UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934. For the year ended December 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.,
A DELAWARE LIMITED PARTNERSHIP
(Exact name of registrant as specified in its charter)
Delaware 33-0270528
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
400 South El Camino Real, Suite 1100 94402-1708
------------
San Mateo, California (Zip Code)
---------------------
(Address of principal executive offices)
Registrant's telephone number, including area code (415) 343-9300
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Exchange Units
(Title of Class)
Preferred Units
(Title of Class)
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
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
State the aggregate market value of the voting stock held by non-affiliates of
the Registrant. Inapplicable
DOCUMENTS INCORPORATED BY REFERENCE:
Prospectus dated August 8, 1988, filed pursuant to Rule 424(b), File no. 2-17900
(the Prospectus), is incorporated by reference in Parts I, II, III and IV
hereof.
For additional items incorporated by reference, see Item 14.
Page 1 of 31
<PAGE>
PART I
Item 1. Business
Incorporated by reference herein is the information regarding the organization
and description of the business of Rancon Pacific Realty L.P., a Delaware
Limited Partnership, (the Partnership) included in the Prospectus (Exhibit 28.1
hereto) under the captions "The Partnership" and "The Exchange Properties"
commencing at pages 18 and 34 of the Prospectus, respectively. The Partnership
reached final funding in June, 1989. During the year ended December 31, 1992,
the Partnership repurchased and retired 715 preferred units and 828 exchange
units were abandoned by a limited partner. During the year ended December 31,
1996, 2,373 exchange units and 500 preferred units were abandoned. Limited
Partners abandon their units when they desire to no longer receive a K-1 from
the Partnership. The equity of the abandoned limited partner units has been
allocated to the remaining limited partners. At December 31, 1996, the
Partnership had 704,299 exchange units and 2,121,285 preferred units issued and
outstanding. The Partnership has no employees.
At December 31, 1996, the Partnership owned three properties, which are more
fully described in Item 2.
Competition within the Market
Management believes that characteristics influencing the competitiveness of a
real estate project are the geographic location of the property, the
professionalism of the property manager and the maintenance and appearance of
the property, in addition to external factors such as general economic
circumstances, trends, and the existence of new, competing properties in the
vicinity. Although management believes the Partnership properties are
competitive with comparable properties as to those factors within the
Partnership's control, over-building and other external factors could adversely
affect the ability of the Partnership to attract and retain tenants. The
marketability of the properties may also be affected (either positively or
negatively) by these factors as well as by changes in general or local economic
conditions, including prevailing interest rates. Depending on market and
economic conditions, the Partnership may be required to retain ownership of its
properties for periods longer than anticipated at acquisition, or may need to
sell earlier than anticipated or refinance a property, at a time or under terms
and conditions that are less advantageous than would be the case if unfavorable
economic or market conditions did not exist.
Working Capital
The Partnership's practice is to maintain cash reserves for normal repairs,
replacements, working capital and other contingencies. The Partnership knows of
no statistical information which allows comparison of its cash reserves to those
of its competitors.
<TABLE>
<CAPTION>
Item 2. Properties
<S> <C> <C> <C> <C> <C>
# of Units Encumbrances at
Name Location Type Size Owned December 31, 1996
---- -------- ---- ---- ----- -----------------
Pacific Bay Club San Diego, California Residential 103,275 sq. ft. 159 $ 4,494,000
Apartments
La Jolla Canyon San Diego, California Residential 83,164 sq. ft. 157 $ 5,469,000
Apartments
Villa La Jolla San Diego, California Residential 271,369 sq. ft. 385 $ 13,374,000
Condominiums
</TABLE>
Page 2 of 31
<PAGE>
Pacific Bay Club Apartments
Pacific Bay Club Apartments is a 159-unit garden apartment complex situated on
approximately 4.4 acres in San Diego, California. The property is located two
blocks east of Morena Boulevard, a major north-south frontage road along
Interstate Highway 5. The property is approximately eight miles north of
downtown San Diego at 4070 Huerfano Avenue, San Diego, California 92117. The
area surrounding the property is primarily single-family residential, with
middle and upper-middle income housing. Immediately adjacent to the property to
the south and east are two condominium projects.
The Pacific Bay Club Apartments complex is comprised of two three-story
buildings with elevators. The unit mix is 66 studio apartments at 475 square
feet each, 42 one-bedroom/one-bathroom apartments at 650 square feet each and 51
two-bedroom/two bathroom apartments at 875 square feet each. There are clubhouse
and barbecue facilities, a heated swimming pool, spa and sauna, four laundry
facilities and 222 parking spaces.
All of the units are rented unfurnished. Each apartment is equipped with a
refrigerator, electric range, garbage disposal, dishwasher (except studios),
private patio, wall-to-wall carpeting and custom window coverings. All utilities
are paid by the landlord except electricity and cable. There is one office used
for leasing activities. The property was constructed in 1972 using wood frame
construction and stucco exteriors, with flat, built-up roofs.
According to the Partnership's property manager, Pacific Bay Club's strongest
competition is located approximately 10 miles away, closer to the coast. Pacific
Bay Club Apartments is approximately 24 years old and is competing with
properties which were built an average of seven years ago. In order to be
competitive, Pacific Bay Club's units offer upgraded amenities and continuing
efforts are devoted to the outside appearance of the complexes. Pacific Bay Club
is 98% leased at December 31, 1996, which is equal to the market average.
The occupancy levels at December 31, 1996, 1995 and 1994, expressed as a
percentage of the total apartments available for rent, were 98%, 96% and 89%,
respectively. The average monthly rental rates for the apartments at December
31, 1996 are as follows:
Rental rate:
Studio $572
One bedroom/one bathroom $662
Two bedroom/two bathroom $771
In the opinion of management, the property is adequately covered by insurance.
At December 31, 1996, the Pacific Bay Club Apartments property secures a note
payable in the amount of $4,494,000. The note matures November 1, 2018.
During 1996, the property was assessed property taxes of approximately $79,000
based on a tax rate of 1.12%.
La Jolla Canyon Apartments
La Jolla Canyon Apartments is a 157-unit garden apartment complex situated on
approximately 4.7 acres in San Diego, California. The property is located
approximately 11 miles north of downtown San Diego and five miles northeast of
La Jolla at 9515 Genessee Avenue, San Diego, California 92122 in an area
referred to as "The Golden Triangle". The Golden Triangle is formed by the
intersection of Interstate 5 and 805 and Highway 52. The immediate area
surrounding the property is primarily single-family homes and condominium
projects.
The La Jolla Canyon Apartments complex is comprised of six two story buildings.
The unit mix is 112 one-bedroom/one-bathroom apartments at 487 square feet each
and 45 two-bedroom/one-bathroom apartments at 636
Page 3 of 31
<PAGE>
square feet each. There are recreation facilities, a solar-heated swimming pool,
spa and sauna, modern laundry facility and 205 parking spaces.
All of the units are rented unfurnished. Each apartment is equipped with a
refrigerator, electric range, garbage disposal, private patio, wall-to-wall
carpeting and custom window coverings. Some units have dishwashers. All
utilities are paid by the landlord except electricity and cable. A leasing
office and one decorated model apartment are used in leasing activities. The
property was constructed in 1976 using wood frame construction and stucco
exteriors, with sloping, asphalt shingle roofs.
According to research conducted by the property manager, there are approximately
5,000 residential units within the Golden Triangle that compete with La Jolla
Canyon. La Jolla Canyon is approximately 22 years old yet remains competitive in
the market. The property is 98% occupied at December 31, 1996, which is above
the market average of 94%.
La Jolla Canyon is close to the University of California San Diego Campus,
Scripps Clinic, research facilities such as the Salk Institute and many major
pharmaceutical and biotech companies. Therefore although quite small, the units
have been easy to rent to the surrounding community. A 500 unit high rise
apartment building is slated for construction in the spring of 1997 within three
blocks of the La Jolla Canyon Apartments complex. Management is unaware at this
time how the completion of the high rise apartment complex will affect the
property.
The occupancy levels at December 31, 1996, 1995 and 1994, expressed as a
percentage of the total apartments available for rent, were 98%, 95% and 99%,
respectively. The average monthly rental rates for the apartments at December
31, 1996 were:
Rental rate:
One bedroom/one bathroom $683
Two bedroom/two bathroom $788
In the opinion of management, the property is adequately covered by insurance.
At December 31, 1996, the La Jolla Canyon Apartments property secures a note
payable in the amount of $5,469,000. The note matures October 1, 2018.
During 1996, the property was assessed property taxes of approximately $88,000
based on a tax rate of 1.12%.
Villa La Jolla Condominiums
Villa La Jolla is part of a condominium complex consisting of 500 garden-style
residential units, of which the Partnership owns 385 units; the other 115 units
were sold to individual owners prior to the acquisition of the property by the
Partnership. The condominium complex is situated on approximately 18.28 acres in
La Jolla, California. The complex was built and opened as an apartment complex
in 1972 and converted to condominiums in 1980. The property is located
approximately 11 miles north of downtown San Diego, two miles north of downtown
La Jolla and one mile east of the Pacific Ocean at 8540 Villa Mallorca Drive, La
Jolla, California 92037. The immediate area surrounding the property consists of
residential condominium projects and single-family homes.
The portion of the complex owned by the Partnership is comprised of 52 two-story
buildings, including 101 studio apartments at 505 square feet each, 222
one-bedroom/one-bathroom apartments at 710 square feet each and 62
two-bedroom/two-bathroom apartments at 1,012 square feet each. There are two
swimming pools, two spas, six laundry facilities, a recreation facility (fitness
center and club house) and 395 parking spaces.
Page 4 of 31
<PAGE>
All of the units are rented unfurnished. Each unit is equipped with a
refrigerator, electric oven and range, garbage disposal, private patio (with
storage), wall-to-wall carpeting and custom window coverings. A majority of the
units have dishwashers. All utilities are paid by the tenants. A leasing office
and two decorated model units are used in leasing activities. The property was
constructed using wood frame construction and stucco exteriors, with sloping
asphalt roofs.
Villa La Jolla has maintained a strong presence in the local rental market.
Occupancy in the local area ranges between 95% and 98% throughout the year.
Villa La Jolla consistently meets or exceeds that average, with occupancy at
97%.
The occupancy levels at December 31, 1996, 1995 and 1994 expressed as a
percentage of the total units available for rent, were 97%, 97% and 99%,
respectively. The average monthly rental rates for the units at December 31,
1996 were:
Rental rate:
Studio $659
One bedroom/one bathroom $749
Two bathroom/two bathroom $939
In the opinion of management, the property is adequately covered by insurance.
At December 31, 1996, the Villa La Jolla Condominiums property secures a note
payable in the amount of $13,374,000. The note matures September 1, 2002.
During 1996, the property was assessed property taxes of approximately $249,000
based on a tax rate of 1.15%.
Item 3. Legal Proceedings
None.
Item 4. Submission of Matters to a Vote of Security Holders
None.
Page 5 of 31
<PAGE>
PART II
Item 5. Market for Partnership's Common Equity and Related
Stockholder Matters
Market Information
There is no established trading market for the Exchange Units or the Preferred
Units.
Holders
As of December 31, 1996, a total of 1,607 persons held the Exchange Units and a
total of 1,180 persons held the Preferred Units (collectively, the Limited
Partners).
Dividends
Incorporated by reference herein is the information regarding the Partnership's
distribution policies included in Paragraph 11 of the Partnership's Agreement of
Limited Partnership (Exhibit 3.1 hereto) and the Partnership's Third Amendment
to Agreement of Limited Partnership (Exhibit 3.3 hereto).
The following distributions of Cash From Operations were made by the Partnership
to the holders of Preferred Units during the last three fiscal years.
Amount Amount Amount
Date of Distributed Distributed Distributed to
Distribution to Limited Partners Per Unit General Partner
11/30/96 $ 175,000 $ 0.08 $ --
8/31/96 $ 175,000 $ 0.08 $ --
6/30/96 $ 175,000 $ 0.08 $ --
3/1/96 $ 175,000 $ 0.08 $ --
12/15/95 $ 175,000 $ 0.08 $ --
12/15/94 $ 210,000 $ 0.10 $ 2,000
Of the total distributions paid in 1996, $0.29 represented a return of capital.
All distributions in 1995 and 1994 represented a return of capital.
Page 6 of 31
<PAGE>
Item 6. Selected Financial Data
The financial data should be read in conjunction with the financial statements
and related notes contained elsewhere in this report. This financial data is not
covered by the reports of the independent public accountants.
<TABLE>
<CAPTION>
The following is selected financial data for the five years ended December 31,
(in thousands, except per Unit data).
1996 1995 1994 1993 1992
---- ------ ------ ------ -----
<S> <C> <C> <C> <C> <C>
Rental Income $ 5,758 $ 5,358 $ 5,249 $ 5,286 $ 5,321
Net income (loss) $ 81 $ (148) $ (349) $ (139) $ (495)
Net income (loss) allocable
to limited partners $ 80 $ (147) $ (346) $ (138) $ (490)
Net (income) loss per limited
partnership unit $ 0.03 $ (0.05) $ (0.12) $ (0.05) $ (0.17)
Total assets $ 32,843 $ 33,735 $ 33,785 $ 34,428 $ 35,042
Long-term obligations $ 23,337 $ 23,589 $ 23,418 $ 23,502 $ 23,956
Cash distributions per limited partnership unit:
Preferred Unit $ 0.32 $ 0.08 $ 0.10 $ -- $ --
Exchange Unit $ -- $ -- $ -- $ -- $ --
</TABLE>
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations
LIQUIDITY AND CAPITAL COMMITMENTS
Pursuant to a plan of exchange which was consummated in 1988, the Partnership
issued 707,500 exchange units and rights to purchase 2,122,500 preferred units
at a cost of $7 per preferred unit in exchange for the assets of Shadow Hill
Partners, Eastgate Village Partners and Brichard-La Jolla Partners (the
Participating Partnerships). The exchange units were allocated among the
Participating Partnerships using the appraised value of the real property owned
by them, less related mortgage indebtedness and adjusted for the book value of
other specified net assets as of September, 1987. Rights to purchase three
preferred units were issued with each exchange unit. Preferred Units covered by
unexercised rights were then sold to other investors. 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 December 31, 1996, the Partnership had cash and cash equivalents of
$1,407,000. The remainder of the Partnership's assets consists primarily of its
investments in three residential properties, with a net book value totaling
approximately $30,768,000 at December 31, 1996.
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 the market has flattened and is no longer falling in
terms of sales prices. While prices have not increased significantly, the
Southern California real estate market appears to be improving. Management
continues to evaluate the Southern
Page 7 of 31
<PAGE>
California real estate market in an effort to determine the optimal time to
dispose of the assets and realize their maximum value.
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.
During 1989, management discovered the presence of asbestos at the three
properties and elected to remove the asbestos from the common areas as well as
to take the steps necessary to notify tenants and on-site staff. Asbestos has
been removed from some of the individual apartment and condominium units.
Management will monitor the need for any additional asbestos removal and will
incur the costs only when a need for such removal arises. Careful attention has
been taken by management to insure that the proper notifications to tenants are
maintained.
RESULTS OF OPERATIONS
Rental income increased $293,000 and $115,000 for the year ended December 31,
1996 compared to 1995 and 1995 compared to 1994, respectively, primarily due to
an increase in rental rates at all the Partnership's properties.
The 31% and 8% increases in interest income for the year ended December 31, 1996
compared to 1995 and 1995 compared to 1994, respectively, are due to an increase
in the Partnership's invested cash balances as a result of additional funds
provided by operating activities.
Operating and depreciation expenses remained consistent for the years ended
December 31, 1994 through 1996.
Interest expense continues to decline due to the decreasing balances of the
Partnership's outstanding debt.
General and administrative expenses increased 18% in 1996 compared to 1995 due
to an increase in general legal fees of $14,000 associated with administering
the Partnership's day-to-day affairs, $5,000 in fees incurred in connection with
valuations of limited partnership interests and $24,000 and $7,000 for
additional insurance and loan administration fees, respectively, as a result of
the Villa La Jolla refinancing in September, 1995. The 7% increase in 1995 was a
result of the payment and expense of 1994 audit and tax return fees in 1995.
Since January 1, 1995, audit and tax fees have been accrued in the year to which
they relate.
In December 1994, Rancon Financial Corporation (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 financial, accounting, data processing, marketing, legal,
investor relations, asset and development management and consulting services for
the Partnership. 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. Glenborough is not an affiliate of RFC or the
Partnership. This agreement was effective January 1, 1995.
RFC entered into the transaction with Glenborough described above, when it
determined to sell that portion of its business relating to investor services,
property management services and asset management services, and those services
are now rendered to the Partnership, eight other related partnerships and third
parties by Glenborough. The Partnership required those services to be rendered
to it until such time as all of its properties were sold, whether performed by
the General Partner or Glenborough. RFC, as General Partner for the Partnership,
has the responsibility and obligation to manage the Partnership business,
including the sale of its properties,
Page 8 of 31
<PAGE>
notwithstanding that certain property management and other administrative
activities regarding the Partnership are now performed by Glenborough.
As a result of the agreement between RFC and Glenborough, RFC terminated certain
employees who were previously responsible for performing the administrative,
legal and development services to the Partnership. Upon termination, certain
employee costs including severance benefits were allocated to the various Rancon
Partnerships. Such costs allocated to the Partnership aggregated $42,000 and
were included in administrative expenses for the year ended December 31, 1994.
Item 8. Financial Statements and Supplementary Data
For information with respect to Item 8, see Financial Statements and Schedules
as listed in Item 14.
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure
On June 6, 1995, Price Waterhouse LLP was dismissed as the principal independent
accountant for the Partnership. The decision to dismiss Price Waterhouse LLP was
made by the Partnership's General Partner.
The reports of Price Waterhouse LLP on the Partnership's financial statements
for the period ending December 31, 1994, do not contain an adverse opinion or a
disclaimer of an opinion, nor were such opinions modified as to uncertainty,
audit scope, or accounting principles.
During the fiscal year ended December 31, 1994 and the subsequent interim period
from January 1, 1995 to June 6, 1995, there were no disagreements between the
Partnership and Price Waterhouse LLP on any matter of accounting principles or
practices, financial statement disclosure, or auditing scope or procedure,
which, if not resolved to the satisfaction of Price Waterhouse LLP, would have
caused it to make a reference to the subject matter of the disagreement in
connection with its reports. For this purpose the term disagreement does not
include initial differences of opinion based on incomplete facts or preliminary
information that were later resolved to the satisfaction of Price Waterhouse LLP
by obtaining additional relevant facts or information.
During the fiscal year ended December 31, 1994 and the subsequent interim period
from January 1, 1995 to June 6, 1995, there were no "reportable events" of the
type described in Rule 304(a)(1)(v)(A) through (D) of Regulation S-K.
On June 6, 1995, the Partnership engaged Arthur Andersen LLP as its new
principal independent accountant. During the fiscal year ended December 31, 1994
and the subsequent interim period from January 1, 1995 through June 6, 1995, the
Partnership did not consult with Arthur Andersen LLP as to the application of
accounting principles to a specified transaction or the type of audit opinion
that might be rendered on the Partnership's financial statements.
Page 9 of 31
<PAGE>
Part III
Item 10. Directors and Executive Officers of the Partnership
RC Pacific Realty Partners L.P. (RCPLP) is a Delaware limited partnership formed
in 1987 to serve as the General Partner of the Partnership. RC Pacific Realty,
Inc. (RCPRI) is the general partner of RCPLP and RFC and certain of its key
employees and others are limited partners of RCPLP. RCPRI was incorporated in
California in 1987 to serve as the general partner of RCPLP. The executive
officers and directors of RCPRI are:
Daniel L. Stephenson Chairman of the Board, President, Chief Executive
Officer and Chief Financial Officer
There is no fixed term of office for Mr. Stephenson.
Mr. Stephenson, age 53, founded RFC (formerly known as Rancon Corporation) in
1971 for the purpose of establishing itself as a commercial, industrial and
residential property syndication, development and brokerage concern. Mr.
Stephenson was President and Chief Executive Officer of RFC from 1971 to 1986
and from August 1991 to September 1992, and has from inception, held the
position of Chairman of the Board. In addition, Mr. Stephenson is Chairman of
the Board of PacWest Group, Inc., a real estate firm which has acquired a
portfolio of assets from the Resolution Trust Corporation.
Effective January 1, 1994 RFC acquired all the outstanding shares of Partnership
Asset Management Company, a California corporation, which previously performed
or contracted on the Partnership's behalf for financial, accounting, data
processing, marketing, legal, investor relations, asset and development
management and consulting services for the Partnership. These services were
provided to the Partnership by RFC subject to the provisions of the Partnership
Agreement.
Rancon Development Fund VII (RDFVII), a partnership sponsored by the General
Partners filed for protection under Chapter 11 of Federal Bankruptcy Law on May
6, 1994 in order to put an automatic stay on RDFVII's property and to forestall
the pending foreclosure. In March, 1994, the General Partners were approached by
a non-affiliated party interested in acquiring the interests of RDFVII's general
partners and attempting to restructure the partnership and its secured debt.
Although the necessary majority-in-interest of RDFVII's limited partners was
received, an agreement regarding the terms of the transfer and the plan of
reorganization could not be reached. The holder of the note secured by RDFVII's
property filed for and was granted a relief from the stay thereby allowing the
foreclosure sale to proceed. Such sale took place on September 15, 1994 and the
bankruptcy is in the process of being dismissed, as the property was RDFVII's
only asset.
Six Stoneridge L.P. (SSRLP), a partnership formed by Rancon Development Fund VI
(RDFVI), a partnership sponsored by the General Partners filed for protection
under Chapter 11 of Federal Bankruptcy Law in December, 1992. Efforts to
negotiate a modification of the purchase agreement of StoneRidge I, to obtain
loans, joint venture partners or other vehicles to meet or modify the cash
payment requirements were unsuccessful. In February, 1993, an adversary
complaint was filed against SSRLP in the bankruptcy court to determine the
nature and extent of SSRLP's interest in StoneRidge I and the debt associated
with the property. A tentative agreement has been reached. As of December 31,
1996, SSRLP and RDFVI have been dissolved.
Page 10 of 31
<PAGE>
Item 11. Executive Compensation
The Partnership has no executive officers. For information relating to fees,
compensation, reimbursements and distributions paid to related parties,
reference is made to Item 13 below.
Item 12. Security Ownership of Certain Beneficial Owners and Management
Security Ownership of Certain Beneficial Owners
No person is known by the Partnership to be the beneficial owner of more than 5%
of the Units.
Security Ownership of Management
<TABLE>
<CAPTION>
Amount and
Nature of
Title Beneficial Percent
of Class Name of Beneficial Owner Ownership of Class
<S> <C> <C> <C>
Preferred Units Daniel L. Stephenson (I.R.A.) 14,254 Units (indirect) *
<FN>
* Less than 1 percent
</FN>
</TABLE>
Changes in Control
The Limited Partners have no right, power or authority to act for or bind the
Partnership. However, the Limited Partners have the power to vote upon the
following matters affecting the basic structure of the Partnership, each of
which shall require the approval of Limited Partners holding a majority of the
outstanding Units: (i) amendment of the Partnership's Partnership Agreement;
(ii) termination and dissolution of the Partnership; (iii) sale, exchange or
pledge of all or substantially all of the assets of the Partnership; (iv)
withdrawal or removal of the General Partner or any successor General Partner;
(v) purchase price of the withdrawing General Partners' interest; (vi) election
of a new General Partner; (vii) the approval or disapproval of the terms of
purchase of the General Partner's interest; and (viii) the modification of the
terms of any agreement between the Partnership and the General Partner or an
affiliate.
Item 13. Certain Relationships and Related Transactions
For the year ended December 31, 1996, the Partnership did not incur any costs
reimbursable to RFC.
Page 11 of 31
<PAGE>
Part IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(a) The following documents are filed as part of the report
(1) Financial Statements:
Reports of Independent Public Accountants
Consolidated Balance Sheets as of December 31, 1996 and 1995
Consolidated Statements of Operations for the Years Ended
December 31, 1996, 1995 and 1994
Consolidated Statements of Partners' Equity (Deficit) for
the Years Ended December 31, 1996, 1995 and 1994
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1996, 1995 and 1994
Notes to Consolidated Financial Statements
(2) Financial Statement Schedule:
Schedule III -- Real Estate and Accumulated Depreciation as
of December 31, 1996 and Note thereto
All other schedules are omitted because they are not
applicable or the required information is shown in the
consolidated financial statements or notes thereto.
(3) Exhibits:
(3.1) Agreement of Limited Partnership and First Amendment
thereto (included as part of the Prospectus filed as
Exhibit 28.1 hereto)
(3.2) Second Amendment to Agreement of Limited Partnership*
(3.3) Third Amendment to Agreement of Limited Partnership *
(3.4) Agreement of Limited Partnership and amendment
thereto of Villa, L.P.
(10.1) Management, administration and consulting agreement
and amendment thereto for services rendered by
Glenborough Inland Realty Corporation dated December
20, 1994 and March 30, 1995, respectively
(10.2) Promissory note secured by a deed of trust on Villa
La Jolla Condominiums in the amount of $13,500,000
dated August 31, 1995
(28.1) Prospectus dated August 8, 1988 (portions of which
are incorporated by reference into this annual
report.)*
Page 12 of 31
<PAGE>
* Included as an Exhibit in Form 10-K filed for fiscal
year ended December 31, 1992.
(b) Reports on Form 8-K
None.
Page 13 of 31
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or Section 15(d) of the Securities
Exchange Act of 1934, the Partnership has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
RANCON PACIFIC REALTY L.P.,
(Partnership)
Date: March 27, 1997 By: /s/ DANIEL L. STEPHENSON
--------------------------
Daniel L. Stephenson
Director, President, Chief
Executive Officer and Chief
Financial Officer of Rancon
Financial Corporation, General
Partner of Rancon Pacific Realty
L.P.
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed by the following persons on behalf of the Partnership and in the
capacities and on the dates indicated.
Date: March 27, 1997 By: /s/ DANIEL L. STEPHENSON
--------------------------
Daniel L. Stephenson
Director, President, Chief
Executive Officer and Chief
Financial Officer of Rancon
Financial Corporation, General
Partner of Rancon Pacific Realty
L.P.
Page 14 of 31
<PAGE>
INDEX TO FINANCIAL STATEMENTS
AND SCHEDULE
Page
Reports of Independent Public Accountants 16, 17
Financial Statements:
Consolidated Balance Sheets as of December 31, 1996 and 1995 18
Consolidated Statements of Operations for the years ended
December 31, 1996, 1995 and 1994 19
Consolidated Statements of Partners' Equity (Deficit)
for the years ended December 31, 1996, 1995 and 1994 20
Consolidated Statements of Cash Flows for the years ended
December 31, 1996, 1995 and 1994 21
Notes to Consolidated Financial Statements 22
Schedule:
III - Real Estate and Accumulated Depreciation
as of December 31, 1996 and Note thereto 29
All other schedules are omitted because they are not applicable or the
required information is shown in the consolidated financial statements
or notes thereto.
Page 15 of 31
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Partners of
RANCON PACIFIC REALTY L.P.
We have audited the accompanying consolidated balance sheets of RANCON PACIFIC
REALTY L.P., as of December 31, 1996 and 1995, and the related consolidated
statements of operations, partners' equity (deficit) and cash flows for the
years then ended. These consolidated financial statements and the schedule
referred to below are the responsibility of the Partnership's management. Our
responsibility is to express an opinion on these consolidated financial
statements and schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of RANCON PACIFIC REALTY L.P., as
of December 31, 1996 and 1995, and the results of its operations and its cash
flows for the years then ended, in conformity with generally accepted accounting
principles.
Our audits were made for the purpose of forming an opinion on the basic
consolidated financial statements taken as a whole. The accompanying schedule
listed in the index to financial statements and schedule is presented for the
purpose of complying with the Securities and Exchange Commission's rules and is
not a required part of the basic consolidated financial statements. This
information has been subjected to the auditing procedures applied in our audits
of the basic consolidated financial statements and, in our opinion, is fairly
stated in all material respects in relation to the basic consolidated financial
statements taken as a whole.
ARTHUR ANDERSEN LLP
San Francisco, California
February 12, 1997
Page 16 of 31
<PAGE>
Report of Independent Accountants
To the General and Limited Partners of
Rancon Pacific Realty L.P.
In our opinion, the accompanying consolidated statements of operations, of
partners' equity and of cash flows present fairly, in all material respects, the
results of operations and cash flows of Rancon Pacific Realty L.P. and its
subsidiary for the year ended December 31, 1994, in conformity with generally
accepted accounting principles. These financial statements are the
responsibility of the Partnership's management; our responsibility is to express
an opinion on these financial statements based on our audit. We conducted our
audit of these statements in accordance with generally accepted auditing
standards which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audit provides a reasonable basis for the opinion expressed above. We have not
audited the consolidated financial statements of Rancon Pacific Realty L.P. for
any period subsequent to December 31, 1994.
Our audit for the year ended December 31, 1994 was made for the purpose for
forming an opinion on the basic financial statements taken as a whole. Our audit
also included an audit of the Financial Statement Schedule listed in Item 14 (a)
of this Form 10-K. In our opinion, the Financial Statement Schedule presents
fairly, in all material respects, the information set forth therein when read in
conjunction with the related financial statements.
PRICE WATERHOUSE LLP
San Diego, California
February 3, 1995
Page 17 of 31
<PAGE>
<TABLE>
<CAPTION>
RANCON PACIFIC REALTY L.P.
Consolidated Balance Sheets
December 31, 1996 and 1995
(in thousands, except units outstanding)
1996 1995
---- ------
Assets
<S> <C> <C>
Rental property, net of accumulated depreciation
of $11,932 and $11,022 in 1996 and 1995, respectively $ 30,768 $ 31,634
Cash and cash equivalents 1,407 1,331
Accounts receivable 5 76
Deferred financing costs, net of accumulated amortization
of $134 and $61 in 1996 and 1995, respectively 498 571
Other assets 165 123
-------------- -------------
Total Assets $ 32,843 $ 33,735
============= =============
Liabilities and Partners' Equity (Deficit)
Liabilities:
Accounts payable and accrued expenses $ 70 $ 57
Interest payable 155 159
Notes payable 23,337 23,589
Other liabilities 251 251
-------------- -------------
Total liabilities 23,813 24,056
-------------- -------------
Commitments and contingent liabilities (see Note 2)
Minority interest 423 388
-------------- -------------
Partners' equity (deficit):
General Partner (90) (90)
Limited Partners, 2,825,584 and 2,828,457 units
outstanding in 1996 and 1995, respectively (including 2,121,285
and 2,121,785 preferred units outstanding in 1996 and 1995,
respectively) 8,697 9,381
-------------- -------------
Total partners' equity 8,607 9,291
-------------- -------------
Total liabilities and partners' equity $ 32,843 $ 33,735
============= =============
</TABLE>
The accompanying notes are in integral part of these consolidated financial
statements.
Page 18 of 31
<PAGE>
<TABLE>
<CAPTION>
RANCON PACIFIC REALTY L.P.
Consolidated Statements of Operations
For the years ended December 31, 1996, 1995 and 1994
(in thousands, except per unit amounts)
1996 1995 1994
---- ------ -----
<S> <C> <C> <C>
Revenue:
Rental income $ 5,758 $ 5,465 $ 5,350
Interest income 51 39 36
----------- ------------ -----------
Total revenue 5,809 5,504 5,386
----------- ------------ -----------
Expenses:
Operating, including $324 paid to Sponsor
in 1994 2,495 2,402 2,397
Interest 1,952 2,047 2,193
Depreciation 910 902 898
General and administrative, including $174
paid to Sponsor in 1994 369 314 293
----------- ------------ -----------
Total expenses 5,726 5,665 5,781
----------- ------------ -----------
Income (loss) from operations 83 (161) (395)
Minority interest (2) 13 46
----------- ------------ -----------
Net income (loss) $ 81 $ (148) $ (349)
========== ============ ===========
Net income (loss) per limited partnership unit $ 0.03 $ (0.05) $ (0.12)
========= ========== ==========
Distributions per preferred unit:
Representing return of capital $ 0.29 $ 0.08 $ 0.10
From net income 0.03 -- --
---------- ----------- -----------
Total distributions per preferred unit $ 0.32 $ 0.08 $ 0.10
========= ========== ==========
Weighted average number of limited partnership
units outstanding during the period used to compute
net income (loss) per limited partnership unit 2,827,286 2,828,457 2,828,457
=========== ========= =========
Weighted average number of preferred units
outstanding during the period used to compute
distributions per preferred unit 2,121,516 2,121,785 2,121,785
=========== ========= =========
</TABLE>
The accompanying notes are in integral part of these consolidated financial
statements.
Page 19 of 31
<PAGE>
<TABLE>
<CAPTION>
RANCON PACIFIC REALTY L.P.
Consolidated Statements of Partners' Equity (Deficit)
For the years ended December 31, 1996, 1995 and 1994
(in thousands)
General Limited
Partner Partners Total
<S> <C> <C> <C>
Balance at December 31, 1993 $ (84) $ 10,259 $ 10,175
Distributions to partners (2) (210) (212)
Net loss (3) (346) (349)
--------- ----------- ----------
Balance at December 31, 1994 (89) 9,703 9,614
Distributions to partners -- (175) (175)
Net loss (1) (147) (148)
--------- ----------- ----------
Balance at December 31, 1995 (90) 9,381 9,291
Distributions to partners -- (700) (700)
Net income 1 80 81
Adjustment to minority interest (1) (64) (65)
---------- ------------ -----------
Balance at December 31, 1996 $ (90) $ 8,697 $ 8,607
========= ========== =========
</TABLE>
The accompanying notes are in integral part of these consolidated financial
statements.
Page 20 of 31
<PAGE>
<TABLE>
<CAPTION>
RANCON PACIFIC REALTY L.P.
Consolidated Statements of Cash Flows
For the years ended December 31, 1996, 1995 and 1994
(in thousands)
1996 1995 1994
---- ------- ------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 81 $ (148) $ (349)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation 910 902 898
Amortization of loan fees,
included in interest expense 73 47 39
Changes in certain assets and liabilities:
Accounts receivable 71 (69) (10)
Other assets (42) (68) --
Accounts payable and accrued expenses 13 55 (14)
Payable to sponsor -- (72) 63
Interest payable (4) 159 --
Other liabilities -- (4) --
----------- ----------- -----------
Net cash provided by operating activities 1,102 802 627
----------- ---------- -----------
Cash flows from investing activities:
Additions to rental properties (44) (81) --
------------ ---------- -----------
Net cash used for investing activities (44) (81) --
------------ ---------- -----------
Cash flows from financing activities:
Proceeds from note payable -- 13,500 --
Payoff of matured note payable -- (13,142) --
Closing costs and loan fees -- (473) --
Borrowings on notes payable -- -- 203
Notes payable principal payments (253) (187) (287)
Distributions to partners (700) (175) (212)
Distributions to minority interest holders, net (29) (36) (46)
------------ ---------- -----------
Net cash used for financing activities (982) (513) (342)
------------ ---------- -----------
Net increase in cash and cash equivalents 76 208 285
Cash and cash equivalents at beginning of year 1,331 1,123 838
----------- ---------- -----------
Cash and cash equivalents at end of year $ 1,407 $ 1,331 $ 1,123
=========== ========== ===========
Supplemental disclosure of cash flow information:
Cash paid for interest $ 1,883 $ 1,842 $ 1,951
=========== ========== ===========
</TABLE>
The accompanying notes are in integral part of these consolidated financial
statements.
Page 21 of 31
<PAGE>
RANCON PACIFIC REALTY L.P.
Notes to Consolidated Financial Statements
December 31, 1996, 1995 and 1994
Note 1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Organization
Rancon Pacific Realty L.P., a Delaware limited partnership (the Partnership),
was formed for the purpose of acquiring the assets, subject to the liabilities,
of three California limited partnerships: Shadow Hill Partners, Eastgate Village
Partners and Brichard-La Jolla Partners. The General Partner of the Partnership
is RC Pacific Realty Partners L.P., a Delaware limited partnership, of which RC
Pacific Realty, Inc. is the general partner and Rancon Financial Corporation
(RFC) (the Sponsor) and certain of its key employees and others are limited
partners.
Pursuant to a plan of exchange which was consummated in 1988, the Partnership
issued 707,500 exchange units and rights to purchase 2,122,500 preferred units
at a cost of $7 per preferred unit in exchange for the assets of Shadow Hill
Partners, Eastgate Village Partners and Brichard-La Jolla Partners (the
Participating Partnerships). The exchange units were allocated among the
Participating Partnerships using the appraised value of the real property owned
by them, less related mortgage indebtedness and adjusted for the book value of
other specified net assets as of September, 1987. Rights to purchase three
preferred units were issued with each exchange unit. Preferred Units covered by
unexercised rights were then sold to other investors.
The Partnership reached final funding in June, 1989. In 1992, the Partnership
repurchased and retired 715 preferred units and 828 exchange units were
abandoned by a limited partner. In 1996, 2,373 exchange units and 500 preferred
units were abandoned. Limited partners abandon their units when they desire to
no longer receive a K-1 from the Partnership. The equity of the abandoned
limited partner units has been allocated to the remaining limited partners. At
December 31, 1996, exchange and preferred units issued and outstanding were
704,299 and 2,121,285, respectively.
The Partnership and Transamerica Realty Investment Corporation formed Villa La
Jolla Partners (VLJP),("the Joint Venture"), which became the owner of the Villa
La Jolla Condominiums. Transamerica Realty Investment Corporation thereafter
transferred its 26.2% interest in VLJP to Transamerica La Jolla Partners (TLJP).
During 1988 and 1989, the Partnership made additional cash contributions to VLJP
in order to facilitate the payoff of the interim financing provided by TLJP.
Such cash contributions caused TLJP's ownership interest to decrease to 8.41%
and the Partnership's to increase to 91.59%. During 1996, it was determined that
a reallocation in the amount of $65,000 to the previous years allocations of
losses between TLJP and the Partnership was necessary. This amount appears as an
adjustment to minority interest on the Partnership's 1996 consolidated statement
of partners' equity.
In order to satisfy certain lender requirements for the Partnership's loan
secured by the Villa La Jolla Condominiums (see Note 4), VLJ Partners (formerly
known as Villa, L.P.), 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.
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 the market has
Page 22 of 31
<PAGE>
RANCON PACIFIC REALTY L.P.
Notes to Consolidated Financial Statements
December 31, 1996, 1995 and 1994
flattened and is no longer falling in terms of sales prices. 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.
General Partner and Management Matters
Effective January 1, 1994, RFC performed or contracted 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 to the provisions of the Partnership
Agreement. Prior to January 1, 1994, the Partnership had contracted with
Partnership Asset Management Company (PAMCO), a California corporation, to
perform the same services. Effective January 1, 1994, RFC entered into an
agreement with the owner of PAMCO to purchase all of its outstanding shares of
stock. PAMCO was not an affiliate of the Partnership or RFC at the time of
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, 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 subject to reduction in the year following the sale of
assets; (ii) sales fees of 2% for improved properties and 4% for land; (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. RFC has 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.
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.
Significant Accounting Policies
Basis of Accounting - The accompanying financial statements have been prepared
on the accrual basis of accounting in accordance with generally accepted
accounting principles under the presumption that the Partnership will continue
as a going concern.
Use of Estimates - The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that effect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported results of operations during the reporting period.
Actual results could differ from those estimates.
Page 23 of 31
<PAGE>
RANCON PACIFIC REALTY L.P.
Notes to Consolidated Financial Statements
December 31, 1996, 1995 and 1994
Risks and Uncertainties - The Partnership's ability to (i) achieve positive cash
flow from operations, (ii) meet its debt obligations, (iii) provide
distributions either from operations or the ultimate disposition of the
Partnership's properties or (iv) continue as a going concern, may be impacted by
changes in interest rates, property values, geographic economic conditions, or
the entry of other competitors into the market. The accompanying financial
statements do not provide for adjustments with regard to these uncertainties.
Principles of Consolidation - The consolidated financial statements include the
accounts of the Partnership and VLJP. As of December 31, 1996, 1995 and 1994,
the Partnership owned an 91.59% interest in VLJP and thus reports the results of
its operations on a consolidated basis. The joint venture agreement provides for
distributions and profit/loss allocations based on ownership percentages. All
significant intercompany balances and transactions have been eliminated in the
consolidation.
Investments in Real Estate - In 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." The Partnership adopted SFAS 121 in the fourth quarter of 1995.
SFAS 121 requires that long-lived assets be carried at the lower of carrying
amount or fair value and 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. There was no impact
on the financial position or results of operations of the partnership from the
initial adoption of SFAS 121. The specific accounting policies for assets to be
held and used are described in more detail below.
Rental Property - Rental properties are stated at cost and include the related
land unless events or circumstances indicate that cost cannot be recovered in
which case carrying value is reduced to estimated fair value. Estimated fair
value: (i) is based upon the Partnership's plans for the continued operation of
each property; (ii) is computed using estimated sales price, as determined by
prevailing market values for comparable properties and/or the use of
capitalization rates multiplied by annualized rental income based upon the age,
construction and use of the building, and (iii) does not purport, for a specific
property, to represent the current sales price that the Partnership could obtain
from third parties for such property. The fulfillment of the Partnership's plans
related to each of its properties is dependent upon, among other things, the
presence of economic conditions which will enable the Partnership to continue to
hold and operate the properties prior to their eventual sale. Due to
uncertainties inherent in the valuation process and in the economy, it is
reasonably possible that the actual results of operating and disposing of the
Partnership's properties could be materially different than current
expectations. Depreciation is provided using the straight-line method over the
useful lives of the respective assets (see Note 3).
Cash Equivalents - The Partnership considers all certificates of deposit and
money market funds with original maturities of less than ninety days to be cash
equivalents.
Deferred Financing Costs - Deferred loan fees are amortized over the life of the
related loan on a straight-line basis. Amortization expense, which is included
in interest expense, was $73,000, $47,000, and $39,000 for the years ended
December 31, 1996, 1995 and 1994, respectively.
Rental Income - Rental income is recognized as earned over the life of the
respective leases.
Page 24 of 31
<PAGE>
RANCON PACIFIC REALTY L.P.
Notes to Consolidated Financial Statements
December 31, 1996, 1995 and 1994
Allocation of Profits, Losses and Cash Distributions - Allocation of profits,
losses and cash distributions are made pursuant to the terms of the Partnership
Agreement dated December 31, 1987, which provide certain preferential treatment
for holders of preferred units.
Net Loss Per Limited Partnership Unit - Net loss per limited partnership unit is
calculated using the weighted average number of limited partners' units
outstanding during the period, including both preferred and exchange units, and
the limited partners' allocable share of the net loss.
Income Taxes - No provision for income taxes is included in the accompanying
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 and partners' equity (deficit) for financial reporting purposes will
differ from the Partnership income tax return because of different accounting
methods used for certain items, principally depreciation expense.
Reclassification - Certain 1995 and 1994 balances have been reclassified to
conform with the current year presentation.
Note 2. RELATED PARTY TRANSACTIONS
Reimbursable expenses and management fees to Sponsor
In 1994, the Partnership had an agreement with RFC for property management
services. The agreement provided for a management fee equal to 5% of gross rents
collected in addition to reimbursement of certain administrative expenses
incurred while managing the properties. Fees and costs incurred under this
agreement totaled $324,000 for the year ended December 31, 1994.
The Partnership Agreement also provides for the reimbursement of actual costs
incurred by RFC in providing certain administrative, legal and development
services necessary for the prudent operation of the Partnership. Reimbursable
costs incurred by the Partnership totaled $174,000 for the year ended December
31, 1994. Effective January 1, 1995, these services are provided by Glenborough
as described in Note 1.
Organizational and transitional management fee
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.
Page 25 of 31
<PAGE>
RANCON PACIFIC REALTY L.P.
Notes to Consolidated Financial Statements
December 31, 1996, 1995 and 1994
Note 3. RENTAL PROPERTY, NET
Rental property as of December 31 is as follows:
1996 1995
-------- ------
Land $ 14,213,000 $ 14,213,000
Buildings and improvements 27,083,000 27,039,000
Equipment 1,404,000 1,404,000
---------------- -----------------
42,700,000 42,656,000
Less: accumulated depreciation (11,932,000) (11,022,000)
---------------- -----------------
Total $ 30,768,000 $ 31,634,000
================ =================
All the Partnership's property has been pledged as security for notes payable.
Note 4. NOTES PAYABLE
<TABLE>
<CAPTION>
Notes payable consists of the following as of December 31: 1996 1995
------ ------
<S> <C> <C>
Note payable to Amresco Capital Corporation, secured by a first deed of trust on
Villa La Jolla Condominiums, bearing interest at a fixed rate of 8.625%, payable
in monthly installments of principal and interest in the amount of $105,000. The
outstanding balance is due September 1, 2002. $ 13,374,000 $ 13,476,000
Note payable to California Federal Savings & Loan, secured by a first deed of
trust on La Jolla Canyon Apartments, bearing interest at the 11th District cost
of funds rate plus 2.25% per annum (7.073% and 7.391% at December 31, 1996 and
1995, respectively), payable in monthly installments. The outstanding principal
balance is due October 1, 2018. 5,469,000 5,552,000
Note payable to California Federal Savings & Loan, secured by a first deed of
trust on Pacific Bay Club Apartments, bearing interest at the 11th District cost
of funds rate plus 2.25% per annum (7.073% and 7.391% at December 31, 1996 and
1995, respectively), payable in monthly installments. The outstanding principal
balance is due November 1, 2018. 4,494,000 4,561,000
---------- -----------
$ 23,337,000 $ 23,589,000
=========== ===========
</TABLE>
Page 26 of 31
<PAGE>
RANCON PACIFIC REALTY L.P.
Notes to Consolidated Financial Statements
December 31, 1996, 1995 and 1994
The aggregate annual maturities of notes payable for the years subsequent to
December 31, 1996, are as follows:
1997 $ 308,000
1998 332,000
1999 359,000
2000 387,000
2001 417,000
Thereafter 21,534,000
---------------
Total $ 23,337,000
==============
Note 5. TAXABLE INCOME
The Partnership's tax returns, the qualification of the Partnership as a
partnership for federal income tax purposes, and the amount of income or loss
are subject to examination by federal and state taxing authorities. If such
examinations result in changes to the Partnership's taxable income or loss, the
tax liability of the partners could change accordingly. The Partnership's tax
returns are filed on a calendar year basis. As such, the following is a
reconciliation of the net income for financial reporting purposes to the
estimated taxable income, for the years ended December 31, 1996, 1995 and 1994,
determined in accordance with accounting practices used in preparation of
federal income tax returns (in thousands).
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Net income (loss) per financial statements $ 81 $ (148) $ (349)
Financial reporting depreciation in excess
of tax reporting depreciation (399) (208) (308)
Operating expenses recognized in a
different period for tax reporting than
for financial reporting, net 42 (251) 60
-------- ------- --------
Estimated net loss for federal
income tax purposes $ (276) $ (607) $ (597)
========= ======== ========
</TABLE>
Page 27 of 31
<PAGE>
RANCON PACIFIC REALTY L.P.
Notes to Consolidated Financial Statements
December 31, 1996, 1995 and 1994
<TABLE>
<CAPTION>
The following is a reconciliation, as of December 31, 1996 and 1995, of
partner's equity for financial reporting purposes to estimated partners' equity
for federal income tax purposes (in thousands).
1996 1995
---- ----
<S> <C> <C>
Partners' equity per financial statements $ 8,607 $ 9,291
Cumulative provision for impairment of investment in real estate 2,754 2,754
Financial reporting depreciation in excess
of tax reporting depreciation (7,219) (6,820)
Property taxes capitalized for tax 813 813
Operating expenses recognized in a different period for financial
reporting than for tax reporting, net 42 (251)
Other, net (165) --
---------- ----------
Estimated partners' equity for
federal income tax purposes $ 4,832 $ 5,787
======== ==========
</TABLE>
Page 28 of 31
<PAGE>
<TABLE>
RANCON PACIFIC REALTY L.P.
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
December 31, 1996
(In Thousands)
<CAPTION>
COLUMN A COLUMN B COLUMN C COLUMN D
Cost Capitalized
Initial Cost to Subsequent to
Partnership Acquisition
Buildings
and Carrying
Description Encumbrances Land Improvements Improvements Cost
<S> <C> <C> <C> <C> <C>
Rental Properties:
Residential Property,
San Diego County,
California:
La Jolla Canyon
Apartments $ 5,469 $ 4,442 $ 5,290 $ 68 $ ---
Pacific Bay Club
Apartments 4,494 1,431 7,350 144 ---
Villa La Jolla
Condominiums 13,374 9,300 17,364 65 ---
Less: Provision for
impairment of investment
in real estate (2) --- (960) (1,745) (49) ---
------- --------- --------- ------- -------
$ 23,337 $ 14,213 $ 28,259 $ 228 $ ---
======== ======== ======= ======= ===========
<FN>
(2) During 1986 a provision for impairment of investment in real estate of
$2,754 was recorded based on the appraised value of Villa La Jolla
Condominiums.
</FN>
</TABLE>
Page 29 of 31
<PAGE>
<TABLE>
RANCON PACIFIC REALTY L.P.
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
December 31, 1996
(In Thousands)
<CAPTION>
COLUMN A COLUMN E COLUMN F COLUMN G COLUMN H COLUMN I
Gross Amount Carried
at December 31, 1996
Building Date Life
and (1) Accumulated Construction Date Depreciated
Description Land Improvements Total Depreciation Began Acquired Over
<S> <C> <C> <C> <C> <C> <C>
Rental Properties:
Residential Property,
San Diego County,
California:
La Jolla Canyon
Apartments $ 4,442 $ 5,358 $ 9,800 $ 2,424 N/A 4/29/85 5 -30 yrs.
Pacific Bay Club
Apartments 1,431 7,494 8,925 3,183 N/A 12/14/84 5 -30 yrs.
Villa La Jolla
Condominiums 9,300 17,429 26,729 6,325 N/A 8/30/85 5 -30 yrs.
Less: Provision for
impairment of invest
in real estate (2) (960) (1,794) (2,754) ---
-------- -------- ------- -------
$ 14,213 $ 28,487 $ 42,700 $ 11,932
======== ======= ======== =======
<FN>
(1) The aggregate cost for Federal income tax purposes is $48,424.
(2) During 1986 a provision for impairment of investment in real estate of
$2,754 was recorded based on the appraised value of Villa La Jolla
Condominiums.
</FN>
</TABLE>
Page 29 of 31
<PAGE>
RANCON PACIFIC REALTY L.P.
NOTE TO SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
(In Thousands)
<TABLE>
<CAPTION>
Reconciliation of gross amount at which real estate was carried:
For the years ended December 31,
1996 1995 1994
Investment in real estate
<S> <C> <C> <C>
Balance at beginning of period $ 42,656 $ 42,575 $ 42,575
Additions during period:
Improvements 44 81 --
----------- ----------- ------------
Balance at end of period $ 42,700 $ 42,656 $ 42,575
========== ========== ===========
Accumulated Depreciation
Balance at beginning of period $ 11,022 $ 10,120 $ 9,222
Additions charged to expenses 910 902 898
----------- ----------- ------------
Balance at end of period $ 11,932 $ 11,022 $ 10,120
========== ========== ===========
</TABLE>
Page 30 of 31
<PAGE>
RANCON PACIFIC REALTY L.P.
INDEX TO EXHIBITS
Exhibit Number Exhibit Page
(27) Financial data schedule
Page 31 of 31
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000823610
<NAME> Rancon Pacific Realty, L.P.
<MULTIPLIER> 1,000
<CURRENCY> u.s. dollars
<S> <C>
<PERIOD-TYPE> year
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<EXCHANGE-RATE> 1.000
<CASH> 1,407
<SECURITIES> 0
<RECEIVABLES> 5
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1,413
<PP&E> 30,768
<DEPRECIATION> 11,932
<TOTAL-ASSETS> 32,843
<CURRENT-LIABILITIES> 70
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 8,607
<TOTAL-LIABILITY-AND-EQUITY> 32,843
<SALES> 0
<TOTAL-REVENUES> 5,809
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 3,774
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,952
<INCOME-PRETAX> 81
<INCOME-TAX> 0
<INCOME-CONTINUING> 81
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 81
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
