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, 2000
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 November 14, 2000: 76,279
Page 1 of 19
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
RANCON REALTY FUND V,
A CALIFORNIA LIMITED PARTNERSHIP
Consolidated Balance Sheets
(in thousands, except unit amounts)
<TABLE>
<CAPTION>
<S> <C> <C>
September 30, December 31,
2000 1999
(Unaudited) (Audited)
----------------- -------------
Assets
Investments in real estate:
Rental property, net of accumulated depreciation
of $19,432 and $18,199 at September 30, 2000 and
December 31, 1999, respectively $ 27,784 $ 28,465
Land held for development 3,332 2,757
------------- -------------
Total real estate investments 31,116 31,222
Cash and cash equivalents 11,774 5,413
Accounts receivable 1,300 1,327
Notes receivable -- 6,090
Deferred financing costs and other fees, net of accumulated
amortization of $2,573 and $2,342 at September 30, 2000
and December 31, 1999, respectively 837 928
Prepaid expenses and other assets 782 651
------------- -------------
Total assets $ 45,809 $ 45,631
============= =============
Liabilities and Partners' Equity (Deficit)
Liabilities:
Notes payable $ 13,131 $ 13,315
Accounts payable and other liabilities 720 411
Deferred income -- 4,034
------------- -------------
Total liabilities 13,851 17,760
------------- -------------
Commitments and contingent liabilities (see Note 4) -- --
Partners' Equity (Deficit):
General partners (257) (465)
Limited partners, 96,289 and 96,412 limited partnership units
outstanding at September 30, 2000 and December 31, 1999,
respectively 32,215 28,336
-------------- -------------
Total partners' equity 31,958 27,871
------------- -------------
Total liabilities and partners' equity $ 45,809 $ 45,631
============= =============
See accompanying notes to consolidated financial statements.
</TABLE>
Page 2 of 19
<PAGE>
RANCON REALTY FUND V,
A CALIFORNIA LIMITED PARTNERSHIP
Consolidated Statements of Operations
(in thousands, except per unit amounts and units outstanding)
(Unaudited)
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Three months ended Nine months ended
September 30 September 30,
----------------------------- ----------------------------
2000 1999 2000 1999
------------ ------------- ------------ ------------
Revenues
Rental income $ 1,844 $ 1,643 $ 5,421 $ 4,707
Gain on sales of real estate 275 -- 3,612 --
Interest and other income 177 273 969 760
---------- ---------- ----------- -----------
Total revenues 2,296 1,916 10,002 5,467
---------- ---------- ----------- -----------
Expenses
Operating 771 810 2,241 2,363
Interest expense 297 316 905 951
Depreciation and amortization 476 470 1,425 1,338
Loss on sale of real estate -- -- -- 6
Expenses associated with
undeveloped land 180 95 283 243
General and administrative 359 298 981 901
Proposed dissolution costs 7 148 42 302
---------- ---------- ----------- -----------
Total expenses 2,090 2,137 5,877 6,104
---------- ---------- ----------- -----------
Net income (loss) $ 206 $ (221) $ 4,125 $ (637)
========== =========== =========== ============
Net income (loss) per limited partnership unit
$ 2.04 $ (2.27) $ 40.64 $ (6.54)
========== =========== =========== ============
Distributions per limited partnership unit:
From net income $ -- $ -- $ -- $ --
Representing return of capital -- -- -- --
----------- ----------- ----------- -----------
Total distributions per limited
partnership unit $ -- $ -- $ -- $ --
=========== =========== =========== ===========
Weighted average number of limited partnership
units outstanding during each period used to
compute net income (loss) per limited
partnership unit 96,342 96,442 96,382 96,442
=========== =========== ============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
Page 3 of 19
<PAGE>
RANCON REALTY FUND V,
A CALIFORNIA LIMITED PARTNERSHIP
Consolidated Statement of Partners' Equity (Deficit)
For the nine months ended September 30, 2000
(in thousands)
(Unaudited)
<TABLE>
<CAPTION>
<S> <C> <C> <C>
General Limited
Partners Partners Total
---------------- --------------- -------------
Balance at December 31, 1999 $ (465) $ 28,336 $ 27,871
Retirement of limited partnership units -- (38) (38)
Net income 208 3,917 4,125
------------- ------------- -------------
Balance at September 30, 2000 $ (257) $ 32,215 $ 31,958
============== ============= =============
</TABLE>
See accompanying notes to consolidated financial statements.
Page 4 of 19
<PAGE>
RANCON REALTY FUND V,
A CALIFORNIA LIMITED PARTNERSHIP
Consolidated Statements of Cash Flows
(in thousands)
(Unaudited)
<TABLE>
<CAPTION>
<S> <C> <C>
Nine months ended
September 30,
---------------------------------------
2000 1999
---------------- ---------------
Cash flows from operating activities:
Net income (loss) $ 4,125 $ (637)
Adjustments to reconcile net income (loss)
to net cash provided by operating activities:
(Gain) loss on sales of real estate (3,612) 6
Deferred interest income on note receivable (422) --
Depreciation and amortization 1,425 1,338
Amortization of loan fees, included in
interest expense 39 40
Changes in certain assets and liabilities:
Accounts receivable 27 (86)
Deferred financing costs and other fees (140) (213)
Prepaid expenses and other assets (131) 5,361
Accounts payable and other liabilities 309 289
------------- -------------
Net cash provided by operating activities 1,620 6,098
------------- -------------
Cash flows from investing activities:
Net proceeds from sales of real estate -- 2,088
Additions to real estate investments (1,127) (1,209)
Principal receipts on notes receivable 6,090 --
Funds released from pledged cash -- 353
------------- -------------
Net cash provided by investing activities 4,963 1,232
------------- -------------
Cash flows from financing activities:
Notes payable principal payments (184) (143)
Retirement of limited partnership units (38) (12)
-------------- --------------
Net cash used for financing activities (222) (155)
-------------- --------------
Net increase in cash and cash equivalents 6,361 7,175
Cash and cash equivalents at beginning of period 5,413 3,073
------------- -------------
Cash and cash equivalents at end of period $ 11,774 $ 10,248
============= =============
Supplemental disclosure of cash flow information:
Cash paid for interest $ 898 $ 911
============= =============
Interest capitalized $ 32 $ --
============= =============
</TABLE>
See accompanying notes to consolidated financial statements.
Page 5 of 19
<PAGE>
RANCON REALTY FUND V
A CALIFORNIA LIMITED PARTNERSHIP
Notes to Consolidated Financial Statements
June 30, 2000
(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, 2000 and December 31, 1999, and the related unaudited consolidated
statements of operations and cash flows for the nine months ended September 30,
2000 and 1999.
Asset Sale and Dissolution Proposal
-----------------------------------
At the beginning of 1999, the Partnership's business strategy had been to focus
on the eventual disposition of its assets at the optimal time and sales price. 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 Proposal"). 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.
A total of 75 and 32 Units in 2000 and 1999, respectively, were repurchased as a
result of Unitholders' requests for the Partnership to take over such Units. As
of September 30, 2000, there were 96,289 Units outstanding.
After extensive work on the potential sale of the Assets, the General Partner
has determined that, at this time, it is not possible to sell the Tri City
properties to the most qualified bidders. The General Partner currently intends
to retain the Tri City properties and has begun an assessment of various
opportunities to develop additional parcels of undeveloped land on a
build-to-suit basis.
Allocation of Net Income and Net Loss
-------------------------------------
Allocations of net income and net losses are made pursuant to the terms of the
Partnership Agreement. Generally, net income and net losses from operations are
allocated 90% to the limited partners and 10% to the general partners, however,
if the limited partners and the general partners have, as a result of an
allocation of net loss, a deficit balance in their capital accounts, net loss
shall not be allocated to the limited partners and general partners in excess of
the positive balance until the balances of the limited partners and general
partners capital accounts are reduced to zero. Capital accounts shall be
determined after taking into account the other allocations and distributions for
the fiscal year.
Page 6 of 19
<PAGE>
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 Unitholder'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 12% 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.
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 proportion to
their Units.
General Partners and 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 sold 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.
The Partnership will pay Glenborough for its services as follows: (i) a
specified asset administration fee ($640,000 and $569,000 as of September 30,
2000 and 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
Page 7 of 19
<PAGE>
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.
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.
Use of Estimates
----------------
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the results of operations during the reporting period. Actual results could
differ from those estimates.
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 $9,100,000 at September 30, 2000, 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.
Restatement of Equity
---------------------
Partners' equity has been restated as of December 31, 1999, to reflect an
adjustment to correct prior years' allocations of net income and net loss
between the general partner and the limited partners in accordance with the
Partnership Agreement.
Page 8 of 19
<PAGE>
Note 2. REFERENCE TO 1999 AUDITED FINANCIAL STATEMENTS
----------------------------------------------
These unaudited consolidated financial statements should be read in conjunction
with the Notes to Financial Statements included in the December 31, 1999 audited
consolidated financial statements.
Note 3. SALES OF REAL ESTATE
--------------------
Perris-Ethanac land
-------------------
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 third party for $502,200. The Partnership
realized a $6,000 loss on the sale, and the sale generated net proceeds of
$446,000.
Perris-Nuevo land
-----------------
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 third party 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 was secured by a deed of trust encumbering the Perris-Nuevo land,
bears interest at 6% per annum and had an original maturity date of November 15,
1999.
In November 1999, the note was amended to extend the maturity date to April 15,
2000 with a partial principal payment of $100,000. In April 2000, the note was
further amended to extend the maturity date to September 15, 2000 with a partial
principal payment of $75,000. On September 15, 2000, the buyer paid off the
entire remaining note amount of $300,000. The proceeds have been added to the
Partnership's cash reserve.
As the sale included a $475,000 promissory note from the buyer to the
Partnership, the Partnership deferred recognition of the $443,000 gain on sale
until collection of the note. During the year ended December 31, 1999, the
Partnership recognized a gain of $104,000 after receiving the $100,000 principal
payment discussed above. As of September 30, 2000, the Partnership recognized
the remaining gain on sale of $339,000 after receiving the $375,000 final
principal payment discussed above.
Rancon Centre Ontario
---------------------
Also on January 29, 1999, the Partnership sold five distribution-center
buildings (referred to as Rancon Centre Ontario) located in Ontario, California
to an unaffiliated third party for $7,650,000. The Partnership loaned $5,715,000
to the buyer (the "RCO Note"). The RCO Note was secured by a deed of trust
encumbering the RCO Buildings, bore interest at 8% and had an original maturity
date of March 1, 2000 with an option to extend the maturity date to June 1,
2000. In March 2000, the buyer exercised this option and extended the note to
June 1, 2000. As the sale of Rancon Centre Ontario included a $5,715,000
promissory note from the Partnership to the buyer, the Partnership deferred
recognition of the $3,273,000 gain on sale until collection of
Page 9 of 19
<PAGE>
the note was received. As of December 31, 1999, the Partnership had collected
interest income totaling $422,000 from the RCO Note, which was included in the
deferred gain in the accompanying consolidated balance sheet as of December 31,
1999, to be recognized upon collection of the note.
On April 14, 2000, the buyer paid off the entire note amount of $5,715,000 prior
to the note maturity date of June 1, 2000. In addition, $132,000 of interest
income from the note was collected in 2000. The proceeds have been added to the
Partnership's cash reserves. The deferred gain on sale of $3,273,000 and the
interest income totaling $554,000 from the note was recognized during the second
quarter of 2000.
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,
2000 for sales that were completed 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. Since the circumstances under which these commissions would be payable
are limited, the liability has not been recognized in the accompanying financial
statements; however, the amount will be recorded if and when it becomes payable.
Note 5. NOTES PAYABLE
-------------
<TABLE>
<CAPTION>
<S> <C> <C>
The following notes payable were outstanding as of September 30, 2000 and December 31, 1999 (in thousands):
2000 1999
------------ ----------
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. $ 9,100 $ 9,203
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.
4,031 4,112
---------- ----------
Total notes payable $ 13,131 $ 13,315
========== ==========
</TABLE>
Page 10 of 19
<PAGE>
Note 6. DEFERRED INCOME
---------------
The Partnership's deferred income of $4,034,000 as of December 31, 1999 consists
of the deferred gains on sales of Rancon Centre Ontario ($3,273,000,) and the
Perris-Nuevo land ($339,000) plus the interest income from the RCO note
($422,000).
Note 7. PROPOSED DISSOLUTION COSTS
--------------------------
The proposed dissolution costs consist of expenses related to the Solicitation
and the Asset Sale and Dissolution Proposal as discussed in Note 1 of the Notes
to the Consolidated Financial Statements.
Note 8. LEGAL PROCEEDINGS
-----------------
On March 7, 2000, The Burlington Northern and Santa Fe Railway Company, the sole
tenant at the Partnership's Santa Fe property, filed a lawsuit alleging the
Partnership had breached a right of first refusal contained in its lease.
According to the filing, the alleged breach arose in connection with a letter
dated November 29, 1999, whereby the tenant was notified of the Partnership's
intention to sell the property. The Partnership intends to dispute the claims in
the complaint. It is the Partnership's position that the tenant has only a right
of first refusal under its lease, not an option to purchase the property, and
the terms of the possible sale of the premises which are referenced in the
letter dated November 29, 1999 were never finalized, and therefore, the tenant
did not have the right to purchase the property.
Page 11 of 19
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
The following discussion of the Partnership's financial condition and results of
operations should be read in conjunction with the Partnership's December 31,
1999 audited consolidated financial statements, and the notes to the audited
consolidated financial statements.
Asset Sale and Dissolution Proposal
-----------------------------------
The Partnership's properties consist of eight rental properties and
approximately 14 acres of unimproved land (approximately 6,000 square feet is
under construction) in the Tri-City Corporate Centre in San Bernardino,
California (the "Tri-City Properties"). 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 were
required to specify how their overall bid was allocated among the individual
properties in the package, and the proceeds and expenses from the sales of any
such package were to 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 at the end of September 1999, the General Partner had received 39
signed confidentiality agreements requesting offering memorandums. The General
Partner closed the bidding process with a request for "best and final offers"
and received six final bids on the Tri-City properties in early November 1999.
In November 1999, the General Partner entered into a due diligence period with a
potential buyer. In January 2000, this due diligence period was terminated
largely due to the impact of rising interest rates on the potential buyer's
ability to fund the acquisition price. The General Partner subsequently received
three written offers from prospective buyers and selected one. In June 2000,
this prospective buyer was completing its due diligence on the Tri-City
properties, and the Partnership was preparing a Purchase and Sale Agreement for
signature. Interest rates continued to rise, and the buyer determined that it
was unable to fund the acquisition due to the changing economic conditions.
After extensive work on the potential sale of the Assets, the General Partner
has determined that, at this time, it is not possible to sell the Tri City
properties to the most qualified bidders. The General Partner currently intends
to retain the Tri City properties and has begun an assessment of various
opportunities to develop additional parcels of undeveloped land on a
build-to-suit basis. This aligns with the General Partner's goals of increasing
revenues at the Tri-City Properties and increasing distributions to Unitholders.
The discussion above contains forward-looking statements regarding the
Partnership's plans, goals and expectations, including statements regarding the
Partnership's estimate of the timing of the sale of the Partnership's remaining
properties, the distribution of proceeds and the liquidation of the Partnership.
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. The General
Partners' current plans are subject to change, both as a result 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
Page 12 of 19
<PAGE>
be no assurance that regulatory approval will be obtained, if and when consent
solicitation materials will be mailed to Limited Partners, that a proposal for
the sale of all of the Partnership's remaining properties and liquidation of the
Partnership will be approved, or if and when the properties will be sold, that
the proceeds will be distributed and the Partnership of liquidated. The timing
of any sale of the Partnership's remaining 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 remaining 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 could be
sold, and the duration of any installment sales of any of the properties.
Liquidity and Capital Resources
-------------------------------
As of September 30, 2000, the Partnership had cash of $11,774,000. The remainder
of the Partnership's assets consist primarily of its net investments in real
estate, totaling approximately $31,116,000 which includes $27,784,000 in rental
properties and $3,332,000 of land held for development within the Tri-City area.
The Partnership's primary liabilities include notes payable, totaling
approximately $13,131,000 at September 30, 2000, which consist of two secured
fixed rate loans encumbering properties with an aggregate net book value of
approximately $21,111,000 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%, respectively.
Perris-Ethanac land
-------------------
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 third party for $502,200. The Partnership
realized a $6,000 loss on the sale, and the sale generated net proceeds of
$446,000.
Perris-Nuevo land
-----------------
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 third party 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 had an original maturity date of November 15,
1999.
In November 1999, the note was amended to extend the maturity date to April 15,
2000 with a partial principal payment of $100,000. In April 2000, the note was
further amended to extend the maturity date to September 15, 2000 with a partial
principal payment of $75,000. On September 15, 2000, the buyer paid off the
entire remaining note amount of $300,000. The proceeds have been added to the
Partnership's cash reserve.
As the sale included a $475,000 promissory note from the buyer to the
Partnership, the Partnership deferred recognition of the $443,000 gain on sale
until collection of the note. During the year ended December 31, 1999, the
Partnership recognized a gain of $104,000 after receiving the $100,000 principal
payment discussed above. As of September 30, 2000, the Partnership
Page 13 of 19
<PAGE>
recognized the remaining gain on sale of $339,000 after receiving the $375,000
final principal payment discussed above.
The sale generated net proceeds of $113,000, prior to collections on the note.
Rancon Centre Ontario
---------------------
Also on January 29, 1999, the Partnership sold five distribution-center
buildings (referred to as Rancon Centre Ontario) located in Ontario, California
to an unaffiliated third party for $7,650,000. The Partnership loaned $5,715,000
to the buyer (the "RCO Note"). The RCO Note was secured by a deed of trust
encumbering the RCO Buildings, bore interest at 8% and had an original maturity
date of March 1, 2000 with an option to extend the maturity date to June 1,
2000. In March 2000, the buyer exercised this option and extended the note to
June 1, 2000.
As the sale of Rancon Centre Ontario included a $5,715,000 promissory note from
the Partnership to the buyer, the Partnership deferred recognition of the
$3,273,000 gain on sale until collection of the note was received. As of
December 31, 1999, the Partnership had collected interest income totaling
$422,000 from the RCO Note, which was included in the deferred gain in the
accompanying consolidated balance sheet as of December 31, 1999, to be
recognized upon collection of the note.
On April 14, 2000, the buyer paid off the entire note amount of $5,715,000 prior
to the note maturity date of June 1, 2000. In addition, $132,000 of interest
income from the note was collected in 2000. The proceeds have been added to the
Partnership's cash reserves. The deferred gain on sale of $3,273,000 and the
interest income totaling $554,000 from the note was recognized during the second
quarter of 2000. The sale generated net proceeds of $1,529,000, prior to
collections on the note.
The sale generated net proceeds of $1,529,000, prior to collections of the note.
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, 2000,
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.
The Partnership knows of no demands, commitments, events or uncertainties might
effect its 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.
Page 14 of 19
<PAGE>
Operating Activities
--------------------
For the nine months ended September 30, 2000, the Partnership's cash provided by
operating activities totaled $1,620,000.
The $27,000 decrease in accounts receivable at September 30, 2000, compared to
December 31, 1999, was primarily due to collections of rental income.
The $140,000 increase in deferred financing costs and other fees at September
30, 2000, compared to December 31, 1999, was primarily due to lease commissions
paid for new and renewal leases.
The $131,000 increase in prepaid expenses and other assets at September 30,
2000, compared to December 31, 1999, was primarily due to an increase in
mortgage impound reserve accounts, and prepayments of the fourth quarter
investor services fee as well as association dues.
The $309,000 increase in accounts payable and other liabilities at September 30,
2000, compared to December 31, 1999, was primarily due to an increase in accrued
property taxes and construction costs for the development of a pad site at one
of the Partnership's land parcels.
Investing Activities
--------------------
During the period ended September 30, 2000, the Partnership's cash provided by
investing activities totaled $4,963,000, which consisted of $6,090,000 of
principal and interest collected on the RCO and Nuevo note receivables, offset
by $1,127,000 of cash used for capital additions to real estate.
Financing Activities
--------------------
During the period ended September 30, 2000, the Partnership's cash used for
financing activities totaled $222,000, which consisted of principal payments on
its two notes payable of $184,000 and $38,000 paid to redeem 75 limited
partnership units.
Results of Operations
---------------------
Revenues
--------
Rental income increased $201,000, or 12%, and $714,000, or 15%, during the three
and nine months ended September 30, 2000, compared to the three and nine months
ended September 30, 1999, respectively, due primarily to increased occupancy at
the One Carnegie Plaza property.
Occupancy rates at the Tri-City properties as of September 30, 2000 and 1999
were as follows:
September 30,
------------------------------------
2000 1999
--------------- ----------------
One Carnegie Plaza 85% 64%
Two Carnegie Plaza 79% 84%
Carnegie Business Center II 67% 70%
Lakeside Tower 95% 97%
Santa Fe 100% 100%
One Parkside 100% 100%
Bally's Health Club 100% 100%
Outback Steakhouse 100% 100%
Page 15 of 19
<PAGE>
As of September 30, 2000, tenants at the Tri-City occupying substantial portions
of leased rental space included: (i) The Burlington Northern 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 139,712 square feet of the 478,000 total
leasable square feet at Tri-City and accounted for approximately 33% of the
total rental income of the Partnership during the third quarter of 2000.
The 21% increase in occupancy from September 30, 1999 to September 30, 2000 at
One Carnegie Plaza was the result of leasing 2,700 square feet of previously
vacant office space to a new tenant, and a 18,128 square foot expansion for an
existing tenant.
The 5% decrease in occupancy from September 30, 1999 to September 30, 2000 at
Two Carnegie Business Plaza was due to a 5,212 square foot tenant moving out
upon its lease expiration. Management is aggressively marketing the space.
The 3% decrease in occupancy from September 30, 1999 to September 30, 2000 at
Carnegie Business Center II was due to an existing tenant downsizing 2,760
square feet of space upon expiration of their lease, and a 2,779 square foot
lease expiration as well. This decrease was slightly offset by an increase due
to the leasing of 4,183 square feet of previously vacant space to an existing
tenant.
The 2% decrease in occupancy from September 30, 1999 to September 30, 2000 at
Lakeside Tower was due to a 1,812 square foot tenant vacating upon its lease
expiration.
The gain on sales of real estate of $275,000 and $3,612,000 for the three and
nine months ended September 30, 2000 consists of the recognition of deferred
gains on sales of Perris-Nuevo land and Rancon Centre Ontario.
Interest and other income decreased $96,000, or 35%, during the three months
ended September 30, 2000, compared to the three months ended September 30, 1999,
primarily due to the deferral of interest income on the RCO note which began
subsequent to September 30, 1999. Interest and other income increased $209,000,
or 28%, during the nine months ended September 30, 2000, compared to the nine
months ended September 30, 1999, primarily due to the recognition of deferred
interest income on the payoff of the RCO note in the second quarter of 2000.
Expenses
--------
Operating expenses decreased $39,000, or 5%, and $122,000, or 5%, for the three
and nine months ended September 30, 2000, compared to the three and nine months
ended September 30, 1999, respectively, primarily due to the recognition of
prior year bad debt in 1999, and the receipt of a prior year real estate tax
refund from the tax appeal for One Carnegie Plaza in 2000.
Interest expense decreased $19,000, or 6%, and $46,000, or 5%, for the three and
nine months ended September 30, 2000, compared to the three and nine months
ended September 30, 1999, respectively, primarily due to the capitalization of
interest (beginning subsequent to September 30, 1999) related to the development
of a pad site at one of the Partnership's land parcels.
Page 16 of 19
<PAGE>
Depreciation and amortization increased $6,000, or 1%, and $87,000, or 6%, for
the three and nine months ended September 30, 2000, compared to the three and
nine months ended September 30, 1999, respectively, primarily due to
depreciation of additions to rental properties. During the three months ended
September 30, 2000, the increase was slightly offset by the decrease of
depreciation of certain assets that had been fully depreciated prior to the
three months ended September 30, 2000.
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 increased $85,000, or 89%, and
$40,000, or 16%, for the three and nine months ended September 30, 2000,
compared to the three and nine months ended September 30, 1999, respectively,
primarily due to real estate tax refunds received in 1999.
General and administrative expenses increased $61,000, or 20%, and $80,000, or
9%, for the three and nine months ended September 30, 2000, compared to the
three and nine months ended September 30, 1999, respectively, primarily due to
an increase in asset management fees resulting from a CPI increase adjustment to
the fee.
The proposed dissolution costs incurred during the three and nine months ended
September 30, 2000 and 1999, respectively, consist of expenses related to the
Solicitation and the Asset Sale and Dissolution Proposal as discussed in Note 1
of the Notes to the Consolidated Financial Statements. The decrease in these
costs in 2000 was primarily due to the discontinuation of the plan to sell the
properties.
Page 17 of 19
<PAGE>
Part II. OTHER INFORMATION
Item 1. Legal Proceedings
On March 7, 2000, The Burlington Northern and Santa Fe Railway
Company, the sole tenant at the Partnership's Santa Fe
property, filed a lawsuit alleging the Partnership had
breached a right of first refusal contained in its lease.
According to the filing, the alleged breach arose in
connection with a letter dated November 29, 1999, whereby the
tenant was notified of the Partnership's intention to sell the
property. The Partnership intends to dispute the claims in the
complaint. It is the Partnership's position that the tenant
has only a right of first refusal under its lease, not an
option to purchase the property, and the terms of the possible
sale of the premises which are referenced in the letter dated
November 29, 1999 were never finalized, and therefore, the
tenant did not have the right to purchase the property.
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 18 of 19
<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 14, 2000 By: /s/ DANIEL L. STEPHENSON
--------------------------
Daniel L. Stephenson, President
Date: November 14, 2000 By: /s/ DANIEL L. STEPHENSON
--------------------------
Daniel L. Stephenson, General Partner
Page 19 of 19
