 $ 6,514
Buildings 31,580 30,806 31,358
Leasehold and other improvements 13,013 12,085 11,205
----------- ---------- -----------
51,179 49,405 49,077
Less: accumulated depreciation (15,180) (13,405) (13,244)
----------- ------------ ------------
Total rental property $ 35,999 $ 36,000 $ 35,833
============= =========== ===========
The Partnership's rental property includes projects at the Tri-City Corporate
Centre in San Bernardino, California and Rancon Centre Ontario. In September,
1996, the Partnership reclassified $570,000 from land held for development to
rental property, following the completion of the construction of the 6,500
square foot restaurant for Outback Steakhouse.
Land held for development consists of the following (in thousands):
December 31, December 31, November 30,
1996 1995 1995
--------- --------- ---------
14 acres on December 31, 1996 and
30.51 acres on December 31, 1995
and November 30, 1995 at Tri-City
Corporate Centre, San Bernardino, CA $ 4,297 $ 4,512 $ 4,510
33.76 acres in Ontario, CA 5,289 5,287 4,656
-------- -------- --------
Total land held for development $ 9,586 $ 9,799 $ 9,166
======== ======== ========
All land held for development is unencumbered at December 31, 1996.
Land held for sale as of December 31, 1996 and 1995, and November 30, 1995
includes the following (in thousands):
23.8 acres in Perris, CA $ 775
78.1 acres in Perris, CA 230
----------
Total land held for sale $ 1,005
==========
All land held for sale is unencumbered at December 31, 1996.
During the years ended November 30, 1995 and 1994, the Partnership recorded the
following provisions to reduce the carrying value of investments in real estate
(in thousands):
1995 1994
-------- -------
Rental Properties:
One Carnegie Plaza $ -- $ 1,657
Carnegie Business Center II -- 299
Rancon Centre Ontario -- 1,009
------------ ----------
-- 2,965
Land Held for Development:
San Bernardino, CA 5,775 --
Land Held for Sale:
78.1 acres in Perris, CA 6,778 --
23.8 acres in Perris, CA 2,207 --
------------ ----------
14,760 --
------------ ----------
Total provision for impairment
of real estate investments $ 14,760 $ 2,965
============ ==========
No such provisions were recorded during the year ended December 31, 1996 or
during the month ended December 31, 1995.
Appendix A-23
<PAGE>
RANCON REALTY FUND V,
A California Limited Partnership
Notes to Consolidated Financial Statements
December 31, 1996, November 30, 1995 and 1994
Prior to 1995, the Partnership's business strategy was to hold its properties
for future development and operations. Conclusions about the carrying value of
the Partnership's properties were based upon this strategy. In 1994, management
concluded that the carrying value of One Carnegie Plaza, Carnegie Business
Center II and Rancon Center Ontario was in excess of their net realizable value.
Provisions for impairment of the Partnership's investment in those properties
were recorded to reduce their carrying amount to estimated net realizable value.
In 1995, the Partnership modified this strategy to focus on eventual disposition
of its assets at the optimal time and sales price, however, development
opportunities will be pursued for certain sites. The Partnership revalued
certain of its assets based on the business strategy for the assets
(predominantly land). Due to the uncertainties inherent in the valuation
process, the carrying values do not purport to be the price at which a sale
transaction involving these properties can or will take place.
Note 5. NOTES PAYABLE
Notes payable as of the stated balance sheet dates were as follows (in
thousands):
December 31, December 31, November 30,
1996 1995 1995
--------- --------- ---------
Note payable, secured by first deed
of trust on Lakeside Tower, One
Parkside and Two Carnegie Plaza.
The loan, which matures August 1,
2006, is a 10-year, 9.39% fixed
rate loan and with a 25-year
amortization and requires $83 in
principal and interest payments
due monthly. $ 9,551 $ -- $ --
Note payable, secured by first deed
of trust on One Carnegie Plaza.
On August 30, 1996, the note was
refinanced and required a $1,500
principal paydown in exchange for
a reduction in the stated interest
rate from 10.0% to 8.25%. The new
loan terms provide for monthly
principal and interest payments
totaling $34 commencing November 1,
1996, with a new maturity date of
December 1, 2001. 4,294 5,840 5,844
Loan payable secured by a first
deed of trust on Two Carnegie Plaza.
Interest accrued at the Chino Valley
Bank prime rate plus 2.25%.The loan
was paid off in May, 1996. -- 2,775 2,777
-------- -------- ---------
Total notes payable $ 13,845 $ 8,615 $ 8,621
========= ======== =========
The annual maturities on the Partnership's notes payable for the fiscal years
subsequent to December 31, 1996 are as follows (in thousands):
1997 $ 161
1998 176
1999 192
2000 210
2001 4,196
Thereafter 8,910
--------
Total $ 13,845
========
Note 6. LEASES
The Partnership's rental properties are leased under operating leases that
expire at various dates through December, 2010. In addition to base monthly
rents, several of the leases provide for additional rents based upon a
percentage of sales levels attained by the tenants; however, no contingent
rentals were realized during the years ended December 31, 1996, November 30,
1995
Appendix A-24
<PAGE>
RANCON REALTY FUND V,
A California Limited Partnership
Notes to Consolidated Financial Statements
December 31, 1996, November 30, 1995 and 1994
and 1994 or the month ended December 31, 1995. Future minimum rents on
non-cancelable operating leases as of December 31, 1996 are as follows (in
thousands):
1997 $ 6,790
1998 5,338
1999 3,455
2000 2,594
2001 1,857
Thereafter 9,559
---------
Total $ 29,593
========
Note 7. COMMITMENTS AND CONTINGENT LIABILITIES
The Partnership is contingently liable for subordinated real estate commissions
payable to the Sponsor in the amount of $102,000 at December 31, 1996. 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.
On September 19, 1994, the Partnership (incorrectly referred to as "Rancon
Realty") was served by mail with a Summons and Complaint in connection with an
action filed by a single four-unit Partnership investor, in the Circuit Court of
Mobile County, Alabama. In this action (George Jones v. Wallace Quinn; Life
Cycle Financial Planning; Rancon Realty; Phoenix Leasing, Incorporated; First
Securities Corporation et. al; Civil Action No. CV94-3053) the plaintiff alleges
that the defendants, primarily the plaintiff's investment advisors, gave
improper investment advice and misrepresented the suitability of certain
investments, including the Partnership, for the plaintiff's investment
portfolio. The Partnership retained Alabama counsel to represent it in this
action. Such action was settled in December, 1995 resulting in the Partnership
repurchasing the plaintiff's investment of four units.
Note 8. TAXABLE INCOME
The Partnership's tax returns, the qualification of the Partnership as a
partnership for federal income tax purposes, and the amount of income or loss
are subject to examination by federal and state taxing authorities. If such
examinations result in changes to the Partnership's taxable income or loss, the
tax liability of the partners could change accordingly.
The Partnership's tax returns are filed on a calendar year basis. As such, the
following reconciliation has been prepared using tax amounts estimated on a
calendar year basis.
The following is a reconciliation for the years ended December 31, 1996,
November 30, 1995 and 1994, of the net loss for financial reporting purposes to
the estimated taxable income (loss) determined in accordance with accounting
practices used in preparation of federal income tax returns (in thousands).
December 31, November 30, November 30,
1996 1995 1994
---------- --------- ----------
Net loss per financial statements $ (1,307) $ (16,148) $ (5,558)
Provision for impairment of
investments in real estate -- 14,760 2,965
Financial reporting depreciation in
excess of tax reporting depreciation 558 626 1,023
Operating revenues and expenses
recognized in a different period
for financial reporting than for
income tax reporting, net (175) 166 432
Property taxes capitalized for tax 487 477 --
--------- -------- --------
Estimated net loss for federal
income tax purposes $ (437) $ (119) $ (1,138)
========== ======== ========
Appendix A-25
<PAGE>
RANCON REALTY FUND V,
A California Limited Partnership
Notes to Consolidated Financial Statements
December 31, 1996, November 30, 1995 and 1994
The following is a reconciliation as of December 31, 1996 and November 30, 1995
of partner's equity for financial reporting purposes to estimated partners'
capital for federal income tax purposes (in thousands).
December 31, November 30,
1996 1995
------------ -----------
Partners' equity per financial
statements $ 39,997 $ 41,506
Cumulative provision for impairment
of investments in real estate 21,725 21,725
Cumulative financial reporting
depreciation in excess of tax
reporting depreciation 6,883 6,325
Operating revenues and expenses
recognized in a different period
for financial reporting than for
income tax reporting, net (175) 166
Property taxes capitalized for tax 964 477
Syndication costs (1,987) (1,987)
Other, net 843 476
------------ ----------
Estimated partners' capital for
federal income tax purposes $ 68,250 $ 68,688
============ ==========
Appendix A-26
<PAGE>
<TABLE>
RANCON REALTY FUND V,
A California Limited Partnership
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
December 31, 1996
(In Thousands)
<CAPTION>
- - --------------------------------------------------------------------------------------------------------
COLUMN A COLUMN B COLUMN C COLUMN D
Cost Capitalized
Initial Cost to Subsequent to
Partnership Acquisition
---------------------- ----------------------
Buildings
and Carrying
Description Encumbrances Land Improvements Improvements Cost
- - --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Rental Properties:
Commercial Office Complexes
San Bernardino County, CA:
6.8 acres - One Carnegie Plaza $4,294 $ 1,583 $ -- $ 9,462 $ 40
Less: Provision for impairment
of investment in real estate (B) -- -- -- (1,657) --
4.5 acres - Two Carnegie Plaza (C) 873 -- 5,562 --
3.7 acres - Carnegie Business
Center II -- 544 -- 3,482 15
Less: Provision for impairment
of investment in real estate (B) -- -- -- (299) --
5.3 acres - Lakeside Tower (C) 834 -- 10,966 92
3.0 acres - Santa Fe -- 501 -- 2,529 --
2.3 acres - One Parkside (C) 529 -- 6,128 235
Less: Provision for impairment
of investment in real estate (B) -- -- -- (700) --
0.8 acres - Health Club -- 786 -- 3,002 178
1.07 acres - Outback Steakhouse -- -- -- 806 --
Industrial Office Complexes
San Bernardino County, CA:
19 acres - Rancon Centre Ontario -- 1,735 -- 6,728 34
Less: Provision for impairment
of investment in real estate (B) -- -- -- (2,809) --
------- ------- ------- -------- ------
13,845 7,385 -- 43,200 594
------- ------- ------- -------- ------
Land Held for Development:
San Bernardino County, CA:
14 acres - Tri-City -- 5,676 -- 4,631 1,265
Less: Provision for impairment
of investment in real estate (B) -- (2,431) -- (4,844) --
33.76 acres - Ontario -- 3,621 -- 1,499 169
------- ------- ------- -------- -------
-- 6,866 -- 1,286 1,434
------- ------- ------- -------- -------
Land Held for Sale:
Riverside County, CA:
23.8 acres - Perris - Ethanac Rd. -- 2,780 -- 180 22
Less: Provision for impairment
of investment in real estate (B) -- (2,027) -- (180) --
78.1 acres - Perris - Nuevo Rd. -- 5,955 -- 1,008 45
Less: Provision for impairment
of investment in real estate (B) -- (5,770) -- (1,008) --
------- ------- ------- -------- -------
-- 938 -- -- 67
------- ------- ------- -------- -------
TOTAL $13,845 $15,189 $ -- $ 44,486 $ 2,095
======= ======= ======= ======== =======
</TABLE>
<TABLE>
<CAPTION>
- - -------------------------------------------------------------------------------------------------------------------------
COLUMN A COLUMN E COLUMN F COLUMN G COLUMN H COLUMN I
Gross Amount Carried
at December 31, 1996
---------------------------
Buildings Date Life
and (A) Accumulated Construction Date Depreciated
Description Land Improvements Total Depreciation Began Acquired Over
- - -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Rental Properties:
Commercial Office Complexes
San Bernardino County, CA:
6.8 acres - One Carnegie Plaza $ 1,583 $ 9,502 $11,085 $3,456 8/86 6/03/85 3-40 yrs.
Less: Provision for impairment
of investment in real estate (B) (256) (1,401) (1,657) --
4.5 acres - Two Carnegie Plaza 873 5,562 6,435 2,161 1/88 6/03/85 3-40 yrs.
3.7 acres - Carnegie Business
Center II 544 3,497 4,041 1,769 10/86 6/03/85 3-40 yrs.
Less: Provision for impairment
of investment in real estate (B) (41) (258) (299) --
5.3 acres - Lakeside Tower 834 11,058 11,892 4,117 3/88 6/03/85 3-40 yrs.
3.0 acres - Santa Fe 501 2,529 3,030 966 2/89 6/03/85 5-40 yrs.
2.3 acres - One Parkside 529 6,363 6,892 1,070 2/92 6/03/85 5-40 yrs.
Less: Provision for impairment
of investment in real estate (B) (65) (635) (700) --
0.8 acres - Health Club 786 3,180 3,966 134 1/95 6/03/85 5-40 yrs.
1.07 acres - Outback Steakhouse 161 645 806 -- 1/96 6/03/85 15-40 yrs.
Industrial Office Complexes
San Bernardino County, CA:
19 acres - Rancon Centre Ontario 1,735 6,762 8,497 1,507 1/88 5/22/87 3-40 yrs.
Less: Provision for impairment
of investment in real estate (B) (598) (2,211) (2,809) --
------- ------- ------- -------
6,586 44,593 51,179 15,180
------- ------- ------- -------
Land Held for Development:
San Bernardino County, CA:
14 acres - Tri-City 11,572 -- 11,572 -- N/A 6/03/85 N/A
Less: Provision for impairment
of investment in real estate (B) (7,275) -- (7,275) --
33.76 acres - Ontario 5,289 -- 5,289 -- N/A 5/22/87 N/A
------- ------- ------- -------
9,586 -- 9,586 --
------- ------- ------- -------
Land Held for Sale:
Riverside County, CA:
23.8 acres - Perris - Ethanac Rd. 2,982 -- 2,982 -- N/A 3/30/89 N/A
Less: Provision for impairment
of investment in real estate (B) (2,207) -- (2,207) --
78.1 acres - Perris - Nuevo Rd. 7,008 -- 7,008 -- N/A 12/28/89 N/A
Less: Provision for impairment
of investment in real estate (B) (6,778) -- (6,778) --
------- ------- ------- -------
1,005 -- 1,005 --
------- ------- ------- -------
TOTAL $17,177 $44,593 $61,770 $15,180
======= ======= ======= =======
<FN>
(A) The aggregate cost for federal income tax purposes is $83,989.
(B) See Note 4 to Financial Statements
(C) Two Carnegie Plaza, Lakeside Tower and One Parkside are collateral for the debt in the aggregate amount of $9,551.
</FN>
</TABLE>
Appendix A-27
<PAGE>
RANCON REALTY FUND V,
A CALIFORNIA LIMITED PARTNERSHIP
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
(in thousands)
Reconciliation of gross amount at which real estate was carried:
For the For the one For the For the
year ended month ended year ended year ended
December 31, December 31, November 30, November 30
1996 1995 1995 1994
---------- --------- ----------- ----------
Investments in real estate:
Balance at beginning of period $60,209 $59,248 $70,855 $ 72,975
Additions during period:
Improvements 1,561 961 2,975 1,557
Capitalized carrying costs -- -- 178 --
Provision for impairment of
investments in real estate -- -- 14,760) (2,965)
Sales -- -- -- (712)
------- ------- ------ --------
Balance at end of period $61,770 $60,209 $59,248 $ 70,855
========= ======= ======= ========
Accumulated Depreciation:
Balance at beginning of period $13,405 $13,244 $11,464 $ 9,329
Additions charged to expenses 1,775 161 1,780 2,135
------- ------- ------- --------
Balance at end of period $15,180 $13,405 $13,244 $ 11,464
======= ======= ======= ========
Appendix A-28
<PAGE>
RANCON REALTY FUND V,
A CALIFORNIA LIMITED PARTNERSHIP
INDEX TO EXHIBITS
Exhibit Number Exhibit Page
(3.4) Limited Partnership Agreement of RRF V Tri-
City Limited Partnership, A Delaware limited
partnership of which Rancon Realty Fund V,
A California Limited Partnership is the
limited partner. Appendix A-30
(10.3) Promissory note in the amount of $9,600,000,
dated May 6, 1996 secured by Deeds of Trust
on three of the Partnership Properties. Appendix A-34
Appendix A-29
<PAGE>
Exhibit 3.4
LIMITED PARTNERSHIP AGREEMENT OF
RRF V TRI CITY LIMITED PARTNERSHIP
THIS LIMITED PARTNERSHIP AGREEMENT is made as of this 2nd day of April,
1996. between RRF V, Inc., a Delaware corporation (the "General Partner") and
Rancon Realty Fund V. a California limited partnership (the "Limited Partner"),
herein referred to collectively as the "Partners" and individually as a
"Partner" and whose names and addresses are set forth in Exhibit A
ARTICLE I
NAME AND PURPOSE
1. Formation. The undersigned parties hereby form a partnership (herein
called the Partnership") pursuant to the provisions of the Delaware Revised
Uniform Limited Partnership Act (the "Act").
2. Name and Office. The name of the Partnership is RRF V TRI CITY
LIMITED PARTNERSHIP. The principal office of the Partnership shall be located at
400 South El Camino Real, San Mateo, California 94402-1708, but the Partnership
may select and otherwise operate and conduct its business in any and all parts
of the United States as the parties may deem advisable.
3. Purposes. The Partnership has been formed for the purposes of:
(a) acquiring all that certain real estate more particularly described
on Exhibit B hereto and all improvements thereon and all personally associated
therewith and all rentals, leases and agreements relating, thereto
(collectively, the "Real Estate") from the transferor identified opposite the
description of each such Real Estate described on Exhibit B hereto and financing
each such Real Estate with a loan (collectively, the "Loans") from Bear, Stearns
Funding. Inc. (the "Lender") and selling, conveying, mortgaging and otherwise
disposing of all or any part of the Real Estate subject to the requirement of
the documents evidencing and securing the Loans;
(b) entering into and performing obligations pursuant to agreements
necessary or desirable to effectuate the foregoing (such agreements and the
agreements referred to in subparagraph (a) above shall be collectively referred
to herein as the "Agreements"); and
(c) engaging in any lawful act or activity that may be taken by, and
exercising any powers permitted to limited partnerships organized under the Act
that are incidental to and necessary or desirable for the accomplishment of the
above-mentioned purposes.
The Partnership is authorized to engage in any and all acts necessary, advisable
or incidental to the conduct of its business and. after repayment in full of the
Loans, may engage in any other business or activity which may be lawfully
conducted by partnerships organized under the Act.
4. Term. The term of the Partnership shall be from the date hereof to
December 31, 2095. unless Terminated earlier as hereinafter provided or as
otherwise provided by law.
ARTICLE II
CAPITAL
1. Initial Capital contributions of Partners. The initial capital
required to carry on the business purposes described in Article 1, Paragraph 3
above shall be advanced by the General Partner and the Limited Partner in the
amounts as shown on the attached Exhibit A, which Exhibit is incorporated herein
by this reference: provided, that the General Partner s initial capital
contribution shall be in an amount equal to the lesser of $500,000 and 1% of the
net asset value of the assets of the Partnership. No interest shall be paid by
the Partnership to the Partners on any Capital Contribution paid to the
Partnership. Except as otherwise provided in the Act or in this Agreement, no
Partner shall be required to make any further contribution to the capital of the
Partnership.
2. Distributions of Capital. Under circumstances requiring a return of
any Capital Contribution. no Partner shall have the right to receive property
other than cash.
3. Admission of Additional Partners. Neither the Partnership nor the
General Partner on behalf of the Partnership may admit additional Partners
without the consent of all of the Partners
Appendix A-30
<PAGE>
Exhibit 3.4
ARTICLE III
MANAGEMENT
1. Management Decisions. The parties hereto agree that the General
Partner is solely responsible for the day-to-day operations of the Partnership.
Subject to express limitations set forth in this Partnership Agreement, the
General Partner is authorized to do anything necessary and appropriate to
achieve the purposes detailed in Article 1, Paragraph 3 above. The General
Partner may be removed for cause by a vote of the Partners holding a majority
interest in the Partnership but may not otherwise dissolve or resign as General
Partner without the vote of the majority interest in the Partnership; provided,
the General Partner may not resign or be removed in any event unless a successor
bankruptcy remote corporation shall have been appointed and be ready and able to
succeed to the General Partner as general partner of the Partnership.
Sale of all or a substantial portion of the Partnership assets must be
approved by a vote of the Partners holding a majority interest in the
Partnership.
The General Partner shall devote such time to the Partnership as shall
be reasonably required for its welfare and success. The General Partner shall
use its best efforts to enable the Partnership to carve out the purposes set
forth in Article 1, Paragraph 3.
2. Expenses. The General Partner may be reimbursed by the Partnership
for reasonable out-of-pocket expenses incurred by it in connection with the
business of the Partnership.
3. Covenants Regarding Operation.
(a) The Partnership shall not incur, assume or guarantee any
indebtedness except for such indebtedness as may be incurred by the Partnership
in connection with the Loans or as other vise permitted by the Lender.
(b) The Partnership shall not engage in any business or activity other
than in connection with or relating to the Partnership's purposes.
(c) The Partnership shall not consolidate or merge with or into any
other entity or convey or transfer its properties and assets substantially as an
entirety to any entity.
(d) The Partnership shall not dissolve or liquidate, in whole or in
part, except in the event the Loans have been satisfied in full.
(e) The funds and other assets of the Partnership shall not be
commingled with those of any other entity.
(f) The Partnership shall not guaranty or become obligated or hold
itself out as being liable for the debts of any other party. The Partnership
shall not plead its assets for the benefit of any other person or entity.
(g) The Partnership shall not form, or cause to be formed, any
subsidiaries.
(h) The Partnership shall make no asset distributions, including,
without limitation, any distribution of dividends, except to the extent of cash
on hand in excess of that needed to cover the expected operating expenses of the
Partnership.
(i) The Partnership shall not make any loans to any person or entity.
(j) The Partnership shall act solely in its name and through the
General Partner in the conduct of its business. and shall conduct its business
so as not to mislead others as to the identity of the entity with which they are
concerned. The Partnership shall pay its own liabilities from its own funds.
(k) The Partnership shall not file any voluntary petition or consent to
the filing of any petition in or institute any bankruptcy, reorganization,
arrangement, insolvency or liquidation proceeding or other proceeding under any
federal or state bankruptcy or similar law without the unanimous consent of the
Partners.
( l ) The Partnership shall maintain partnership records and books of
account and shall not commingle its partnership records and books of account
with the corporate records and books of account of any entirety. The books of
the Partnership may be kept (subject to any provision contained in the statutes)
inside or outside the State of Delaware at such place or places as may be
designated from time to time by the members of the General Partner.
(m) The Partnership shall maintain an arms-length relationship with the
Partners and their affiliates and, in particular. shall compensate such Partners
or affiliates on a commercial reasonable basis for any services or office space
provided by them.
(n) The Partnership shall maintain a separate telephone number and use
its own stationary, invoice and checks.
(o) The Partnership shall observe all partnership formalities.
ARTICLE IV
RIGHTS AND OBLIGATIONS OF THE LIMITED PARTNERS
1. Management of the Partnership.
(a) No Limited Partner may take part in the management of or control of
the business of the Partnership, transact any business in the name of the
Partnership, incur expenditures on behalf of the Partnership, bind the
Partnership or sign any agreement or document in the name of the Partnership
Appendix A-31
<PAGE>
Exhibit 3.4
(b) No Limited Partner will have any power or authority with respect to
the Partnership or Partnership affairs except to the extent that the express
provisions of this Agreement or the Act require or permit the Limited Partner to
take certain actions with respect to the Partnership.
2. Liability of Limited Partners. Except as otherwise provided in the
Act or this Agreement and irrespective of any deficit in a Limited Partners'
Capital Account, no Limited Partner will be required to contribute funds to the
Partnership other than its Capital Contribution and will not be personally
liable for any obligations of the Partnership beyond the amount of its Capital
Contribution. Except as provided in this Agreement, no Limited Partner in its
capacity as limited partner is required to loan funds to the Partnership.
ARTICLE V
ACCOUNTING
1. Books and Records. The Partnership through the General Partner shall
cause full and accurate books of the Partnership to be maintained at the
Partnership's principal place of business. Such books and records shall include
all receipts and expenditures, assets and liabilities, profits and losses and
all other records necessary for recording the Partnership's business and
affairs. Such books and records shall be open to inspection and examination by
all Partners, in person or by their duly authorized representatives. at
reasonable times.
2. Fiscal Year. The fiscal years the Partnership will end on the last
day of December, unless changed by the General Partner with the consent of the
Limited Partner.
3. Reports. Annual balance sheets and statements showing the income and
expenses of the Partnership. Together with the Partnership federal and state
income tax returns, shall be prepared and submitted to the Partners not later
than 60 days after the end of the fiscal year. The General Partner is hereby
authorized to designate itself as tax matters partner of the Partnership.
4. Bank Accounts and Investment of Funds. All funds of the Partnership
shall be deposited in its name in such checking and savings accounts or time
certificates as shall be designated by the Partners. Withdrawals therefrom shall
be made upon such signature or Signatures as the Partners may designate.
5. Method of Accounting. The books of the Partnership shall be kept on
the accrual basis of accounting.
ARTICLE Vl
ALLOCATIONS AND DISTRIBUTIONS
1. Profits and Losses. The profits and losses of the Partnership shall
be determined each year in accordance with accounting methods used for federal
income tax purposes and shall be allocated among the Partners and credited (or
charged) to their Capital Accounts (as defined and maintained in accordance with
Regulations under Section 704(b) of the Internal Revenue Code of 1986, as
amended) in accordance with the Partnership Percentages (as such percentages are
set forth on Exhibit A hereto).
2. Cash Distributions. All cash distributions of the Partnership shall
be distributed among the Partners and charged to their Capital Accounts in
accordance with the Partnership Percentages.
ARTICLE VII
TERMINATION OF THE PARTNERSHIP
1. Termination. The Partnership shall be dissolved upon the first to
occur of the following:
(a) the sale of all or substantially all of the Partnership assets;
(b) the mutual unanimous agreement of the Partners; provided, that the
Partners shall not agree to dissolve the Partnership while the Loans are
outstanding.
(c) the date December 31, 2095; or
(d) the General Partner shall dissolve or file, or be the subject of,
any reorganization, bankruptcy, insolvency or liquidation proceeding or other
proceeding under any federal or state bankruptcy or similar law; provided, that
any such act shall not cause a dissolution of the Partnership if within 90 days
after such withdrawal, dissolution filing or commencement of proceeding the
limited partners shall unanimously (i) elect to continue the Partnership, and
(ii) appoint a successor General Partner.
Appendix A-32
<PAGE>
Exhibit 3.4
2. Dissolution. Upon the occurrence of any one of the above events, the
Partnership will be dissolved, the affairs of the Partnership wound up and the
assets liquidated, allocated and distributed, as realized, in the following
order:
(a) to creditors of the Partnership; and
(b) to the Partners in accordance with their Capital Account balances.
If, upon liquidation, the General Partner has a deficit Capital Account balance,
the General Partner shall be required to contribute cash to the Partnership in
an amount equal to such deficit Capital Account balance.
ARTICLE VIII
TRANSFER OF INTEREST
No partner may sell, transfer or otherwise assign its interest in the
Partnership, in whole or in part; provided, that the initial General Partner may
transfer its general partner interest in the Partnership to a corporation which
is a wholly owned, qualified real estate investment trust subsidiary of Rancon
Financial Corporation and is otherwise approved by the Lender, and following
such transfer such transferee shall be the General Partner for all purposes of
this Agreement. Anything contained herein to the contrary notwithstanding, in no
event shall the Partners or any of them have the authority to amend the
provisions of this Article VIII.
ARTICLE IX
GENERAL PROVISIONS
1. Indemnification. If the General Partner shall violate any of the
terms, provisions and conditions of this Partnership Agreement, it shall, in
addition to being subjected to the other remedies. liabilities and obligations
herein imposed upon it therefor, keep and save harmless the Partnership property
and indemnify the other Partners from any and all claims, demands and actions
that may arise out of or by reason of such a violation of any of the terms,
provisions and conditions thereof.
2. Amendments. This Partnership Agreement may not be modified or
amended except with the unanimous written consent of the Partners.
Notwithstanding anything herein to the contrary. Article VIII may not be amended
at any time.
3. Governing Law; Binding. This Partnership Agreement shall be
construed and enforceable in accordance with the laws of the State of Delaware
and shall be binding upon all the parties and their assigns, successors,
estates, heirs or legatees.
4. Counterparts. This Partnership Agreement may be executed in any
number of counterparts. each of which shall be deemed to constitute an original
and all of which together shall constitute one! instrument
IN WITNESS WHEREOF. we have hereunto set our hands the day and year heretofore
mentioned.
GENERAL PARTNER:
RRF V, INC.
By:/s/ Robert Batinovich
Robert Batinovich, President
LIMITED PARTNER:
Rancon Realty Fund V, L.P.,
a California limited partnership
By: /s/ Daniel Lee Stephenson,
Daniel Lee Stephenson,
General Partner
By: Rancon Financial Corporation,
General Partner
By: /s/ Daniel Lee Stephenson
Its President
Appendix A-33
<PAGE>
Exhibit 10.3
PROMISSORY NOTE
$9,600,000 New York, New York
May 9, 1996
FOR VALUE RECEIVED RRF V TRI CITY LIMITED PARTNERSHIP, a Delaware
limited partnership, as maker, having its principal place of business at c/o
Glenborough Inland Realty Corporation, 400 South El Camino Real, San Mateo,
California 94402 ("Borrower"), hereby unconditionally promises to pay to the
order of BEAR, STEARNS FUNDING, INC., a Delaware corporation, as payee, having
an address at 245 Park Avenue, New York, New York 10167 ("Lender"), or at such
other place as the holder hereof may from time to time designate in writing, the
principal sum of NINE MILLION SIX HUNDRED THOUSAND Dollars ($9,600,000), in
lawful money of the United States of America with interest thereon to be
computed from the date of this Note at the Applicable Interest Rate (defined
below), and to be paid in installments as follows:
ARTICLE 1: PAYMENT TERMS
(a) A payment on the date hereof on account of all interest that will
accrue on the principal amount of this Note from and after the date hereof
through and including the last day of the present month;
(b) A constant payment of $83,141.99 on the first day of July, 1996 and
on the first day of each calendar month thereafter (the "Monthly Payment") up to
and including the first day of May, 2006; the Monthly Payment shall be subject
to adjustment pursuant to Article 5 hereof upon release of a Release Property
(as defined in that certain Loan Agreement dated of even date herewith between
Borrower and Lender (the "Loan Agreement")); each Monthly Payment to be applied
as follows:
(i) first, to the payment of interest computed at the Applicable
Interest Rate; and
(ii) the balance toward the reduction of the principal sum;
and the balance of the principal sum and all interest thereon shall be due and
payable on the first day of June, 2006 (the "Maturity Date"). Interest on the
principal sum of this Note shall be calculated on the basis of a three hundred
sixty (360) day year based on twelve (12) thirty (30) day months, except that
interest due and payable for a period of less than a full month shall be
calculated by multiplying the actual number of days elapsed in such period by a
daily rate based on said 360-day year.
ARTICLE 2: INTEREST
The term "Applicable Interest Rate" as used in the Security Instrument
(defined below) and this Note shall mean an interest rate equal to nine and
thirty nine hundredths percent (9.39%) per annum.
ARTICLE 3: DEFAULT AND ACCELERATION
(a) The whole of the principal sum of this Note, (b) interest, default
interest, late charges and other sums, as provided in this Note, the Security
Instrument or the Other Security Documents (defined below), (c) all other monies
agreed or provided to be paid by Borrower in this Note, the Security Instrument
or the Other Security Documents, (d) all sums advanced pursuant to the Security
Instrument to protect and preserve the Property (defined below) and the lien and
the security interest created thereby, and (e) all sums advanced and costs and
expenses incurred by Lender in connection with the Debt (defined below) or any
part thereof, any renewal, extension, or change of or substitution for the Debt
or any part thereof, or the acquisition or perfection of the security therefor,
whether made or incurred at the request of Borrower or Lender (all the sums
referred to in (a) through (e) above shall collectively be referred to as the
"Debt") shall without notice become immediately due and payable at the option of
Lender if any payment required in this Note is not paid within ten (10) days of
the date the same is due or on the Maturity Date or on the happening of any
other default, after the expiration of any applicable notice and grace periods,
herein or under the terms of the Security Instrument or any of the Other
Security Documents (collectively, an "Event of Default").
ARTICLE 4: DEFAULT INTEREST
Borrower does hereby agree that upon the occurrence of an Event of
Default, Lender shall be entitled to receive and Borrower shall pay interest on
the entire unpaid principal sum at a rate equal to the lesser of (a) five
percent (5%) plus the Applicable Interest Rate and (b) the maximum interest rate
which Borrower may by law pay (the "Default Rate"). The Default Rate shall be
computed from the occurrence of the Event of Default until the earlier of the
date upon which the Event of Default is cured or the date upon which the Debt is
paid in full. Interest calculated at the Default Rate shall be added to the
Debt, and shall be deemed secured by the Security Instrument. This clause,
however, shall not be construed as an agreement or privilege to extend the
Appendix A-34
<PAGE>
Exhibit 10.3
date of the payment of the Debt, nor as a waiver of any other right or remedy
accruing to Lender by reason of the occurrence of any Event of Default.
ARTICLE 5: PREPAYMENT
Borrower shall not have the right or privilege to prepay all or any
portion of the unpaid principal balance of this Note until the third anniversary
of the date hereof.
During the period commencing on the third anniversary of the date
hereof and ending on or before the date which is six (6) months prior to the
Maturity Date, Borrower may, provided it has given Lender prior written notice
in accordance with the terms of this Note, prepay the unpaid principal balance
of this Note in whole or in part by paying, together with the amount to be
prepaid, (a) interest accrued and unpaid on the portion of the principal balance
of this Note being prepaid to and including the date of prepayment, (b) unless
prepayment is tendered on the first day of a calendar month, an amount equal to
the interest that would have accrued on the amount being prepaid after the date
of prepayment through and including the last day of the calendar month in which
the prepayment occurs had the prepayment not been made (which sum shall
constitute additional consideration for the prepayment)r (c) all other sums then
due under this Note, the Security Instrument and the Other Security Documents,
and (d) a prepayment consideration (the "Prepayment Consideration") equal to the
greater of (i) one percent (1%) of the principal balance of this Note being
prepaid and (ii) the excess, if any, of (A) the product of (1) the sum of the
present values of all then-scheduled payments of principal and interest under
this Note including, but not limited to, principal and interest on the Maturity
Date, (with each such payment discounted to its present value at the date of
prepayment at the rate which, when compounded monthly, is equivalent to the
Prepayment Rate (hereinafter defined)) and (2) a fraction, the numerator of
which is the principal amount of this Note being prepaid and the denominator of
which is the then outstanding principal amount of this Note, over (B) the
principal amount of this Note being prepaid. Partial prepayments of the
principal amount of this Note shall not be in increments of less than $100,000,
be permitted more than once in any period of one year commencing on the date
hereof or any anniversary hereof or result in a recalculation of the Monthly
Payment, except that upon a prepayment of the principal amount of this Note in
connection with a release of a Release Property, the Monthly Payment shall be
recalculated to equal a constant monthly payment of principal and interest
sufficient to pay interest on the then outstanding principal balance of this
Note at the Applicable Interest Rate and amortize such balance over an
amortization period beginning on the first day of the month following release of
the Release Property and ending on June 1,. 2021.
The term "Prepayment Rate" means the bond equivalent yield (in the
secondary market) on the United States Treasury Security that as of the
Prepayment Rate Determination Date (hereinafter defined) has a remaining term to
maturity closest to, but not exceeding, the remaining term to the Maturity Date,
as most recently published in the "Treasury Bonds, Notes and Bills" section in
The Wall Street Journal as of such Prepayment Rate Determination Date. If more
than one issue of United States Treasury Securities has the remaining term to
the Maturity Date referred to above, the "Prepayment Rate" shall be the yield on
the United States Treasury Security most recently issued as of the Prepayment
Rate Determination Date. The rate so published shall control absent manifest
error. The term "Prepayment Rate Determination Date" shall mean the date which
is five (5) Business Days prior to the scheduled prepayment date. As used
herein, "Business Day" shall mean any day other than Saturday, Sunday or any
other day on which banks are required or authorized to close in New York, New
York.
Lender shall notify Borrower of the amount and the basis of
determination of the required prepayment consideration. If the publication of
the Prepayment Rate in The Wall Street Journal is discontinued, Lender shall
determine the Prepayment Rate on the basis of "Statistical Release H.15 (519),
Selected Interest Rates," or any successor publication, published by the Board
of Governors of the Federal Reserve System, or on the basis of such other
publication or statistical guide as Lender may reasonably select.
After the date which is six (6) months prior to the Maturity Date,
Borrower may, provided that it has given Lender prior written notice in
accordance with the terms of this Note, prepay the unpaid principal balance of
this Note in whole or in part, by paying, together with the amount to be
prepaid, (a) interest accrued and unpaid on the portion of the principal balance
of this Note being prepaid to and including the date of prepayment, (b) unless
the prepayment is tendered on the first day of a calendar month, an amount equal
to the interest that would have accrued on the amount being prepaid after the
date of prepayment through and including the last day of the calendar month in
which the prepayment occurs had the prepayment not been made (which amount shall
constitute additional consideration for the prepayment), and (c) all other sums
then due under this Note, the Security Instrument and the Other Security
Documents. Partial prepayments of this Note during such period shall not be in
increments of less than $100,000 or result in a recalculation of the amount of
monthly debt service payments due under this Note, except that upon a prepayment
of the principal amount of this Note in connection with a release of a Release
Property, the Monthly Payment shall be recalculated to equal a constant monthly
payment of principal and interest sufficient to pay interest on the then
outstanding principal balance of this Note at the Applicable Interest Rate and
amortize such balance over an amortization period beginning on the first day of
the month following release of the Release Property and ending on June 1, 202l
Appendix A-35
<PAGE>
Exhibit 10.3
Borrower's right to prepay any portion of the principal balance of this
Note shall be subject to (i) Borrower's submission of a notice to Lender setting
forth the amount to be prepaid and the projected date of prepayment, which date
shall be no less than thirty (30) or more than sixty (60) days from the date of
such notice, and (ii) Borrower's actual payment to Lender of the amount to be
prepaid as set forth in such notice on the projected date set forth in such
notice or any day following such projected date occurring in the same calendar
month as such projected date.
Following an Event of Default and acceleration of this Note, if
Borrower or anyone on Borrower's behalf makes a tender of payment of the amount
necessary to satisfy the indebtedness evidenced by this Note and secured by the
Security Instrument at any time prior to foreclosure sale (including, but not
limited to, sale under power of sale under the Security Instrument), or during
any redemption period after foreclosure, (i) the tender of payment shall
constitute an evasion of Borrower's obligation to pay any Prepayment
Consideration due under this Note and such payment shall, therefore, to the
maximum extent permitted by law, include a premium equal to the Prepayment
Consideration that would have been payable on the date of such tender had this
Note not been so accelerated, or (ii) if at the time of such tender a prepayment
of the principal amount of this Note would have been prohibited under this Note
had the principal amount of this Note not been so accelerated, the tender of
payment shall constitute an evasion of such prepayment prohibition and shall,
therefore, to the maximum extent permitted by law, include an amount equal to
the greater of (i) 1% of the then principal amount of this Note and (ii) an
amount equal to the excess of (A) the sum of the present values of a series of
payments payable at the times and in the amounts equal to the payments of
principal and interest (including, but not limited to the principal and interest
payable on the Maturity Date) which would have been scheduled to be payable
after the date of such tender under this Note had this Note not been
accelerated, with each such payment discounted to its present value at the date
of such tender at the rate which when compounded monthly is equivalent to the
Prepayment Rate, over (B) the then principal amount of this Note.
ARTICLE 6: SECURITY
This Note is secured by the Security Instrument and the Other Security
Documents. The term "Security Instrument" as used in this Note shall mean those
three (3) Deeds of Trust, Fixture Filings and Security Agreements dated as of
the date hereof in the principal sum of this Note given by Borrower to (or for
the benefit of) Lender each covering the fee simple estate of Borrower in
certain premises located in Riverside County, State of California, and other
property, as more particularly described therein (collectively, the "Property")
and intended to be duly recorded in said County. The term "Other Security
Documents" as used in this Note shall mean all and any of the documents other
than this Note or the Security Instrument now or hereafter executed by Borrower
and/or others and by or in favor of Lender, which wholly or partially secure or
guarantee payment of this Note, including, but not limited to, the Loan
Agreement. Whenever used, the singular number shall include the plural, the
plural number shall include the singular, and the words "Lender" and "Borrower"
shall include their respective successors, assigns, heirs, executors and
administrators.
All of the terms, covenants and conditions contained in the Security
Instrument and the Other Security Documents are hereby made part of this Note to
the same extent and with the same force as if they were fully set forth herein.
All capitalized terms not defined herein shall have the meanings ascribed to
them in the Security Instrument and the Other Security Documents.
ARTICLE 7: SAVINGS CLAUSE
This Note is subject to the express condition that at no time shall
Borrower be obligated or required to pay interest on the principal balance due
thereunder at a rate which could subject Lender to either civil or criminal
liability as a result of being in excess of the maximum interest rate which
Borrower is permitted by applicable law to contract or agree to pay. If by the
terms of this Note, Borrower is at any time required or obligated to pay
interest on the principal balance due thereunder at a rate in excess of such
maximum rate, the Applicable Interest Rate or the Default Rate, as the case may
be, shall be deemed to be immediately reduced to such maximum rate and all
previous payments in excess of the maximum rate shall be deemed to have been
payments in reduction of principal and not on account of the interest due
thereunder. All sums paid or agreed to be paid to Lender for the use,
forbearance, or detention of the Debt, shall, to the extent permitted by
applicable law, be amortized, prorated, allocated, and spread throughout the
full stated term of the Note until payment in full so that the rate or amount of
interest on account of the Debt does not exceed the maximum lawful rate of
interest from time to time in effect and applicable to the Debt for so long as
the Debt is outstanding.
ARTICLE 8: LATE CHARGE
If any sum payable under this Note is not paid prior to the tenth
(10th) day after the date on which it is due, Borrower shall pay to Lender upon
demand an amount equal to the lesser of five percent (5%) of the unpaid sum or
the maximum amount permitted by applicable law to defray the expenses incurred
by Lender in handling and processing the delinquent payment and to compensate
Lender for the loss of the use of the delinquent payment and the amount shall be
secured by the Security Instrument and the Other Security Documents.
Appendix A-36
<PAGE>
Exhibit 10.3
ARTICLE 9: NO ORAL CHANGE
This Note may not be modified, amended, waived, extended, changed,
discharged or terminated orally or by any act or failure to act on the part of
Borrower or Lender, but only by an agreement in writing signed by the party
against whom enforcement of any modification, amendment, waiver, extension,
change, discharge or termination is sought.
ARTICLE 10: JOINT AND SEVERAL LIABILITY
If Borrower consists of more than one person or party, the obligations
and liabilities of each person or party shall be joint and several.
ARTICLE 11: WAIVERS
Borrower and all others who may become liable for the payment of all or
any part of the Debt do hereby severally waive presentment and demand for
payment, notice of dishonor, protest and notice of protest and non-payment and
all other notices of any kind. No release of any security for the Debt or
extension of time for payment of this Note or any installment hereof, and no
alteration, amendment or waiver of any provision of this Note, the Security
Instrument or the Other Security Documents made by agreement between Lender or
any other person or party shall release, modify, amend, waive, extend, change,
discharge, terminate or affect the liability of Borrower, and any other person
or entity who may become liable for the payment of all or any part of the Debt,
under this Note, the Security Instrument or the Other Security Documents. No
notice to or demand on Borrower shall be deemed to be a waiver of the obligation
of Borrower or of the right of Lender to take further action without further
notice or demand as provided for in this Note, the Security Instrument or the
Other Security Documents. If Borrower is a partnership, the agreements herein
contained shall remain in force and applicable, notwithstanding any changes in
the individuals comprising the partnership. If Borrower is a corporation, the
agreements contained herein shall remain in full force and applicable
notwithstanding any changes in the shareholders comprising, or the officers and
directors relating to, the corporation. If Borrower is a limited liability
company, the agreements contained herein shall remain in full force and
applicable notwithstanding any changes in the members comprising, or the
managers, officers or agents relating to, the limited liability company. The
term "Borrower", as used herein, shall include any alternate or successor
partnership, corporation, limited liability company or other entity or person to
the Borrower named herein, but any predecessor partnership (and their partners),
corporation, limited liability company, other entity or person shall not thereby
be released from any liability. Nothing in this Article 11 shall be construed as
a consent to, or a waiver of, any prohibition or restriction on transfers of
interests in such partnership which may be set forth in the Security Instrument
or any Other Security Document.
ARTICLE 12: TRANSFER
Lender may, at any time, sell, transfer or assign this Note, the
Security Instrument and the Other Security Documents, and any or all servicing
rights with respect thereto, or grant participations therein or issue mortgage
passthrough certificates or other securities evidencing a beneficial interest in
a rated or unrated public offering or private placement (the "Securities").
Lender may forward to each purchaser, transferee, assignee, servicer,
participant, investor in such Securities or any Rating Agency rating such
Securities (collectively, the "Investor") and each prospective Investor, all
documents and information which Lender now has or may hereafter acquire relating
to the Debt and to Borrower, any guarantor and the Property, whether furnished
by Borrower, any guarantor or otherwise, as Lender determines necessary or
desirable. Borrower and any guarantor agree to cooperate with Lender in
connection with any transfer made or any Securities created pursuant to the
Security Instrument, including, without limitation, the delivery of an estoppel
certificate in accordance therewith, and such other documents as may be
reasonably requested by Lender. Borrower shall also furnish and Borrower and any
guarantor consent to Lender furnishing to such Investors or such prospective
Investors any and all information concerning the Property, the Leases, the
financial condition of Borrower and any guarantor as may be requested by Lender,
any Investor or any prospective Investor in connection with any sale, transfer
or participation interest. Lender may retain or assign responsibility for
servicing the Loan, including the Note, the Security Instrument, this Agreement
and the Other Security Documents, or may delegate some or all of such
responsibility and/or obligations to a servicer including, but not limited to,
any subservicer or master servicer. Lender may make such assignment or
delegation on behalf of the Investors if the Note is sold or this Agreement or
the Other Security Documents are assigned. All references to Lender herein shall
refer to and include any such servicer to the extent applicable.
ARTICLE 13: WAIVER OF TRIAL BY JURY
BORROWER HEREBY WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, THE
RIGHT TO TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM, WHETHER IN
CONTRACT, TORT OR OTHERWISE, RELATING DIRECTLY OR INDIRECTLY TO THE LOAN
EVIDENCED BY THIS NOTE, THE APPLICATION FOR THE LOAN EVIDENCED BY THIS NOTE,
THIS NOTE, THE SECURITY INSTRUMENT OR THE
Appendix A-37
<PAGE>
Exhibit 10.3
OTHER SECURITY DOCUMENTS OR ANY ACTS OR OMISSIONS OF LENDER, ITS OFFICERS,
EMPLOYEES, DIRECTORS OR AGENTS IN CONNECTION THEREWITH.
ARTICLE 14: EXCULPATION
(a) Except as otherwise provided herein, in the Security Instrument or
in the Other Security Documents, Lender shall not enforce the liability and
obligation of Borrower, to perform and observe the obligations contained in this
Note, the Security Instrument or the Other Security Documents by any action or
proceeding wherein a money judgment shall be sought against Borrower or any
partner of Borrower, except that Lender may bring a foreclosure action, an
action for specific performance or any other appropriate action or proceeding to
enable Lender to enforce and realize upon this Note, the Security Instrument,
the Other Security Documents, and the interests in the Property; and any other
collateral given to Lender pursuant to the Security Instrument and the Other
Security Documents; provided, however, that, except as specifically provided
herein, any judgment in any such action or proceeding shall be enforceable
against Borrower or any partner of Borrower only to the extent of Borrower's
interest in the Property and in any other collateral given to Lender, and
Lender, by accepting this Note, the Security Instrument and the Other Security
Documents, agrees that it shall not sue for, seek or demand any deficiency
judgment against Borrower or any partner of Borrower, in any such action or
proceeding, under or by reason of or in connection with this Note, the Security
Instrument or the Other Security Documents. The provisions of this paragraph
shall not, however, (i) constitute a waiver, release or impairment of any
obligation evidenced or secured by the Security Instrument or the Other Security
Documents, (ii) impair the right of Lender to name Borrower as a party defendant
in any action or suit for foreclosure and sale under the Security Instrument,
(iii) affect the validity or enforceability of any guaranty made in connection
with this Note, the Security Instrument or the Other Security Documents, (iv)
impair the right of Lender to obtain the appointment of a receiver, (v) impair
the enforcement of any assignment, or (vi) constitute a waiver of the right of
Lender to enforce the liability and obligation of Borrower, by money judgment or
otherwise, to the extent of any loss, damage, cost, expense, liability, claim or
other obligation incurred by Lender (including attorneys' fees and costs
reasonably incurred) arising out of or in connection with the following:
(a) fraud or misrepresentation by Borrower in connection with this
Note, the Security Instrument or the Other Security Documents;
(b) the gross negligence or willful misconduct of Borrower;
(c) material physical waste of the Property by Borrower;
(d) the breach of provisions in this Note, the Security Instrument or
the Other Security Documents concerning Environmental Laws and Hazardous
Substances and any indemnification of Lender with respect thereto in either
document;
(e) the removal or disposal of any portion of the Property by Borrower
after default under this Note, the Security Instrument or the Other Security
Documents;
(f) the misapplication or conversion by Borrower of (i) any insurance
proceeds paid by reason of any loss, damage or destruction to the Property, (ii)
any awards or other amounts received in connection with the condemnation of all
or a portion of the Property, or (iii) any Rents following default under this
Note, the Security Instrument or the Other Security Documents;
(g) Borrower's failure to pay Taxes (provided that the liability of
Borrower shall be only for amounts in excess of the amount held by Lender in
escrow for the payment of Taxes), assessments, charges for labor or materials or
other charges that can create liens on any portion of the Property; and
(h) Borrower's failure to deliver any security deposits collected with
respect to the Property which are not delivered to Lender upon a foreclosure of
the Property or action in lieu thereof, except to the extent any such security
deposits were applied in accordance with the terms and conditions of any of the
Leases prior to the occurrence of the Event of Default that gave rise to such
foreclosure or action in lieu thereof.
Notwithstanding anything to the contrary in this Note, the Security
Instrument or the Other Security Documents (i) the Debt shall be fully recourse
to Borrower; and (ii) Lender shall not be deemed to have waived any right which
Lender may have under Section 506(a), 506(b), llll(b) or any other provisions of
the U.S. Bankruptcy Code to file a claim for the full amount of the Debt or to
require that all collateral shall continue to secure all of the Debt owing to
Lender in accordance with this Note, the Security Instrument or the Other
Security Documents, in the event that: (A) the first full Monthly Payment is not
paid when due; (B) Borrower fails to permit on-site inspections of the Property,
fails to provide financial information, or fails to maintain its status as a
single purpose entity, as required by the Security Instrument; (C) Borrower
fails to obtain Lender's prior written consent to any subordinate financing or
other voluntary lien encumbering the Property; (D) Borrower fails to obtain
Lender's prior written consent to any assignment, transfer, or conveyance of the
Property or any interest therein as required by the Security Instrument.
ARTICLE 15: AUTHORITY
Borrower (and the undersigned representative of Borrower, if any)
represents that Borrower has full power, authority and legal right to execute
and deliver this Note, the Security Instrument and the Other Security Documents
and that this Note, the Security Instrument and the Other Security Documents
constitute valid and binding obligations of Borrower.
Appendix A-38
<PAGE>
Exhibit 10.3
ARTICLE 16: APPLICABLE LAW
This Note shall be deemed to be a contract entered into pursuant to the
laws of the State of New York and shall in all respects be governed, construed,
applied and enforced in accordance with the laws of the State of New York.
ARTICLE 17: SERVICE OF PROCESS
(a) (i) Borrower will maintain a place of business or an agent for
service of process in California and give prompt notice to Lender of the address
of such place of business and of the name and address of any new agent appointed
by it, as appropriate. Borrower further agrees that the failure of its agent for
service of process to give it notice of any service of process will not impair
or affect the validity of such service or of any judgment based thereon. If,
despite the foregoing, there is for any reason no agent for service of process
of Borrower available to be served, and if it at that time has no place of
business in California then Borrower irrevocably consents to service of process
by registered or certified mail, postage prepaid, to it at its address given in
or pursuant to the first paragraph hereof.
(ii) Borrower initially and irrevocably designates CT
Corporation System, with offices on the date hereof at 818 West Seventh Street,
Los Angeles, California 90017, to receive for and on behalf of Borrower service
of process in California with respect to this Note.
(b) With respect to any claim or action arising thereunder or under the
Security Instrument or the Other Security Documents, Borrower (a) irrevocably
submits to the nonexclusive jurisdiction of the courts of the State of New York
and the United States District Court located in the Borough of Manhattan in New
York, New York, and appellate courts from any thereof, and (b) irrevocably
waives any objection which it may have at any time to the laying on venue of any
suit, action or proceeding arising out of or relating to this Note brought in
any such court, irrevocably waives any claim that any such suit, action or
proceeding brought in any such court has been brought in an inconvenient forum.
(c) Nothing in this Note will be deemed to preclude Lender from
bringing an action or proceeding with respect hereto in any other jurisdiction.
ARTICLE 18: COUNSEL FEES
In the event that it should become necessary to employ counsel to
collect the Debt or to protect or foreclose the security therefor, Borrower also
agrees to pay all reasonable fees and expenses of Lender, including, without
limitation, reasonable attorney's fees for the services of such counsel whether
or not suit be brought.
ARTICLE 19: NOTICES
All notices or other written communications thereunder shall be deemed
to have been properly given (i) upon delivery, if delivered in person with
receipt acknowledged by the recipient thereof, (ii) one (1) Business Day
(defined below) after having been deposited for overnight delivery with any
reputable overnight courier service, or (iii) three (3) Business Days after
having been deposited in any post office or mail depository regularly maintained
by the U.S. Postal Service and sent by registered or certified mail, postage
prepaid, return receipt requested, addressed as follows:
If to Borrower: RRF V Tri City Limited Partnership
c/o Glenborough Inland Realty Corporation
400 South El Camino Real
San Mateo, CA 94402-1708
Attention: Mr. Robert Batinovich
With a copy to: Morrison & Foerster LLP
345 California Street
San Francisco, CA 94104
Attn: Noel Nellis, Esq.
If to Lender: Bear, Stearns Funding, Inc.
245 Park Avenue
New York, New York 10167
Attention: Kenneth A . Rubin
or addressed as such party may from time to time designate by written notice to
the other parties.
Appendix A-39
<PAGE>
Exhibit 10.3
Either party by notice to the other may designate additional or
different addresses for subsequent notices or communications.
"Business Day" shall mean any day other than Saturday, Sunday or any
other day on which banks are required or authorized to close in New York, New
York.
ARTICLE 20: MISCELLANEOUS
(a) Wherever pursuant to this Note (i) Lender exercises any right given
to it to approve or disapprove, (ii) any arrangement or term is to be
satisfactory to Lender, or (iii) any other decision or determination is to be
made by Lender, the decision of Lender to approve or disapprove, all decisions
that arrangements or terms are satisfactory or not satisfactory and all other
decisions and determinations made by Lender, shall be in the sole and absolute
discretion of Lender and shall be final and conclusive, except as may be
otherwise expressly and specifically provided herein.
(b) Wherever pursuant to this Note it is provided that Borrower pay any
costs and expenses, such costs and expenses shall include, but not be limited
to, legal fees and disbursements of Lender, whether retained firms, the
reimbursement for the expenses of in-house staff, or otherwise.
ARTICLE 21: DEFINITIONS
All capitalized terms not otherwise defined herein shall have the
meanings ascribed to such terms in the Security Instrument.
IN WITNESS WHEREOF, Borrower has duly executed this Note as of the day
and year first above written.
RRF V TRI CITY LIMITED PARTNERSHIP
By: RRF V, Inc.,
its general partner
BY: /s/ Robert Batinovich
Name: Robert Batinovich
Title: President
Appendix A-40
<PAGE>
APPENDIX B
Financial Report on Form 10-Q
for the Period Ended June 30, 1997
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
<TABLE>
RANCON REALTY FUND V,
A CALIFORNIA LIMITED PARTNERSHIP
Consolidated Balance Sheets
(in thousands, except units outstanding)
(Unaudited)
<CAPTION>
June 30, December 31,
1997 1996
-------- --------
<S> <C> <C>
Assets
Investments in real estate:
Rental property, net of accumulated depreciation
of $16,030 and $15,180 at June 30, 1997 and
December 31, 1996, respectively $ 35,328 $ 35,999
Land held for development 9,583 9,586
Land held for sale 1,005 1,005
-------- --------
Total real estate investments 45,916 46,590
Cash and cash equivalents 5,356 5,007
Pledged cash 353 353
Accounts receivable 122 145
Deferred financing costs and other fees, net of accumulated
amortization of $1,746 and $1,565 at June 30, 1997
and December 31, 1996, respectively 1,219 1,301
Prepaid expenses and other assets 784 797
-------- --------
Total assets $ 53,750 $ 54,193
======== ========
Liabilities and Partners' Equity (Deficit)
Liabilities:
Notes payable $ 13,766 $ 13,845
Accounts payable and other liabilities 308 276
Interest payable 75 75
-------- --------
Total liabilities 14,149 14,196
-------- --------
Commitments and contingent liabilities
(see Note 3)
Partners' equity (deficit):
General partners (925) (921)
Limited partners, 99,763 and 99,767 limited
partnership units outstanding at June 30, 1997
and December 31, 1996, respectively 40,526 40,918
-------- --------
Total partners' equity 39,601 39,997
-------- --------
Total liabilities and partners' equity $ 53,750 $ 54,193
======== ========
<FN>
See accompanying notes to financial statements.
</FN>
</TABLE>
Appendix B-1
<PAGE>
<TABLE>
RANCON REALTY FUND V,
A CALIFORNIA LIMITED PARTNERSHIP
Consolidated Statements of Operations
(in thousands, except per unit amounts and units outstanding)
(Unaudited)
<CAPTION>
Three months ended Six months ended
June 30, June 30,
------------------- ------------------
1997 1996 1997 1996
-------- -------- ------- -------
<S> <C> <C> <C> <C>
Revenue:
Rental income $ 1,712 $ 1,731 $ 3,516 $ 3,438
Interest income 67 22 130 31
-------- -------- ------- -------
Total revenue 1,779 1,753 3,646 3,469
-------- -------- ------- -------
Expenses:
Operating 769 749 1,513 1,612
Interest expense 325 321 651 553
Depreciation and amortization 518 615 1,004 1,169
Expenses associated with
undeveloped land 89 209 247 365
General and administrative expenses 325 312 627 637
------- ------- ------- ------
Total expenses 2,026 2,206 4,042 4,336
------- ------- ------- ------
Net loss $ (247) $ (453) $ (396) $ (867)
======= ======= ======= ======
Net loss per limited partnership unit $ (2.45) $ (4.49) $ (3.93) $(8.60)
======= ======= ======= ======
Weighted average number of limited
partnership units outstanding during
each period used to compute net loss
per limited partnership unit 99,763 99,767 99,765 99,767
======= ======= ======= =======
<FN>
See accompanying notes to financial statements.
</FN>
</TABLE>
Appendix B-2
<PAGE>
RANCON REALTY FUND V,
A CALIFORNIA LIMITED PARTNERSHIP
Consolidated Statements of Partners' Equity (Deficit)
For the six months ended June 30, 1997 and 1996
(in thousands)
(Unaudited)
General Limited
Partners Partners Total
Balance at December 31, 1996 $ (921) $ 40,918 $ 39,997
Net loss (4) (392) (396)
-------- --------- --------
Balance at June 30, 1997 $ (925) $ 40,526 $ 39,601
======== ========= ========
Balance at December 31, 1995 $ (908) $ 42,212 $ 41,304
Net loss (9) (858) (867)
-------- --------- --------
Balance at June 30, 1996 $ (917) $ 41,354 $ 40,437
======== ========= ========
See accompanying notes to financial statements.
Appendix B-3
<PAGE>
<TABLE>
RANCON REALTY FUND V,
A CALIFORNIA LIMITED PARTNERSHIP
Consolidated Statements of Cash Flows
(in thousands)
(Unaudited)
<CAPTION>
Six months ended
June 30,
1997 1996
------- -------
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (396) $ (867)
Adjustments to reconcile net loss to net cash
provided by (used for) operating activities:
Depreciation and amortization 1,004 1,169
Amortization of loan fees, included in interest expense 27 9
Changes in certain assets and liabilities:
Accounts receivable 23 22
Prepaid expenses and other assets 13 (88)
Accounts payable and other liabilities 32 16
Interest payable -- 75
Deferred financing costs and other fees (99) (382)
------- -------
Net cash provided by (used for) operating activities 604 (46)
------- -------
Cash flows from investing activities:
Pledged cash released -- 349
Additions to real estate investments (176) (590)
------- -------
Net cash used for investing activities: (176) (241)
------- -------
Cash flows from financing activities:
Net loan proceeds -- 6,836
Notes payable principal payments (79) (35)
------- -------
Net cash provided by (used for) financing activities (79) 6,801
------- -------
Net increase in cash and cash equivalents 349 6,514
Cash and cash equivalents at beginning of period 5,007 676
------- -------
Cash and cash equivalents at end of period $ 5,356 $ 7,190
======= =======
Supplemental disclosure of cash flow information:
Cash paid for interest $ 624 $ 469
======= =======
<FN>
See accompanying notes to financial statements.
</FN>
</TABLE>
Appendix B-4
<PAGE>
RANCON REALTY FUND V,
A CALIFORNIA LIMITED PARTNERSHIP
Notes to Consolidated Financial Statements
June 30, 1997 (Unaudited)
Note 1. THE PARTNERSHIP AND ITS SIGNIFICANT ACCOUNTING POLICIES
In the opinion of Rancon Financial Corporation ("RFC") and Daniel Lee Stephenson
(the "Sponsors") and Glenborough Corporation (successor by merger with
Glenborough Inland Realty Corporation), the accompanying unaudited financial
statements contain all adjustments (consisting of only normal accruals)
necessary to present fairly the financial position of Rancon Realty Fund V, A
California Limited Partnership (the "Partnership") as of June 30, 1997 and
December 31, 1996, the related statements of operations for the three and six
months ended June 30, 1997 and 1996, and the changes in partners' equity
(deficit) and cash flows for the six months ended June 30, 1997 and 1996.
In December 1994, RFC entered into an agreement with Glenborough Corporation
("Glenborough") whereby RFC sold to Glenborough the contract to perform the
rights and responsibilities under RFC's 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. Pursuant to
the contract, the Partnership will pay Glenborough for its services as follows:
(i) a specified asset administration fee of $967,000 per year, which is fixed
for five years subject to reduction in the year following the sale of assets;
(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 tasks for the
General Partner of the Rancon Partnerships and RFC agreed to cooperate with
Glenborough, should Glenborough attempt to obtain a majority vote of the limited
partners to substitute itself as the General Partner for the Rancon
Partnerships. This agreement became effective January 1, 1995. Glenborough is
not an affiliate of RFC or the Partnership.
During the first half of 1997, a total of four units were abandoned as a result
of partners desiring to no longer receive Partnership K-1's and to give them the
ability to write off investments for income tax purposes. The equity (deficit)
balance of the abandoned units was allocated to the remaining outstanding units.
As of June 30, 1997, there were 99,763 limited partnership units issued and
outstanding.
Consolidation - In order to satisfy certain lender requirements for the
Partnership's 1996 loan secured by Two Carnegie Plaza, Lakeside Tower and One
Parkside, Rancon Realty Fund V Tri-City Limited Partnership, a Delaware limited
partnership ("RRF V Tri-City") was formed in May 1996. The three properties
securing the loan were contributed to RRF V Tri-City by the Partnership. The
limited partner of RRF V Tri-City is the Partnership and the general partner is
RRF V, Inc., a corporation wholly owned by the Partnership. Since the
Partnership indirectly owns 100% of RRF V Tri-City, the financial statements of
RRF V Tri-City have been consolidated with those of the Partnership. All
intercompany transactions and account balances have been eliminated in
consolidation.
Reclassification - Certain 1996 balances have been reclassified to conform to
the current period presentation.
Note 2. REFERENCE TO 1996 AUDITED FINANCIAL STATEMENTS
These unaudited financial statements should be read in conjunction with the
Notes to Financial Statements included in the December 31, 1996 audited
financial statements.
Note 3. COMMITMENTS AND CONTINGENT LIABILITIES
The Partnership is contingently liable for subordinated real estate commissions
payable to the Sponsor in the amount of $102,000 at June 30, 1997. 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.
Appendix B-5
<PAGE>
RANCON REALTY FUND V,
A CALIFORNIA LIMITED PARTNERSHIP
Notes to Consolidated Financial Statements
June 30, 1997 (Unaudited)
Item 2. Management's Discussion and Analysis of Financial Conditions and Results
of Operations
LIQUIDITY AND CAPITAL RESOURCES
At June 30, 1997, the Partnership had cash of $5,356,000 (net of pledged cash).
The remainder of the Partnership's assets consist primarily of its investments
in real estate, totaling approximately $45,916,000.
The Partnership's primary sources of funds consist of cash provided by its
rental activities. Other sources of funds include permanent financing, property
sales, and interest income on certificates of deposit.
All of the Partnership's assets are located within the Inland Empire, a
submarket of Southern California, and have been directly affected by the
economic weakness of the region. Management believes, however, that while prices
have not increased significantly, the Southern California real estate market
appears to be improving. Management continues to evaluate the real estate
markets in which the Partnership's assets are located in an effort to determine
the optimal time to dispose of them and realize their maximum value.
<TABLE>
The Partnership currently owns the following properties in the Tri-City
Corporate Center area within the Inland Empire submarket of the Southern
California region:
<CAPTION>
Property Type Square Feet
- - --------------------------- -------------------------------------------- -------
<S> <C> <C>
One Carnegie Plaza Two, two story garden-style office buildings 102,693
Two Carnegie Plaza Two story garden-style office building 68,925
Carnegie Business Center II Two light industrial buildings 50,804
Santa Fe One story office building 36,288
Lakeside Tower Six story office building 112,814
One Parkside Four story office building 70,069
Bally's Health Club Health club facility 25,000
Outback Steakhouse Restaurant 6,500
</TABLE>
The Partnership also owns approximately 14 acres of unimproved land in the
Tri-City area. Development of the unimproved land will coincide with market
demand.
Additionally, the Partnership owns the Rancon Center Ontario property (245,000
square feet of leasable industrial space) in Ontario, California plus
approximately 34 acres of unimproved land in Ontario, California. Development of
the unimproved land will coincide with market demand.
The Partnership also owns 23.8 acres of unimproved land referred to as
Perris-Ethanac Road and 60.41 acres of undeveloped land referred to as
Perris-Nuevo Road. There has been no development to date at the Partnership's
Perris-Ethanac Road or Perris-Nuevo Road projects. Both properties are
unencumbered and are being marketed for sale by the Partnership.
The Partnership knows of no demands, commitments, events or uncertainties which
might effect its liquidity or capital resources in any material respect. The
effect of inflation on the Partnership's business should be no greater than its
effect on the economy as a whole.
Management believes that the Partnership's cash balance as of June 30, 1997,
together with the cash from operations, property sales and financing, will be
sufficient to finance the Partnership's and the properties' continued operations
and development plans.
RESULTS OF OPERATIONS
Revenues
Rental income for the six months ended June 30, 1997 increased $78,000 or 2%
from the six months ended June 30, 1996, due largely to the commencement of the
Outback Steakhouse lease in the fourth quarter of 1996.
Appendix B-6
<PAGE>
RANCON REALTY FUND V,
A CALIFORNIA LIMITED PARTNERSHIP
Notes to Consolidated Financial Statements
June 30, 1997 (Unaudited)
Occupancy rates at the Partnership's properties as of June 30, 1997 and 1996
were as follows:
June 30,
1997 1996
One Carnegie Plaza 88% 87%
Two Carnegie Plaza 81% 86%
Carnegie Business Center II 74% 65%
Lakeside Tower 83% 78%
Santa Fe 100% 100%
One Parkside 66% 92%
Rancon Centre Ontario 80% 100%
Bally's Health Club 100% 100%
Outback Steakhouse 100% n/a
The 26 percentage point drop in occupancy from June 30, 1996 to June 30, 1997 at
One Parkside is due to MacLachlan, Burford and Arias ("MBA"), a 18,531 square
foot tenant, vacating their space prior to the lease termination date due to
financial difficulties. MBA filed for Chapter 11 bankruptcy protection in May
1997.Management intends to market this space as soon as legal possession is
obtained.
As of June 30, 1997, tenants at Tri-City occupying substantial portions of
leased space include Medisco Pharmacy, New York Life Insurance, the California
Department of Transportation, State of California Health Services, the Atchison,
Topeka and Santa Fe Rail Company, Sterling Software, Chicago Title and Bally's
Health Club, with leases expiring at various dates between July 1998 and
December 2010. These eight tenants, in the aggregate, occupy approximately
200,000 square feet of the 473,000 total leasable square feet at Tri-City and
account for 51% of the rental income generated at Tri-City and 46% of the total
rental income for the Partnership.
United Pacific Mills, with a lease expiration date of April 1998, occupies
74,850 square feet of the 245,000 total leasable square feet at Rancon Centre
Ontario and accounts for 28% of the rental income generated at Rancon Centre
Ontario and 3% of the total rental income generated by the Partnership.
Management believes that this tenant will vacate upon their lease expiration due
to their need for a space in close proximity to rail service which the
Partnership is unable to provide. Management intends to market this space as
early as the current lease agreement allows.
Interest and other income for the six and three months ended June 30, 1997
increased $99,000 and $45,000 from the six and three months ended June 30, 1996,
respectively, due to the increase in cash reserves as a result of the proceeds
of the permanent financing obtained by the Partnership in May 1996.
Expenses
Operating expenses decreased $99,000 or 6% during the six months ended June 30,
1997 from the six months ended June 30, 1996 due to lower maintenance
association dues in 1997, the special appraisals performed on the Partnership's
properties in first quarter of 1996 and the costs incurred in March 1996
relating to flooding damage at Two Carnegie Plaza.
Interest expense increased $98,000 or 18% during the six months ended June 30,
1997 over the same period in 1996 as a result of additional debt obtained in May
1996.
Depreciation and amortization decreased $165,000 or 14% and $97,000 or 16%
during the six and three months ended June 30, 1997 from the six and three
months ended June 30, 1996 as a result of tenant improvements and leasing
commissions becoming fully depreciated and amortized in 1996.
Expenses associated with undeveloped land decreased $118,000 or 32% and $120,000
or 57% during the six and three months ended June 30, 1997 compared to the six
and three months ended June 30, 1996, respectively, due to the receipt
Appendix B-7
<PAGE>
RANCON REALTY FUND V,
A CALIFORNIA LIMITED PARTNERSHIP
Notes to Consolidated Financial Statements
June 30, 1997 (Unaudited)
of property tax refunds in 1997 for parcels associated with undeveloped land and
the reduction of property taxes in 1997 resulting from a reduction of the
assessed property values by the Assessor's office.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
None.
Item 2. Changes in Securities
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.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
RANCON REALTY FUND V,
a California Limited Partnership
(Registrant)
Date: August 13, 1997 By: /s/ Daniel L. Stephenson
------------------------
Daniel L. Stephenson, General Partner
and Director, President, Chief Executive Officer
and Chief Financial Officer of
Rancon Financial Corporation,
General Partner of Rancon Realty Fund V,
a California Limited Partnership
Appendix B-8
