SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 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 of March 31, 2000: 96,412
Page 1 of 18
<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>
March 31, December 31,
2000 1999
(Unaudited) (Audited)
-------------- ---------------
Assets
- ------
Investments in real estate:
Rental property, net of accumulated depreciation of
$18,599 and $18,199 at March 31, 2000 and December
31, 1999, respectively $ 28,269 $ 28,465
Land held for development 2,786 2,757
------------- -------------
Total real estate investments 31,055 31,222
------------- -------------
Cash and cash equivalents 5,524 5,413
Accounts receivable 1,339 1,327
Notes receivable 6,090 6,090
Deferred financing costs and other fees, net of
accumulated amortization of $2,422 and $2,342
at March 31, 2000 and December 31, 1999, respectively 932 928
Prepaid expenses and other assets 725 651
------------- -------------
Total assets $ 45,665 $ 45,631
============= =============
Liabilities and Partners' Equity (Deficit)
- ------------------------------------------
Liabilities:
Notes payable $ 13,264 $ 13,315
Accounts payable and other liabilities 417 411
Deferred income 4,148 4,034
------------- -------------
Total liabilities 17,829 17,760
------------- -------------
Commitments and contingent liabilities (see Note 4) -- --
Partners' equity (deficit):
General partners (981) (978)
Limited partners, 96,412 limited partnership units
outstanding at March 31, 2000 and December 31, 1999 28,817 28,849
------------- -------------
Total partners' equity 27,836 27,871
------------- -------------
Total liabilities and partners' equity $ 45,665 $ 45,631
============= =============
See accompanying notes to consolidated financial statements.
</TABLE>
Page 2 of 18
<PAGE>
RANCON REALTY FUND V,
A CALIFORNIA LIMITED PARTNERSHIP
Consolidated Statements of Operations
(in thousands, except per unit amounts and units outstanding)
<TABLE>
<CAPTION>
<S> <C> <C>
Three months ended
March 31,
---------------------------------
2000 1999
--------------- -------------
Revenues:
Rental income $ 1,758 $ 1,578
Interest and other income 95 205
------------- -------------
Total revenues 1,853 1,783
------------- -------------
Expenses:
Operating 717 797
Interest expense 306 318
Depreciation and amortization 467 424
Loss on sale of real estate -- 5
Expenses associated with undeveloped land 96 117
General and administrative 284 299
Proposed dissolution costs 18 39
------------- -------------
Total expenses 1,888 1,999
------------- -------------
Net loss $ (35) $ (216)
============= =============
Net loss per limited partnership unit $ (0.36) $ (2.22)
============= =============
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 loss per limited partnership unit 96,412 96,443
============= ============
</TABLE>
See accompanying notes to consolidated financial statements.
Page 3 of 18
<PAGE>
RANCON REALTY FUND V,
A CALIFORNIA LIMITED PARTNERSHIP
Consolidated Statement of Partners' Equity (Deficit)
For the three months ended March 31, 2000
(in thousands)
<TABLE>
<CAPTION>
<S> <C> <C> <C>
General Limited
Partners Partners Total
---------------- --------------- ---------------
Balance at December 31, 1999 $ (978) $ 28,849 $ 27,871
Net loss (3) (32) (35)
---------------- --------------- ---------------
Balance at March 31, 2000 $ (981) $ 28,817 $ 27,836
================ =============== ===============
</TABLE>
See accompanying notes to consolidated financial statements.
Page 4 of 18
<PAGE>
RANCON REALTY FUND V,
A CALIFORNIA LIMITED PARTNERSHIP
Consolidated Statements of Cash Flows
(in thousands)
<TABLE>
<CAPTION>
<S> <C> <C>
Three months ended
March 31,
-----------------------------------
2000 1999
---------------- ---------------
Cash flows from operating activities:
Net (loss) $ (35) $ (216)
Adjustments to reconcile net loss to net
cash provided by (used for)operating activities:
Loss on sale of real estate -- 6
Depreciation and amortization 467 424
Amortization of loan fees, included in
interest expense 13 14
Changes in certain assets and liabilities:
Accounts receivable (12) 25
Deferred financing costs and other fees (84) 2
Prepaid expenses and other assets (74) 5,556
Accounts payable and accrued expenses 6 101
------------- -------------
Net cash provided by (used for) operating activities 281 5,912
------------- -------------
Cash flows from investing activities:
Net proceeds from sale of real estate -- 2,121
Additions to real estate investments (233) (265)
Funds released from pledged cash -- 353
Deferred gain on sale 114 --
------------- --------------
Net cash provided by (used for) investing activities (119) 2,209
-------------- --------------
Cash flows from financing activities:
Notes payable principal payments (51) (47)
Retirement of limited partnership units -- (1)
------------- --------------
Net cash used for financing activities (51) (48)
-------------- --------------
Net increase in cash and cash equivalents 111 8,073
Cash and cash equivalents at beginning of period 5,413 3,073
------------- --------------
Cash and cash equivalents at end of period $ 5,524 $ 11,146
============= ==============
Supplemental disclosure of cash flow information:
Cash paid for interest $ 300 $ 305
============= ==============
Interest Capitalized $ 8 $ --
============= ==============
</TABLE>
See accompanying notes to consolidated financial statements.
Page 5 of 18
<PAGE>
RANCON REALTY FUND V,
A CALIFORNIA LIMITED PARTNERSHIP
Notes to Consolidated Financial Statements
March 31, 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 financial statements contain all adjustments (consisting of only
normal accruals) necessary to present fairly the financial position of Rancon
Realty Fund V, A California Limited Partnership (the "Partnership") as of March
31, 2000 and December 31, 1999, and the related statements of operations and
cash flows for the three months ended March 31, 2000 and 1999.
Proposed Asset Sale and Dissolution
- -----------------------------------
The Partnership's business strategy has 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"). The General Partner
currently intends to sell all of the Partnership's properties, 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 the second half of 2000 (and potentially not
until 2001) as some of the properties may be sold with the purchase price
payable on an installment basis. The dissolution must be completed within 90
days of the final receipt of cash proceeds from the sale of Partnership propety.
The period over which the sales transactions and dissolution are to take place
is not currently known.
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 holders of 67,498 Units, or 88%,
of the Units Voted in favor, holders of 7,271 Units, or 10%, against and holders
of 1,706 Units, 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 March 31, 2000, 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
Page 6 of 18
<PAGE>
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 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
General Partner subsequently received three written offers from prospective
buyers and has selected one. Currently, this prospective buyer is completing its
due diligence on the Tri-City properties, and the Partnership is preparing a
Purchase and Sale Agreement for signature.
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 did, 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.
Page 7 of 18
<PAGE>
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 of 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 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 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 date
when any consent solicitation materials are mailed to the Limited partners, the
date when consent of the Limited Partners is obtained (assuming it is obtained),
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
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 income and net losses from operations are
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 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 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
Page 8 of 18
<PAGE>
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. If a partner's capital account is reduced to zero, additional net
losses will be allocated entirely to those partners with positive capital
account balances until such balances are reduced to zero. In no event shall the
general partners be allocated less than 1% of the net losses for any period.
General Partner and Management Matters
- --------------------------------------
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.
According to the contract, the Partnership will pay Glenborough for its services
as follows: (i) a specified asset administration fee ($190,000 in the first
quarter of 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 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 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 partners to a proposal to sell all of the Partnership's
remaining properties and
Page 9 of 18
<PAGE>
liquidate the Partnership will not impact the accounting treatment applied by
the Partnership in its consolidated 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 timing of the last cash receipt from the sale of the property 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 Unitholders 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 $9,299,000 at March 31, 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.
Reclassifications
- -----------------
Certain prior year balances have been reclassified to conform with the current
year presentation.
Note 2. REFERENCE TO 1999 AUDITED FINANCIAL STATEMENTS
----------------------------------------------
These unaudited consolidated financial statements should be read in conjunction
with the notes to consolidated financial statements included in the December 31,
1999 audited consolidated financial statements.
Page 10 of 18
<PAGE>
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 third party for $502,200. The Partnership
realized a $5,000 loss on the sale which is reflected in the March 31, 1999
consolidated statement of operations. The sale generated net proceeds of
$446,000.
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. The remaining note
balance was $375,000. In April 5, 2000, the note was further amended to extend
the maturity date to September 15, 2000 with a partial principal payment of
$75,000. The current remaining note balance is $300,000. 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
is received. During the year ended December 31, 1999, the Partnership recognized
a gain of $104,000 after receiving the $100,000 principal payment discussed
above. The Partnership will recognize a gain on sale in the second quarter of
2000 related to the $75,000 principal payment. The sale generated net proceeds
of $213,000, prior to collections on the note.
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 $3,274,000 gain on sale until collection of the note is
received. As of December 31, 1999, the Partnership had collected interest income
totaling $421,000 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. The sale generated net proceeds of
$1,529,000, prior to collections on 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. The proceeds have been added to the
Partnership's cash reserves and the full gain on sale will be recognized in the
second quarter of 2000.
Page 11 of 18
<PAGE>
Note 4. COMMITMENTS AND CONTINGENT LIABILITIES
--------------------------------------
The Partnership is contingently liable for subordinated real estate commissions
payable to the General Partner in the aggregate amount of $102,000 at March 31,
2000 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. SUBSEQUENT EVENTS
-----------------
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 has 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 so purchase the property.
Page 12 of 18
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
As of March 31, 2000, the Partnership had cash of $5,524,000. The remainder of
the Partnership's assets consist primarily of its net investments in real
estate, totaling approximately $31,055,000 which includes $28,269,000 in rental
properties and $2,786,000 of land held for development within the Tri-City area.
The Partnership also holds $6,090,000 in notes receivable from buyers of
Partnership properties.
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 $5,000 loss on the sale which is reflected in the March 31, 1999
consolidated statement of operations. The sale generated net proceeds of
$446,000.
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. The remaining note
balance was $375,000. In April 5, 2000, the note was further amended to extend
the maturity date to September 15, 2000 with a partial principal payment of
$75,000. The current remaining note balance is $300,000. 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
is received. During the year ended December 31, 1999, the Partnership recognized
a gain of $104,000 after receiving the $100,000 principal payment discussed
above. The Partnership will recognize a gain on sale tin the second quarter of
2000 related to the $75,000 principal payment. The sale generated net proceeds
of $213,000, prior to collections on the note.
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 $3,274,000 gain on sale until collection of the note is
received. As of December 31, 1999, the Partnership had collected interest income
totaling $421,000 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. The sale generated net proceeds of
$1,529,000, prior to collections on the note.
Page 13 of 18
<PAGE>
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. The proceeds have been added to the
cash reserves and the full gain on sale will be recognized in the second quarter
of 2000.
The Partnership is contingently liable for subordinated real estate commissions
payable to the General Partner in the amount of $102,000 at March 31, 2000, 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.
Operationally, the Partnership's primary source of funds consists of cash
provided by its rental activities. Other sources of funds may include permanent
financing, property sales, interest income on certificates of deposit and other
deposits of funds invested temporarily. Cash generated from property sales is
generally added to the Partnership's cash reserves, pending use in development
of other properties or distribution to the partners.
Management believes that the Partnership's cash balance at March 31, 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.
Aside from the foregoing and the current plan to potentially sell all of the
Partnership's remaining properties and liquidate the Partnership, 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
- --------------------
For the period ended March 31, 2000, the Partnership's cash provided by
operating activities totaled $281,000.
The $84,000, or 9%, increase in deferred financing costs and other fees (prior
to current period amortization) at March 31, 2000, compared to December 31,
1999, was primarily due to lease commissions paid relative to new leases.
The $74000, or 11%, increase in prepaid expenses and other assets at March 31,
2000, compared to December 31, 1999, was due primarily to deposits to mortgage
impound accounts for property taxes paid in April 2000.
Investing Activities
- --------------------
During the period ended March 31, 2000, the Partnership's cash used for
investing activities totaled $119,000, which included $233,000 of cash used for
capital additions to real estate, net with
Page 14 of 18
<PAGE>
$114,000 of interest income collected on the RCO Note. The recognition of the
interest income has been deferred until the full collection of the note.
Financing Activities
- --------------------
During the period ended March 31, 2000, the Partnership's cash used for
financing activities consisted of principal payments on its two notes payable of
$51,000.
Results of Operations
- ---------------------
Revenues
- --------
Rental income increased $180,000 or 11% for the three months ended March 31,
2000 compared to the three months ended March 31, 1999, due primarily to
increased occupancy at several of the Partnership's properties.
Occupancy rates at the Partnership's Tri-City properties as of March 31, 2000
and 1999 were as follows:
March 31,
------------------------------------
2000 1999
--------------- ----------------
One Carnegie Plaza 77% 50%
Two Carnegie Plaza 85% 79%
Carnegie Business Center II 62% 74%
Lakeside Tower 96% 93%
Santa Fe 100% 100%
One Parkside 100% 84%
Bally's Health Club 100% 100%
Outback Steakhouse 100% 100%
As of March 31, 1999, tenants at Tri-City occupying substantial portions of
leased rental space included: (i) The Burlington Northern and Santa Fe Railway
Company; (ii) Sterling Software; (iii) Chicago Title; and (iv) Holiday Spa
Health Club. These four tenants, in the aggregate, occupied approximately
118,681 square feet of the 478,000 total leasable square feet at Tri-City and
accounted for approximately 31% of the total rental income for the Partnership
during the first quarter of 2000.
The twenty-seven percentage point increase in occupancy from March 31, 1999 to
March 31, 2000 at One Carnegie Plaza was the result of leasing 18,700 square
feet of previously vacant office space, and the expansion of an existing tenant
for 13,855 square feet.
The six-percentage point increase in occupancy from March 31, 1999 to March 31,
2000 at Two Carnegie Plaza was attributable to the leasing of 3,307 square feet
of previously vacant space to two tenants. Slightly offsetting this increase in
occupancy was a decrease due to a 1,285 square foot tenant moving out upon its
lease expiration in May 1999.
The twelve-percentage point decrease in occupancy from March 31, 1999 to March
31, 2000 at Carnegie Business Center II was due to three tenants aggregating
approximately 7,000 square feet
Page 15 of 18
<PAGE>
vacating upon expiration of their leases. Management continues to market the
space to obtain new tenants.
The sixteen-percentage point increase in occupancy from March 31, 1999 to March
31, 2000 at One Parkside was the result of a 10,970 square-foot expansion of an
existing tenant.
Interest and other income decreased $110,000, or 53%, for the three months ended
March 31, 2000 compared to the three months ended March 31, 1999 due primarily
to a decrease in interest income on a lower average invested cash balance
resulting from the November 1999 distribution of sale proceeds.
Expenses
- --------
Operating expenses decreased $79,000, or 9%, for the three months ended March
31, 2000, compared to the three months ended March 31, 1999. The decrease was
primarily due to the recognition of prior year bad debt in the first quarter of
1999 and the payment of tax appeal fees in the first quarter of 1999, neither of
which were incurred in the first quarter of 2000.
Interest expense decreased $12,000, or 4%, for the three months ended March 31,
2000 compared to the three months ended March 31, 1999 primarily due to the
capitalization of interest (beginning subsequent to March 31, 1999) relative to
development of a pad site at one of the Partnership's properties.
Depreciation and amortization increased $43,000, or 10%, for the three months
ended March 31, 2000 compared to the three months ended March 31, 1999 due to
depreciation of additions to rental properties.
The March 31, 1999 loss on sale of real estate resulted from the sale of the
Perris-Ethanac land.
Expenses associated with undeveloped land decreased $21,000, or 18%, for the
three months ended March 31, 2000 compared to the three months ended March 31,
1999 primarily due to the elimination of property taxes and association dues as
a result of the land sales in early 1999.
General and administrative expenses decreased $15,000, or 5%, for the three
months ended March 31, 2000 compared to the three months ended March 31,1999 due
primarily to a reduction in investor relation service expenses.
The proposed dissolution costs of $18,000 and $39,000 during the three months
ended March 31, 2000 and 1999, respectively, consisted of expenses incurred
related to the Solicitation and the Asset Sale and Dissolution Proposal as
discussed in Note 1.
Page 16 of 18
<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 has
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 so 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
None.
Item 5. Other Information
None.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
#27 - Financial Data Schedule
(b) Reports on Form 8-K:
None
Page 17 of 18
<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: May 12, 2000 By: /s/ DANIEL L. STEPHENSON
--------------------------
Daniel L. Stephenson, President
Date: May 12, 2000 By: /s/ DANIEL L. STEPHENSON
--------------------------
Daniel L. Stephenson, General Partner
Page 18 of 18
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