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 June 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 of August 11, 2000: 96,336
Page 1 of 19
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
RANCON REALTY FUND V,
A CALIFORNIA LIMITED PARTNERSHIP
Consolidated Balance Sheets
(in thousands, except unit amounts)
<TABLE>
<CAPTION>
<S> <C> <C>
June 30, December 31,
2000 1999
(Unaudited) (Audited)
-------------- -------------
Assets
------
Investments in real estate:
Rental property, net of accumulated depreciation
of $19,019 and $18,199 at June 30, 2000 and December 31, 1999
respectively $ 28,038 $ 28,465
Land held for development 2,978 2,757
------------- ------------
Total real estate investments 31,016 31,222
Cash and cash equivalents 11,295 5,413
Accounts receivable 1,323 1,327
Notes receivable 300 6,090
Deferred financing costs and other fees, net of accumulated
amortization of $2,498 and $2,342 at June 30, 2000 and
December 31, 1999, respectively 909 928
Prepaid expenses and other assets 713 651
------------- ------------
Total assets $ 45,556 $ 45,631
============= ============
Liabilities and Partners' Equity (Deficit)
------------------------------------------
Liabilities:
Notes payable $ 13,212 $ 13,315
Accounts payable and other liabilities 294 411
Deferred gain on sale of property 275 4,034
------------- ------------
Total liabilities 13,781 17,760
------------- ------------
Commitments and contingent liabilities (see Note 4) -- --
Partners' Equity (Deficit):
General partners (267) (465)
Limited partners 96,364 and 96,412 limited partnership units
outstanding at June 30, 2000 and December 31, 1999,
respectively 32,042 28,336
------------- ------------
Total partners' equity 31,775 27,871
------------- ------------
Total liabilities and partners' equity $ 45,556 $ 45,631
============= ============
See accompanying notes to consolidated financialstatements.
</TABLE>
Page 2 of 19
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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)
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Three months ended Six months ended
June 30, June 30,
--------------------------- ----------------------------
2000 1999 2000 1999
------------ ----------- ----------- -----------
Revenues:
--------
Rental income $ 1,819 $ 1,486 $ 3,577 $ 3,064
Deferred gain on sale of real estate 3,891 -- 3,891 --
Interest and other income 143 282 238 487
---------- ---------- ----------- -----------
Total revenues 5,853 1,768 7,706 3,551
---------- ---------- ----------- -----------
Expenses:
--------
Operating 753 757 1,470 1,553
Interest expense 302 317 608 635
Depreciation and amortization 482 444 949 868
Loss on sale of real estate -- -- -- 6
Expenses associated with
undeveloped land 7 31 103 148
General and administrative 338 304 622 603
Proposed dissolution costs 17 115 35 154
---------- ---------- ----------- -----------
Total expenses 1,899 1,968 3,787 3,967
---------- ---------- ----------- -----------
Net income (loss) $ 3,954 $ (200) $ 3,919 $ (416)
========== =========== =========== ============
Net income (loss) per limited partnership
unit $ 38.96 $ (2.05) $ 38.60 $ (4.27)
========== =========== =========== ============
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 96,391 96,442 96,402 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 six months ended June 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 -- (15) (15)
Net income 198 3,721 3,919
------------- -------------- -------------
Balance at June 30, 2000 $ (267) $ 32,042 $ 31,775
============== ============== =============
</TABLE>
See accompanying notes to consolidated financialstatements.
Page 4 of 19
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RANCON REALTY FUND V,
A CALIFORNIA LIMITED PARTNERSHIP
Consolidated Statements of Cash Flows
(in thousands)
(Unaudited)
<TABLE>
<CAPTION>
<S> <C> <C>
Six months ended
June 30,
-------------------------------------
2000 1999
---------------- -------------
Cash flows from operating activities:
Net income (loss) $ 3,919 $ (416)
Adjustments to reconcile net income (loss)
to net cash provided by operating activities:
Gain on sale of real estate (3,891) --
Net loss on sale of real estate -- 6
Depreciation and amortization 949 868
Amortization of loan fees, included in
interest expense 27 27
Changes in certain assets and liabilities:
Accounts receivable 4 --
Deferred financing costs and other fees (137) (112)
Prepaid expenses and other assets (62) 5,506
Accounts payable and other liabilities (117) 52
-------------- -------------
Net cash provided by operating activities 692 5,931
------------- -------------
Cash flows from investing activities:
Net proceeds from sales of land -- 2,088
Additions to real estate investments (614) (849)
Principal receipts on notes receivable 5,922 --
Funds released from pledged cash -- 353
------------- -------------
Net cash provided by investing activities 5,308 1,592
------------- -------------
Cash flows from financing activities:
Notes payable principal payments (103) (95)
Retirement of limited partnership units (15) (1)
-------------- -------------
Net cash used for financing activities (118) (96)
-------------- -------------
Net increase in cash and cash equivalents 5,882 7,427
Cash and cash equivalents at beginning of period 5,413 3,073
------------- -------------
Cash and cash equivalents at end of period $ 11,295 $ 10,500
============= =============
Supplemental disclosure of cash flow information:
Cash paid for interest $ 599 $ 609
============= =============
Interest capitalized $ 18 $ --
============= =============
See accompanying notes to consolidated financial statements.
</TABLE>
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
June 30, 2000 and December 31, 1999, and the related consolidated statements of
operations and cash flows for the six months ended June 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"). 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").
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%, had 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. A total of 48 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 June 30, 2000, there were 96,364
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 at the end of
September 1999, the General Partner
Page 6 of 19
<PAGE>
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 primarily due to the increase in
interest rates. 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. This aligns with the General Partner's
goals of increasing revenues at the Tri-City Properties and increasing
distributions to Unitholders.
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, grant 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, 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
Page 7 of 19
<PAGE>
of the properties or upon dissolution of the Partnership with respect to its
general partnership interests.
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 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 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.
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, subject
to (i) 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
parnters capital accounts are reduced to zero. Capital accounts shall be
determined after taking into account the other allocations and distributions for
the fiscal year.
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
Page 8 of 19
<PAGE>
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 Partner 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 management fee ($426,000 and $340,000 as of June 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 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.
Page 9 of 19
<PAGE>
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 $9,135,000 at June 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.
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 which was reflected in the June 30, 1999
consolidated statement of operations. 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
Page 10 of 19
<PAGE>
partial principal payment of $100,000. The remaining note balance was $375,000.
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. 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. 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 the end of the second quarter of 2000, the
Partnership had recognized a gain of $64,000 after receiving the $75,000
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 $3,274,000 gain on sale until collection of the note was
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.
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 of $3,827,000, including
$132,000 of interest income collected in 2000, was recognized during the second
quarter of 2000. The sale generated net proceeds of $1,529,000, prior to
collections on the note.
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 June 30, 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. 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.
Page 11 of 19
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Note 5. NOTES PAYABLE
-------------
The following notes payable were outstanding as of June 30,2000 and December 31,
1999 (in thousands):
<TABLE>
<CAPTION>
<S> <C> <C>
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. $ 9,135 $ 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. 4,077 4,112
---------- ----------
Total notes payable $ 13,212 $ 13,315
========== ==========
</TABLE>
Note 6. DEFERRED INCOME
---------------
The Partnership's deferred income of $275,000 as of June 30, 2000, consists of
the remaining deferred gain on the sale of the Perris-Nuevo land.
Note 7. 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 12 of 19
<PAGE>
RANCON REALTY FUND V
A CALIFORNIA LIMITED PARTNERSHIP
Notes to Consolidated Financial Statements
June 30, 2000
(Unaudited)
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
LIQUIDITY AND CAPITAL RESOURCES
-------------------------------
As of June 30, 2000, the Partnership had cash of $11,295,000. The remainder of
the Partnership's assets consist primarily of its net investments in real
estate, totaling approximately $31,016,000 which includes $28,038,000 in rental
properties and $2,978,000 of land held for development within the Tri-City area.
The Partnership currently holds a $300,000 note receivable from the buyer of the
Perris-Nuevo land. A $5,715,000 note receivable from the buyer of Rancon Centre
Ontario was recently paid off (see below for details).
The Partnership's primary liabilities include notes payable, totaling
approximately $13,212,000 at June 30, 2000, which consist of two secured fixed
rate loans encumbering properties with an aggregate net book value of
approximately $15,622,000 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%.
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 which was reflected in the June 30, 1999
consolidated statement of operations. 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. The remaining note balance
was $375,000. 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. 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. As of the end of the second quarter of 2000,
the Partnership had recognized a gain of $64,000 after receiving the $75,000
principal payment discussed above. The sale generated net proceeds of $213,000,
prior
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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
$3,274,000 gain on sale until collection of the note was 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.
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 of $3,827,000, including
$132,000 of interest income collected in 2000, was recognized during the second
quarter of 2000. The sale generated net proceeds of $1,529,000, prior to
collections on the note.
The Partnership is contingently liable for subordinated real estate commissions
payable to the General Partner in the amount of $102,000 at June 30, 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. 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.
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 June 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
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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 develop the unimproved land
within the Tri-City Properties, 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 June 30, 2000, the Partnership's cash provided by operating
activities totaled $692,000.
The $137,000 increase in deferred financing costs and other fees at June 30,
2000, compared to December 31, 1999, was primarily due to lease commissions paid
for new and renewal leases.
The $62,000 increase in prepaid expenses and other assets at June 30, 2000,
compared to December 31, 1999, was primarily due to an increase in the mortgage
impound accounts for property taxes, and prepayments for the third quarter
investor relations services and association fees.
The $117,000 decrease in accounts payable and other liabilities at June 30,
2000, compared to December 31, 1999, was primarily due to payment of accrued
property taxes.
Investing Activities
--------------------
During the period ended June 30, 2000, the Partnership's cash provided by
investing activities totaled $5,308,000, which consisted of $5,922,000 of
principal and interest collected on the RCO and Nuevo note receivables, offset
by $614,000 of cash used for capital additions to real estate.
Financing Activities
--------------------
During the period ended June 30, 2000, the Partnership's cash used for financing
activities totaled $118,000, which consisted of principal payments on its two
notes payable of $103,000 and $15,000 paid to redeem 48 limited partnership
units.
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Results of Operations
---------------------
Revenues
--------
Rental income increased $513,000, or 17%, and $333,000, or 22%, during the six
and three months ended June 30, 2000, compared to the six and three months ended
June 30, 1999, respectively, due primarily to increased occupancy at two of the
Partnership's properties.
June 30,
-----------------------------------
2000 1999
--------------- ---------------
One Carnegie Plaza 85% 58%
Two Carnegie Plaza 79% 79%
Carnegie Business Center II 62% 59%
Lakeside Tower 96% 96%
Santa Fe 100% 100%
One Parkside 100% 100%
Bally's Health Club 100% 100%
Outback Steakhouse 100% 100%
As of June 30, 2000, tenants at 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 second quarter of 2000.
The twenty-seven-percentage point increase in occupancy from June 30, 1999 to
June 30, 2000 at One Carnegie Plaza was the result of leasing 9,713 square feet
of previously vacant office space to three new tenants, and a 18,128 square foot
expansion for an existing tenant.
The three-percentage point increase in occupancy from June 30, 1999 to June 30,
2000 at Carnegie Business Center II was the result of leasing 4,183 square feet
of previously vacant space to an existing tenant. This increase was slightly
offset by a decrease in occupancy due to an existing tenant downsizing 2,760
square feet of space upon expiration of their lease.
The gain on sale of real estate of $3,891,000 for the six and three months ended
June 30, 2000 consists of the recognition of $3,827,000 of the deferred gain on
sale of Rancon Centre Ontario, and $64,000 of the deferred gain on sale of the
Perris-Nuevo land.
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Interest and other income decreased $249,000, or 51%, and $139,000, or 49%,
during the six and three months ended June 30, 2000, compared to the six and
three months ended June 30, 1999, respectively, primarily due 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 $83,000, or 5%, for the six months ended June 30,
2000, compared to the six months ended June 30, 1999, 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. Operating expenses varied slightly for the three
months ended June 30, 2000, compared to the three months ended June 30, 1999.
Interest expense decreased $27,000, or 4%, and $15,000, or 5%, for the six and
three months ended June 30, 2000, compared to the six and three months ended
June 30, 1999, respectively, primarily due to the capitalization of interest
(beginning subsequent to June 30, 1999) related to development of a pad site at
one of the Partnership's properties.
Depreciation and amortization increased $81,000, or 9%, and $38,000, or 9%, for
the six and three months ended June 30, 2000, compared to the six and three
months ended June 30, 1999, respectively, primarily due to depreciation of
additions to rental properties.
The loss on sale of real estate of $6,000 for the six months ended June 30, 1999
resulted from the sale of the Perris-Ethanac land.
Expenses associated with undeveloped land decreased $45,000, or 30%, and
$24,000, or 77%, for the six and three months ended June 30, 2000, compared to
the six and three months ended June 30, 1999, respectively, primarily due to
refunds of real estate taxes received in 2000.
General and administrative expenses increased $19,000, or 3%, and $34,000, or
11%, for the six and three months ended June 30, 2000, compared to the six and
three months ended June 30, 1999, respectively, primarily due to an increase in
asset management fees resulting from the CPI increase adjustment to the fee.
The proposed dissolution costs incurred during the six and three months ended
June 30, 2000 and 1999, respectively, consist of expenses related to the
Solicitation and the Asset Sale and Dissolution Proposal as discussed in Note 1.
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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.
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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: August 11, 2000 By: /s/ DANIEL L. STEPHENSON
--------------------------
Daniel L. Stephenson, President
Date: August 11, 2000 By: /s/ DANIEL L. STEPHENSON
--------------------------
Daniel L. Stephenson, General Partner
Page 19 of 19
