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 May 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission file number 0-16644
RANCON DEVELOPMENT FUND VI,
A CALIFORNIA LIMITED PARTNERSHIP
(Exact name of registrant as specified in its charter)
California 33-0154010
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification)
400 South El Camino Real, Suite 1100
San Mateo, California 94402
(Address of principal (Zip Code)
executive offices)
(415) 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
Page 1 of 34
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
RANCON DEVELOPMENT FUND VI,
A CALIFORNIA LIMITED PARTNERSHIP
Consolidated Balance Sheets
(in thousands, except units outstanding)
(Unaudited)
May 31, November 30,
Assets 1996 1995
Cash and cash equivalents (including
time deposits of $2 and $700 in
1996 and 1995, respectively) $ 106 $ 821
Pledged cash --- 2
Land held pending disposal 6,278 7,830
School Credits on deposit 1,350 ---
Less reserve for School Credits (1,350) ---
Note receivable, net 246 ---
Minority interest --- ---
Other assets 335 100
-------- --------
Total assets $ 6,965 $ 8,753
======== ========
Liabilities and Partners' Deficit
Liabilities:
Accounts payable and other
liabilities $ 178 $ 211
Property taxes payable 3,243 3,011
Interest payable 1,928 1,695
Notes payable 10,302 12,934
-------- --------
Total liabilities 15,651 17,851
-------- --------
Partners' deficit:
General partners (8,686) (9,098)
Limited partners (97,362 and
116,171 limited partnership
units outstanding in 1996 and
1995, respectively) --- ---
-------- --------
Total partners' deficit (8,686) (9,098)
-------- --------
Total liabilities and partners'
equity $ 6,965 $ 8,753
======== ========
See accompanying notes to financial statements.
Page 2 of 34
RANCON DEVELOPMENT FUND VI,
A CALIFORNIA LIMITED PARTNERSHIP
Consolidated Statements of Operations
(in thousands, except per unit amounts)
(Unaudited)
Six months ended Three months ended
May 31, May 31,
1996 1995 1996 1995
Operating Costs and Expenses:
Property taxes $ 574 $ 749 $ 274 $ 311
Interest expense 387 433 171 205
Writedown of property to estimated
net realizable value --- 8,765 --- 8,765
Administrative (including $65
to Sponsor in 1995) 429 587 224 217
Less Receivable from Sponsor --- (314) --- ---
----- ----- ----- -----
Administrative, net 429 273 224 217
Other operating expenses 8 24 4 14
------ ------ ------ ------
Total operating costs and
expenses 1,398 10,244 673 9,512
------ ------ ------ ------
Other Income:
Interest income 5 31 --- 16
Miscellaneous income 4 --- --- ---
------ ------ ------ ------
Total other income 9 31 --- 16
------ ------ ------ ------
Loss before minority interest
and extraordinary item (1,389) (10,213) (673) (9,496)
Minority interest loss --- --- --- ---
------ ------ ------ ------
Loss before extraordinary item (1,389) (10,213) (673) (9,496)
Extraordinary item:
Gain on foreclosures 1,801 --- 1,229 ---
------ ------ ------ ------
Net income (loss) $ 412 $(10,213) $ 556 $(9,496)
====== ====== ====== ======
- continued -
Page 3 of 34
RANCON DEVELOPMENT FUND VI,
A CALIFORNIA LIMITED PARTNERSHIP
Consolidated Statements of Operations - continued
(in thousands, except per unit amounts)
(Unaudited)
Six months ended Three months ended
May 31, May 31,
1996 1995 1996 1995
Net Loss Per Limited
Partnership Unit $ --- $ (80.54) $ --- $ (74.89)
====== ======= ====== =======
Weighted average number of
limited partnership units
outstanding during the
period used to compute earnings
per limited partnership unit 98,805 125,536 100,249 125,536
====== ======= ======= =======
See accompanying notes to financial statements.
Page 4 of 34
RANCON DEVELOPMENT FUND VI,
A CALIFORNIA LIMITED PARTNERSHIP
Consolidated Statements of Partners' Deficit
For the six months ended May 31, 1996 and 1995
(in thousands)
(Unaudited)
General Limited
Partners Partners Total
Balance at November 30, 1994 $ (991) $ 16,784 $ 15,793
Net loss (102) (10,111) (10,213)
------- ------- -------
Balance at May 31, 1995 $(1,093) $ 6,673 $ 5,580
======= ======= =======
Balance at November 30, 1995 $(9,098) $ --- $(9,098)
Net income 412 --- 412
------- ------- -------
Balance at May 31, 1996 $(8,686) $ --- $(8,686)
======= ======= =======
See accompanying notes to financial statements.
Page 5 of 34
RANCON DEVELOPMENT FUND VI,
A CALIFORNIA LIMITED PARTNERSHIP
Consolidated Statements of Cash Flows (in thousands)
(Unaudited)
Six months ended
May 31,
1996 1995
CASH FLOW FROM OPERATING ACTIVITIES:
Net income (loss) $ 412 $(10,213)
Adjustment to reconcile net income (loss)
to net cash used for operating activities:
Depreciation and amortization --- 9
Writedown of property to estimated
net realizable value --- 8,765
Gain on foreclosure (1,801) ---
Changes in assets and liabilities:
Decrease (increase) in other assets (272) 14
Increase in property tax payable 590 405
Increase in interest payable 365 260
Decrease in accounts payable and
other liabilities (33) (65)
Deferred interest payable 22 67
------ ------
Net cash used for operating activities (717) (758)
CASH FLOW FROM INVESTING ACTIVITIES:
Community Facilities District
reimbursement --- 6
Finance fees paid --- (8)
Real estate acquisition and
development costs --- (12)
Pledged cash 2 200
------ ------
Net cash provided by investing activities 2 186
CASH FLOW FROM FINANCING ACTIVITIES:
Payments on notes payable --- (10)
------ ------
Net cash used for financing
activities --- (10)
------ ------
Net decrease in cash and cash
equivalents (715) (582)
Cash and cash equivalents at
beginning of year 821 2,055
------ -------
Cash and cash equivalents at
end of period $ 106 $ 1,473
====== =======
-continued-
See accompanying notes to financial statements
Page 6 of 34
RANCON DEVELOPMENT FUND VI,
A CALIFORNIA LIMITED PARTNERSHIP
Consolidated Statements of Cash Flows (in thousands) - continued
(Unaudited)
Six months ended
May 31,
1996 1995
Supplemental disclosure of cash flow information:
Cash paid for interest $ --- $ 157
====== ======
Supplemental disclosure of non cash transactions:
Foreclosure:
Land foreclosure $(1,252) $ ---
Debt forgiveness 2,654 ---
Net other assets surrendered 399 ---
------ ------
Gain on foreclosure $ 1,801 $ ---
====== ======
Settlement of adversary proceeding:
Land relinquished $ (300) $ ---
Note receivable received 246 ---
Other liabilities relieved 54 ---
------ ------
Gain on settlement of adversary
proceeding $ --- $ ---
====== ======
See accompanying notes to financial statements.
Page 7 of 34
RANCON DEVELOPMENT FUND VI,
A CALIFORNIA LIMITED PARTNERSHIP
Notes To Consolidated Financial Statements
May 31, 1996
(Unaudited)
Note 1. THE PARTNERSHIP AND ITS SIGNIFICANT ACCOUNTING
POLICIES
Rancon Development Fund VI, a California Limited Partnership (the
Partnership), was organized in accordance with the provisions of
the California Revised Limited Partnership Act for the purpose of
acquiring, developing and selling real property. The Partnership
was formed with the initial capital contribution of $1,000 from
Rancon Development Partners VI, L.P. (the General Partner), and
$2,000 from the initial limited partner, Daniel L. Stephenson
(DLS), who indirectly owns and controls the General Partner. The
General Partner and its affiliates are hereinafter referred to as
the Sponsor, as defined in the Partnership Agreement.
In the opinion of management, the accompanying unaudited
consolidated financial statements contain all adjustments
(consisting of only normal accruals) necessary to present fairly
the financial position and results of operations of the
Partnership as of May 31, 1996 and for the period then ended.
The Southern California regional economies in general, and the
real estate industry in particular, are considered to be in a
recessionary cycle. A majority of the Partnership's assets are
located within the Inland Empire submarket of the Southern
California region. The development, operation or sale of the
Partnership's real estate assets continue to be affected by the
economic weakness of the real estate industry in Southern
California.
Allocations of profits and losses, distributions of cash from
operations and distributions of cash other than cash from
operations are made pursuant to the terms of the Partnership's
Seventh Amended and Restated Agreement of Limited Partnership
(the Partnership Agreement) which generally provides allocations
and distributions of 99% to the limited partners and 1% to the
Sponsor ("General Partner") except for certain preferential
returns with respect to cash other than cash from operations and
related gain allocations. The net income for the six months
ended May 31, 1996 was allocated entirely to the General Partner
since the General Partner's deficit in its capital account
exceeded the current net income.
General Partners and Management Matters - Effective January 1,
1994 the Partnership had contracted with Rancon Financial
Corporation (RFC) to perform, on the Partnership's behalf,
financial, accounting, data processing, marketing, legal,
investor relations, asset and development management and
consulting services. These services were provided by RFC subject
Page 8 of 34
RANCON DEVELOPMENT FUND VI,
A CALIFORNIA LIMITED PARTNERSHIP
Notes To Consolidated Financial Statements
May 31, 1996
(Unaudited)
to the provisions of the Partnership Agreement. Prior to January
1, 1994 the Partnership had contracted with Partnership Asset
Management Company, a California corporation, to perform the same
services. Effective January 1, 1994, RFC entered into an
agreement with the owner of Partnership Asset Management Company
to purchase all of its outstanding shares of stock. Partnership
Asset Management Company was not considered to be an affiliate of
the Partnership or RFC, at the time of the purchase.
In December 1994, RFC entered into an agreement with Glenborough
Inland Realty Corporation (Glenborough) whereby RFC sold to
Glenborough the contract to perform the rights and
responsibilities under RFC's agreement with the Partnership and
other related Partnerships (collectively, the Rancon
Partnerships) to perform or contract on the Partnership's behalf
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 to the liquidation of the Partnership, which ever comes first.
According to the contract, the Partnership will pay Glenborough
for its services as follows: (i) a specified asset and
partnership administration fee of $624,000 per year, which is
fixed for five years, subject to reduction in the year following
the sale of assets; (ii) sales fees of 4% for land and (iii) a
refinancing fee of 1%. In fiscal year 1996 the asset
administration fee has been decreased to $613,000.
As part of this agreement, Glenborough will perform certain
responsibilities for the General Partner of the Rancon
Partnerships and RFC agreed to cooperate with Glenborough, should
Glenborough attempt to obtain a majority vote of the limited
partners to substitute itself as the Sponsor for the Rancon
Partnerships. This agreement was effective January 1, 1995.
Glenborough is not an affiliate of RFC.
As a result of this agreement, RFC terminated several of its
employees between December 31, 1994 and February 28, 1995. Also
as a result of this agreement, certain of the officers of RFC
resigned from their positions effective February 28, 1995, March
31, 1995 and July 1, 1995.
The following is a summary of the Partnership's significant
accounting policies:
Pervasiveness of Estimates - The preparation of financial
statements in conformity with generally accepted accounting
principles require management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and
Page 9 of 34
RANCON DEVELOPMENT FUND VI,
A CALIFORNIA LIMITED PARTNERSHIP
Notes To Consolidated Financial Statements
May 31, 1996
(Unaudited)
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.
New Accounting Pronouncements - March 1995, the Financial
Accounting Standards Board issued Statement of Financial
Accounting Standards No. 121 (SFAS 121), "Accounting for
Impairment of Long-Lived Assets and Long-Lived Assets to be
Disposed of". SFAS 121 requires that an evaluation of an
individual property for possible impairment must be performed
whenever events or changes in circumstances indicate that an
impairment may have occurred. The Partnership adopted SFAS 121
in the fourth quarter of fiscal 1995. The effect of the early
adoption of SFAS 121 was shown as a cumulative effect of a change
in accounting principle in the consolidated statement of
operations at November 30, 1995.
Basis of Presentation - These accompanying consolidated financial
statements have been prepared assuming that the Partnership will
continue as a going concern. The Partnership has incurred
recurring operating losses for the year ended November 30, 1995
and the six months ended May 31, 1996. Cash flow projections for
the year ended November 30, 1996 indicate a cash flow deficiency,
which raise substantial doubt about the Partnership's ability to
continue as a going concern (see Note 7). The consolidated
financial statements do not include any adjustments, except as
noted below, to reflect the possible future effects on the
recoverability and classification of assets or the amounts and
classification of liabilities that may result from the outcome of
this uncertainty.
Because of the Partnership's cash flow position and defaults on
certain loans, the Partnership has determined it will not develop
any of the properties and will not pursue build-to-suits, but
will continue to hold the properties pending their disposition.
The Partnership obtained appraisals in 1995 that give a fair
market sales value as opposed to a development value.
Accordingly, the Partnership determined that it was appropriate
to adopt SFAS 121, as described above, as of November 30, 1995.
Principles of Consolidation and Minority Interest - The
consolidated financial statements at May 31, 1996 include the
accounts of the Partnership, Six Otay Mesa L.P. (SOMLP) and Six
Stoneridge L.P. (SSRLP). At November 30, 1995, the consolidated
financial statements also included RC Inland Development Limited
Partnership (RDICLP). All significant intercompany balances and
transactions have been eliminated.
Page 10 of 34
RANCON DEVELOPMENT FUND VI,
A CALIFORNIA LIMITED PARTNERSHIP
Notes To Consolidated Financial Statements
May 31, 1996
(Unaudited)
RCIDLP
RCIDLP was a California limited partnership formed between the
Partnership and RC Pacific Realty, Inc. (RCPRI), as general
partner, to develop, improve, subdivide and sell 279 single
family homes in three different developments located in Southern
California. The Partnership had a controlling equity interest of
99 percent in RCIDLP and, accordingly, had included the accounts
of RCIDLP in these consolidated financial statements prior to
November 30, 1995. RCPRI held the remaining 1% minority
interest. RCPRI is a corporation whose sole shareholder is DLS,
who indirectly owns and controls the General Partner. With the
sales of two homes at The Promenade at La Costa and Vista Sierra
during fiscal 1994, all real estate sales activity has been
concluded on RCIDLP. Effective November 30, 1995, the remaining
liabilities of RCIDLP associated with home warranties were
transferred to the Partnership and RCIDLP was dissolved.
SOMLP and SSRLP
On August 28, 1992, the Partnership formed two separate
partnerships to provide more flexibility in discussions with
potential joint venture partners who had expressed an interest in
investing with the Partnership on a project-specific basis.
Accordingly, the Partnership formed SOMLP and SSRLP to hold the
Otay Mesa property and the StoneRidge I and StoneRidge II
properties, respectively (see Note 3). The Partnership is the
limited partner of both SOMLP and SSRLP, having a controlling
equity interest of 99% and accordingly has included the accounts
of SOMLP and SSRLP in these consolidated financial statements.
Property Six Management Corporation (PSMC), which is wholly-owned
by the General Partner, owns the remaining 1% of SOMLP and SSRLP,
respectively. This change is a change in structure only and the
Partnership's ownership interests in SOMLP and SSRLP remain
virtually identical to its interests in the respective properties
prior to the formation of the new partnerships.
Under the StoneRidge I acquisition agreements, SSRLP was to pay
approximately $3,925,000 towards the purchase of the StoneRidge I
property in December, 1992 (see Note 3). Despite efforts to
negotiate a modification of the agreements, obtain loans, joint
venture partners, or other vehicles to meet or modify the cash
payment requirements, no viable solution was reached. Therefore,
on December 10, 1992, SSRLP filed for Chapter 11 reorganization
protection in federal bankruptcy court.
On February 19, 1993, an adversary complaint was filed with the
bankruptcy court against SSRLP to determine the nature and extent
Page 11 of 34
RANCON DEVELOPMENT FUND VI,
A CALIFORNIA LIMITED PARTNERSHIP
Notes To Consolidated Financial Statements
May 31, 1996
(Unaudited)
of SSRLP's interest in StoneRidge I and the debt associated with
such property (the "Adversary Proceeding"). On November 8, 1995,
the U.S. Trustee issued an Order of Dismissal on SSRLP's
bankruptcy case, however, the Bankruptcy Court retained
jurisdiction over the Adversary Proceeding. The parties to the
Adversary Proceeding have reached a settlement agreement which
provided that SSRLP: (a) eliminate its note payable in the amount
of $8,425,000 which was recorded on the Partnership's books as of
November 30, 1992 as amounts owed on 600 acres, which SSRLP took
the position that it held equitable title in these acres before
the Adversary Proceeding and (b) convey its fee ownership in
approximately 47 acres of "out parcels" located within or
adjacent to the property that will be retained by the plaintiff
in the Adversary Proceeding. In return, the plaintiff in the
Adversary Proceeding signed a $546,000 note in favor of SSRLP
secured by land in StoneRidge I. The terms of the note require
no accrual or payment of interest, a ten year term and an
allowance for a discounted payoff of $246,000 in the first year
and at increased increments of $30,000 in each subsequent year
through the ten year term. As part of the agreement, the
$1,350,000 deposited with the Nuview School District by the
Partnership as a prepayment of property tax assessments will
remain as the Partnership's "School Credits". In order for the
specified properties to be developed, the owner must first buy
the "School Credits" from the Partnership. These "School
Credits" are not applicable to the development of other
properties within the school district. This agreement remains in
force until all the credits are purchased from the Partnership.
There can be no assurance that the properties will ever be
developed so the credits may never have value. As such, these
credits were fully reserved in fiscal 1994 due to the uncertainty
of their collection.
Based on the terms of the settlement agreement, an adjustment was
made to the Partnership's financial statements in the amount of
$2,724,000 to fully remove the StoneRidge I property and leave
only the discounted value of the proposed note to be held in
favor of the Partnership as of November 30, 1995. At November
30, 1994, a similar adjustment in the amount of $711,000 was
recorded, based on the then agreed upon settlement.
Cash and Cash Equivalents - The Partnership considers all
certificates of deposit and investments in money market funds
with original maturities of less than ninety days to be cash
equivalents.
Land Held Pending Disposal - Land held pending disposal is stated
at the lower of carrying amount or estimated fair value as of
Page 12 of 34
RANCON DEVELOPMENT FUND VI,
A CALIFORNIA LIMITED PARTNERSHIP
Notes To Consolidated Financial Statements
May 31, 1996
(Unaudited)
November 30, 1995 and May 31, 1996. In light of the
Partnership's decline in financial stability and pending sale or
loss in negotiated foreclosure of the majority of its properties,
management determined it was most appropriate to adopt SFAS 121
early. Prior to November 30, 1995, property was stated at the
lower of cost or estimated net realizable value. Estimated fair
value for financial reporting purposes was computed using
estimated sales price, less estimated disposal costs, based upon
market values for comparable properties. The Partnership had
revalued its assets based upon independent appraisals obtained in
1995. Appraisals are estimates of fair value based upon
assumptions about the property and the market in which it is
located. Due to uncertainties inherent in the appraisal process,
these valuations do not purport to be the price at which a sale
transaction involving these properties can or will take place.
Common costs are allocated among the various projects based upon
the relative sales value. Property taxes and interest related to
property constructed by the Partnership were capitalized during
periods of construction.
Deferred Costs - Included in other assets at November 30, 1995
were deferred loan fees of $64,000 which were being amortized
over the life of the related loan on a straight-line basis.
Amortization expense which is included in interest expense was
$9,000 for the six months ended May 31, 1995. In the first
quarter of fiscal 1996, the balance of the deferred loan fees
were written off when the land securing the loan was foreclosed
(see Note 3).
Net Income (Loss) Per Limited Partnership Unit - Net income
(loss) per limited partnership unit was calculated using the
weighted average number of limited partnership units outstanding
during each period and the limited partners' share of the net
income (loss).
Income Taxes - No provision for income taxes is included in the
accompanying consolidated financial statements, as the
Partnership's results of operations are passed through to the
partners for inclusion in their respective income tax returns.
Net income (loss) and partners' equity (deficit) for financial
reporting purposes differ from the Partnership income tax return
due to different accounting methods used for certain items for
financial reporting purposes than for income tax purposes,
principally the capitalization of carrying costs associated with
development and the writedown of property to its estimated net
realizable value or fair value.
Page 13 of 34
RANCON DEVELOPMENT FUND VI,
A CALIFORNIA LIMITED PARTNERSHIP
Notes To Consolidated Financial Statements
May 31, 1996
(Unaudited)
Reclassifications - Certain amounts in the 1995 financial
statements have been reclassified to conform to the current
period presentation.
Note 2. WORKING CAPITAL RESERVES
The Partnership is required to maintain working capital reserves,
as defined by the Partnership Agreement, equal to at least 3% of
the gross offering proceeds. Such requirements amounted to
$3,766,000 at May 31, 1996 and November 30, 1995. At May 31,
1996 and November 30, 1995, the Partnership held working capital
reserves of $106,000 and $821,000, respectively (see Note 7).
Note 3. LAND HELD PENDING DISPOSAL
Land held pending disposal is comprised of the following as of:
May 31, November 30,
1996 1995
Rancon Business Center $ 283,000 $ 525,000
Rancon Center Otay Mesa 2,680,000 2,680,000
StoneRidge I --- 300,000
StoneRidge II 1,480,000 1,480,000
Menifee Ranch 1,835,000 1,835,000
Deer Springs Estates --- 1,010,000
---------- ----------
Total land held pending disposal $ 6,278,000 $ 7,830,000
========== ==========
Substantially all of the Partnership's property has been pledged
as security for notes payable (see Note 4).
Rancon Business Center
Rancon Business Center (RBC), in Riverside County, is a 593
gross-acre multi-phase commercial and industrial development.
RBC was being developed into high industrial, office and retail
facilities in accordance with a development plan approved by the
County of Riverside. Because of its size, the development plan
divides RBC into four areas (see below), which were being
developed sequentially over several years.
The County of Riverside has formed a Community Facilities
District (CFD) that encompasses RBC which allows the Partnership
to be reimbursed for certain development expenditures and
provides for future infrastructure improvements to be funded
directly by the issuance of $18,000,000 in bonds. The CFD for
RBC offered its first series of bonds prior to November 30, 1991.
Page 14 of 34
RANCON DEVELOPMENT FUND VI,
A CALIFORNIA LIMITED PARTNERSHIP
Notes To Consolidated Financial Statements
May 31, 1996
(Unaudited)
As of May 31, 1996, the Partnership has been reimbursed for
development expenditures already paid in the amount of
approximately $5,681,000.
Phase 1 of Area I consists of 45 lots on approximately 57 net
acres. Land development, which included grading and the
installation of roadways, utilities, storm drainage and
associated improvements, has been completed, as well as the
construction of three light industrial buildings totaling
approximately 54,000 square feet on three separate lots. In
fiscal 1993, the Partnership closed escrow on the transfer of 19
lots totaling approximately 19 net acres to William Pascoe
(Pascoe) (see Pascoe Transaction below and Note 5). As of
November 30, 1993, the Partnership had closed escrow on the sale
of 39 lots as well as the three light industrial buildings. No
sales have taken place on this phase of Area I since fiscal 1993.
As a result of the previous transactions described, as of May 31,
1996, the Partnership holds title to approximately 2.8 acres in
Phase 1 of Area I.
Phase 2 of Area I consists of 8 undeveloped lots on approximately
6.4 net acres. Pre-development work has been completed. As of
May 31, 1996, the Partnership retains title to approximately 6.4
net acres in Phase 2 of Area I.
Area II consists of 11 lots on approximately 15-net acres and is
planned to accommodate low and mid-rise office buildings and high
quality commercial projects. Site grading has been completed.
In fiscal 1993, the Partnership closed escrow on the transfer of
3 lots to Pascoe (see Pascoe Transaction below). As of November
30, 1992, the Partnership closed escrow on the sale of one .9
acre lot. In January 1996, five parcels owned in Area II were
foreclosed. Debt totaling $800,000 was extinguished in exchange
for the net book value and accrued property taxes of $228,000.
This resulted in gain on this foreclosure of $572,000. As a
result of the previous transactions, as of May 31, 1996, the
Partnership holds title to two lots in Area II.
Area III consists of approximately 98-net undeveloped acres
divided into 4 lots.
Area IV consists of approximately 413 gross undeveloped acres.
The Partnership has been successful in rezoning the 413 gross
acres from an agricultural zoning to light industrial zoning and
dividing them into 13 lots. In fiscal 1993, the Partnership
closed escrow on 5.25 net acres for a total sales price of
approximately $228,000 and realized a net gain of $45,000, and on
the sale of approximately 324 acres for a total sales price of
Page 15 of 34
RANCON DEVELOPMENT FUND VI,
A CALIFORNIA LIMITED PARTNERSHIP
Notes To Consolidated Financial Statements
May 31, 1996
(Unaudited)
approximately $5,125,000 and realized a net loss of $28,000. As
a condition precedent to the sale of 324 gross acres, the
Partnership agreed to pay a portion of future CFD assessments
allocated to Area IV which amounted to approximately $125,000 for
the 1994/1995 tax year. As a result of previous transactions, as
of May 31, 1996, the Partnership continues to hold title to
approximately 84 net acres in Area IV.
Pascoe Transaction
On December 7, 1992, RBC closed escrow on the sale of 19 lots
totaling approximately 19 net acres in Phase 1 of Area I and 3
lots totaling approximately 5 net acres in Area II of RBC to
William Pascoe ("Pascoe") for a total sales price of
approximately $4,255,000.
Rancon Center Otay Mesa
Otay Mesa, in San Diego County, is the site of Rancon Center Otay
Mesa, an industrial/commercial project consisting of
approximately 202 acres of undeveloped land currently in the
planning stages, owned by the Partnership through SOMLP. In
September, 1993, the County of San Diego preliminarily designated
approximately 53 acres of the property as impacted by
environmental, biological and historical conditions, rendering
the 53 acres unusable to the Partnership. Thus, according to the
terms of the note payable secured by Rancon Center Otay Mesa, the
note was reduced on the Partnership's books by approximately
$3,345,000 and the property was reduced to 202 net acres.
StoneRidge I
Perris Valley, in Riverside County, is the site of the 645-acre
StoneRidge I project. The Partnership previously obtained
entitlements to build more than 2,200 residential units and
several neighborhood commercial sites on the project. Following
the execution of the proposed settlement agreement (as previously
discussed in Note 1), SSRLP no longer holds title to any property
in StoneRidge I. Based on the terms of the settlement agreement,
an adjustment was made in 1995 to the Partnership's financial
statements in the amount of $2,724,000 to fully remove the
StoneRidge I property and leave only the discounted value of the
note held in favor of the Partnership as of May 31, 1996. At
November 30, 1994 a similar adjustment in the amount of $711,000
was recorded based on the then agreed upon settlement.
StoneRidge II
Page 16 of 34
RANCON DEVELOPMENT FUND VI,
A CALIFORNIA LIMITED PARTNERSHIP
Notes To Consolidated Financial Statements
May 31, 1996
(Unaudited)
Perris Valley, in Riverside County, is the site of the 243-acre
StoneRidge II project. The project was in the approval process
for entitlements to build more than 800 residential units and
several neighborhood commercial sites. The Partnership, through
SSRLP, holds title to the entire 243 acres of the project, but
the General Partner is exploring a suitable work-out agreement
with the holders of the note securing this property (see Notes 1
and 4).
Menifee Ranch
Menifee Valley, in Riverside County, is the site of Menifee
Ranch. As of May 31, 1996, the Partnership holds title to
approximately 185 acres in the project which are encumbered by a
$2,500,000 note payable (see Note 4).
Under the recorded option agreement on the remaining 904 acres of
the project, the Partnership had a contractual obligation to pay
$1,230,000 on September 12, 1992 to extend the right of the
Partnership to buy-down additional acreage in future periods.
The General Partner determined that it was not in the best
interest of the Partnership to continue paying the annual
extension right fee and after extensive discussions with the
option holders to restructure payments due under the option, the
Partnership filed a quitclaim to the option agreement on
September 13, 1993, relinquishing all rights to the remaining
property. A writedown of the basis of the Menifee project in
fiscal 1992 resulted from the termination of the options.
The Partnership had also purchased approximately 154 acres in the
Menifee project which was encumbered by three notes payable
totalling approximately $9,850,000 with accrued interest of
approximately $1,038,000 at November 30, 1992. After efforts to
renegotiate and/or restructure its debt were unsuccessful, the
General Partner determined that it was in the best interest of
the Partnership to cease payments on the three notes payable and
deeded back 112 acres to the trust deed holders in lieu of
foreclosure and surrendered 42 acres in foreclosure. As a
result, a reduction of approximately $3,404,000 in property was
recorded and the Partnership recognized approximately $7,484,000
in gain on extinguishment of debt which was reflected as an
extraordinary item on the statement of operations for the year
ended November 30, 1992.
Deer Springs Estates
San Marcos, in San Diego County, is the site of Deer Springs
Estates, a large custom home lot-project consisting of
Page 17 of 34
RANCON DEVELOPMENT FUND VI,
A CALIFORNIA LIMITED PARTNERSHIP
Notes To Consolidated Financial Statements
May 31, 1996
(Unaudited)
approximately 253 acres of land which were encumbered by two
notes payable totaling $1,854,000 as of May 31, 1996 (see Note
4). The County of San Diego had been evaluating this property,
among others, as the possible site of a future landfill but has
decided not to build an additional landfill site.
This property divided in two parcels, with each foreclosed in two
different foreclosure sales in April, 1996. Based on book
values, this resulted in a gain on foreclosures of $1,229,000.
Provision for Impairment of Investments in Real Estate
Because of the Partnership's cash flow position and defaults on
certain loans, the Partnership has determined it will not develop
any of the properties and will not pursue build-to-suits, but
will continue to hold the properties pending their disposition.
In 1995, the Partnership obtained independent appraisals on the
majority of its properties that represent a fair market sales
value as opposed to a development value. Appraisals are
estimates of fair value based upon assumptions about the property
and the market in which it is located. Due to uncertainties
inherent in the appraisal process, these valuations do not
purport to be the price at which a sale transaction involving
these properties can or will take place. Based on these
appraisals and other factors, writedowns of the book values of
the Partnership's properties were recorded as of November 30,
1995 to reflect the Partnership's properties at their appraised
or fair value. Such writedowns are a result of the Partnership's
early adoption of SFAS 121 (see Note 1). The effect of the early
adoption of SFAS 121 was shown as a cumulative effect of a change
in accounting principle in the November 30, 1995 consolidated
statement of operations. Management previously recorded
valuation allowances of $8,765,000 for the majority of its
properties, and reported a net loss of $10,213,000, for the
quarter ended May 31, 1995. Had SFAS 121 been adopted in the
second quarter of fiscal 1995, valuation reserves of $18,939,000
and net loss of $20,387,000 would have been reported.
Page 18 of 34
RANCON DEVELOPMENT FUND VI,
A CALIFORNIA LIMITED PARTNERSHIP
Notes To Consolidated Financial Statements
May 31, 1996
(Unaudited)
<TABLE>
<CAPTION>
Such writedowns and the aggregate writedowns of the book value of
the Partnership's properties to their fair values since
acquisition are as follows:
Aggregate
Writedowns
Writedowns Writedowns Writedowns
From Acqui-
Recorded Recorded Recorded
sition to
November 30, November 30, November 30,
May 31,
1995 1994 1993
1996
<S> <C> <C> <C> <C>
Menifee Ranch $1,116,000 $40,000 $1,790,000
$32,104,000
Rancon
Business Center 5,980,000 --- 23,961,000
30,417,000
Rancon
Center Otay Mesa 7,423,000 2,060,000 1,940,000
12,506,000
StoneRidge I --- --- 3,100,000
12,327,000
StoneRidge II 2,905,000 130,000 2,781,000
8,453,000
Deer Springs
Estates 1,515,000 --- 260,000
2,462,000
Copper Ridge --- --- ---
1,550,000
Vista Sierra --- --- 72,000
1,293,000
The Promenade
at La Costa --- --- 43,000
179,000
---------- ---------- ----------
- - ----------
Total $18,939,000 $2,230,000 $33,947,000
$101,291,000
========== ========== ==========
==========
</TABLE>
Note 4. NOTES PAYABLE
Notes payable are comprised of the following:
May 31, November 30,
1996 1995
Note payable, secured by first deed
of trust on the StoneRidge II
property, requiring quarterly
interest payments of $75,000 during
1995. Commencing January 1, 1996
interest is payable quarterly based
on the prime rate plus 2%, but
not less than 8% through
maturity in December, 2000 (see below). $ 4,647,000 $ 4,647,000
Page 19 of 34
RANCON DEVELOPMENT FUND VI,
A CALIFORNIA LIMITED PARTNERSHIP
Notes To Consolidated Financial Statements
May 31, 1996
(Unaudited)
May 31, November 30,
1996 1995
Note payable, secured by first deed
of trust on the Rancon Center Otay
Mesa property, bearing interest at
5% from January 1994 to December
1995 payable in monthly
installments. Effective January 1,
1996 through maturity at January 2,
2000, interest accrues at 10%, one-
half payable monthly and the
remainder deferred, with interest
(see below). 3,155,000 3,155,000
Note payable, secured by first deed
of trust on a portion of the
Menifee Ranch property, interest
accrues at Manufacturers Bank prime
rate plus 1.75% (10% at May 31,
1996) payable in monthly
installments. The outstanding
principal was due October 1, 1993,
therefore the Partnership is
currently in default (see below). 2,500,000 2,500,000
Note payable, secured by first deed
of trust on a portion of the Deer
Springs property bearing interest
at 10%. Principal and interest is
payable in quarterly installments
of approximately $35,000. All
principal and accrued unpaid
interest is due on January 30,
1999. This note was paid through a
trustee's foreclosure sale in
April,
1996. --- 973,000
Note payable, secured by first deed
of trust on the balance of the Deer
Springs Estates property, bearing
interest at 10%. Effective
November, 1993 and each quarter
thereafter, interest payments of
$10,000 are required. The balance
otherwise due under the note will
be added to principal and
Page 20 of 34
RANCON DEVELOPMENT FUND VI,
A CALIFORNIA LIMITED PARTNERSHIP
Notes To Consolidated Financial Statements
May 31, 1996
(Unaudited)
thereafter bear interest like
principal until
May 31, November 30,
1996 1995
thereafter bear interest like principal
until maturity on August 10, 1997. This
note was paid through a trustee's
foreclosure sale in April, 1996. --- 859,000
Note payable, secured by first deed
of trust on a portion of the Rancon
Business Center property, bearing
interest at the extension interest
rate of 13.75%. The Partnership
exercised one of its one- year
extensions by paying the 2%
extension fee. Interest was
payable in monthly installments of
$4,583. The outstanding principal
was due in November, 1995, but was
not paid. The lender foreclosed on
this loan in January, 1996. --- 400,000
Note payable, secured by first deed
of trust on a portion of the Rancon
Business Center property, bearing
interest at 13%. Interest was
payable in monthly installments of
$4,333. The outstanding principal
was due in May, 1996.
Additionally, the loan agreements
provided the borrower with the
right to exercise two (2) one-year
extensions, with extension interest
rates calculated at each extension
period to equal the then-current
prime rate as published in The Wall
Street Journal plus 6%. The lender
foreclosed on this loan in January 1996. --- 400,000
---------- ----------
TOTAL $10,302,000 $12,934,000
========== ==========
Due to various considerations, including the Partnership's
economic condition and the continued decline in property values
Page 21 of 34
RANCON DEVELOPMENT FUND VI,
A CALIFORNIA LIMITED PARTNERSHIP
Notes To Consolidated Financial Statements
May 31, 1996
(Unaudited)
in Southern California, as indicated in the independent
appraisals obtained by the Partnership in 1995, the General
Partner made the decision to discontinue debt service payments on
all of the Partnership's notes payable as is further discussed
below.
With approval of the bankruptcy court in connection with the
proposed plan of reorganization, the holders of the note payable
secured by a first deed of trust on the StoneRidge II property
agreed to modify the terms of the note to provide for: (i) the
maturity date to be extended to December, 2000; (ii) a
restructure of all payments under the note, allowing quarterly
interest payments of $75,000 during 1995, and approximately
$93,000 in 1996 through 2000 and (iii) the interest rate to be
reduced commencing January 1, 1996 from 10% to a variable rate
based on the prime rate plus 2%, but not less than 8%. In
consideration of such accommodation, the Partnership converted
the note to a shared appreciation mortgage whereby the note
holders will receive 20% of all sales proceeds in excess of their
note balance and mandatory principal reductions upon the
occurrence of specific events. The Partnership did not make the
quarterly interest payment of $75,000 on the StoneRidge II
property that was due on March 31, 1995 and has not since. The
General Partner will explore a suitable work-out agreement with
the holders of the note.
In fiscal 1993, the note payable secured by first deed of trust
on the Rancon Center Otay Mesa property was amended as follows:
(A) A portion of the property consisting of approximately 40
acres will be listed for sale. The proceeds from such sale will
first be applied to pay any and all accrued interest on the note;
and thereafter the net sales proceeds will be divided equally
between the Partnership and the holder of the note. The portion
received by the holder will be applied to reduce principal
balance of the note. (B) In lieu of the full amount of monthly
interest due under the note at the rate of 10%, for the months of
January, 1992 through December,1994, payment of one-half will be
accepted and the remainder deferred, with interest. In October
1994, the note was again amended to: (i) extend the maturity date
to January 2, 2000 and (ii) reduce the interest rate from 10% to
5% from January, 1994 to December, 1995. The Partnership ceased
making the monthly interest payments due effective with the
February 1, 1995 payment. The holders of the note have agreed in
theory to accepting a deed-in-lieu of foreclosure on the
property. Such transfer is expected to occur prior to the end of
fiscal year ending November 30, 1996.
Page 22 of 34
RANCON DEVELOPMENT FUND VI,
A CALIFORNIA LIMITED PARTNERSHIP
Notes To Consolidated Financial Statements
May 31, 1996
(Unaudited)
In September 1993, the principal balance of the note secured by
the Rancon Center Otay Mesa property was reduced on the
Partnership's books by approximately $3,345,000 based on
preliminary studies of useable acreage determined by the County
of San Diego (see Note 3). The Partnership believes that such
adjustment was provided for in the note agreement, however, the
note holders are not in agreement. Final action by the County is
expected in 1996, at which time there may be further adjustments
to the principal balance of the note based on the County's final
determination of usable acreage and the Partnership's ongoing
negotiations with the note holder.
On October 1, 1993, the note payable secured by a portion of the
Menifee Ranch property matured. While attempting to renegotiate
the terms of such note, the Partnership continued to make monthly
interest payments through January 1, 1995. The Partnership
ceased making the monthly interest payments beginning February 1,
1995. On March 23, 1995, the Partnership, Rancon Financial
Corporation, Rancon Development Partners VI, L.P. and Daniel L.
Stephenson (DLS) were served with a Summons and Complaint by CASC
Corp., the holders of the note, for Breach of Promissory Note and
for Breach of Guaranty by DLS. CASC Corp. seeks a judicial
foreclosure for payment of the $2,500,000 note, accrued interest
and other fees and costs associated with the foreclosure.
Management is currently attempting to negotiate a deed-in-lieu of
foreclosure on this property as well as aggressively marketing
the property for immediate sale.
Effective with the payment due April 30, 1995, the Partnership
ceased making the quarterly interest payments on the $973,000
loan secured by a portion of the Deer Springs Estates property.
The General Partner attempted to negotiate a deed-in-lieu of
foreclosure with the holders of the note, however, such
negotiations were unsuccessful and a foreclosure sale was held in
April, 1996.
On July 22, 1993, the note payable secured by a first deed of
trust on the balance of the Deer Springs Estates property was
amended as follows: (A) In lieu of the full amount of quarterly
interest at 10% due under the note, beginning November 1993 and
each quarter thereafter, payment of $10,000 will be made. The
balance otherwise due under the note will be added to principal
and thereafter bear interest like principal until August 10,
1997. (B) The Partnership placed $150,000 in a certificate of
deposit (see Note 3) which was to be used on August 10, 1995 to
make a principal reduction payment. (C) The due date was extended
to August 10, 1997. Effective May 1, 1995, the Partnership
ceased making the quarterly payments due under this note. The
Page 23 of 34
RANCON DEVELOPMENT FUND VI,
A CALIFORNIA LIMITED PARTNERSHIP
Notes To Consolidated Financial Statements
May 31, 1996
(Unaudited)
General Partner and the holders of the note could not reach an
agreement on the terms of a deed-in-lieu of foreclosure on the
property and the distribution of the $150,000 certificate of
deposit. The certificate of deposit was released to the holders
of the note in October 1995. A foreclosure sale was held in
April, 1996. The two foreclosure sales of the Deer Springs
property resulted in a total gain on foreclosure of $1,229,000.
Effective July 1, 1995, the Partnership ceased making the
required monthly interest payments on the two loans secured by
portions of RBC. The General Partner attempted to negotiate a
deed-in-lieu of foreclosure with the holders of the notes. Such
negotiations were unsuccessful and foreclosure sales were held in
January 1996, resulting in a gain to the Partnership of $572,000.
The scheduled aggregate annual principal payments of notes
payable for the fiscal periods subsequent to May 31, 1996 are as
follows:
1996 $ 2,500,000
1997 ---
1998 ---
1999 ---
2000 7,802,000
----------
TOTAL $10,302,000
==========
Note 5. PARTNERS' EQUITY (DEFICIT)
The Partnership Agreement provided for the offer and sale of up
to 160,000 limited partnership units. On December 31, 1991 the
Partnership ended its final offering of limited partnership units
with a total 125,615 limited partnership units sold in all its
offerings. During the year ended November 30, 1992, 67 limited
partnership units were repurchased and retired by the Partnership
and during fiscal year ended November 30, 1994 an additional 12
limited partnership units were repurchased and retired in
association with the purchase of interests previously held by
William Pascoe (see Note 1).
Concurrent with the sale of 22 lots totaling approximately 24
acres of RBC to Pascoe on December 7, 1992 which resulted in a
gain of $172,000, the terms of the sale agreement provided for a
forgiveness of approximately $3,708,000 of the note payable
Pascoe held in favor of the Partnership as of the date of the
sale. Such forgiveness and gain on the sale were recorded as a
capital transaction, thereby increasing the equity of the limited
Page 24 of 34
RANCON DEVELOPMENT FUND VI,
A CALIFORNIA LIMITED PARTNERSHIP
Notes To Consolidated Financial Statements
May 31, 1996
(Unaudited)
partners by $3,880,000 and relieving the balance of the
Partnership's obligation to Pascoe.
During the fiscal year ended November 30, 1995, and the six
months ended May 31, 1996, 9,365 units and 18,809 units,
respectively, were abandoned as a result of partners desiring to
no longer receive Partnership K-1's and to give them the ability
to write off investments for income tax purposes. The equity
(deficit) of the abandoned units was allocated to the remaining
outstanding units. As of May 31, 1996 and November 30, 1995,
limited partnership units issued and outstanding were 97,362 and
116,171, respectively.
Note 6. RELATED PARTY TRANSACTIONS
Reimbursable Expenses and Management Fee to Sponsor - The
Partnership Agreement provides for payment to the Sponsor of fees
related to services rendered in connection with property
management. As the Partnership's operating properties were sold
during 1993, no such fees were incurred during the six months
ended May 31, 1996 and 1995.
The Partnership Agreement also provides for the reimbursement of
actual costs incurred by the Sponsor in providing certain
administrative, legal and development services necessary for the
prudent operation of the Partnership. Effective January 1, 1994,
the Sponsor made the decision to bring administrative, legal and
development work in-house. These services had previously been
provided by Partnership Asset Management Company and, effective
January 1, 1995, are being provided by Glenborough as described
in Note 1. Reimbursable costs incurred by the Partnership
totaled $65,000 for the six months ended May 31, 1995.
Note 7. LIQUIDITY
The Partnership has incurred recurring operating losses due to
the decrease in the fair value or estimated net realizable value
of its properties. In addition, cash flow projections for the
year ended November 30, 1996 indicate a cash deficiency. These
events raise substantial doubt about the Partnership's ability to
continue as a going concern.
In the past, it has been the Partnership's intent to hold its
remaining properties on a long-term basis in an attempt to
recover the cost thereof, and otherwise to meet its obligations.
The Partnership has not been successful in these endeavors.
Because of the Partnership's cash flow position and defaults on
certain loans, the Partnership has determined it will not develop
Page 25 of 34
RANCON DEVELOPMENT FUND VI,
A CALIFORNIA LIMITED PARTNERSHIP
Notes To Consolidated Financial Statements
May 31, 1996
(Unaudited)
any of the properties and will not pursue build-to-suits, but
will continue to hold the properties pending their disposition.
As previously discussed, attempts are being made to convince the
holders of the Partnership's remaining notes to accept a deed-in-
lieu of foreclosure on such properties.
The General Partner has continually pursued its business plan of
reducing obligations and restructuring debt. For example, in
fiscal 1992 it was determined that the debt on approximately 154
acres of property in Menifee, California greatly exceeded the
value of the property, and a decision was made to transfer the
property back to the creditors in exchange for a forgiveness of
the balance of the indebtedness (see Note 4).
The General Partner continues to (i) market any unencumbered
property for sale in order to payoff liabilities; (ii) negotiate
with the Partnership's lenders to accept deeds-in-lieu of
foreclosure on certain of its properties; and (iii) suspend its
development activities to conserve cash.
Page 26 of 34
Item 2. Management's Discussion and Analysis of Financial
Conditions and Results of Operations.
LIQUIDITY AND CAPITAL RESOURCES
GENERAL
Commencing January 1994, RFC provided administrative, legal and
development services to the Partnership and was reimbursed for
its costs in providing such services as further described in
Notes 1 and 6 of the Notes to Consolidated Financial Statements.
Prior to January 1994, such services were provided by Partnership
Asset Management Company, an unrelated third party.
In December 1994, RFC entered into an agreement with Glenborough
Inland Realty Corporation (Glenborough) whereby RFC sold to
Glenborough, for approximately $4,466,000 and the assumption of
$1,715,000 of RFC's debt, the contract to perform the rights and
responsibilities under RFC's agreement with the Partnership,
eight other related partnerships and third parties (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 to the liquidation of the Partnership,
whichever comes first. As part of this agreement, Glenborough
will perform certain responsibilities for the General Partner of
the Rancon Partnerships and RFC agreed to cooperate with
Glenborough, should Glenborough attempt to obtain a majority vote
of the limited partners to substitute itself as the Sponsor for
the Rancon Partnerships. This agreement became effective January
1, 1995. Glenborough is not an affiliate of RFC.
RFC entered into the transaction with Glenborough described
above, when it determined is would sell that portion of its
business relating to investor relations services, property
management services and asset management services. Those
services are now rendered to the Partnership and eight other
related partnerships and third parties by Glenborough.
Subject to the execution of the StoneRidge I settlement agreement
and the April, 1996 Deer Springs Estates foreclosure sales (see
Notes 1 and 3 of Notes to Consolidated Financial Statements), as
of May 31, 1996, the Partnership owned title to the following
four properties: StoneRidge II, Rancon Center Otay Mesa, Rancon
Business Center (RBC) and Menifee Ranch (see Note 3 of Notes to
Consolidated Financial Statements). Five parcels in Rancon
Business Center's Area II were disposed of in foreclosure sales
in January, 1996 (see Note 3 Notes to Consolidated Financial
Statements).
The Partnership's primary sources of cash have been net proceeds
from its public offerings of limited partnership units (Units)
and mortgage indebtedness secured by its properties. To a lesser
extent, Partnership cash had been provided from property sales,
interest income and reimbursement of $5,681,000 of Partnership
Page 27 of 34
development costs from the sale of bonds issued by a Community
Facilities District encompassing RBC.
The Partnership terminated its offering of Units on December 31,
1991 with net proceeds from its offerings of Units of
approximately $111,112,000. As a result of various
circumstances, the Partnership's net proceeds from its offerings
were less than had been anticipated by the General Partner. As
of May 31, 1996 the Partnership had cash reserves of $106,000 and
the remainder of the Partnership's assets consist primarily of
investments in properties which total approximately $6,278,000.
As of May 31, 1996 the Partnership had a balance of unpaid
mortgage indebtedness in the amount of approximately $10,302,000.
In order to continue to preserve its cash position, the
Partnership has found it necessary to discontinue the monthly and
quarterly debt service payments on all of its notes payable. The
Partnership continues to negotiate with the note holders to
accept deeds-in-lieu of foreclosure.
Demands on the Partnership's capital resources and liquidity have
historically risen from the following sources: (i) payments
required on the Partnership's indebtedness; (ii) property taxes
and insurance premiums attributable to the properties; (iii)
development and construction activity expenditures, if any; (iv)
project management costs; and (v) Partnership-level expenses.
The General Partner has suspended all development and
construction activity and is preserving its cash reserves by
paying only minimal required expenses, such as insurance premiums
and Partnership level expenses.
The Partnership's aggregate annual property taxes (which are
payable in December and April) are currently in the amount of
approximately $763,000. Such amounts are not expected to
increase, however, the Partnership has deferred payment on all of
its property taxes. The total property tax liability continues
to increase as a result of the penalties and interest incurred on
the delinquent taxes. The amount referred to above does not
include CFD assessments, required to be paid by the Partnership
as a result of the sales at Area IV of RBC (see Note 3 of Notes
to Consolidated Financial Statements). These CFD assessments
have not been paid.
Under the StoneRidge I loan agreements, the Partnership was to
pay $3,925,000 in December, 1992. Despite efforts to negotiate a
modification of the agreements, obtain loans, joint venture
partners, or other vehicles to meet or modify the cash payment
requirements, no viable solution was reached. Therefore, on
December 10, 1992, Six Stoneridge L.P. (SSRLP) filed for Chapter
11 reorganization protection in the federal bankruptcy court.
On February 19, 1993, an adversary complaint was filed with the
bankruptcy court against SSRLP to determine the nature and extent
of SSRLP's interest in StoneRidge I and the debt associated with
such property (the "Adversary Proceeding"). On November 8, 1995,
the U.S. Trustee issued an Order of Dismissal on SSRLP's
Page 28 of 34
bankruptcy case, however, the Bankruptcy Court retained
jurisdiction over the Adversary Proceeding. The parties to the
Adversary Proceeding have reached a settlement agreement which
provided that SSRLP: (a) eliminate its note payable in the amount
of $8,425,000 recorded on the Partnership's books as of November
30, 1992 and (b) convey its fee ownership in approximately 47
acres of "out parcels" located within or adjacent to the property
that will be retained by the plaintiff in the Adversary
Proceeding. In return, the plaintiff in the Adversary Proceeding
signed a $546,000 note in favor of SSRLP secured by land in
StoneRidge I. The terms of such note require no accrual or
payment of interest, a ten year term and an allowance for a
discounted payoff of $246,000 in the first year and at increased
increments of $30,000 in each subsequent year through the ten
year term. (see Note 1 of Notes to Consolidated Financial
Statements). As part of the agreement, the $1,350,000 deposited
with the Nuview School District by the Partnership as prepayment
of property tax assessments will remain as the Partnership's
"School Credits". In order for the specified properties to be
developed, the owners must first buy the "School Credits" from
the Partnership. These "School Credits" are not applicable to
the development of other properties within the school district.
This agreement remains in force until all credits have been
purchased from the Partnership. There can be no assurance that
the properties will ever be developed so the credits may never
have value. As such, these credits were fully reserved in fiscal
1994 due to the uncertainty of their collection.
The note payable secured by a portion of the Menifee Ranch
property in the amount of $2,500,000 was due in October 1993.
While attempting to renegotiate the terms of such note, the
Partnership continued to make monthly interest payments through
January 1, 1995. The Partnership discontinued making the monthly
interest payments beginning February 1, 1995. On March 23, 1995
the Partnership, Rancon Financial Corporation, Rancon Development
Partners VI, L.P. and Daniel L. Stephenson (DLS) were served with
a Summons and Complaint by CASC Corp., the holders of the note
payable secured by a portion of Menifee Ranch, for Breach of
Promissory Note and for Breach of Guaranty by DLS. CASC Corp.
seeks a judicial foreclosure for payment of the $2,500,000 note,
accrued interest and other fees and costs associated with the
foreclosure. Management is currently attempting to negotiate a
deed-in-lieu of foreclosure on this property as well as
aggressively marketing the property for immediate sale.
During fiscal 1995, the Partnership was released from one of its
obligations related to subdivision improvements at the RBC
project, thus the $200,000 certificate of deposit held as
collateral and reflected as pledged cash at November 30, 1994 was
released. In addition, the certificate of deposit held pursuant
to the terms of one of the notes payable which is secured by a
first deed of trust on a portion of the Deer Springs Estate
property was released during fiscal 1995 to make a principal
reduction payment (see Note 4).
Page 29 of 34
The General Partner has continued to follow a business plan
intended to maximize Partnership liquidity by: (i) revising
and/or renegotiating existing debt owed by the Partnership; (ii)
deferring property tax payments on certain properties; and/or
(iii) decreasing costs associated with administration and
development. But, the Partnership projects that cash will be
depleted in 1997 just from payment of Partnership level expenses.
The General Partners are currently analyzing alternatives for
disposing of the Partnership's remaining assets in satisfaction
of its remaining liabilities.
RESULTS OF OPERATIONS
From the inception of the Partnership through May 31, 1996, the
Partnership's gross income consisted primarily of gain from the
sale of its properties, rental income and interest earned on the
temporary investment of net proceeds pending their commitment to
the Partnership's obligations. As the Partnership's only two
operating properties were sold during 1993 and substantially all
offering and sale proceeds have been invested in property or used
for working capital, neither rental nor interest income is
significant in the six months ended May 31, 1996 and 1995.
Operating Costs and Expenses
Property taxes were $574,000 and $749,000, respectively, for the
six months ended May 31, 1996 and 1995. The decrease is
primarily a result of the dispositions of RBC, StoneRidge I "out-
parcels", and Deer Spring Estates in fiscal 1996.
Interest expense also decreased $46,000 (11%) and $34,000 (17%)
during the six and three months ended May 31, 1996 compared to
the six and three months ended May 31, 1995, respectively. These
decreases are also a direct result of the dispositions of RBC,
Stoneridge I "out parcels" and Deer Springs Estates.
Administrative expense is comprised of the following for the six
months ended May 31:
1996 1995
Partnership administration services $ 317,000 $ 342,000
Legal services 70,000 61,000
Accounting services 18,000 125,000
Investor relations 24,000 41,000
Consulting and management services --- 13,000
Other --- 5,000
--------- ---------
Total $ 429,000 $ 587,000
========= =========
Partnership administration services paid to Glenborough in the
current period was lower than those paid in the prior period due
to the reduction of the Partnership's asset base in fiscal year
1996 through the disposition of assets (see Note 3 of Notes to
Consolidated Financial Statements). Commencing January 1994
through December 1994, RFC provided the administration, legal and
Page 30 of 34
development services to the Partnership. Effective January 1,
1995, these services are being provided by Glenborough as further
describedin Note 1 of Notes to Consolidated Financial Statements.
The increase in legal expenses incurred during the six months
ended May 31, 1996 over the same period in 1995 was associated
with attorney fees related to the workout of plans for
disposition of the Menifee Ranch and Deer Springs properties and
the two properties in SSRLP.
The decreases in accounting services, investor relations,
consulting and management services, and miscellaneous other
administrative expenses relate to management's intention to
strictly control expenses to only those needed for the
continuation of the Partnership while management explores its
liquidation options.
In the first half of fiscal year 1995, the Partnership wrote down
$8,765,000 of property to estimated net realizable value. This
was a reflection of the decline in property values as established
by independent appraisals.
Other income
Interest income decreased by $26,000 (84%) and $16,000 (100%)
during the six and three months ended May 31, 1996 and 1995,
respectively, due to the Partnership's declining average cash
balances.
Page 31 of 34
PART 2. OTHER INFORMATION
Item 1. Legal Proceedings
On December 10, 1992 SSRLP filed for relief under
Chapter 11 of the Federal Bankruptcy Code, case No. SB
92-27679DN, U.S. District Court, Central District of
California, San Bernardino. Such filing placed an
automatic stay on all actions against SSRLP.
Meanwhile, an adversary complaint was filed with the
bankruptcy court against SSRLP to determine the nature
and extent of SSRLP's interest in StoneRidge I and the
debt associated with such property (the "Adversary
Proceeding"). On November 8, 1995 the U.S. Trustee
issued an Order of Dismissal on SSRLP's bankruptcy
case, however, the Bankruptcy Court retained
jurisdiction over the Adversary Proceeding.
A settlement of the Adversary Proceeding was reached
whereby the Partnership eliminated its related note
payable and conveyed its ownership interest in
StoneRidge I to the plaintiff. In return the plaintiff
signed a $546,000 note in favor or SSRLP secured by
land in StoneRidge I. The terms of such note require
no accrual or payment of interest, is for a ten year
term and allows for a discounted payoff of $246,000 in
the first year and at increased increments of $30,000
in each subsequent year through the ten year term.
On March 23, 1995, the Registrant, Rancon Financial
Corporation, Rancon Development Partners VI, L.P. and
Daniel L. Stephenson (DLS) were served with a Summons
and Complaint by CASC Corp., the holders of the note
payable secured by a portion of the Menifee Ranch
property, for Breach of Promissory Note and for Breach
of Guaranty by DLS. In this action (CASC Corp., a
California Corporation v. Rancon Development Fund VI, a
California limited partnership; Rancon Financial
Corporation, a California corporation; Rancon
Development Partners VI, LP, a Delaware limited
partnership; Daniel L. Stephenson individually and as
Trustee of the Daniel L. Stephenson Family Trust; Does
1 through 50, inclusive, filed in the Superior Court
for the State of California, County of Riverside, Case
No. 263371), CASC Corp. seeks a judicial foreclosure
for payment of the $2,500,000 note, accrued interest
and other fees and costs associated with the
foreclosure. Management is currently negotiating the
terms for a judicial foreclosure.
Item 2. Changes in Securities
Not applicable
Page 32 of 34
Item 3. Defaults Upon Senior Securities
Not applicable
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Information
In January, 1996, five parcels in Rancon Business
Center's Area II were sold through a foreclosure sale.
Debt totaling $800,000 was extinguished in exchange for
the land (which had a recorded net book value of
$243,000) plus net assets of $15,000.
In April, 1996, the two parcels in Deer Springs Estates
were sold through foreclosure sales. Debt totaling
$1,854,000 was extinguished in exchange for the land
(which had a recorded net book value of $1,010,000)
less net liabilities of $385,000.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
None
(b) Reports on Form 8-K:
None
Page 33 of 34
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
Date: July 11, 1996 RANCON DEVELOPMENT FUND VI,
a California Limited Partnership
(Registrant)
By: Rancon Development Partners VI
General Partner
Date: July 11, 1996 By: /s/ DANIEL L. STEPHENSON
Daniel L. Stephenson,
Director, President, Chief Executive
Officer and
Chief Financial Officer of
Rancon Financial Corporation,
General Partner
Page 34 of 34
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<ARTICLE> 5
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<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> NOV-30-1996
<PERIOD-END> MAY-31-1996
<CASH> 106
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