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 March 31, 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
(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 March 31, 1996: 2,828,457
Page 1 of 12
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements
RANCON PACIFIC REALTY L.P.
Consolidated Balance Sheets
(in thousands, except units outstanding)
(Unaudited)
March 31, December 31,
Assets 1996 1995
------- ---------- ----------
Cash and cash equivalents $ 1,381 $ 1,331
Rental property (net of accumulated
depreciation of $11,249 and $11,022
at March 31, 1996 and December 31,
1995, respectively) 31,420 31,634
Deferred loan fees (net of accumulated
amortization of $79 and $61 at March
31, 1996 and December 31, 1995,
respectively) 552 571
Other assets 277 199
------- -------
Total Assets $ 33,630 $ 33,735
======= =======
Liabilities and Partners' Equity (Deficit)
------------------------------------------
Accounts payable and other liabilities $ 438 $ 308
Interest payable 158 159
Notes payable 23,533 23,589
------- -------
Total Liabilities 24,129 24,056
------- -------
Commitments and contingent liabilities
(see Note 3)
Minority interest 442 388
------- -------
Partners' Equity (Deficit):
General partner's (153) (90)
Limited partners' (2,828,457 limited
partnership units outstanding) 9,212 9,381
------- -------
Total Partners' Equity 9,059 9,291
------- -------
Total Liabilities and Partners'
Equity $ 33,630 $ 33,735
======= =======
See accompanying notes to financial statements.
Page 2 of 12
RANCON PACIFIC REALTY L.P.
Consolidated Statements of Operations
(in thousands, except per unit amounts)
(Unaudited)
Three Months Ended
March 31,
--------------
1996 1995
------ ------
Operating Income:
Rental income $ 1,406 $ 1,331
Interest income 12 7
------- -------
Total operating income 1,418 1,338
------- -------
Operating Costs and Expenses:
Operating expenses 601 583
Depreciation 227 225
General and administrative 86 71
Interest expense 494 506
------- -------
Total operating costs and expenses 1,408 1,385
------- -------
Income (loss) before minority interest 10 (47)
Minority interest in net income (loss) (4) 6
------- -------
Net income (loss) $ 6 $ (41)
======= =======
Net Loss Per Limited Partnership Unit $ --- $ (0.01)
======= =======
Distributions per limited partnership unit:
Representing return of capital $ 0.06 $ ---
From net income --- ---
------- -------
$ 0.06 $ ---
======= =======
Weighted average number of limited
partnership units outstanding during
the period used to compute net loss
and distributions per limited
partnership unit 2,828,457 2,828,457
========= =========
See accompanying notes to financial statements.
Page 3 of 12
RANCON PACIFIC REALTY L.P.
Consolidated Statements of Partners' Equity
(in thousands)
(Unaudited)
General Limited
Partners Partners' Total
------- ------- ------
Balance at December 31, 1994 $ (89) $ 9,703 $ 9,614
Net loss --- (41) (41)
------- ------- -------
Balance at March 31, 1995 $ (89) $ 9,662 $ 9,573
======= ======= =======
Balance at December 31, 1995 $ (90) $ 9,381 $ 9,291
Net income --- 6 6
Distributions to partners --- (175) (175)
Adjustment to minority investment (63) --- (63)
------- ------- -------
Balance at March 31, 1996 $ (153) $ 9,212 $ 9,059
======= ======= =======
See accompanying notes to financial statements.
Page 4 of 12
RANCON PACIFIC REALTY L.P.
Consolidated Statements of Cash Flows (in thousands)
(Unaudited)
Three Months Ended
March 31,
-----------------
1996 1995
------ ------
Cash flows provided by operating activities:
Net income (loss) $ 6 $ (41)
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Depreciation and amortization 227 225
Loan fees amortized to interest expense 18 10
Changes in certain assets and liabilities:
Other assets (78) (15)
Accounts payable and other liabilities 130 150
Payable to sponsor --- (72)
Interest payable (1) 165
------- -------
Net cash provided by operating activities 302 452
------- -------
Cash flows provided by (used for) investing
activities:
Acquisitions of and additions to real estate (13) (18)
------- -------
Net cash used for investing activities (13) (18)
------- -------
Cash flows used for financing activities:
Notes payable principal payments (56) (44)
Distributions to partners (175) ---
Distributions to minority interest holders,
net (8) (6)
------- -------
Net cash provided by (used for) financing
activities (239) (50)
------- -------
Net increase in cash and cash equivalents 50 354
Cash and cash equivalents at beginning of
period 1,331 1,123
------- -------
Cash and cash equivalents at end of period $ 1,381 $ 1,477
======= =======
Supplemental disclosure of cash flow information:
Cash paid for interest $ 477 $ 330
======= =======
See accompanying notes to financial statements.
Page 5 of 12
RANCON PACIFIC REALTY L.P.
Notes to Consolidated Financial Statements
March 31, 1996
(Unaudited)
Note 1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
-------------------------------------------------------
--
In the opinion of Rancon Financial Corporation 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 financial position of Rancon
Pacific Realty, L.P. (the Partnership) as of March 31, 1996 and
December 31, 1995, and the related statements of operations,
changes in partners' equity, and cash flows for the three months
ended March 31, 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 to 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.
Reclassification - Certain 1995 balances have been reclassified
to
conform to the current year presentation.
Note 2. REFERENCE TO 1995 AUDITED FINANCIAL STATEMENTS
----------------------------------------------
Page 6 of 12
RANCON PACIFIC REALTY L.P.
Notes to Consolidated Financial Statements
March 31, 1996
(Unaudited)
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 related to the
period from January 1, 1989 to December 31, 1992 were deferred
until such time as: (i) specified amount of cash distributions
were made to the holders of the preferred units during any
calendar year 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.
The $12,000 in cash distributions has been recorded as a
receivable at March 31, 1996 pending deduction from future cash
distributions.
Page 7 of 12
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
that 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.
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. The
misallocation of losses has been properly stated and the $12,000
in cash distributions has been recorded as a receivable at March
31, 1996 pending deduction from future cash distributions.
In order to satisfy certain lender requirements for the
Partnership's new loan secured by the Villa La Jolla Condominiums
(discussed below), VLJ LP, 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
March 31, 1996, the Partnership had cash of $1,381,000. The
remainder of the Partnership's assets consists primarily of its
investments in three residential properties, which totaled
approximately $31,420,000 at March 31, 1996.
Page 8 of 12
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 distributions. As
efforts to rebuild cash balances was successful, the Partnership
made 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. The first such distribution to
the partners was paid in the first quarter of 1996 in the amount
of $175,000.
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 debt maturity in
2002 and 2018.
The increase in other assets at March 31, 1996 is the result of
the prepayment of property taxes and other impound accounts on
the Villa La Jolla Condominiums as required by the new lender.
Accounts payable and other liabilities increased at March 31,
1996 due to the payment of accrued property taxes in December
1995 and early 1996, respectively.
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.
RESULTS OF OPERATIONS
---------------------
Rental income for the three months ended March 31, 1996 as
compared to 1995 increased 6% or $75,000 primarily due to an
increase in rental rates at Pacific Bay Club and La Jolla Canyon.
Occupancy rates as of March 31, 1996 were 99%, 94% and 96% for
Pacific Bay Club, La Jolla Canyon and Villa La Jolla,
respectively, compared to 93%, 99% and 97%, respectively, for the
same periods in 1995.
General and administrative costs increased by $15,000 for the
three months ended March 31, 1996 compared to 1995. The increase
Page 9 of 12
is primarily due to the fact that the partnership administration
services paid to Glenborough in 1995 were slightly lower in the
first quarter of 1995 and were adjusted to reflect the amendment
to the agreement subsequent to the quarter ended March 31, 1995.
The $12,000 or 2% decrease in interest expense in the three
months ended March 31, 1996 when compared to 1995 is directly
related to: (i) the reduction of interest resulting from the
refinance of Villa La Jolla Condominiums at a fixed rate lower
than the previous loan's interest rate and (ii) the lower average
balances of the notes payable as a result of normal loan
amortization, netted with the increase in the amortization of
loan fees.
Page 10 of 12
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:
None
(b) Reports on Form 8-K:
None
Page 11 of 12
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.
(Registrant)
By: RC PACIFIC REALTY PARTNERS, L.P.,
General Partner
Date: May 14, 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
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