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, 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 September 30, 1998: 96,450
Page 1 of 14
<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,
1998 1997
<S> <C> <C>
Assets
Investments in real estate:
Rental property, net of accumulated depreciation
of $16,309 and $16,911 at September 30, 1998
and December 31, 1997, respectively $ 28,704 $ 33,486
Rental property held for sale, net 3,959 --
Land held for development 2,691 7,980
Land held for sale 6,209 920
----------- ---------------
Total real estate investments 41,563 42,386
Cash and cash equivalents 4,065 4,361
Pledged cash 353 353
Accounts receivable 122 141
Notes receivable 1,175 1,208
Deferred financing costs and other fees,net of
accumulated amortization of $2,180 and $1,953
at September 30, 1998 and December 31, 1997,
respectively 989 1,097
Prepaid expenses and other assets 730 645
----------- ---------------
Total assets $ 48,997 $ 50,191
=========== ==================
- continued -
Page 2 of 14
<PAGE>
RANCON REALTY FUND V,
A CALIFORNIA LIMITED PARTNERSHIP
Consolidated Balance Sheets - continued
(in thousands, except units outstanding)
(Unaudited)
September 30, December 31,
1998 1997
Liabilities and Partners' Equity (Deficit)
Liabilities:
Notes payable $ 13,553 $ 13,684
Accounts payable and other liabilities 710 693
Interest payable 73 74
----------- -----------
Total liabilities 14,336 14,451
----------- -----------
Commitments and contingent liabilities __ __
(see Note 4)
Partners' equity (deficit):
General partners (964) (954)
Limited partners, 96,450 and 96,754 limited
partnership units outstanding at September 30, 1998
and December 31, 1997, respectively 35,625 36,694
----------- ----------
Total partners' equity 34,661 35,740
----------- ----------
Total liabilities and partners' equity $ 48,997 $ 50,191
=========== ==========
</TABLE>
See accompanying notes to financial statements.
Page 3 of 14
<PAGE>
<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 Nine months ended
September 30, September 30,
----------------------- -----------------------
1998 1997 1998 1997
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Revenue:
Rental income $ 1,602 $ 1,768 $ 4,837 $ 5,284
Interest and other income 81 67 260 197
--------- --------- --------- ---------
Total revenue 1,683 1,835 5,097 5,481
--------- --------- --------- ---------
Expenses:
Operating 807 843 2,340 2,356
Interest expense 320 324 963 975
Depreciation and amortization 423 583 1,331 1,587
Expenses associated with
undeveloped land 113 153 428 400
General and administrative expenses 343 318 1,010 945
--------- --------- --------- ---------
Total expenses 2,006 2,221 6,072 6,263
--------- --------- --------- ---------
Net loss $ (323) $ (386) $ (975) $ (782)
========= ========= ========= =========
Net loss per limited partnership unit $ (3.32) $ (3.83) $ (9.99) $ (7.76)
========= ========== ========= =========
Weighted average number of limited
partnership units outstanding during
each period used to compute net loss
per limited partnership unit 96,478 99,762 96,582 99,764
========= ========= ========= =========
</TABLE>
See accompanying notes to financial statements.
Page 4 of 14
<PAGE>
RANCON REALTY FUND V,
A CALIFORNIA LIMITED PARTNERSHIP
Consolidated Statement of Partners' Equity (Deficit)
For the nine months ended September 30, 1998
(in thousands)
(Unaudited)
General Limited
Partners Partners Total
Balance at December 31, 1997 $ (954) $ 36,694 $ 35,740
Retirement of limited partnership units -- (104) (104)
Net loss (10) (965) (975)
--------- ---------- ----------
Balance at September 30, 1998 $ (964) $ 35,625 $ 34,661
========= ========== ==========
See accompanying notes to financial statements.
Page 5 of 14
<PAGE>
<TABLE>
<CAPTION>
RANCON REALTY FUND V,
A CALIFORNIA LIMITED PARTNERSHIP
Consolidated Statements of Cash Flows
(in thousands)
(Unaudited)
Nine months ended
September 30,
1998 1997
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (975) $ (782)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation and amortization 1,331 1,587
Amortization of loan fees, included in interest expense 40 40
Changes in certain assets and liabilities:
Accounts receivable 19 (82)
Notes receivable 33 --
Deferred financing costs and other fees (119) (154)
Prepaid expenses and other assets (85) (184)
Accounts payable and other liabilities 17 343
Interest payable (1) (1)
-------- --------
Net cash provided by operating activities 260 767
-------- --------
Cash flows from investing activities:
Additions to real estate investments (321) (239)
-------- --------
Cash flows from financing activities:
Notes payable principal payments (131) (120)
Purchase and retirement of limited partnership units (104) --
-------- --------
Net cash used for financing activities (235) (120)
-------- --------
Net increase (decrease) in cash and cash equivalents (296) 408
Cash and cash equivalents at beginning of period 4,361 5,007
-------- --------
Cash and cash equivalents at end of period $ 4,065 $ 5,415
======== ========
Supplemental disclosure of cash flow information:
Cash paid for interest $ 924 $ 936
======== ========
</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
September 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" or "General Partner") 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
September 30, 1998 and December 31, 1997, the related statements of operations
for the three and nine months ended September 30, 1998 and 1997, and the changes
in partners' equity (deficit) and cash flows for the nine months ended September
30, 1998 and 1997.
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 shall the
general partner be allocated less than 1% of net losses for any period.
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 relation services and Preferred Partnership Services, Inc. ("PPS"), a
California Corporation unaffiliated with the Partnership, contracted to assume
these services. Pursuant 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) management fees equal to 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 nine months ended September 30, 1998, a total of 304 limited
partnership units were repurchased and retired as a result of the Partnership's
offer to redeem limited partnership units. As
Page 7 of 14
<PAGE>
RANCON REALTY FUND V,
A CALIFORNIA LIMITED PARTNERSHIP
Notes to Consolidated Financial Statements
September 30, 1998
(Unaudited)
of September 30, 1998, there were 96,450 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.
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
The Partnership owns five buildings known as Rancon Centre Ontario (the " RCO
Buildings), consisting of 245,000 square feet of leasable industrial space in
Ontario, California. Additionally, the Partnership owns approximately 38 acres
of unimproved land (the "Ontario Land") also in Ontario, California. During
October 1998, the Partnership executed a Letter of Intent with a third party
buyer to sell both the RCO Buildings and the Ontario Land for a total purchase
price of $14,720,000. The sale is expected to close in December 1998.
Accordingly, both the RCO Buildings and the Ontario Land are classified as
properties held for sale as of September 30, 1998. Since the net book value of
the RCO Buildings and the Ontario Land are $3,959,000 and $5,289,000,
respectively, no provision for impairment in investment in real estate is
required. This sale is subject to the completion of due diligence, property
inspection and other contingencies. Thus, there is no assurance that the sale
will be completed.
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, 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 September 30, 1998, the Partnership had cash and cash equivalents of
$4,065,000 (exclusive of pledged cash). The remainder of the Partnership's
assets consist primarily of its investments in real estate, totaling
approximately $41,563,000 which includes $28,704,000 in rental properties held
for investment, $3,959,000 in rental property held for sale, $2,691,000 of land
held for development and $6,209,000 of land held for sale.
The Partnership's primary source of funds consists of cash provided by its
rental activities. Other sources of funds may include permanent financing,
property sales and interest income on certificates of deposit and other deposits
of funds invested temporarily. 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 overall economic growth,
has been affected by the relocation of various California state agencies into
state owned buildings, recent business mergers and the completion of new
buildings within the neighboring area. Management believes that while these
external pressures exist, demand for office and industrial space in the Inland
Empire should improve due to less expensive labor, lower cost of living and a
good transportation and distribution infrastructure.
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 as well as other market
information in an effort to determine the optimal time to dispose of its assets
and realize maximum value.
Page 9 of 14
<PAGE>
Rancon Centre Ontario
The Partnership owns five buildings known as Rancon Centre Ontario (the " RCO
Buildings), consisting of 245,000 square feet of leasable industrial space in
Ontario, California. Additionally, the Partnership owns approximately 38 acres
of unimproved land (the "Ontario Land") also in Ontario, California. During
October 1998, the Partnership executed a Letter of Intent with a third party
buyer to sell both the RCO Buildings and the Ontario Land for a total purchase
price of $14,720,000. The sale is expected to close in December 1998.
Accordingly, both the RCO Buildings and the Ontario Land are classified as
properties held for sale as of September 30, 1998. This sale is subject to the
completion of due diligence, property inspections and other contingencies. Thus,
there is no assurance that the sale will be completed. The RCO Buildings and the
Ontario Land are unsecured assets. The net proceeds from the sale would be added
to the cash reserves of the Partnership.
Perris-Ethanac and Nuevo
The Partnership 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. The
parcel map reverting the land to acreage has been recorded for the 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
The $4,782,000 or 14% decrease in rental property at September 30, 1998 compared
to December 31, 1997 is due to the reclassification of the RCO Buildings
($3,959,000 net book value) to rental property held for sale and depreciation of
$1,144,000, offset by $321,000 of additions.
The $5,289,000 or 66% decrease in land held for development at September 30,
1998 compared to December 31, 1997 is due to the reclassification of the Ontario
Land to land held for sale.
The Partnership knows of no unrecorded demands, commitments or events that 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 September 30,
1998, together with the net cash from operations, permanent financing and sales
proceeds, will be sufficient to fund the Partnership's continued operations and
planned capital improvement needs.
RESULTS OF OPERATIONS
Revenue
Rental income decreased $447,000 or 8% and $166,000 or 9% during the nine and
three months ended September 30, 1998 compared to the nine and three months
ended September 30, 1997, respectively, due to tenants lost due to the
relocation of various state agency tenants into recently completed state owned
buildings and office suite consolidations resulting from business mergers.
Page 10 of 14
<PAGE>
Occupancy rates at the Partnership's properties as of September 30, 1998 and
1997 were as follows:
September 30,
1998 1997
One Carnegie Plaza 47% 87%
Two Carnegie Plaza 82% 81%
Carnegie Business Center II 83% 74%
Lakeside Tower 85% 84%
Santa Fe 100% 100%
One Parkside 79% 66%
Rancon Centre Ontario 69% 100%
Bally's Health Club 100% 100%
Outback Steakhouse 100% 100%
The 40 percentage point drop in occupancy from September 30, 1997 to September
30, 1998 at One Carnegie Plaza is primarily a result of one tenant, who occupied
an aggregate space of 35,306 square feet, relocating to a state owned building
in February 1998. Management has been conducting tours to prospective tenants
marketing this space for lease.
As of September 30, 1998, tenants at Tri-City occupying substantial portions of
leased space included: (i) the Atchison Topeka and Santa Fe Railway Company,
with a lease through September 1999; (ii) Chicago Title, with a lease through
February 2004; (iii) Sterling Software, with a lease through November 2000; and
(iv) Holiday Spa Health Club, with a lease through 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 29% of the total
income for the Partnership.
The 31 percentage point decrease in occupancy at Rancon Centre Ontario from
September 30, 1997 to September 30, 1998 is the result of two tenants (with
leases totaling 77,000 square feet) moving out upon their lease expirations of
June 30, 1998. A holdover tenant, who occupied 74,850 square feet, vacated its
suite on September 30, 1998 due to its need for space in close proximity to rail
service. This tenant accounted for 28% of the rental income generated at Ontario
and 4% of the total rental income generated by the Partnership. Management has
been marketing this space for lease, as well as the 77,000 square feet of space
vacated earlier in the year. Management is negotiating lease terms with a tenant
(currently leasing 39,150 square feet) for a possible relocation and expansion
into a 124,850 square foot suite at Rancon Centre Ontario.
Interest and other income increased $63,000 or 32% and $14,000 or 21% during the
nine months ended September 30, 1998 compared to the same period in 1997,
respectively, due primarily to interest earned on a tenant improvement note
receivable.
Page 11 of 14
<PAGE>
Expenses
Operating expenses and interest expense remained stable during the nine and
three months ended September 30, 1998 compared to the nine and three months
ended September 30, 1997. The decrease in occupancy at One Carnegie Plaza and
Rancon Centre Ontario contributed to a decrease in operating expenses; however,
this decrease was offset by: (i) an increase in space planning and leasing
expenses at Carnegie Business Center II and One Parkside; and (ii) an increase
in general repairs at One Parkside and One Carnegie Plaza.
Depreciation and amortization decreased $256,000 or 16% and $160,000 or 27%
during the nine and three months ended September 30, 1998 compared to the nine
and three months ended September 30, 1997, respectively, due to tenant
improvements becoming fully depreciated in 1998 and the ceasing of depreciation
for Rancon Centre Ontario upon reclassification of the property as held for
sale.
Expenses associated with undeveloped land increased $28,000 or 7% during the
nine months ended September 30, 1998 compared to the nine months ended September
30, 1997 due to the receipt of $91,000 of real estate tax refunds in May 1997,
and a $3,000 increase in maintenance association dues. The receipt of $66,000 of
real estate tax refunds in September 1998 partially offset the increase in
expenses associated with undeveloped land.
General and administrative expenses increased $65,000 or 7% and $25,000 or 7%
during the nine and three months ended September 30, 1998 compared to the nine
and three months ended September 30, 1997, respectively, due to professional
fees incurred for appraisals, analysis and forecast services provided to the
Partnership to assist in the determination of the marketing strategies for the
properties.
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>
SIGNATURES
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, 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
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000769131
<NAME> Rancon Realty Fund IV
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 4,418
<SECURITIES> 0
<RECEIVABLES> 1,297
<ALLOWANCES> 0
<INVENTORY> 10,168
<CURRENT-ASSETS> 4,540
<PP&E> 31,395
<DEPRECIATION> 16,309
<TOTAL-ASSETS> 48,997
<CURRENT-LIABILITIES> 783
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 34,661
<TOTAL-LIABILITY-AND-EQUITY> 48,997
<SALES> 0
<TOTAL-REVENUES> 5,097
<CGS> 0
<TOTAL-COSTS> 2,768
<OTHER-EXPENSES> 2,341
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 963
<INCOME-PRETAX> (975)
<INCOME-TAX> 0
<INCOME-CONTINUING> (975)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (975)
<EPS-PRIMARY> (9.99)
<EPS-DILUTED> (9.99)
</TABLE>
