FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to ______________
Commission File Number: 0-19438
RANCON PACIFIC REALTY L.P.
(Exact name of registrant as specified in its charter)
California 33-0270528
(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 executive offices) (Zip Code)
(415) 343-9300
(Registrant's telephone number)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
Total number of units outstanding as of September 30, 1996: 2,826,917
Page 1 of 12
<PAGE>
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements.
<TABLE>
RANCON PACIFIC REALTY L.P.
Consolidated Balance Sheets
(in thousands, except units outstanding)
(Unaudited)
<CAPTION>
September
30, December 31,
1996
1995
<S> <C>
<C>
Assets
Rental property:
Land $
14,213 $ 14,213
Buildings and improvements
28,481 28,443
- - -------------- --------------
42,694 42,656
Less accumulated depreciation
(11,704) (11,022)
- - -------------- --------------
Net rental property
30,990 31,634
Cash and cash equivalents
1,358 1,331
Accounts receivable, net
54 76
Deferred financing costs, net of
accumulated amortization of $116
and $61 at September 30, 1996 and
December 31, 1995, respectively
516 571
Other assets
224 123
- - -------------- --------------
Total assets $
33,142 $ 33,735
============== ==============
</TABLE>
- continued -
Page 2 of 12
<PAGE>
<TABLE>
RANCON PACIFIC REALTY L.P.
Consolidated Balance Sheets - continued
(in thousands, except units outstanding)
(Unaudited)
<CAPTION>
September
30, December 31,
1996
1995
- - ------------ -------------
<S> <C>
<C>
Liabilities and Partners' Equity (Deficit)
Liabilities:
Accounts payable and accrued expenses $
164 $ 57
Interest payable
155 159
Notes payable
23,407 23,589
Other liabilities
266 251
- - -------------- --------------
Total liabilities
23,992 24,056
- - -------------- --------------
Commitments and contingent liabilities (see Note 3)
Minority interest
425 388
- - -------------- --------------
Partners' equity (deficit):
General Partner
(90) (90)
Limited Partners, 2,826,917 and 2,828,457
limited partnership units outstanding at
September 30, 1996 and December 31, 1995,
respectively
8,815 9,381
- - -------------- --------------
Total partners' equity
8,725 9,291
- - -------------- --------------
Total liabilities and partners' equity $
33,142 $ 33,735
============== ==============
</TABLE>
See accompanying notes to financial statements.
Page 3 of 12
<PAGE>
<TABLE>
RANCON PACIFIC REALTY L.P.
Consolidated Statements of Operations
(in thousands, except per unit amounts)
(Unaudited)
<CAPTION>
Three Months
Ended Nine Months Ended
September
30, September 30,
- - ----------------------------- ------------------------
1996
1995 1996 1995
-----------
- - ---------- ---------- -------
<S> <C>
<C> <C> <C>
Revenues:
Rental income $ 1,455
$ 1,391 $ 4,272 $ 4,036
Interest and other income 17
12 39 30
----------
- - ---------- ---------- ----------
Total revenues 1,472
1,403 4,311 4,066
----------
- - ---------- ---------- ----------
Expenses:
Operating 636
606 1,885 1,760
Interest 485
524 1,469 1,549
Depreciation 228
226 682 676
General and administrative 75
66 254 237
----------
- - ---------- ---------- ----------
Total expenses 1,424
1,422 4,290 4,222
----------
- - ---------- ---------- ----------
Income (loss) before minority interest 48
(19) 21 (156)
Minority interest in net (income) loss (1)
--- 1 10
----------
- - ---------- ---------- ----------
Net income (loss) $ 47
$ (19) $ 22 $ (146)
==========
========== ========== ==========
Net income (loss) per limited partnership
unit $ 0.02
$ (0.01) $ 0.01 $ (0.05)
==========
========== ========== ==========
Distributions per limited partnership unit:
From net income $ ---
$ --- $ --- $ ---
Representing return of capital 0.06
--- 0.18 ---
----------
- - ---------- ---------- ----------
Total distributions per limited
partnership unit $ 0.06
$ --- $ 0.18 $ ---
==========
========== ========== ==========
Weighted average number of limited
partnership units outstanding during
the period used to compute net
income(loss) and distributions per
limited partnership unit 2,827,135
2,828,457 2,827,892 2,828,457
==========
========== ========== ==========
</TABLE>
See accompanying notes to financial statements.
Page 4 of 12
<PAGE>
<TABLE>
RANCON PACIFIC REALTY L.P.
Consolidated Statements of Partners' Equity (Deficit)
(in thousands)
For the nine months ended September 30, 1996 and 1995
(Unaudited)
<CAPTION>
General
Limited
Partner
Partners Total
<S> <C>
<C> <C>
Balance at December 31, 1995 $ (90)
$ 9,381 $ 9,291
Net income ---
22 22
Distributions ---
(525) (525)
Adjustment to minority investment ---
(63) (63)
-------------
- - ------------ -------------
Balance at September 30, 1996 $ (90)
$ 8,815 $ 8,725
=============
============ =============
Balance at December 31, 1994 $ (89)
$ 9,703 $ 9,614
Net loss (1)
(145) (146)
-------------
- - ------------ -------------
Balance at September 30, 1995 $ (90)
$ 9,558 $ 9,468
=============
============ =============
</TABLE>
See accompanying notes to financial statements.
Page 5 of 12
<PAGE>
<TABLE>
RANCON PACIFIC REALTY L.P.
Consolidated Statements of Cash Flows (in thousands)
(Unaudited)
<CAPTION>
Nine months ended
September 30,
----------------------------
1996 1995
--------- --------
<S>
<C> <C>
Cash flows from operating activities:
Net income (loss)
$ 22 $ (146)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation
682 676
Amortization of loan fees, included in interest expense
55 29
Minority interest in net income/loss and distributions
(26) (10)
Changes in certain assets and liabilities:
Accounts receivable
22 (38)
Deferred costs
--- 11
Other assets
(101) (109)
Accounts payable and accrued expenses
107 158
Payable to Sponsor
--- (72)
Interest payable
(4) 156
Other liabilities
15 (9)
---------- ----------
Net cash provided by operating activities
772 646
---------- ----------
Cash flows from investing activities:
Additions to real estate
(38) (32)
---------- ----------
Net cash used for investing activities
(38) (32)
---------- ----------
Cash flows from financing activities:
Proceeds from notes payable
--- 13,500
Payoff of matured note payable
--- (13,142)
Closing costs and loan fees
--- (470)
Note payable principal payments
(182) (139)
Distributions to partners
(525) ---
---------- ----------
Net cash used for financing activities
(707) (251)
---------- ----------
Net increase in cash
27 363
Cash and cash equivalents at beginning of period
1,331 1,123
---------- ----------
Cash and cash equivalents at end of period
$ 1,358 $ 1,486
========== ==========
Supplemental disclosure of cash flow information:
Cash paid for interest
$ 1,418 $ 1,353
========== ==========
</TABLE>
See accompanying notes to financial statements.
Page 6 of 12
<PAGE>
RANCON PACIFIC REALTY L.P.
Notes to Consolidated Financial Statements
September 30, 1996
(Unaudited)
Note 1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
In the opinion of Rancon Financial Corporation (RFC) and Daniel Lee Stephenson
(the Sponsors) and Glenborough Inland Realty Corporation, the accompanying
unaudited financial statements contain all adjustments (consisting of only
normal accruals) necessary to present fairly the consolidated financial position
of Rancon Pacific Realty, L.P. (the Partnership) as of September 30, 1996 and
December 31, 1995, and the related consolidated statements of operations for the
three and nine months ended September 30, 1996 and 1995, and changes in
partners' equity and cash flows for the nine months ended September 30, 1996 and
1995.
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 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.
According to the contract, the Partnership will pay Glenborough for its services
as follows: (i) a specified asset administration fee of $215,000 per year, which
is fixed for five years and subject to reduction in the year following the sale
of assets; (ii) sales fees of 2% for improved properties; (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 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 as of February 28,
1995, March 31, 1995 and July 1, 1995.
During the quarters ended June 30, 1996 and September 30, 1996, a total of 1,540
units 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) balance of the abandoned units was
allocated to the remaining outstanding units. As of September 30, 1996, limited
partnership units issued and outstanding were 2,826,917.
Consolidation - The accompanying financial statements of Rancon Pacific Realty,
Inc. include the accounts of Rancon Pacific Realty, Inc. and its majority owned
partnership Villa La Jolla Partners. All significant intercompany balances and
transactions have been eliminated in the consolidation.
Page 7 of 12
<PAGE>
RANCON PACIFIC REALTY L.P.
Notes to Consolidated Financial Statements
September 30, 1996
(Unaudited)
Reclassification - Certain 1995 balances have been reclassified to conform to
the current year presentation.
Note 2. REFERENCE TO 1995 AUDITED FINANCIAL STATEMENTS
These unaudited financial statements should be read in conjunction with the
Notes to Financial Statements included in the 1995 audited financial statements.
Note 3. RELATED PARTY TRANSACTIONS
In consideration for organizational and transitional management services, the
Sponsor is to receive a fee of up to 6% of the aggregate appraised value of the
property interests conveyed to the Partnership or $2,092,000. One-sixth of this
fee, or approximately $350,000, was due upon the exchange of the property for
Partnership Units. The remaining five-sixths of the fee was due in 60 monthly
installments of $29,000. Ten monthly installments were paid for the period from
March 1, 1988 through December 31, 1988. The next 48 monthly payments relating
to the period from January 1, 1989 to December 31, 1992 were deferred until such
time as (i) a specified amount of cash distributions were made to the holders of
the preferred units during certain calendar years or, (ii) the holders of the
preferred units have received a return of the full amount of their investment.
No monthly installments were paid during those 48 months. The two monthly
installments of $29,000 related to January and February 1993 were paid during
1993. Payment of the balance of the fee of approximately $1,395,000 related to
the 48 monthly installments will continue to be deferred until one of the two
criteria set forth above is met.
Note 4. ADJUSTMENT TO MINORITY INVESTMENT
During 1995, it was discovered that pervious years allocations of losses and
cash distributions were incorrectly allocated between Transamerica La Jolla
Partners (TLJP) and the Partnership due to additional cash contributions made by
the Partnership to the joint venture, owner of the Villa La Jolla Condominiums.
The cumulative effect of the misallocation of losses and distributions was
$63,000 and $12,000, respectively. This misallocation of losses has been
properly stated in 1996 and accounts for the adjustment to minority investment
included in the Partnership's Consolidated Statement of Partners' Equity
(Deficit).
Page 8 of 12
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations.
GENERAL
Rancon Pacific Realty L.P. (the Partnership) was formed in September, 1987 for
the purpose of acquiring the real properties and certain other assets, subject
to secured indebtedness and certain other liabilities (net assets) of three
public limited partnerships: Shadow Hill Partners (SHP), Eastgate Village
Partners (EVP) and Brichard-La Jolla Partners (BLJP) (the Participating
Partnerships). The Participating Partnerships contributed their net assets to
the Partnership on February 29, 1988, and the Partnership issued each
Participating Partnership the number of Exchange Units equal to the exchange
value assigned to the net assets contributed by that Participating Partnership
along with rights to purchase three Preferred Units for each Exchange Unit
issued. A total of 707,500 Exchange Units and 2,122,500 Preferred Units were
issued.
The Partnership immediately transferred the exchange property it acquired from
BLJP to Villa La Jolla Partners (VLJP), a then newly-formed joint venture
between the Partnership and Transamerica Realty Investment Corporation (TRIC)
(which owned approximately 26.2% of the outstanding interests of BLJP). In turn,
the Partnership received a majority interest (73.8%) in VLJP; TRIC thereafter
transferred its interest in VLJP to Transamerica La Jolla Partners (TLJP).
TLJP's interest in VLJP subsequently was reduced to 8.41% and the Partnership's
interest was increased to 91.59%, as a result of capital contributions made by
the Partnership to VLJP. During 1995 it was discovered that previous years
allocations of losses and cash distributions were incorrectly allocated between
TLJP and the Partnership. The cumulative effect of the misallocation of losses
and distributions was $63,000 and $12,000, respectively.
In order to satisfy certain lender requirements for the Partnership's new loan
secured by the Villa La Jolla Condominiums (discussed below), VLJ Partners, a
California limited partnership (VLJ LP) was formed as of September 1, 1995. VLJP
contributed the property and all of its related assets and liabilities to VLJ LP
in exchange for a 99% limited partnership interest. The general partner is VLJ,
Inc., a California corporation, whose sole shareholders are the owners of VLJP,
thereby having no affect on the Partnership's investment in the property.
LIQUIDITY AND CAPITAL RESOURCES
As of June 23, 1989, the Partnership was fully funded from the sale of all
Preferred Units in the amount of $14,857,500. As of September 30, 1996, the
Partnership had cash of $1,358,000. The remainder of the Partnership's assets
consist primarily of its investments in three residential properties, which
totaled approximately $30,990,000 at September 30, 1996.
The Southern California regional economy in general, and the real estate
industry in particular, are considered to be in a recessionary cycle. All of the
Partnership's assets are located in the Southern California region. The
operations of the Partnership continue to be affected by the economic strength
or weakness of the real estate industry in Southern California.
As a result of substantial disbursements made in 1990, primarily for principal
reductions of notes payable, building improvements and distributions to holders
of Preferred Units, the Partnership's cash management from 1991 to 1994 was
focused on rebuilding cash balances rather than making
Page 9 of 12
<PAGE>
distributions. As efforts to rebuild cash balances were successful, the
Partnership was able to make a distribution of $210,000 to the limited partners
during 1994. As a result of the 1995 refinancing of the debt secured by the
Villa La Jolla condominiums, management feels the Partnership is in a secure
cash position and has reinstated periodic distributions to the partners of the
net cash generated by the operations of the Partnership. Distributions to the
partners of $175,000 have been paid in each quarter of 1996.
Management believes that the Partnership's current cash, together with the cash
flow to be generated from operations, will be sufficient to finance the
properties' continued operations, make regular periodic distributions to the
partners and meet future debt commitments, other than payments due on maturity
in 2002 and 2018.
Although no assurance can be given, the Partnership does not anticipate any
major expenditures for improvements to its properties in the near future and
hopes to increase cash flow from operations by maintaining and eventually
increasing rental rates while maintaining operating expenses at or near the
current level.
The increase in other assets of $101,000, or 82%, is due to a $28,000 increase
in prepaid insurance from December 31, 1995 to September 30, 1996 combined with
an increase in impound accounts required by the lender of $73,000.
RESULTS OF OPERATIONS
Rental income for the nine months ended September 30, 1996 as compared to 1995
increased 6% or $236,000 primarily due to an increase in rental rates at all of
the Partnership's properties. Occupancy rates as of September 30, 1996 were 97%,
99% and 98% for Pacific Bay Club, La Jolla Canyon and Villa La Jolla,
respectively, compared to 99%, 99% and 98%, respectively, for the same period in
1995.
The $9,000, or 30%, increase in interest and other income for the nine months
ended September 30, 1996 as compared to 1995 is due to the increase in the
Partnership's cash balance as a result of the additional funds provided by
operating activities.
Operating expenses increased $125,000, or 7%, for the nine months ended
September 30, 1996 compared to the same period in 1995, primarily as a result of
an increase in repair and maintenance expenses at the Villa La Jolla property
due to aging of the building.
General and administrative costs increased $17,000 or 7% for the nine months
ended September 30, 1996 compared to 1995. The increase is primarily due to an
increase in general legal fees of $6,000, $5,000 in fees incurred in connection
with valuations of the limited partnership interests and $4,000 in loan
administration fees as a result of the Villa La Jolla Condominium refinancing in
September, 1995.
Page 10 of 12
<PAGE>
Part II. OTHER INFORMATION
Item 1. Legal Proceedings
None.
Item 2. Changes in Securities
Not applicable.
Item 3. Defaults Upon Senior Securities
Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders
None.
Item 5. Other Information
None.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
#27 - Financial Data Schedule.
(b) Reports on Form 8-K:
None.
Page 11 of 12
<PAGE>
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.
RANCON PACIFIC REALTY, L.P.
A CALIFORNIA LIMITED PARTNERSHIP
(Registrant)
By: RC PACIFIC REALTY PARTNERS, L.P.
General Partner
Date: November 13, 1996 By: /s/ Daniel L. Stephenson
Daniel L. Stephenson
Director, President,
Chief Executive Officer and
Chief Financial Officer of
RC Pacific Realty, Inc.,
General Partner of
RC Pacific Realty Partners, L.P.
Page 12 of 12
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000823610
<NAME> Rancon Pacific Realty, L.P.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-mos
<FISCAL-YEAR-END> Dec-31-1996
<PERIOD-START> Jan-01-1996
<PERIOD-END> Sep-30-1996
<CASH> 1,358
<SECURITIES> 0
<RECEIVABLES> 54
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1,582
<PP&E> 42,694
<DEPRECIATION> (11,704)
<TOTAL-ASSETS> 33,142
<CURRENT-LIABILITIES> 430
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 8,725
<TOTAL-LIABILITY-AND-EQUITY> 33,142
<SALES> 0
<TOTAL-REVENUES> 4,311
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 2,821
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,469
<INCOME-PRETAX> 21
<INCOME-TAX> 0
<INCOME-CONTINUING> 21
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 22
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
