SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended June 30, 1998
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 June 30, 1998: 96,513
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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)
June 30, December 31,
1998 1997
<S> <C> <C>
Assets
Investments in real estate:
Rental property, net of accumulated depreciation
of $17,690 and $16,911 at June 30, 1998 and
December 31, 1997, respectively $ 32,796 $ 33,486
Land held for development 2,691 7,980
Land held for sale 6,209 920
---------- ----------
Total real estate investments 41,696 42,386
Cash and cash equivalents 3,978 4,361
Pledged cash 353 353
Accounts receivable 102 141
Notes receivable 1,186 1,208
Deferred financing costs and other fees, net of accumulated
amortization of $2,109 and $1,953 at June 30, 1998
and December 31, 1997, respectively 1,001 1,097
Prepaid expenses and other assets 742 645
---------- ----------
Total assets $ 49,058 $ 50,191
========== ==========
</TABLE>
- continued -
Page 2 of 14
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<TABLE>
<CAPTION>
RANCON REALTY FUND V,
A CALIFORNIA LIMITED PARTNERSHIP
Consolidated Balance Sheets - continued
(in thousands, except units outstanding)
(Unaudited)
June 30, December 31,
1998 1997
<S> <C> <C>
Liabilities and Partners' Equity (Deficit)
Liabilities:
Notes payable $ 13,598 $ 13,684
Accounts payable and accrued expenses 385 693
Interest payable 73 74
---------- ----------
Total liabilities 14,056 14,451
---------- ----------
Commitments and contingent liabilities
(see Note 4)
Partners' equity (deficit):
General partners (961) (954)
Limited partners, 96,513 and 96,754 limited
partnership units outstanding at June 30, 1998
and December 31, 1997, respectively 35,963 36,694
---------- ---------
Total partners' equity 35,002 35,740
---------- ---------
Total liabilities and partners' equity $ 49,058 $ 50,191
========== =========
</TABLE>
See accompanying notes to financial statements.
Page 3 of 14
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<TABLE>
<CAPTION>
RANCON REALTY FUND V,
A CALIFORNIA LIMITED PARTNERSHIP
Consolidated Statements of Operations
(in thousands, except per unit amounts and units outstanding)
(Unaudited)
Three months ended Six months ended
June 30, June 30,
---------------------- ----------------------
1998 1997 1998 1997
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Revenue:
Rental income $ 1,578 $ 1,712 $ 3,235 $ 3,516
Interest income 82 67 179 130
--------- --------- --------- ---------
Total revenue 1,660 1,779 3,414 3,646
--------- --------- --------- ---------
Expenses:
Operating 784 769 1,533 1,513
Interest expense 321 325 643 651
Depreciation and amortization 424 518 908 1,004
Expenses associated with
undeveloped land 159 89 315 247
General and administrative expenses 348 325 667 627
--------- --------- --------- ---------
Total expenses 2,036 2,026 4,066 4,042
--------- --------- --------- ---------
Net loss $ (376) $ (247) $ (652) $ (396)
========= ========= ========= =========
Net loss per limited partnership unit $ (3.85) $ (2.45) $ (6.67) $ (3.93)
========= ========== ========= =========
Weighted average number of limited
partnership units outstanding during
each period used to compute net loss
per limited partnership unit 96,559 99,763 96,635 99,765
========= ========= ========= =========
</TABLE>
See accompanying notes to financial statements.
Page 4 of 14
<PAGE>
RANCON REALTY FUND V,
A CALIFORNIA LIMITED PARTNERSHIP
Consolidated Statements of Partners' Equity (Deficit)
For the six months ended June 30, 1998 and 1997
(in thousands)
(Unaudited)
General Limited
Partners Partners Total
Balance at December 31, 1997 $ (954) $ 36,694 $ 35,740
Retirement of limited partnership units -- (86) (86)
Net loss (7) (645) (652)
-------- --------- ---------
Balance at June 30, 1998 $ (961) $ 35,963 $ 35,002
======== ========= =========
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
======== ========= =========
See accompanying notes to financial statements.
Page 5 of 14
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<TABLE>
<CAPTION>
RANCON REALTY FUND V,
A CALIFORNIA LIMITED PARTNERSHIP
Consolidated Statements of Cash Flows
(in thousands)
(Unaudited)
Six months ended
June 30,
1998 1997
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (652) $ (396)
Adjustments to reconcile net loss to net cash
provided by (used for) operating activities:
Depreciation and amortization 908 1,004
Amortization of loan fees, included in interest expense 27 27
Changes in certain assets and liabilities:
Accounts receivable 39 23
Notes receivable 22 --
Deferred financing costs and other fees (60) (99)
Prepaid expenses and other assets (97) 13
Accounts payable and accrued expenses (308) 32
Interest payable (1) --
--------- ---------
Net cash provided by (used for) operating activities (122) 604
--------- ---------
Cash flows from investing activities:
Additions to real estate investments (89) (176)
--------- ---------
Net cash used for investing activities: (89) (176)
--------- ---------
Cash flows from financing activities:
Notes payable principal payments (86) (79)
Purchase and retirement of limited partnership units (86) --
--------- ---------
Net cash used for financing activities (172) (79)
--------- ---------
Net increase (decrease) in cash and cash equivalents (383) 349
Cash and cash equivalents at beginning of period 4,361 5,007
--------- ---------
Cash and cash equivalents at end of period $ 3,978 $ 5,356
========= =========
Supplemental disclosure of cash flow information:
Cash paid for interest $ 617 $ 624
========= =========
</TABLE>
See accompanying notes to financial statements.
Page 6 of 14
<PAGE>
RANCON REALTY FUND V,
A CALIFORNIA LIMITED PARTNERSHIP
Notes to Consolidated Financial Statements
June 30, 1998
(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) ("Glenborough"), the accompanying
unaudited financial statements contain all adjustments (consisting of only
normal accruals) necessary to present fairly the financial position of Rancon
Realty Fund V, A California Limited Partnership (the "Partnership") as of June
30, 1998 and December 31, 1997, the related statements of operations for the
three and six months ended June 30, 1998 and 1997, and the changes in partners'
equity (deficit) and cash flows for the six months ended June 30, 1998 and 1997.
Effective January 1, 1995, RFC entered into an agreement with 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. Effective January 1, 1998, the
agreement was amended to eliminate Glenborough's responsibility for providing
investor relations services and Preferred Partnership Services, Inc. ("PPS"), a
California Corporation unaffiliated with the Partnership, contracted to assume
these services. According to the Glenborough contract, the Partnership will pay
Glenborough for its services as follows: (i) a specified asset administration
fee which is fixed for five years subject to reduction in the year following the
sale of assets ($820,000 in 1998); (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 of the
Rancon Partnerships. Glenborough is not an affiliate of RFC or the Partnership.
During the first half of 1998, a total of 241 limited partnership units were
repurchased and retired as a result of the Partnership's offer to redeem limited
partnership units. As of June 30, 1998, there were 96,513 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
Page 7 of 14
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RANCON REALTY FUND V,
A CALIFORNIA LIMITED PARTNERSHIP
Notes to Consolidated Financial Statements
June 30, 1998
(Unaudited)
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
balances and transactions have been eliminated in consolidation.
Note 2. REFERENCE TO 1997 AUDITED FINANCIAL STATEMENTS
These unaudited financial statements should be read in conjunction with the
Notes to Financial Statements included in the December 31, 1997 audited
financial statements.
Note 3. INVESTMENTS IN REAL ESTATE
During April 1998, the Partnership entered into a contract to sell 41 acres of
unimproved land, known as Rancon Centre Ontario land. The sale was expected to
close in June 1998. Accordingly, the Partnership reclassified the Rancon Centre
Ontario land from land held for development to land held for sale as of March
31, 1998. However, the contract was terminated due to environmental issues
dealing with an endangered species, the New Delhi Sand Fly. Management is
currently investigating possible resolutions to the wildlife issues. Once
resolved, management will resume marketing the unimproved land for sale.
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 June 30, 1998. 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.
Page 8 of 14
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
LIQUIDITY AND CAPITAL RESOURCES
At June 30, 1998, the Partnership had cash of $3,978,000 (exclusive of pledged
cash). The remainder of the Partnership's assets consist primarily of its
investments in real estate, totaling approximately $41,696,000 which includes
$32,796,000 in rental properties, $2,691,000 of land held for development and
$6,209,000 of land held for sale.
Operationally, the Partnership's primary sources of funds consist of cash
provided by its rental activities. Other sources of funds may include permanent
financing, property sales and interest income on certificates of deposit and
other deposits of funds invested temporarily, pending their use in the
development of properties. Cash generated from property sales may be utilized in
the development of other properties or distributed to the partners.
All of the Partnership's assets are located within the Inland Empire, a
submarket of Southern California, which, despite recent economic growth, has
been affected by the relocation of various California State agencies into state
owned buildings and the recent bank and health care mergers. Management believes
that while the commercial real estate market continues to improve in the Inland
Empire, new construction may soon begin to constrain rent and price increases.
Tri-City
The Partnership currently owns the following properties in the Tri-City
Corporate Center area within the Inland Empire submarket of the Southern
California region:
Property Type Square Feet
One Carnegie Plaza Two, two story office buildings 107,276
Two Carnegie Plaza Two story office building 68,956
Carnegie Business Center II Two R&D buildings 50,867
Santa Fe One story office building 36,288
Lakeside Tower Six story office building 112,717
One Parkside Four story office building 70,069
Bally's Health Club Health club facility 25,000
Outback Steakhouse Restaurant 6,500
The Partnership also owns approximately 14 acres of unimproved land in the
Tri-City area.
The Partnership's general partner is currently in the process of evaluating the
fair market value of the Tri-City assets. The general partner and management are
evaluating appraisals prepared by CB Commercial and other market information in
an effort to determine the optimal time to dispose of its assets and realize
their maximum value.
Rancon Center Ontario
Additionally, the Partnership owns the Rancon Center Ontario property (245,000
square feet of leasable industrial space) in Ontario, California plus
approximately 41 acres of unimproved land in Ontario, California. This land was
in contract to be sold by June 1998. However, the contract was terminated due to
wildlife issues. Management is currently investigating possible
Page 9 of 14
<PAGE>
resolutions to the wildlife issues. Once resolved, management will resume
marketing the unimproved land for sale. Management also anticipates offering the
245,000 square foot industrial space (the improved property) for sale in the
latter part of 1998.
Perris-Ethanac and Nuevo
The Partnership also owns 23.8 acres of unimproved land referred to as
Perris-Ethanac Road and 78.1 acres of undeveloped land referred to as
Perris-Nuevo Road. There has been no development to date at either of these
projects. Both properties are unencumbered and are being marketed for sale by
the Partnership.
General Matters
Other than the aforementioned, 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 balances as of June 30, 1998,
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. However, there can be no assurance that the Partnership's
results of operations will not fluctuate in the future and at times affect its
ability to meet its operating requirements.
RESULTS OF OPERATIONS
Revenue
Rental income decreased $281,000 or 8% and $134,000 or 8% during the six and
three months ended June 30, 1998 compared to the six and three months ended June
30, 1997, respectively, due to the relocation of various California State
agencies into state owned buildings and the office suite consolidations
resulting from recent bank and health care mergers.
Occupancy rates at the Partnership's properties as of June 30, 1998 and 1997
were as follows:
June 30,
1998 1997
One Carnegie Plaza 48% 88%
Two Carnegie Plaza 82% 81%
Carnegie Business Center II 72% 74%
Lakeside Tower 84% 83%
Santa Fe 100% 100%
One Parkside 66% 66%
Rancon Centre Ontario 78% 80%
Bally's Health Club 100% 100%
Outback Steakhouse 100% 100%
The 40 percentage point drop in occupancy from June 30, 1997 to June 30, 1998 at
One Carnegie Plaza is a result of a tenant, who occupied an aggregate 35,306
square feet, relocating to a state owned building in February 1998.
The Atchison Topeka and Santa Fe Railway Company, Sterling Software, Chicago
Title and Holiday Spa Health Club, occupy substantial portions of leased space
at Tri-City with leases expiring at various dates between September 1999 and
December 2010. These four tenants, in
Page 10 of 14
<PAGE>
the aggregate, occupy approximately 116,821 square feet of the total 478,000
total leasable square feet at Tri-City and account for approximately 34% of the
rental income generated at Tri-City and approximately 29% of the total rental
income for the Partnership.
During the six months ended June 30, 1998, three leases totaling 151,850 square
feet at Rancon Centre Ontario expired. Two of these leases were with tenants who
vacated their suites, totaling 77,000 square feet, upon the lease expiration.
The third lease is with a tenant who occupies 74,850 square feet and is
currently on holdover status. The three tenants account for 64% of the 1998
rental income generated at Ontario and 9% of the total 1998 rental income
generated by the Partnership. Management has been marketing these spaces and is
currently finalizing terms for a 27,000 square foot lease. Management is also
evaluating the property for potential sale later in 1998.
Interest and other income increased $49,000 or 38% and $15,000 or 22% for the
six and three months ended June 30, 1998 compared to the six and three months
ended June 30, 1997, respectively, due to interest earned on a new tenant
improvement note receivable in 1997.
Expenses
Operating expenses remained stable during the six and three months ended June
30, 1998 compared to the six and three months ended June 30, 1997.
Interest expense remained stable during the six and three months ended June 30,
1998 compared to the six and three months ended June 30, 1997 since no major
changes were made to the Partnership's outstanding debt.
Depreciation and amortization decreased $96,000 or 10% and $94,000 or 18% during
the six and three months ended June 30, 1998 from the six and three months ended
June 30, 1997 due to a large amount of tenant improvements becoming fully
depreciated in 1998.
Expenses associated with undeveloped land increased $68,000 or 28% and $70,000
or 79% during the six and three months ended June 30, 1998 compared the six and
three months ended June 30, 1997, respectively, primarily due to the receipt of
real estate tax refunds in May 1997.
General and administrative expenses increased $40,000 or 6% and $23,000 or 7%
during the six and three months ended June 30, 1998 compared to the six and
three months ended June 30, 1997, respectively, due to the special appraisals,
analysis and forecast services obtained by management to assist in determining
the optimal time to sell the properties.
Page 11 of 14
<PAGE>
Year 2000 Compliance
The Partnership utilizes a number of computer software programs and operating
systems across its entire organization, including applications used in financial
business systems and various administrative functions. To the extent that the
Partnership's software applications contain a source code that is unable to
appropriately interpret the upcoming calendar year "2000" and beyond, some level
of modification, or replacement of such applications will be necessary. The
Partnership has completed its identification of applications that are not yet
"Year 2000" compliant and has commenced modification or replacement of such
applications, as necessary. Given the information known at this time about the
Partnership's systems that are non-compliant, coupled with the Partnership's
ongoing, normal course-of-business efforts to upgrade or replace critical
systems, as necessary, management does not expect "Year 2000" compliance costs
to have any material adverse impact on the Partnership's liquidity or ongoing
results of operations. No assurance can be given, however, that all of the
Partnership's systems will be "Year 2000" compliant or that compliance costs or
the impact of the Partnership's failure to achieve substantial "Year 2000"
compliance will not have a material adverse effect on the Partnership's future
liquidity or results of operations.
Page 12 of 14
<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
None.
Item 5. Other Information
None.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
#27 - Financial Data Schedule
(b) Reports on Form 8-K:
None.
Page 13 of 14
<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: August 12, 1998 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 14 of 14
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000769131
<NAME> Rancon Realty Fund V
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 4,331
<SECURITIES> 0
<RECEIVABLES> 1,288
<ALLOWANCES> 0
<INVENTORY> 6,209
<CURRENT-ASSETS> 4,433
<PP&E> 35,487
<DEPRECIATION> 17,690
<TOTAL-ASSETS> 49,058
<CURRENT-LIABILITIES> 458
<BONDS> 13,598
0
0
<COMMON> 0
<OTHER-SE> 35,002
<TOTAL-LIABILITY-AND-EQUITY> 49,058
<SALES> 0
<TOTAL-REVENUES> 3,414
<CGS> 0
<TOTAL-COSTS> 1,848
<OTHER-EXPENSES> 1,575
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 643
<INCOME-PRETAX> (652)
<INCOME-TAX> 0
<INCOME-CONTINUING> (652)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (652)
<EPS-PRIMARY> (6.67)
<EPS-DILUTED> (6.67)
</TABLE>
