FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended March 31, 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 March 31, 1998: 96,600
Page 1 of 14
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
RANCON REALTY FUND V,
A CALIFORNIA LIMITED PARTNERSHIP
Consolidated Balance Sheets
(in thousands, except units outstanding)
(Unaudited)
March 31, December 31,
1998 1997
-------- ---------
Assets
Investments in real estate:
Rental property, net of accumulated depreciation of
$17,324 and $16,911 at March 31, 1998 and
December 31, 1997, respectively $ 33,118 $ 33,486
Land held for development 2,691 7,980
Land held for sale 6,209 920
-------- --------
Total real estate investments 42,018 42,386
Cash and cash equivalents 4,210 4,361
Pledged cash 353 353
Accounts receivable 133 141
Note receivable 1,198 1,208
Deferred financing costs and other fees, net of accumulated
amortization of $2,037 and $1,953 at March 31, 1998
and December 31, 1997, respectively 1,036 1,097
Prepaid expenses and other assets 712 645
-------- --------
Total assets $ 49,660 $ 50,191
======== ========
- continued -
Page 2 of 14
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RANCON REALTY FUND V,
A CALIFORNIA LIMITED PARTNERSHIP
Consolidated Balance Sheets - continued
(in thousands, except units outstanding)
(Unaudited)
March 31, December 31,
1998 1997
--------- ---------
Liabilities and Partners' Equity (Deficit)
Liabilities:
Notes payable $ 13,646 $ 13,684
Accounts payable and accrued expenses 503 693
Interest payable 103 74
-------- --------
Total liabilities 14,252 14,451
-------- --------
Commitments and contingent liabilities (see Note 4)
Partners' equity (deficit):
General partners (957) (954)
Limited partners, 96,600 and 96,754 limited
partnership units outstanding at March 31, 1998
and December 31, 1997, respectively 36,365 36,694
-------- --------
Total partners' equity 35,408 35,740
-------- --------
Total liabilities and partners' equity $ 49,660 $ 50,191
======== ========
See accompanying notes to financial statements.
Page 3 of 14
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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
March 31,
1998 1997
--------- ---------
Revenue:
Rental income $ 1,657 $ 1,804
Interest income 97 63
--------- ---------
Total revenue 1,754 1,867
Expenses:
Operating 749 744
Interest expense 322 326
Depreciation and amortization 484 486
Expenses associated with undeveloped land 156 158
General and administrative expenses 319 302
--------- ---------
Total expenses 2,030 2,016
--------- ---------
Net loss $ (276) $ (149)
========= =========
Net loss per limited partnership unit $ (2.82) $ (1.48)
========= =========
Weighted average number of limited partnership units
outstanding during each period used to compute net loss
per limited partnership unit 96,710 99,765
========= =========
See accompanying notes to financial statements.
Page 4 of 14
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RANCON REALTY FUND V,
A CALIFORNIA LIMITED PARTNERSHIP
Consolidated Statements of Partners' Equity (Deficit)
For the three months ended March 31, 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 -- (56) (56)
Net loss (3) (273) (276)
--------- --------- --------
Balance at March 31, 1998 $ (957) $ 36,365 $ 35,408
========= ========= ========
Balance at December 31, 1996 $ (921) $ 40,918 $ 39,997
Net loss (1) (148) (149)
--------- --------- ---------
Balance at March 31, 1997 $ (922) $ 40,770 $ 39,848
========= ========= ========
See accompanying notes to financial statements.
Page 5 of 14
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RANCON REALTY FUND V,
A CALIFORNIA LIMITED PARTNERSHIP
Consolidated Statements of Cash Flows
(in thousands)
(Unaudited)
Three months ended
March 31,
1998 1997
-------- -------
Cash flows from operating activities:
Net loss $ (276) $ (149)
Adjustments to reconcile net loss to net cash
provided by (used for) operating activities:
Depreciation and amortization 484 486
Amortization of loan fees, included in interest expense 13 13
Changes in certain assets and liabilities:
Accounts receivable 8 (33)
Note receivable 10 --
Deferred financing costs and other fees (23) (44)
Prepaid expenses and other assets (67) (4)
Accounts payable and accrued expenses (190) 320
Interest payable 29 --
------- -------
Net cash provided by (used for) operating activities (12) 589
------- -------
Cash flows from investing activities:
Additions to real estate investments (45) (19)
------- -------
Net cash used for investing activities (45) (19)
------- -------
Cash flows from financing activities:
Notes payable principal payments (38) (39)
Purchase and retirement of limited partnership units (56) --
------- -------
Net cash used for financing activities (94) (39)
------- -------
Net increase (decrease) in cash and cash equivalents (151) 531
Cash and cash equivalents at beginning of period 4,361 5,007
------- -------
Cash and cash equivalents at end of period $ 4,210 $ 5,538
======= =======
Supplemental disclosure of cash flow information:
Cash paid for interest $ 280 $ 313
======= =======
See accompanying notes to financial statements.
Page 6 of 14
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RANCON REALTY FUND V,
A CALIFORNIA LIMITED PARTNERSHIP
Notes to Consolidated Financial Statements
March 31, 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 March
31, 1998 and December 31, 1997, the related statements of operations, the
changes in partners' equity and cash flows for the three months ended March 31,
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. According to the 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 for the
Rancon Partnerships. Glenborough is not an affiliate of RFC or the Partnership.
During the quarter ended March 31, 1998, a total of 154 limited partnership
units were repurchased and retired as a result of the Partnership's offer to
redeem the partners limited partnership units. As of March 31, 1998, there were
96,600 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
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 balances and transactions have been eliminated in consolidation.
Page 7 of 14
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RANCON REALTY FUND V,
A CALIFORNIA LIMITED PARTNERSHIP
Notes to Consolidated Financial Statements
March 31, 1998
(Unaudited)
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, for $5,787,000. The sale
is 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.
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 March 31, 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
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Item 2. Management's Discussion and Analysis of Financial Conditions and Results
of Operations
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 1998, the Partnership had cash of $4,210,000 (exclusive of pledged
cash). The remainder of the Partnership's assets consist primarily of its
investments in real estate, totaling approximately $42,018,000 which includes
$33,118,000 in rental properties, $7,980,000 of land held for development and
$920,000 of land held for sale.
Operationally, the Partnership's primary source of funds consists of cash
provided by its rental activities. Other sources of funds may include permanent
financing, property sales, interest income 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 considered to be 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. Cash
generated from property sales may be utilized in the development of other
properties or distributed to the partners.
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.
Management is currently in the process of evaluating the potential sale of the
Tri-City assets. Management has ordered appraisals from CB Commercial, an
econometric forecast of future value from CB Commercial and an analysis by Arlen
Capital of the Real Estate Investment Trust ("REIT") market to determine if it
is better to offer the Tri-City assets for sale in 1998 or 1999.
Page 9 of 14
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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 is
currently in contract to be sold in June 1998 for $5,787,000. Accordingly, the
Partnership has classified this property as land held for sale. Management
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 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 March 31, 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
Revenues
Rental income for the three months ended March 31, 1998 decreased $147,000 or 8%
from the three months ended March 31, 1997 due in large part to the significant
decreases in occupancy at One Carnegie Plaza and One Parkside. The decrease in
occupancy at One Carnegie Plaza is a result of a tenant, who occupied
approximately 35,300 square feet, exercising its right to terminate its lease as
of February 1, 1998. The 26-percentage point drop in occupancy from March 31,
1997 to March 31, 1998 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 these spaces for lease.
Page 10 of 14
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Occupancy rates at the Partnership's properties as of March 31, 1998 and 1997
were as follows:
March 31,
1998 1997
------- -------
One Carnegie Plaza 57% 88%
Two Carnegie Plaza 82% 83%
Carnegie Business Center II 74% 74%
Lakeside Tower 85% 83%
Santa Fe 100% 100%
One Parkside 66% 92%
Rancon Centre Ontario 100% 80%
Bally's Health Club 100% 100%
Outback Steakhouse 100% 100%
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 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 28% of the total rental income for the Partnership.
Two tenants, United Pacific Mills and USCO Distribution Services, Inc., occupy
significant square footage of Rancon Centre Ontario ("Ontario"). These two
tenants occupy an aggregate 124,850 square feet or 51% of Ontario and account
for 39% of the rental income generated at Ontario and 6% of total rental income
of the Partnership.
Interest and other income increased $34,000 or 54% from the three months ended
March 31, 1997 to the three months ended March 31, 1998 due to interest on a
tenant improvement note receivable in 1998.
Expenses
All expense categories remained consistent during the three months ended March
31, 1998 compared to the three months ended March 31, 1997. The decrease in
occupancy at One Carnegie Plaza and One Parkside contributed to a decrease in
operating expenses, however this decrease was offset primarily by an increase in
maintenance association dues paid. This increase in maintenance association dues
paid was due to a decrease in maintenance association dues paid during the three
months ended March 31, 1997 resulting from excess operating cash held by the
associations at December 31, 1996. Also offsetting the decrease in operating
expenses during the three months ended March 31, 1998 compared to the same
period in 1997 were increases resulting from general repairs at One Carnegie
Plaza and the recognition of prior year bad debt in the first quarter of 1998.
Page 11 of 14
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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
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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: May 14, 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
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<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000769131
<NAME> RANCON REALTY FUND V
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 4,563
<SECURITIES> 0
<RECEIVABLES> 1,331
<ALLOWANCES> 0
<INVENTORY> 6,209
<CURRENT-ASSETS> 4,696
<PP&E> 35,809
<DEPRECIATION> 17,324
<TOTAL-ASSETS> 49,660
<CURRENT-LIABILITIES> 606
<BONDS> 13,646
0
0
<COMMON> 0
<OTHER-SE> 35,408
<TOTAL-LIABILITY-AND-EQUITY> 49,660
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<CGS> 0
<TOTAL-COSTS> 905
<OTHER-EXPENSES> 803
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 322
<INCOME-PRETAX> (276)
<INCOME-TAX> 0
<INCOME-CONTINUING> (276)
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<NET-INCOME> (276)
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<EPS-DILUTED> (2.82)
</TABLE>
