SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended September 30, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission file number 0-16467
RANCON REALTY FUND V,
A CALIFORNIA LIMITED PARTNERSHIP
(Exact name of registrant as specified in its charter)
California 33-0098488
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
400 South El Camino Real, Suite 1100
San Mateo, California 94402
(Address of principal (Zip Code)
executive offices)
(650) 343-9300
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No __
Total number of units outstanding as of September 30, 1997: 99,761
Page 1 of 15
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
<TABLE>
<CAPTION>
RANCON REALTY FUND V,
A CALIFORNIA LIMITED PARTNERSHIP
Consolidated Balance Sheets
(in thousands, except units outstanding)
(Unaudited)
September 30, December 31,
1997 1996
---------- ----------
<S> <C> <C>
Assets
Investments in real estate:
Rental property, net of accumulated depreciation
of $16,521 and $15,180 at September 30, 1997
and December 31, 1996, respectively $ 34,901 $ 35,999
Land held for development 9,583 9,586
Land held for sale 1,005 1,005
-------- --------
Total real estate investments 45,489 46,590
Cash and cash equivalents 5,415 5,007
Pledged cash 353 353
Accounts receivable 227 145
Deferred financing costs and other fees, net of
accumulated amortization of $1,852 and $1,565
at September 30, 1997 and December 31, 1996,
respectively 1,168 1,301
Prepaid expenses and other assets 981 797
-------- --------
Total assets $ 53,633 $ 54,193
======== ========
</TABLE>
- continued -
Page 2 of 15
<PAGE>
RANCON REALTY FUND V,
A CALIFORNIA LIMITED PARTNERSHIP
<TABLE>
<CAPTION>
Consolidated Balance Sheets - continued
(in thousands, except units outstanding)
(Unaudited)
September 30, December 31,
1997 1996
---------- ----------
<S> <C> <C>
Liabilities and Partners' Equity (Deficit)
Liabilities:
Notes payable $ 13,725 $ 13,845
Accounts payable and other liabilities 619 276
Interest payable 74 75
-------- --------
Total liabilities 14,418 14,196
-------- --------
Commitments and contingent liabilities (see Note 4)
Partners' equity (deficit):
General partners (929) (921)
Limited partners, 99,761 and 99,767 limited
partnership units outstanding at September 30, 1997
and December 31, 1996, respectively 40,144 40,918
-------- --------
Total partners' equity 39,215 39,997
-------- --------
Total liabilities and partners' equity $ 53,633 $ 54,193
======== ========
</TABLE>
See accompanying notes to financial statements.
Page 3 of 15
<PAGE>
RANCON REALTY FUND V,
A CALIFORNIA LIMITED PARTNERSHIP
<TABLE>
<CAPTION>
Consolidated Statements of Operations
(in thousands, except per unit amounts and units outstanding)
(Unaudited)
Three months ended Nine months ended
September 30, September 30,
-------------------- --------------------
1997 1996 1997 1996
-------- -------- -------- ---------
<S> <C> <C> <C> <C>
Revenue:
Rental income $ 1,768 $ 1,753 $ 5,284 $ 5,191
Interest income 67 49 197 80
-------- -------- -------- --------
Total revenue 1,835 1,802 5,481 5,271
-------- -------- -------- --------
Expenses:
Operating 843 853 2,356 2,465
Interest expense 324 366 975 919
Depreciation and amortization 583 574 1,587 1,743
Expenses associated with
undeveloped land 153 160 400 525
General and administrative expenses 318 272 945 909
-------- -------- -------- --------
Total expenses 2,221 2,225 6,263 6,561
-------- -------- -------- --------
Net loss $ (386) $ (423) $ (782) $ (1,290)
======== ======== ======== ========
Net loss per limited partnership unit $ (3.83) $ (4.20) $ (7.76) $ (12.80)
======== ======== ======== ========
Weighted average number of limited
partnership units outstanding during
each period used to compute net loss
per limited partnership unit 99,762 99,765 99,764 99,765
======== ======== ======== ========
</TABLE>
See accompanying notes to financial statements.
Page 4 of 15
<PAGE>
RANCON REALTY FUND V,
A CALIFORNIA LIMITED PARTNERSHIP
Consolidated Statements of Partners' Equity (Deficit)
For the nine months ended September 30, 1997 and 1996
(in thousands)
(Unaudited)
General Limited
Partners Partners Total
--------- -------- --------
Balance at December 31, 1996 $ (921) $ 40,918 $ 39,997
Net loss (8) (774) (782)
--------- --------- --------
Balance at September 30, 1997 $ (929) $ 40,144 $ 39,215
========= ========= ========
Balance at December 31, 1995 $ (908) $ 42,212 $ 41,304
Net loss (13) (1,277) (1,290)
--------- --------- --------
Balance at September 30, 1996 $ (921) $ 40,935 $ 40,014
========= ========= ========
See accompanying notes to financial statements.
Page 5 of 15
<PAGE>
RANCON REALTY FUND V,
A CALIFORNIA LIMITED PARTNERSHIP
<TABLE>
<CAPTION>
Consolidated Statements of Cash Flows
(in thousands)
(Unaudited)
Nine months ended
September 30,
1997 1996
-------- --------
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (782) $ (1,290)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation and amortization 1,587 1,743
Amortization of loan fees, included in interest expense 40 22
Changes in certain assets and liabilities:
Accounts receivable (82) (14)
Deferred financing costs and other fees (154) (449)
Prepaid expenses and other assets (184) (154)
Accounts payable and other liabilities 343 412
Interest payable (1) 75
-------- --------
Net cash provided by operating activities 767 345
-------- --------
Cash flows from investing activities:
Pledged cash released --- 349
Additions to real estate investments (239) (1,185)
-------- --------
Net cash used for investing activities: (239) (836)
-------- --------
Cash flows from financing activities:
Net loan proceeds --- 13,911
Notes payable principal payments (120) (8,643)
-------- --------
Net cash provided by (used for) financing activities (120) 5,268
-------- --------
Net increase in cash and cash equivalents 408 4,777
Cash and cash equivalents at beginning of period 5,007 676
-------- --------
Cash and cash equivalents at end of period $ 5,415 $ 5,453
======== ========
Supplemental disclosure of cash flow information:
Cash paid for interest $ 936 $ 822
======== ========
</TABLE>
See accompanying notes to financial statements.
Page 6 of 15
<PAGE>
RANCON REALTY FUND V,
A CALIFORNIA LIMITED PARTNERSHIP
Notes to Consolidated Financial Statements
September 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 September 30, 1997 and
December 31, 1996, the related statements of operations for the three and nine
months ended September 30, 1997 and 1996, and the changes in partners' equity
(deficit) and cash flows for the nine months ended September 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 nine months ended September 30, 1997, a total of six 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 September 30, 1997, there were 99,761
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
Page 7 of 15
<PAGE>
RANCON REALTY FUND V,
A CALIFORNIA LIMITED PARTNERSHIP
Notes to Consolidated Financial Statements
September 30, 1997
(Unaudited)
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. REAL ESTATE INVESTMENTS
On September 30, 1997, the Partnership entered into a definitive agreement to
sell all of its real estate assets to Glenborough Realty Trust Incorporated
("GLB"), a publicly traded real estate investment trust and Glenborough
Properties, L.P. ("Properties"), the operating partnership of GLB, for an
aggregate price of $44,765,000. This sale is subject to approval by a majority
vote of the limited partners of the Partnership. Accordingly, there can be no
assurance that this transaction will be completed.
If the sale to GLB and Properties is completed, management intends to liquidate
the Partnership as soon as possible following the sale. A Consent Solicitation
Statement (the "Solicitation") sent to the Unitholders on October 17, 1997,
detailing these two transactions is hereby incorporated by reference to the
Definitive Schedule 14A - Proxy Statement filed with the Securities and Exchange
Commission on October 17, 1997 The General Partner estimates that the net
proceeds from the sale of the real estate assets to GLB and Properties together
with the net cash proceeds from the payment by the General Partner of its
negative capital account will equal approximately $340 per limited partnership
unit.
On October 17, 1997, a Solicitation was sent to the limited partners of the
Partnership proposing to sell all of its real estate assets and then liquidate
the Partnership. See Note 3 for further detail of the proposed transactions. As
of November 13, 1997, 57,976 Unitholders or 58% of the total outstanding Units
have responded with 50,394 Unitholders or 51% of the total outstanding Units in
favor, 5,965 Unitholders or 6% against, 919 Unitholders or 1% abstaining, and
698 Unitholders or less than 1% pending. Final tabulation of the results of the
Solicitation will be made on November 21, 1997, unless the Solicitation period
is extended.
Page 8 of 15
<PAGE>
RANCON REALTY FUND V,
A CALIFORNIA LIMITED PARTNERSHIP
Notes to Consolidated Financial Statements
September 30, 1997
(Unaudited)
Note 4. 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 September 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 ("priority return"). If the Partnership completes the sale as
described in Note 3 and liquidates, the Limited Partners will not have received
their priority return and the subordinated real estate commissions will not be
paid.
Page 9 of 15
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
LIQUIDITY AND CAPITAL RESOURCES
At September 30, 1997, the Partnership had cash of $5,415,000 (exclusive of
pledged cash). The remainder of the Partnership's assets consist primarily of
its investments in real estate investments, totaling approximately $45,489,000.
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.
On September 30, 1997, the Partnership entered into a definitive agreement to
sell all of its real estate assets to Glenborough Realty Trust Incorporated
("GLB"), a real estate investment trust publicly traded on the New York Stock
Exchange and Glenborough Properties, L.P., the operating partnership of GLB, for
an aggregate price of $44,765,000. This sale is subject to approval by a
majority vote of the limited partners of the Partnership. Accordingly, there can
be no assurance that this transaction will be completed.
On October 17, 1997, the Partnership sent a proxy to its Unitholders
(incorporated by reference to the Definitive Schedule 14A - Proxy Statement
filed on October 17, 1997), requesting the Unitholders' consent to the proposed
bulk sale of its real estate assets and a subsequent liquidation of the
Partnership. The General Partner estimates that the net proceeds from the sale
together with the net cash proceeds from the payment by the General Partner of
its negative capital account will equal approximately $340 per limited
partnership unit. As of November 13, 1997, 57,976 Unitholders or 58% of the
total outstanding Units have responded with 50,394 Unitholders or 51% of the
total outstanding Units in favor, 5,965 Unitholders or 6% against, 919
Unitholders or 1% abstaining, and 698 Unitholders or less than 1% pending.
However, there is no assurance that the contemplated transactions will be
completed.
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. If the sale to GLB described above is not completed,
management intends to continue evaluating 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.
Page 10 of 15
<PAGE>
The Partnership currently owns the following properties in the Tri-City
Corporate Center area within the Inland Empire submarket of the Southern
California region:
<TABLE>
<CAPTION>
Property Type Square Feet
- -------------------- ----------------------------------------- -----------
<S> <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. If the contemplated sale described above is not completed,
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. If the
contemplated sale described above is not completed, 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.
RESULTS OF OPERATIONS
Revenues
Rental income for the nine months ended September 30, 1997 increased $93,000 or
2% from the nine months ended September 30, 1996, due largely to the
commencement of the Outback Steakhouse lease at the end of the third quarter of
1996. Other factors increasing rental income during the nine months ended
September 30, 1997 compared to the nine months ended September 30, 1996 are
increases in average occupancy at Carnegie Business Center II and Lakeside Tower
(see table below). These increases are offset by a decrease in average occupancy
at One Parkside (described below) and lower average rental rates at Lakeside
Tower in 1997 compared to 1996.
Page 11 of 15
<PAGE>
Occupancy rates at the Partnership's properties as of September 30, 1997 and
1996 were as follows:
September 30,
1997 1996
----- ----
One Carnegie Plaza 87% 87%
Two Carnegie Plaza 81% 83%
Carnegie Business Center II 74% 65%
Lakeside Tower 84% 77%
Santa Fe 100% 100%
One Parkside 66% 92%
Rancon Centre Ontario 100% 100%
Bally's Health Club 100% 100%
Outback Steakhouse 100% 100%
The 26-percentage point drop in occupancy from September 30, 1996 to September
30, 1997 at One Parkside is due to an 18,531 square foot tenant vacating their
space prior to the lease termination date due to financial difficulties. This
tenant filed for Chapter 11 bankruptcy protection in May 1997. Management is
currently marketing this space for lease.
As of September 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 and USCO Distribution Services ("USCO"), with lease
expiration dates of April 1998 and June 1998, respectively, occupy a total of
124,850 square feet of the 245,000 total leasable square feet at Rancon Centre
Ontario and account for 34% of the rental income generated at Rancon Centre
Ontario and 4% of the total rental income generated by the Partnership. Since
USCO's lease commenced July 1, 1997, the effect of this lease on rental income
does not correspond with the increase in occupancy percentage. Management
believes that United Pacific Mills will vacate upon their lease expiration due
to their need for a space in close proximity to rail service that the
Partnership is unable to provide. Management is currently negotiating with a
prospective tenant to lease this space while it plans to negotiate with USCO for
renewal in the near future.
Interest and other income for the nine and three months ended September 30, 1997
increased $117,000 or 146% and $18,000 or 37% from the nine and three months
ended September 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 $109,000 or 4% during the nine months ended
September 30, 1997 from the nine months ended September 30, 1996 due to lower
maintenance association dues in
Page 12 of 15
<PAGE>
1997, the special appraisals performed on the
Partnership's properties in first quarter of 1996 and the costs incurred in
March 1996 related to flood damage at Two Carnegie Plaza.
Interest expense increased $56,000 or 6% during the nine months ended September
30, 1997 compared to the same period in 1996 largely as a result of additional
debt obtained in May 1996. Meanwhile, interest expense decreased $42,000 or 11%
during the three months ended September 30, 1997 compared to the three months
ended September 30, 1996 due to a September 1996 $1,500,000 note pay down and
reduction in the stated interest rate on its note payable secured by One
Carnegie Plaza.
Depreciation and amortization decreased $156,000 or 9% during the nine months
ended September 30, 1997 from the nine months ended September 30, 1996 as a
result of tenant improvements and leasing commissions becoming fully depreciated
and amortized in 1996.
Expenses associated with undeveloped land decreased $125,000 or 24% during the
nine months ended September 30, 1997 compared to the nine months ended September
30, 1996 due to the receipt of property tax refunds for current year taxes in
1997 relating to 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.
General and administrative expenses increased $46,000 or 17% during the three
months ended September 30, 1997 compared to the three months ended September 30,
1996 due to the costs incurred in 1997 related to the proposed sale and
liquidation of the Partnership.
Page 13 of 15
<PAGE>
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
Incorporated by reference to Note 3 of the Notes to Consolidated
Financial Statements.
Item 5. Other Information
None.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
#27 - Financial Data Schedule
(b) Reports on Form 8-K:
None.
Page 14 of 15
<PAGE>
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: November 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
Page 15 of 15
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000769131
<NAME> RANCON REALTY FUND V
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-1-1997
<PERIOD-END> SEP-30-1997
<CASH> 5,768
<SECURITIES> 0
<RECEIVABLES> 227
<ALLOWANCES> 0
<INVENTORY> 1,005
<CURRENT-ASSETS> 5,995
<PP&E> 61,005
<DEPRECIATION> 16,521
<TOTAL-ASSETS> 53,633
<CURRENT-LIABILITIES> 693
<BONDS> 13,725
0
0
<COMMON> 0
<OTHER-SE> 39,215
<TOTAL-LIABILITY-AND-EQUITY> 53,633
<SALES> 0
<TOTAL-REVENUES> 5,481
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 5,288
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 975
<INCOME-PRETAX> (782)
<INCOME-TAX> 0
<INCOME-CONTINUING> (782)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (782)
<EPS-PRIMARY> (7.76)
<EPS-DILUTED> (7.76)
</TABLE>
