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 September 30, 1999
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 94402-1708
(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, 1999: 96,412
Page 1 of 21
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
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RANCON REALTY FUND V,
A CALIFORNIA LIMITED PARTNERSHIP
Consolidated Balance Sheets
(in thousands, except unit amounts)
September 30, December 31,
1999 1998
(Unaudited) (Audited)
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Assets
Investments in real estate:
Rental property, net of accumulated depreciation
of $17,807 and $16,666 at September 30, 1999
and December 31, 1998, respectively $ 28,630 $ 28,572
Rental property held for sale, net -- 3,970
Land held for development 2,712 2,702
Land held for sale -- 597
------------- -------------
Total real estate investments 31,342 35,841
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Cash and cash equivalents 10,248 3,073
Pledged cash -- 353
Accounts receivable 1,325 1,239
Notes receivable 6,190 --
Deferred financing costs and other fees, net of
accumulated amortization of $2,256 and $2,259 at
September 30, 1999 and December 31, 1998, respectively 974 998
Prepaid expenses and other assets 760 6,121
------------- -------------
Total assets $ 50,839 $ 47,625
============= =============
Liabilities and Partners' Equity (Deficit)
Liabilities:
Notes payable $ 13,365 $ 13,508
Accounts payable and other liabilities 519 230
Deferred income 3,717 --
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Total liabilities 17,601 13,738
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Commitments and contingent liabilities (see Note 4) -- --
Partners' Equity (Deficit):
General partners (977) (971)
Limited partners, 96,412 and 96,444 limited
partnership units outstanding at September 30,
1999 and December 31, 1998, respectively 34,215 34,858
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Total partners' equity 33,238 33,887
------------- -------------
Total liabilities and partners' equity $ 50,839 $ 47,625
============= =============
</TABLE>
See accompanying notes to financial statements.
Page 2 of 21
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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 Nine months ended
September 30, September 30,
-------------------------- ---------------------------
1999 1998 1999 1998
---------- ---------- ----------- ----------
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Revenues:
Rental income $ 1,643 $ 1,602 $ 4,707 $ 4,837
Interest and other income 273 81 760 260
---------- ---------- ----------- ----------
Total revenues 1,916 1,683 5,467 5,097
---------- ---------- ----------- ----------
Expenses:
Operating 810 807 2,363 2,340
Interest expense 316 320 951 963
Depreciation and amortization 470 423 1,338 1,331
Loss on sale of real estate -- -- 6 --
Expenses associated with
undeveloped land 95 113 243 428
General and administrative 298 296 901 941
Proposed dissolution costs 148 47 302 69
---------- ---------- ----------- ----------
Total expenses 2,137 2,006 6,104 6,072
---------- ---------- ----------- ----------
Net loss $ (221) $ (323) $ (637) $ (975)
========== ========== =========== ==========
Net loss per limited partnership unit $ (2.27) $ (3.32) $ (6.54) $ (9.99)
========== ========== =========== ==========
Weighted average number of limited
partnership units outstanding during
each period used to compute net loss
per limited partnership unit 96,441 96,478 96,442 96,582
========== ========== =========== ==========
</TABLE>
See accompanying notes to financial statements.
Page 3 of 21
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RANCON REALTY FUND V,
A CALIFORNIA LIMITED PARTNERSHIP
Consolidated Statement of Partners' Equity (Deficit)
For the nine months ended September 30, 1999
(in thousands)
(Unaudited)
General Limited
Partners Partners Total
---------- ---------- -----------
Balance at December 31, 1998 $ (971) $ 34,858 $ 33,887
Retirement of limited partnership units -- (12) (12)
Net loss (6) (631) (637)
---------- ---------- -----------
Balance at September 30, 1999 $ (977) $ 34,215 $ 33,238
========== ========== ==========
See accompanying notes to financial statements.
Page 4 of 21
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RANCON REALTY FUND V,
A CALIFORNIA LIMITED PARTNERSHIP
Consolidated Statements of Cash Flows
(in thousands)
(Unaudited)
Nine months ended
September 30,
-------------------------------
1999 1998
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Cash flows from operating activities:
Net loss $ (637) $ (975)
Adjustments to reconcile net loss
to net cash provided by operating activities:
Net loss on sale of real estate 6 --
Depreciation and amortization 1,338 1,331
Amortization of loan fees, included in
interest expense 40 40
Changes in certain assets and liabilities:
Accounts receivable (86) 19
Notes receivable -- 33
Deferred financing costs and other fees (213) (119)
Prepaid expenses and other assets 5,361 (85)
Accounts payable and other liabilities 289 16
------------- ------------
Net cash provided by operating activities 6,098 260
------------- ------------
Cash flows from investing activities:
Net proceeds from sales of real estate 2,088 --
Additions to real estate investments (1,209) (321)
Funds released from pledged cash 353 --
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Net cash provided by (used for) investing activities 1,232 (321)
------------- ------------
Cash flows from financing activities:
Notes payable principal payments (143) (131)
Retirement of limited partnershipunits (12) (104)
-------------- ------------
Net cash used for financing activities (155) (235)
-------------- ------------
Net increase (decrease) in cash and cash equivalents 7,175 (296)
Cash and cash equivalents at beginning of period 3,073 4,361
------------- ------------
Cash and cash equivalents at end of period $ 10,248 $ 4,065
============= ============
Supplemental disclosure of cash flow information:
Cash paid for interest $ 911 $ 924
============= ============
</TABLE>
See accompanying notes to financial statements.
Page 5 of 21
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RANCON REALTY FUND V,
A CALIFORNIA LIMITED PARTNERSHIP
Notes to Consolidated Financial Statements
September 30, 1999
(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, the
Partnership's asset and property manager ("Glenborough"), the accompanying
unaudited consolidated 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, 1999 and December 31, 1998, and the related consolidated
statements of operations and cash flows for the nine months ended September 30,
1999 and 1998.
Asset Sale and Dissolution Proposal - A Consent Solicitation Statement (the
"Solicitation") was sent to the holders of limited partnership units
("Unitholders" or "Limited Partners") on July 6, 1999. The Solicitation
(incorporated by reference to the Schedule 14A - Preliminary Proxy Statement
filed with the United States Securities and Exchange Commission ("Commission")
in the second quarter of 1999) discussed the General Partner's proposal to sell
all of the Partnership's real estate assets ("Asset Sale") and liquidate the
Partnership thereafter ("Dissolution"). The General Partner currently intends to
sell all of the Partnership's properties within approximately six months after
consent has been obtained, distribute the proceeds and liquidate the Partnership
after all of the properties are sold and the cash proceeds thereof received. The
General Partner does not expect the Dissolution to occur until at least early
2000 (and potentially not until 2001) as some of the properties may be sold with
the purchase price payable on an installment basis.
As of August 25, 1999, the expiration of the voting period, 96,442 limited
partnership units ("Units") were outstanding. Of the total Units outstanding,
76,475 Unitholders, or 79%, have voted ("Units Voted") and no response was
received from the remaining 21%. A final tabulation of the results of the
Solicitation was made on August 25, 1999, with 67,498 Unitholders, or 88%, of
the Units Voted in favor, 7,271 Unitholders, or 10%, against and 1,706
Unitholders, or 2%, abstaining. During the third quarter of 1999, a total of 32
Units were repurchased as a result of a Unitholder's request for the Partnership
to take over such Units. As of September 30, 1999, there were 96,412 Units
outstanding.
Subsequent to obtaining the consent of the majority of the Unitholders, the
General Partner grouped the properties into two or more packages of properties
(such as separate packages of retail properties, office properties and
unimproved land) and included properties in the Tri-City Corporate Centre which
are owned by Rancon Realty Fund IV ("Fund IV"), a partnership also sponsored by
the General Partner. Bidders for any package of properties containing the
Partnership's and Fund IV's properties will be required to specify how their
overall bid is allocated among the individual properties in the package, and the
proceeds and expenses from the sales of any such package will be apportioned
between the Partnership and Fund IV based upon such allocation. The General
Partner hired an independent real estate firm to market the properties and to
Page 6 of 21
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RANCON REALTY FUND V,
A CALIFORNIA LIMITED PARTNERSHIP
Notes to Consolidated Financial Statements
September 30, 1999
(Unaudited)
prepare marketing materials and informational brochures. The informational
brochures were presented to a number of prospective buyers and as of the end of
September 1999, the General Partner had received 39 signed confidentiality
agreements requesting offering memorandums. The General Partner is currently
assessing all offers on the properties in an effort to achieve the highest
possible sales price and return value for the properties. The General Partner
currently intends to close the bidding process by the end of November 1999.
The Partnership has not, as of the date of the filing of this Quarterly Report
on Form 10-Q with the Commission, entered into any agreement for the sale of its
properties, although the Partnership has, in 1997, granted to Glenborough Realty
Trust Incorporated, a Maryland corporation ("GLB"), a right to match offers for
the purchase of the Partnership's properties ("GLB Matching Right"). GLB is not
an affiliate of the Partnership.
Pursuant to the GLB Matching Right and the right of first refusal, the General
Partner is required to give prompt written notice to GLB of the price and other
terms and conditions of any offer, received from an unaffiliated third party,
the General Partner is willing to accept to sell all or a portion of the
Partnership's properties. GLB has ten days after receipt of the Partnership's
written notice to accept or reject the purchase price and other terms and
conditions of the sale. If GLB exercises its matching right and agrees to
purchase all or a portion of the Partnership's properties at the specified price
and on the other terms and conditions, the Partnership and GLB must promptly
execute a purchase agreement, which is to contain a reasonable feasibility study
period for GLB. If, on the other hand, GLB notifies the Partnership that it does
not intend to exercise its matching right or fails to respond within the ten-day
period, then the Partnership has the right to sell all or a portion of the
Partnership's properties to the unaffiliated third party buyer as set forth in
the Partnership's notice to GLB.
Prior to the completion of the sale of all of the Partnership's properties and
the receipt in cash of the proceeds thereof, the General Partner currently
intends, but is not obligated, to make interim distributions to the Limited
Partners, from time to time, of all or a portion of the net proceeds from the
sale of the properties. The General Partner will not receive any of the net
proceeds from the sale of the properties or upon dissolution of the Partnership
with respect to its general partnership interests. The General Partner also
intends to distribute in 1999 the net proceeds of certain sales of Partnership
properties which occurred in December 1998 and January 1999. See Note 3 below
for further details.
Allocation of Net Income and Net Loss - Allocation of net income and net losses
are made pursuant to the terms of the Partnership Agreement. Generally, net
losses from operations are allocated 90% to the limited partners and 10% to the
general partners. Net losses other than net losses from operations are allocated
99% to the limited partners and 1% to the general partners. Such net losses will
be allocated among limited partners as necessary to equalize their capital
accounts in proportion to their Units, and thereafter will be allocated in
Page 7 of 21
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RANCON REALTY FUND V,
A CALIFORNIA LIMITED PARTNERSHIP
Notes to Consolidated Financial Statements
September 30, 1999
(Unaudited)
proportion to their Units. If a partner's capital account is reduced to zero,
additional net losses will be allocated entirely to those partners with positive
capital balances until such balances are reduced to zero. In no event shall the
general partners be allocated less than 1% of all net losses for any period.
Net income from operations is allocated 90% to the limited partners and 10% to
the general partners. Net income other than net income from operations shall be
allocated as follows: (i) first, to the partners who have a deficit balance in
their capital account, provided that, in no event shall the general partners be
allocated more than 5% of the net income other than net income from operations
until the earlier of sale or disposition of substantially all of the assets or
the distribution of cash (other than cash from operations) equal to the limited
partner's original invested capital; (ii) second, to the limited partners in
proportion to and to the extent of the amounts required to increase their
capital accounts to an amount equal to the sum of the adjusted invested capital
of their units plus an additional cumulative non-compounded 6% return per annum
(plus additional amounts depending on the date Units were purchased); (iii)
third, to the partners in the minimum amount required to first equalize their
capital accounts in proportion to the number of units owned, and then, to bring
the sum of the balances of the capital accounts of the limited partners and the
general partners into the ratio of 4 to 1; and (iv) the balance, if any, 80% to
the limited partners and 20% to the general partners. In no event shall the
general partners be allocated less than 1% of the net income other than net
income from operations for any period.
Management Agreement - Effective January 1, 1995, Glenborough entered into an
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., a California Corporation unaffiliated with
the Partnership, contracted to assume these services. In August 1998, the
management agreement was further amended to provide Glenborough with a guarantee
of a specified amount of asset management and property management fees through
December 31, 1999, regardless of whether the Partnership sells any or all of its
properties prior to such date. In exchange, Glenborough waived any and all
claims related to liquidated damages under the agreement to which it may have
otherwise been entitled. 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 ($759,000 in 1999); (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 duties for the General Partner of the Rancon Partnerships. RFC agreed to
cooperate with Glenborough, should Glenborough attempt to obtain a majority vote
of the limited partners to substitute itself as the Sponsor for the Rancon
Partnerships. Glenborough is not an affiliate of RFC or the Partnership.
Page 8 of 21
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RANCON REALTY FUND V,
A CALIFORNIA LIMITED PARTNERSHIP
Notes to Consolidated Financial Statements
September 30, 1999
(Unaudited)
Basis of Accounting - The accompanying unaudited consolidated financial
statements have been prepared on the accrual basis of accounting in accordance
with generally accepted accounting principles under the presumption that the
Partnership will continue as a going concern.
The consent of the Limited Partners to the proposal to sell all of the
Partnership's properties and liquidate the Partnership will not impact the
accounting treatment applied by the Partnership in its financial statements
prepared in accordance with generally accepted accounting principles as the
liquidation proceeds and the timing thereof are not currently estimable. The
Partnership will classify as "held for use" or "held for development", all of
its operating and undeveloped properties until such time as an acceptable buyer
is identified and an offer which is reasonably assured of consummation is
obtained. At that time, the Partnership will reclassify the appropriate portions
of its assets to "held for sale" and depreciation of those assets will be
discontinued.
When the sale price and timing of the last property disposal is reasonably
determinable, the Partnership will adopt liquidation basis accounting in that
quarter. At that time, all assets and liabilities will be adjusted to their
settlement amounts and an amount to be distributed to the Limited Partners upon
liquidation will be estimated.
Consolidation - In May 1996, the Partnership formed Rancon Realty Fund V
Tri-City Limited Partnership, a Delaware limited partnership ("RRF V Tri-City").
As required by the lender (Bear, Stearns Funding, Inc.) of a $9,600,000 loan
obtained by the Partnership in 1996, the Partnership contributed three of its
operating properties to RRF V Tri-City to provide a bankruptcy remote borrower
for the lender. The loan, secured by the properties in RRF V Tri-City, has a
principal balance of $9,236,000 at September 30, 1999, and matures on August 1,
2006 with a 9.39% fixed interest rate and a 25-year amortization of principal.
The limited partner of RRF V Tri-City is the Partnership and the general partner
is Rancon Realty Fund V, Inc. ("RRF V, Inc."), a corporation wholly owned by the
Partnership. Since the Partnership owns 100% of RRF V, Inc. and indirectly owns
100% of RRF V Tri-City, the financial statements of RRF V, Inc. and RRF V
Tri-City have been consolidated with those of the Partnership. All intercompany
balances and transactions have been eliminated in the consolidation.
Reclassifications - Certain prior year balances have been reclassified to
conform with the current year presentation.
Note 2. REFERENCE TO 1998 AUDITED FINANCIAL STATEMENTS
These unaudited consolidated financial statements should be read in conjunction
with the Notes to Financial Statements included in the December 31, 1998 audited
consolidated financial statements.
Page 9 of 21
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RANCON REALTY FUND V,
A CALIFORNIA LIMITED PARTNERSHIP
Notes to Consolidated Financial Statements
September 30, 1999
(Unaudited)
Note 3. SALES OF REAL ESTATE
On January 20, 1999, the Partnership sold approximately 24 acres of land
(referred to as the Perris-Ethanac land) located in Perris, Riverside County,
California, to an unaffiliated entity for $502,200. The Partnership realized a
$6,000 loss on the sale which is reflected in the accompanying unaudited
consolidated statement of operations for the nine months ended September 30,
1999. The sale generated net proceeds of $446,000, which were added to the
Partnership's cash reserves, pending distribution to the Limited Partners.
On January 29, 1999, the Partnership sold five distribution-center buildings
(referred to as Rancon Centre Ontario) located in Ontario, California, to an
unaffiliated entity for $7,650,000. As part of the terms of the sale, the
Partnership loaned $5,715,000 to the buyer (the "RCO Note"). The RCO Note is
secured by a deed of trust encumbering the Rancon Centre Ontario property, bears
interest at 8% per annum and matures on March 1, 2000, with an option to extend
the maturity date to June 1, 2000. The note also provides that the borrower may
prepay up to, but no more than, $3,000,000 of the principal balance prior to
January 1, 2000 and the entire balance after January 1, 2000. The sale proceeds
totaling $1,529,000 were net of selling costs and expenses incurred through
September 30, 1999, and were added to the Partnership's cash reserves, pending
distribution to the Limited Partners. Since the sale of Rancon Centre Ontario
included a $5,715,000 loan from the Partnership to the buyer, the Partnership
will defer recognition of the $3,274,000 gain on the sale until collection of
the note is assured. As of September 30, 1999, the Partnership recognized
interest income totaling $309,000 from the RCO Note which is included in
interest and other income in the accompanying unaudited consolidated statement
of operations for the nine months ended September 30, 1999.
Also on January 29, 1999, the Partnership sold approximately 60 acres of land
(referred to as the Perris-Nuevo land) located in Perris, Riverside County,
California, to an unaffiliated entity for $675,000. As part of the terms of the
sale, the Partnership loaned $475,000 to the buyer (the "Nuevo Note"). The Nuevo
Note is secured by a deed of trust encumbering the Perris-Nuevo land, bears
interest at 6% per annum and matures on November 15, 1999. The sale generated
net proceeds of $113,000, which were added to the Partnership's cash reserves,
pending distribution to the Limited Partners. Since the sale of the Perris-Nuevo
land included a $475,000 loan from the Partnership to the buyer, the Partnership
will defer recognition of the $443,000 gain on the sale until collection of the
note is assured. As of September 30, 1999, the Partnership recognized interest
income totaling $19,000 from the Nuevo Note which is included in interest and
other income in the accompanying unaudited consolidated statement of operations
for the nine months ended September 30, 1999.
Page 10 of 21
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RANCON REALTY FUND V,
A CALIFORNIA LIMITED PARTNERSHIP
Notes to Consolidated Financial Statements
September 30, 1999
(Unaudited)
Note 4. COMMITMENTS AND CONTINGENT LIABILITIES
The Partnership is contingently liable for subordinated real estate commissions
payable to the Sponsors in the aggregate amount of $102,000 at September 30,
1999 for sales that transpired in previous years. 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, which is not expected to be achieved as a result of the Asset Sale. As
a result, such subordinated real estate commissions will not be paid to the
General Partner and will be eliminated.
Note 5. NOTES PAYABLE
The following notes payable were outstanding as of September 30, 1999 and
December 31, 1998 (in thousands):
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1999 1998
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Note payable with a 9.39% fixed rate of interest, monthly principal and interest
payments (based on a 25-year amortization) of $83 and a maturity date of
August 1, 2006. The loan is secured by first deeds of trust on Lakeside
Tower, One Parkside and Two Carnegie Plaza. $ 9,236 $ 9,330
Note payable with an 8.25% fixed rate of interest, monthly principal and
interest payments (based on a 25-year amortization) of $34 and a maturity date
of December 1, 2001. The loan is secured by a first deed of trust on One
Carnegie Plaza. 4,129 4,178
--------- --------
Total notes payable $ 13,365 $ 13,508
========= ========
</TABLE>
Note 6. DEFERRED INCOME
The Partnership's deferred income of $3,717,000 as of September 30, 1999
consists of the deferred gains on sale of Rancon Centre Ontario and the
Perris-Nuevo land.
Note 7. PROPOSED DISSOLUTION COSTS
Costs totaling $302,000 and $69,000, related to the Solicitation and the Asset
Sale and Dissolution Proposal (as defined in Note 1), have been incurred and are
reflected in the accompanying unaudited consolidated statements of operations
for the nine months ended September 30, 1999 and 1998, respectively. These costs
include expenses incurred for the preparation of the preliminary proxy materials
and charges for work performed by independent appraisers and other consultants.
Page 11 of 21
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Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
The following discussion addresses the Partnership's financial condition at
September 30, 1999 and its result of operations for the nine months ended
September 30, 1999 and 1998. This information should be read in conjunction with
the Partnership's December 31, 1998 audited consolidated financial statements,
notes thereto and other information contained elsewhere in this report.
LIQUIDITY AND CAPITAL RESOURCES
At September 30, 1999, the Partnership had cash of $10,248,000. The
Partnership's improved cash position at September 30, 1999, compared to December
31, 1998, is largely due to the net proceeds from recent sales of real estate.
The remainder of the Partnership's assets consist primarily of its net
investments in real estate, totaling approximately $31,342,000 at September 30,
1999, which includes $28,630,000 in rental properties and $2,712,000 of land
held for development. The Partnership's primary liabilities include notes
payable, totaling approximately $13,365,000 at September 30, 1999, which consist
of two secured fixed rate loans encumbering properties with an aggregate net
book value of approximately $21,805,000 and maturity dates of December 1, 2001
and August 1, 2006. These notes require monthly principal and interest payments,
and bear interest rates of 8.25% and 9.39%.
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 and interest income from invested cash balances. Cash
generated from property sales is generally added to the Partnership's cash
reserves, pending use in the development of properties or distribution to the
partners.
Management believes that the Partnership's cash balance at September 30, 1999,
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, on a short-term basis and for the reasonably foreseeable
future. 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.
Aside from the current plan to potentially sell all of the Partnership's
properties and liquidate the Partnership (as discussed below), the Partnership
knows of no demands, commitments, events or uncertainties, which might effect
its liquidity or capital resources in any material respect. In addition, the
Partnership is not subject to any covenants pursuant to its secured debt that
would constrain its ability to obtain additional capital.
Operating Activities
During the nine months ended September 30, 1999, the Partnership's cash provided
by operating activities totaled $6,098,000.
Page 12 of 21
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The $5,361,000, or 87%, decrease in prepaid expenses and other assets at
September 30, 1999, compared to December 31, 1998, is primarily due to the
receipt of the net sale proceeds related to the 38.5 acres of unimproved land at
Rancon Centre Ontario ("Ontario land"). The Ontario land was sold on December
31, 1998 and the sale proceeds were held in an escrow account (included in other
assets at December 31, 1998) until January 1999.
Investing Activities
During the nine months ended September 30, 1999, the Partnership's cash provided
by investing activities totaled $1,232,000, which includes $2,088,000 of net
cash proceeds from sales of real estate, $1,209,000 of cash used for additions
to real estate and $353,000 of cash from released collateral.
The Partnership received net sale proceeds totaling $1,529,000 from the January
1999 sale of five distribution center buildings referred to as Rancon Centre
Ontario ("RCO Buildings"). The Partnership also took back a $5,715,000 note
receivable ("RCO Note") secured by the RCO Buildings. See terms of the RCO Note
below. The $3,970,000, or 100%, decrease in rental property held for sale at
September 30, 1999, compared to December 31, 1998, is primarily due to this
sale.
The Partnership received net sales proceeds totaling $559,000 from the January
1999 sales of the Perris-Ethanac land and the Perris-Nuevo land. The Partnership
also took back a $475,000 note receivable ("Nuevo Note") secured by the
Perris-Nuevo land. See terms of the Nuevo Note below. The $597,000, or 100%,
decrease in land held for sale at September 30, 1999, compared to December 31,
1998, is due to the sales of these properties.
The Partnership invested approximately $1,199,000 and $10,000 in rental
properties and in land held for development, respectively, by way of
improvements.
The Partnership added $353,000 to its cash reserves due to the release of the
collateral for subdivision improvement bonds upon the sale of the Perris-Nuevo
land in January 1999.
The $6,190,000, or 100%, increase in notes receivable at September 30, 1999,
compared to December 31, 1998, is due to the Partnership's receipt of the RCO
Note and the Nuevo Note as part of the terms of the sales of the RCO Buildings
and the Perris-Nuevo land. The RCO Note bears interest of 8% per annum and
matures on March 1, 2000 with an option to extend the maturity date to June 1,
2000. The RCO Note also provides that the borrower may prepay up to, but no more
than, $3,000,000 of the principal balance prior to January 1, 2000 and the
entire balance after January 1, 2000. The Nuevo Note bears interest at 6% per
annum and is due on November 15, 1999. As of the date of this filing, all
payments on the RCO Note and the Nuevo Note are current.
The $3,717,000 deferred income at September 30, 1999 consists of the deferred
gains on sale of the RCO Buildings and the Perris-Nuevo land. The Partnership
will defer recognition of the gains until the collection of the RCO Note and
Nuevo Note is assured.
Page 13 of 21
<PAGE>
Financing Activities
During the nine months ended September 30, 1999, the Partnership made a total of
$143,000 in principal payments on its two notes payable.
During the nine months ended September 30, 1999, a total of 32 limited
partnership units ("Units") were redeemed for approximately $12,000.
Asset Sale and Dissolution Proposal
The Partnership's business strategy has been to focus on the eventual
disposition of its assets at the optimal time and sales price. As discussed in
Note 1 of the Notes to Consolidated Financial Statements, A Consent Solicitation
Statement (the "Solicitation") was sent to the holders of limited partnership
units ("Unitholders" or "Limited Partners") on July 6, 1999. The Solicitation
(incorporated by reference to the Schedule 14A Preliminary Proxy Statement filed
with the United States Securities and Exchange Commission ("Commission") in the
second quarter of 1999) discussed the General Partner's proposal to sell all of
the Partnership's real estate assets ("Asset Sale") and liquidate the
Partnership thereafter ("Dissolution"). The General Partner currently intends to
sell all of the Partnership's properties within approximately six months after
consent has been obtained, distribute the proceeds and liquidate the Partnership
after all of the properties are sold and the cash proceeds thereof received. The
General Partner does not expect the Dissolution to occur until at least early
2000 (and potentially not until 2001) as some of the properties may be sold with
the purchase price payable on an installment basis.
As of August 25, 1999, the expiration of the voting period, 96,442 Units were
outstanding. Of the total Units outstanding, 76,475 Unitholders, or 79%, have
voted ("Units Voted") and no response was received from the remaining 21%. A
final tabulation of the results of the Solicitation was made on August 25, 1999,
with 67,498 Unitholders, or 88%, of the Units Voted in favor, 7,271 Unitholders,
or 10%, against and 1,706 Unitholders, or 2%, abstaining. During the third
quarter of 1999, a total of 32 Units were repurchased as a result of a
Unitholder's request for the Partnership to take over such Units. As of
September 30, 1999, there were 96,412 Units outstanding.
Subsequent to obtaining the consent of the majority of the Unitholders, the
General Partner grouped the properties into two or more packages of properties
(such as separate packages of retail properties, office properties and
unimproved land) and included properties in the Tri-City Corporate Centre which
are owned by Rancon Realty Fund IV ("Fund IV"), a partnership also sponsored by
the General Partner. Bidders for any package of properties containing the
Partnership's and Fund IV's properties will be required to specify how their
overall bid is allocated among the individual properties in the package, and the
proceeds and expenses from the sales of any such package will be apportioned
between the Partnership and Fund IV based upon such allocation. The General
Partner hired an independent real estate firm to market the properties and to
prepare marketing materials and informational brochures. The informational
brochures were presented to a number of prospective buyers and as of the end of
September 1999, the General Partner had received 39 signed confidentiality
agreements requesting offering memorandums. The General Partner is currently
assessing all offers on the properties in an effort to achieve the highest
possible sales price and return value for the properties. The General Partner
currently intends to close the bidding process by the end of November 1999.
Page 14 of 21
<PAGE>
The Partnership has not, as of the date of the filing of this Quarterly Report
on Form 10-Q with the Commission, entered into any agreement for the sale of its
properties, although the Partnership has, in 1997, granted to Glenborough Realty
Trust Incorporated, a Maryland corporation ("GLB"), a right to match offers for
the purchase of the Partnership's properties ("GLB Matching Right"). GLB is not
an affiliate of the Partnership.
Pursuant to the GLB Matching Right and the right of first refusal, the General
Partner is required to give prompt written notice to GLB of the price and other
terms and conditions of any offer, received from an unaffiliated third party,
the General Partner is willing to accept to sell all or a portion of the
Partnership's properties. GLB has ten days after receipt of the Partnership's
written notice to accept or reject the purchase price and other terms and
conditions of the sale. If GLB exercises its matching right and agrees to
purchase all or a portion of the Partnership's properties at the specified price
and on the other terms and conditions, the Partnership and GLB must promptly
execute a purchase agreement, which is to contain a reasonable feasibility study
period for GLB. If, on the other hand, GLB notifies the Partnership that it does
not intend to exercise its matching right or fails to respond within the ten-day
period, then the Partnership has the right to sell all or a portion of the
Partnership's properties to the unaffiliated third party buyer as set forth in
the Partnership's notice to GLB.
Prior to completion of the sale of all of the Partnership's properties and the
receipt in cash of the proceeds thereof, the General Partner currently intends,
but is not obligated, to make interim distributions to the Limited Partners,
from time to time, of all or a portion of the net proceeds from sale of the
properties. The General Partner will not receive any of the net proceeds from
sale of the properties or upon dissolution of the Partnership with respect to
its general partnership interests. The General Partner also intends to
distribute in 1999 the net proceeds from the sale of Perris-Ethanac,
Perris-Nuevo and the RCO Buildings.
The discussion above contains forward-looking statements regarding the
Partnership's plans, goals and expectations, including statements regarding the
Partnership's estimates of sales proceeds and future distributions resulting
from the Asset Sale, estimates of the timing of the sale of the properties, the
dissolution of the Partnership and the distribution of sales proceeds.
Forward-looking statements are necessarily speculative, there being certain
risks and uncertainties that could cause actual events or results to differ
materially from those referred to in the forward-looking statements. All
forward-looking statements included in this document are based on information
available to the Partnership on the date hereof, and reflect the best judgment
of the management of the Partnership. The General Partner's current plans are
subject to change, including in the event of changes in general business and
economic conditions as well as changes in the local real estate markets where
the Partnership's properties are located. There can be no assurance that the
Asset Sale and Dissolution Proposal will be consummated, or if and when the
properties will be sold, the proceeds distributed, and the Partnership
liquidated. The timing of any sale of the Partnership's properties, the
distribution of proceeds, and the liquidation of the Partnership are subject to
various and significant uncertainties, many of which are beyond the
Partnership's control and which could delay any sale of the Partnership's
properties, liquidation of the Partnership, and distribution of proceeds
significantly beyond the time periods estimated above. Among such uncertainties
are the demand for the Partnership's properties by potential purchasers, the
availability of capital for potential purchasers, the actual dates when
properties are sold, and the duration of any installment sales of any of the
properties.
Page 15 of 21
<PAGE>
Tri-City
The majority of the Partnership's assets are located in the Tri-City Corporate
Centre, in San Bernardino, California. Tri-City is in the heart of the Inland
Empire, a submarket of Southern California and is the most densely populated
area of San Bernardino and Riverside counties. As a result of Inland Empire's
increasing population and job growth, Tri-City's office space and retail space
market continues to improve and attract new tenants. Management believes that
Tri-City's industrial space market should improve due to the demand for space
for both warehouse and distribution facilities. Management also believes that
the overall real estate market in the Inland Empire will remain strong through
1999, with conditions beyond such time being less predictable.
The Partnership's properties consist of approximately 14 acres of unimproved
land and approximately 478,000 square feet of improved properties. The
Partnership's improved properties in the Tri-City Corporate Centre are as
follows:
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 112,747
One Parkside Four-story office building 70,069
Bally's Health Club Health club facility 25,000
Outback Steakhouse Restaurant 6,500
RESULTS OF OPERATIONS
Revenues
Rental income decreased $130,000, or 3%, during the nine months ended September
30, 1999, compared to the nine months ended September 30, 1998, primarily as a
result of the loss of rental income due to the sale of the RCO Buildings. Rental
income increased $41,000, or 3%, during the three months ended September 30,
1999, compared to the three months ended September 30, 1998, due to the
increased occupancy at One Carnegie Plaza, Two Carnegie Plaza, Lakeside Tower,
and One Parkside.
Occupancy rates at the Tri-City properties as of September 30, 1999 and 1998
were as follows:
September 30,
------------------------------
1999 1998
--------------- ----------
One Carnegie Plaza 64% 47%
Two Carnegie Plaza 84% 82%
Carnegie Business Center II 70% 83%
Lakeside Tower 97% 85%
Santa Fe 100% 100%
One Parkside 100% 79%
Bally's Health Club 100% 100%
Outback Steakhouse 100% 100%
Page 16 of 21
<PAGE>
As of September 30, 1999, tenants at the Tri-City occupying substantial portions
of leased rental space included: (i) Atchison, Topeka and Santa Fe Railway
Company with a lease through September 2004; (ii) Chicago Title with a lease
through February 2004; (iii) Sterling Software with a lease through November
2000; (iv) Holiday Spa Health Club with a lease through December 2010; and (v)
New York Life with a lease through May 2004. These five tenants, in the
aggregate, occupied approximately 140,000 square feet of the 478,000 total
leasable square feet at Tri-City and accounted for approximately 31% of the
total rental income of the Partnership during the third quarter of 1999.
The 17 percentage point increase in occupancy from September 30, 1998 to
September 30, 1999 at One Carnegie Plaza is attributed to leasing of 28,171
square feet of previously vacant space to three tenants and the expansion of two
tenants to an aggregate 2,539 square feet of space. Slightly offsetting these
increases in occupancy was a decrease due to the relocation of a 13,855 square
foot tenant to 6,220 square feet of space due to the tenant's need to downsize.
Management is currently in negotiations with two prospective tenants to lease a
total of approximately 28,000 square feet of space and is negotiating lease
renewal with an existing tenant occupying 1,149 square feet of space.
The 2 percentage point increase in occupancy from September 30, 1998 to
September 30, 1999 at Two Carnegie Plaza is attributed to leasing of 4,191
square feet of previously vacant space to two tenants. Slightly offsetting this
increase in occupancy was a decrease due to a 1,968 square foot tenant moving
out upon its lease expiration in January 1999. Management is currently
negotiating lease renewals with two existing tenants occupying a total of 7,024
square feet of space and is negotiating a lease expansion with an existing
tenant for 1,084 square feet of space.
The 13 percentage point decrease in occupancy from September 30, 1998 to
September 30, 1999 at Carnegie Business Center II is attributed to two tenants,
occupying 6,575 square feet of space in the aggregate, vacating their space upon
their respective lease expirations, and the relocation of an 18,840 square foot
tenant to a 13,381 square foot suite. Slightly offsetting these decreases in
occupancy was an increase due to the leasing of an aggregate of 5,784 square
feet of previously vacant space to two new tenants. Management is currently in
negotiations with a prospective tenant to lease a 2,680 square foot suite and is
negotiating lease renewal with an existing tenant occupying 4,183 square feet of
space.
The 12 percentage point increase in occupancy from September 30, 1998 to
September 30, 1999 at Lakeside Tower is attributed to the leasing of 14,950
square feet of previously vacant space to five new tenants.
The 21 percentage point increase in occupancy from September 30, 1998 to
September 30, 1999 at One Parkside is attributed to the expansion of two tenants
to an aggregate 18,535 square feet of space and the leasing of approximately
3,500 square feet of previously vacant space to a new tenant.
Interest and other income increased $500,000, or 192%, and $192,000, or 237%,
during the nine and three months ended September 30, 1999, compared to the nine
and three months ended September 30, 1998, respectively, due to: (i) the higher
average invested cash balance resulting from the recent sales of real estate;
and (ii) interest income from the promissory notes related to the recent sales
of real estate.
Page 17 of 21
<PAGE>
Expenses
Operating expenses remained consistent during the nine and three months ended
September 30, 1999, compared to the nine and three months ended September 30,
1998.
Interest expense remained consistent during the nine and three months ended
September 30, 1999, compared to the nine and three months ended September 30,
1998.
Depreciation and amortization remained consistent during the nine months ended
September 30, 1999, compared to the nine months ended September 30, 1998.
Depreciation and amortization increased $47,000, or 11%, during the three months
ended September 30, 1999, compared to the three months ended September 30, 1998,
due to depreciation of additions to rental properties.
The loss on sale of real estate of $6,000 for the nine months ended September
30, 1999 resulted from the sale of the Perris-Ethanac land.
Expenses associated with undeveloped land decreased $185,000, or 43%, and
$18,000, or 16%, during the nine and three months ended September 30, 1999,
compared to the nine and three months ended September 30, 1998, respectively,
primarily due to the reduction of property taxes as a result of the recent land
sales.
General and administrative expenses decreased $40,000, or 4%, and $2,000, or
less than 1%, during the nine and three months ended September 30, 1999,
compared to the nine and three months ended September 30, 1998, primarily due to
a decrease in asset management fees resulting from the sale of the RCO
Buildings.
The proposed dissolution costs of $302,000 and $69,000 during the nine and three
months ended September 30, 1999 and 1998, respectively, represent charges for
work performed and expenses incurred relating to the Solicitation and the Asset
Sale and Dissolution Proposal.
Year 2000 Compliance
State of Readiness. Glenborough Corporation ("Glenborough"), the Partnership's
asset and property manager, utilizes a number of computer software programs and
operating systems. These programs and systems primarily comprise information
technology systems ("IT Systems") (i.e., software programs and computer
operating systems) that serve the management operations. Although the
Partnership does not utilize any significant IT Systems of its own, it does
utilize embedded systems such as devices used to control, monitor or assist the
operation of equipment and machinery systems (e.g., HVAC, fire safety and
security) at its properties ("Property Systems"). To the extent that 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 these IT Systems and Property Systems have been necessary.
IT Systems. Employing a team made up of internal personnel and third-party
consultants, Glenborough completed an identification of IT Systems, including
hardware components that were not yet Year 2000 compliant. To the best of
Glenborough's knowledge based on available information and a reasonable level of
inquiry and investigation, such upgrading as appears to be called for under the
circumstances has been completed in accordance with prevailing industry
practice. Glenborough completed a testing program during 1999. In addition, the
Page 18 of 21
<PAGE>
Partnership has communicated with third parties with whom it does significant
business, such as financial institutions, tenants and vendors, to determine
their readiness for Year 2000 compliance.
Property Systems. An identification of Property Systems, including hardware
components, that were not yet Year 2000 compliant, has also been completed.
Upgrading of such systems as appears to be called for under the circumstances
based on available information and a reasonable level of inquiry and
investigation, and in accordance with prevailing industry practice has been
completed and tested. To the best of Glenborough's knowledge, the Partnership
has no Property Systems, the failure of which would have a material effect on
its operations.
Costs of Addressing Year 2000 issues. Given the information known at this time
about systems that are non-compliant, coupled with ongoing, normal course-of
business efforts to upgrade or replace critical systems, as necessary, the
Partnership has not incurred Year 2000 compliance costs that have had a material
adverse impact on its liquidity or ongoing results of operations. The costs of
assessment and remediation of the Property Systems have been paid by the
Partnership as an operating expense.
Risks of Year 2000 issues. In light of the assessment and upgrading efforts to
date, and completion of the planned, normal course-of-business upgrades and
subsequent testing, the Partnership believes that any residual Year 2000 risk
will be limited to non-critical business applications and support hardware, and
to short-term interruptions affecting Property Systems which, if they occur at
all, will not be material to overall operations. Glenborough and the Partnership
believe that all IT Systems and Property Systems will be Year 2000 compliant and
that compliance will not materially adversely affect its future liquidity or
results of operations or its ability to service debt. However, absolute
assurance that this is the case cannot be given.
Contingency Plans. The Partnership has developed a contingency plan for all
operations which addresses the most reasonably likely worst case scenario
regarding Year 2000 compliance. Such a plan, however, recognizes material
limitations on the ability to respond to major regional or industrial failures
such as power outages or communications breakdowns.
Page 19 of 21
<PAGE>
Part II. OTHER INFORMATION
Item 1. Legal Proceedings
None.
Item 2. Changes in Securities and Use of Proceeds
Not applicable.
Item 3. Defaults Upon Senior Securities
Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders
Incorporated herein by reference to Note 1 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 (incorporated herein by reference):
None.
Page 20 of 21
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or Section 15(d) of the Securities
Exchange Act of 1934, the Partnership has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
RANCON REALTY FUND V,
a California limited partnership
By: Rancon Financial Corporation
a California corporation,
its General Partner
Date: November 15, 1999 By: /s/ DANIEL L. STEPHENSON
--------------------------
Daniel L. Stephenson, President
Date: November 15, 1999 By: /s/ DANIEL L. STEPHENSON
--------------------------
Daniel L. Stephenson, General Partner
Page 21 of 21
<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-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 10,248
<SECURITIES> 0
<RECEIVABLES> 1,325
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 11,573
<PP&E> 31,342
<DEPRECIATION> 17,807
<TOTAL-ASSETS> 50,839
<CURRENT-LIABILITIES> 519
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 33,238
<TOTAL-LIABILITY-AND-EQUITY> 50,839
<SALES> 0
<TOTAL-REVENUES> 5,467
<CGS> 0
<TOTAL-COSTS> 2,606
<OTHER-EXPENSES> 2,547
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 951
<INCOME-PRETAX> (637)
<INCOME-TAX> 0
<INCOME-CONTINUING> (637)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (637)
<EPS-BASIC> (6.54)
<EPS-DILUTED> (6.54)
</TABLE>
