UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1997
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)
Delaware 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)
(650) 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, 1997: 2,823,687
Page 1 of 12
<PAGE>
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements.
RANCON PACIFIC REALTY L.P.
Consolidated Balance Sheets
(in thousands, except units outstanding)
(Unaudited)
<TABLE>
<CAPTION>
September 30, December 31,
1997 1996
-------------- --------------
<S> <C> <C>
Assets
Rental property:
Land $ 14,213 $ 14,213
Buildings and improvements 27,113 28,487
-------------- --------------
41,326 42,700
Less accumulated depreciation (11,154) (11,932)
-------------- --------------
Net rental property 30,172 30,768
Cash and cash equivalents 1,758 1,407
Deferred financing costs, net of
accumulated amortization of $189
and $134 at September 30, 1997 and
December 31, 1996, respectively 443 498
Other assets 196 170
-------------- --------------
Total assets $ 32,569 $ 32,843
============== ==============
</TABLE>
- continued -
Page 2 of 12
<PAGE>
RANCON PACIFIC REALTY L.P.
Consolidated Balance Sheets - continued
(in thousands, except units outstanding)
(Unaudited)
<TABLE>
<CAPTION>
September 30, December 31,
1997 1996
------------- -------------
<S> <C> <C>
Liabilities and Partners' Equity (Deficit)
Liabilities:
Notes payable $ 23,106 $ 23,337
Accounts payable and accrued expenses 182 70
Interest payable 153 155
Other liabilities 282 251
------------- -------------
Total liabilities 23,723 23,813
------------- -------------
Commitments and contingent liabilities (see Note 3)
Minority interest 390 423
------------- -------------
Partners' equity (deficit):
General Partner (86) (90)
Limited Partners, 2,823,687 and
2,825,584 limited partnership units
outstanding at September 30, 1997 and
December 31, 1996, respectively (including
2,121,285 preferred units outstanding at
September 30, 1997 and December 31, 1996) 8,542 8,697
------------- -------------
Total partners' equity 8,456 8,607
------------- -------------
Total liabilities and partners' equity $ 32,569 $ 32,843
============= =============
</TABLE>
See accompanying notes to consolidated financial statements.
Page 3 of 12
<PAGE>
RANCON PACIFIC REALTY L.P.
Consolidated Statements of Income
(in thousands, except per unit amounts)
(Unaudited)
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30, September 30,
------------------------------ -----------------------------
1997 1996 1997 1996
----------- ------------ ----------- -----------
<S> <C> <C> <C> <C>
Revenue:
Rental income $ 1,568 $ 1,458 $ 4,578 $ 4,238
Interest and other income 25 29 74 73
----------- ------------ ----------- -----------
Total revenue 1,593 1,487 4,652 4,311
----------- ------------ ----------- -----------
Expenses:
Operating 654 651 1,906 1,885
Interest 479 485 1,440 1,469
Depreciation 225 228 682 682
General and administrative 72 75 233 254
---------- ----------- ----------- -----------
Total expenses 1,430 1,439 4,261 4,290
---------- ----------- ----------- -----------
Income before minority interest 163 48 391 21
Minority interest (11) (1) (17) 1
---------- ----------- ----------- -----------
Net income $ 152 $ 47 $ 374 $ 22
=========== ============ =========== ===========
Net income per limited partnership unit $ 0.05 $ 0.02 $ 0.13 $ 0.01
=========== ============ ============ ============
Distributions per preferred unit:
From net income $ 0.05 $ 0.02 $ 0.13 $ 0.01
Representing return of capital 0.03 0.06 0.11 0.23
----------- ------------ ------------ -----------
Total distributions per preferred unit $ 0.08 $ 0.08 $ 0.24 $ 0.24
=========== ============ ============ ===========
Weighted average number of limited
partnership units outstanding during the
period used to compute net income per limited
partnership unit 2,823,687 2,827,135 2,824,341 2,827,892
=========== ============ ============ ==========
Weighted average number of preferred units
outstanding during the period used to
compute distributions per preferred unit 2,121,285 2,121,285 2,121,285 2,121,585
=========== ============ ============ ==========
See accompanying notes to consolidated financial statements.
</TABLE>
Page 4 of 12
<PAGE>
RANCON PACIFIC REALTY L.P.
Consolidated Statements of Partners' Equity
(Deficit) For the nine months ended September 30,
1997 and 1996
(in thousands)
(Unaudited)
<TABLE>
<CAPTION>
General Limited
Partner Partners Total
<S> <C> <C> <C>
Balance at December 31, 1996 $ (90) $ 8,697 $ 8,607
Net income 4 370 374
Distributions --- (525) (525)
------------- ------------ -------------
Balance at September 30, 1997 $ (86) $ 8,542 $ 8,456
============= ============ =============
Balance at December 31, 1995 $ (90) $ 9,381 $ 9,291
Net income --- 22 22
Distributions --- (525) (525)
Adjustment to minority interest (1) (62) (63)
-------------- ------------ -------------
Balance at September 30, 1996 $ (91) $ 8,816 $ 8,725
============== ============ =============
</TABLE>
See accompanying notes to consolidated financial statements.
Page 5 of 12
<PAGE>
RANCON PACIFIC REALTY L.P.
Consolidated Statements of Cash Flows
(in thousands)
(Unaudited)
<TABLE>
<CAPTION>
Nine months ended
September 30,
-----------------------------
1997 1996
---------- ----------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 374 $ 22
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 682 682
Amortization of loan fees, included in interest expense 55 55
Minority interest in net income and distributions (33) (26)
Changes in certain assets and liabilities:
Other assets (26) (79)
Accounts payable and accrued expenses 112 107
Interest payable (2) (4)
Other liabilities 31 15
---------- ----------
Net cash provided by operating activities 1,193 772
---------- ----------
Cash flows from investing activities:
Additions to real estate (86) (38)
---------- ----------
Cash flows from financing activities:
Notes payable principal payments (231) (182)
Distributions to partners (525) (525)
----------- ----------
Net cash used for financing activities (756) (707)
----------- ----------
Net increase in cash and cash equivalents 351 27
Cash and cash equivalents at beginning of period 1,407 1,331
----------- ----------
Cash and cash equivalents at end of period $ 1,758 $ 1,358
=========== ==========
Supplemental disclosure of cash flow information:
Cash paid for interest $ 1,387 $ 1,418
=========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
Page 6 of 12
<PAGE>
RANCON PACIFIC REALTY L.P.
Notes to Consolidated Financial Statements
September 30, 1997
(Unaudited)
Note 1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
In the opinion of RC Pacific Realty Partners, L.P., the general partner, and
Glenborough Corporation (successor by merger with Glenborough Inland Realty
Corporation), the accompanying unaudited consolidated 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, 1997 and December 31, 1996, and the
related consolidated statements of income for the three and nine months ended
September 30, 1997 and 1996, and changes in partners' equity (deficit) and cash
flows for the nine months ended September 30, 1997 and 1996.
In December, 1994, Rancon Financial Corporation (RFC), an affiliate of the
Partnership, entered into an agreement with Glenborough 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 or the
Partnership.
During the nine months ended September 30, 1997, a total of 1,897 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, 1997, there were 2,823,687
limited partnership units issued and outstanding.
Consolidation - The accompanying consolidated financial statements of Rancon
Pacific Realty, L.P. include the accounts of Rancon Pacific Realty, L.P. and its
majority owned partnership Villa La Jolla Partners. All inter-company balances
and transactions have been eliminated in the consolidation.
Page 7 of 12
<PAGE>
RANCON PACIFIC REALTY, L.P.
Notes to Consolidated Financial Statements
March 31, 1997
(Unaudited)
Reclassification - Certain 1996 balances have been reclassified to conform to
the current year presentation.
Note 2. REFERENCE TO 1996 AUDITED FINANCIAL STATEMENTS
These unaudited financial statements should be read in conjunction with the
Notes to Consolidated Financial Statements included in the 1996 audited
financial statements.
Note 3. RELATED PARTY TRANSACTIONS
Pursuant to a plan of exchange which was consummated in 1988, the Sponsor is to
receive a fee of up to 6% of the aggregate appraised value of the property
interests conveyed to the Partnership in consideration for organizational and
transitional management services. One-sixth of this fee or approximately
$350,000 was paid 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 will not be paid unless and until such time
as (i) the specified amount of cash distributions are 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. Two monthly installments of
$29,000 were paid in January and February, 1993. Payment of the balance of the
fee of approximately $1,395,000 related to the 48 monthly installments will not
be paid unless and until one of the two criteria set forth above is met.
Note 4. ADJUSTMENT TO MINORITY INTEREST
During the first quarter of 1996, it was determined that a reallocation in the
amount of $63,000 to the previous years allocations of losses between
Transamerica La Jolla Partners (TLJP) and the Partnership was necessary. This
amount appears as an adjustment to minority interest on the Partnership's
September 30, 1996 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.
INTRODUCTION
The following discussion addresses the Partnership's financial condition at
September 30, 1997 and its results of operations for the nine months ended
September 30, 1997 and 1996. This information should be read in conjunction with
the Partnership's audited December 31, 1996 Consolidated Financial Statements,
notes thereto and other information contained elsewhere in this report.
LIQUIDITY AND CAPITAL RESOURCES
As of June 23, 1989, the Partnership was fully funded from the sale of 2,122,500
Preferred Units in the amount of $14,857,500. As of September 30, 1997, the
Partnership had cash and cash equivalents of $1,758,000. The remainder of the
Partnership's assets consists primarily of its investments in three residential
properties, with a net book value totaling approximately $30,172,000 at
September 30, 1997.
The Partnership currently owns the following three properties, all apartment
complexes in San Diego County, California: Pacific Bay Club Apartments (159
units), La Jolla Canyon Apartments (157 units) and Villa La Jolla Condominiums
(385 condominium units).
Accounts payable and accrued expenses increased $112,000 or 160% primarily due
to the accrual of property taxes which are due December 10, 1997.
The increase in other liabilities of $31,000 or 12% is primarily due to the
increase in security deposits collected. In 1997, the Partnership raised the
amount of the required security deposit at the Villa La Jolla Condominiums
property.
Management believes that the Partnership's available cash together with the cash
generated by the operations of the Partnership's properties, as proven in recent
years, will be sufficient to finance the properties' continued operations as
well as meet future debt commitments. Management will continue to monitor market
conditions in order to sell its properties for the best obtainable price prior
to June 1999, the date upon which the Partnership is due to terminate, or as
soon as practicable.
RESULTS OF OPERATIONS
Rental income for the nine months ended September 30, 1997 as compared to the
same period in 1996 increased 8%, or $340,000, primarily due to increased rental
rates at all of the Partnership's properties. Occupancy rates as of September
30, 1997 were 97%, 99% and 99% for Pacific Bay Club, La Jolla Canyon and Villa
La Jolla, respectively, compared to 97%, 99% and 98%, respectively, as of the
same date in 1996.
Operating expenses for the nine months ended September 30, 1997 increased
slightly (approximately 1%) over the same period in 1996.
Page 9 of 12
<PAGE>
Interest expense continues to decline due to the decreasing balances of the
Partnership's outstanding debt.
General and administrative costs decreased $21,000, or 8%, for the nine months
ended September 30, 1997 compared to 1996 primarily due to a one-time payment of
$6,000 for professional services in 1996 rendered in connection with the
valuation of the limited partner interests and a $12,000 decrease in tax
preparation fees as a result of additional one-time services incurred in 1996.
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.
(Registrant)
By: RC PACIFIC REALTY PARTNERS, L.P.
General Partner
Date: November 14, 1997 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
<CURRENCY> U.S. dollars
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<EXCHANGE-RATE> 1.000
<CASH> 1,758
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1,954
<PP&E> 41,326
<DEPRECIATION> (11,154)
<TOTAL-ASSETS> 32,569
<CURRENT-LIABILITIES> 464
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 8,456
<TOTAL-LIABILITY-AND-EQUITY> 32,569
<SALES> 0
<TOTAL-REVENUES> 4,652
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 2,821
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,440
<INCOME-PRETAX> 374
<INCOME-TAX> 0
<INCOME-CONTINUING> 374
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 374
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
