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 June 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.,
A DELAWARE LIMITED PARTNERSHIP
(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)
(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 June 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>
June 30, December 31,
1997 1996
<S> <C> <C>
Assets
Rental property:
Land $ 14,213 $ 14,213
Buildings and improvements 27,072 28,487
-------------- --------------
41,285 42,700
Less accumulated depreciation (10,929) (11,932)
-------------- --------------
Net rental property 30,356 30,768
Cash and cash equivalents 1,626 1,407
Deferred financing costs, net of
accumulated amortization of $170
and $134 at June 30, 1997 and
December 31, 1996, respectively 462 498
Other assets 129 170
-------------- --------------
Total assets $ 32,573 $ 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>
June 30, December 31,
1997 1996
<S> <C> <C>
Liabilities and Partners' Equity (Deficit)
Liabilities:
Notes payable $ 23,185 $ 23,337
Accounts payable and accrued expenses 75 70
Interest payable 153 155
Other liabilities 284 251
------------- -------------
Total liabilities 23,697 23,813
------------- -------------
Commitments and contingent liabilities (see Note 3)
Minority interest 397 423
------------- -------------
Partners' equity (deficit):
General Partner (88) (90)
Limited Partners, 2,823,687 and 2,825,584
limited partnership units outstanding at
June 30, 1997 and December 31, 1996,
respectively (including 2,121,285
preferred units outstanding at June 30,
1997 and December 31, 1996) 8,567 8,697
------------- -------------
Total partners' equity 8,479 8,607
------------- -------------
Total liabilities and partners' equity $ 32,573 $ 32,843
============= =============
</TABLE>
See accompanying notes to consolidated financial statements.
Page 3 of 12
<PAGE>
RANCON PACIFIC REALTY L.P.
Consolidated Statements of Operations
(in thousands, except per unit amounts)
(Unaudited)
<TABLE>
<CAPTION>
Three months ended Six months ended
June 30, June 30, June 30, June 30,
1997 1996 1997 1996
----------- ------------ ----------- -----------
<S> <C> <C> <C> <C>
Revenues:
Rental income $ 1,526 $ 1,395 $ 3,010 $ 2,780
Interest and other income 25 20 49 44
----------- ------------ ----------- -----------
Total revenue 1,551 1,415 3,059 2,824
----------- ------------ ----------- -----------
Expenses:
Operating 622 642 1,252 1,234
Interest 479 490 961 984
Depreciation 229 227 457 454
General and administrative 82 93 161 179
----------- ------------ ----------- -----------
Total expenses 1,412 1,452 2,831 2,851
----------- ------------ ----------- -----------
Income (loss) before minority interest 139 (37) 228 (27)
Minority interest (2) 6 (6) 2
----------- ------------ ----------- -----------
Net income (loss) $ 137 $ (31) $ 222 $ (25)
=========== ============ =========== ===========
Net income (loss) per limited partnership unit $ 0.05 $ --- $ 0.08 $ (0.01)
=========== ============ ============ ===========
Distributions per preferred unit:
From net income $ 0.05 $ --- $ 0.08 $ ---
Representing return of capital 0.03 0.08 0.08 0.16
----------- ------------ ------------ -----------
Total distributions per preferred unit $ 0.08 $ 0.08 $ 0.16 $ 0.16
=========== ============ ============ ===========
Weighted average number of limited
partnership units outstanding during the
period used to compute net income (loss)
per limited partnership unit 2,824,155 2,828,090 2,824,621 2,828,247
=========== ============ ============ ===========
Weighted average number of preferred units
outstanding during the period used to
compute distributions per preferred unit 2,121,285 2,121,660 2,121,285 2,121,714
=========== ============ ============ ===========
</TABLE>
See accompanying notes to consolidated financial statements.
Page 4 of 12
<PAGE>
RANCON PACIFIC REALTY L.P.
Consolidated Statements of Partners' Equity (Deficit)
For the six months ended June 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 2 220 222
Distributions --- (350) (350)
------------- ------------ -------------
Balance at June 30, 1997 $ (88) $ 8,567 $ 8,479
=============- ============ =============
Balance at December 31, 1995 $ (90) $ 9,381 $ 9,291
Net loss --- (25) (25)
Distributions --- (350) (350)
Adjustment to minority interest (1) (62) (63)
-------------- ------------- --------------
Balance at June 30, 1996 $ (91) $ 8,944 $ 8,853
============= ============ =============
</TABLE>
See accompanying notes to consolidated financial statements.
Page 5 of 12
<PAGE>
RANCON PACIFIC REALTY L.P.
<TABLE>
<CAPTION>
Consolidated Statements of Cash Flows
(in thousands)
(Unaudited)
Six months ended
June 30,
1997 1996
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 222 $ (25)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation 457 454
Amortization of loan fees, included in interest expense 36 36
Minority interest in net income/loss and distributions (26) (15)
Changes in certain assets and liabilities:
Other assets 41 8
Accounts payable and accrued expenses 5 (13)
Interest payable (2) (3)
Other liabilities 33 ---
---------- ----------
Net cash provided by operating activities 766 442
---------- ----------
Cash flows from investing activities:
Additions to real estate (45) (26)
---------- ----------
Cash flows from financing activities:
Notes payable principal payments (152) (116)
Distributions to partners (350) (350)
---------- -----------
Net cash used for financing activities (502) (466)
---------- ----------
Net increase (decrease) in cash 219 (50)
Cash and cash equivalents at beginning of period 1,407 1,331
---------- ----------
Cash and cash equivalents at end of period $ 1,626 $ 1,281
========== ==========
Supplemental disclosure of cash flow information:
Cash paid for interest $ 927 $ 950
========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
Page 6 of 12
<PAGE>
RANCON PACIFIC REALTY L.P.
Notes to Consolidated Financial Statements
June 30, 1997
(Unaudited)
Note 1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
In the opinion of RC Pacific Realty Partners, L.P. 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., a Delaware
limited partnership, (the Partnership) as of June 30, 1997 and December 31,
1996, and the related consolidated statements of operations for the three and
six months ended June 30, 1997 and 1996, and changes in partners' equity
(defecit) and cash flows for the six months ended June 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 six months ended June 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 June 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 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
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 June
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 June
30, 1997 and its results of operations for the six months ended June 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 June 30, 1997, the
Partnership had cash and cash equivalents of $1,626,000. The remainder of the
Partnership's assets consists primarily of its investments in three residential
properties, with a net book value totaling approximately $30,356,000 at June 30,
1997.
The Partnership currently owns three properties, all apartment complexes in San
Diego California: Pacific Bay Club Apartments (159 units), La Jolla Canyon
Apartments (157 units) and Villa La Jolla Condominiums (385 condominium units).
All of the Partnership's assets are located in San Diego County, California and
have been directly affected by the economic weakness of the region. Management
believes, however, that while prices have not increased significantly, the
Southern California real estate market appears to be improving. Management
continues to evaluate the Southern California real estate market in an effort to
determine the optimal time to dispose of the assets and realize their maximum
value.
The increase in other liabilities of $33,000 or 13% 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 six months ended June 30, 1997 as compared to 1996
increased 8% or $230,000 primarily due to increased rental rates at all of the
Partnership's properties. Occupancy rates as of June 30, 1997 were 98%, 97% and
96% for Pacific Bay Club, La Jolla Canyon and Villa La Jolla, respectively,
compared to 98%, 95% and 96%, respectively, as of the same date in 1996.
Page 19 of 12
<PAGE>
The $5,000 or 11% increase in interest and other income for the six months ended
June 30, 1997 compared to the six months ended June 30, 1996 is due to an
increase in the Partnership's invested cash balances and other miscellaneous
charges.
Operating expenses for the six months ended June 30, 1997 increased slightly
over the same period in 1996.
Interest expense continues to decline due to the decreasing balances of the
Partnership's outstanding debt.
General and administrative costs decreased $18,000 or 10% for the six months
ended June 30, 1997 compared to 1996 due to a one-time payment for professional
services in 1996 rendered in connection with the valuation of the limited
partner interests and the 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.
A DELAWARE LIMITED PARTNERSHIP
(Registrant)
By: RC PACIFIC REALTY PARTNERS, L.P.
General Partner
Date: August 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, LP
<MULTIPLIER> 1,000
<CURRENCY> u.s. dollars
<S> <C>
<PERIOD-TYPE> 6-mos
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<EXCHANGE-RATE> 1.00
<CASH> 1,626
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1,760
<PP&E> 41,285
<DEPRECIATION> 10,929
<TOTAL-ASSETS> 32,573
<CURRENT-LIABILITIES> 512
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 8,479
<TOTAL-LIABILITY-AND-EQUITY> 32,573
<SALES> 0
<TOTAL-REVENUES> 3,059
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 1,870
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 961
<INCOME-PRETAX> 228
<INCOME-TAX> 0
<INCOME-CONTINUING> 228
<DISCONTINUED> 0
<EXTRAORDINARY> 6
<CHANGES> 0
<NET-INCOME> 222
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
