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 March 31, 1998
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)
(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 March 31, 1998: 2,822,828
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)
March 31, December 31,
1998 1997
-------------- ---------------
Assets
- ------
Rental property:
Land $ 14,213 $ 14,213
Buildings and improvements 28,634 28,523
-------------- --------------
42,847 42,736
Less accumulated depreciation (12,980) (12,748)
--------------- --------------
Net rental property 29,867 29,988
Cash and cash equivalents 1,891 1,876
Deferred financing costs, net of
accumulated amortization of $225 and
$207 at March 31, 1998 and
December 31, 1997, respectively 407 425
Other assets 233 87
--------------- ---------------
Total assets $ 32,398 $ 32,376
============== ==============
- continued -
Page 2 of 12
<PAGE>
RANCON PACIFIC REALTY L.P.
Consolidated Balance Sheets - continued
(in thousands, except units outstanding)
(Unaudited)
<TABLE>
<CAPTION>
March 31, December 31,
1998 1997
-------------- --------------
<S> <C> <C>
Liabilities and Partners' Equity (Deficit)
- ------------------------------------------
Liabilities:
Notes payable $ 22,949 $ 23,027
Accounts payable and accrued expenses 158 72
Interest payable 153 154
Other liabilities 272 275
------------- -------------
Total liabilities 23,532 23,528
------------- -------------
Commitments and contingent liabilities (see Note 3)
Minority interest 372 382
------------- -------------
Partners' equity (deficit):
General Partner (83) (85)
Limited Partners, 2,822,828 limited partnership units
outstanding at March 31, 1998 and December 31,
1997 (including 2,121,285 preferred units
outstanding at March 31, 1998 and December 31, 1997) 8,577 8,551
------------- -------------
Total partners' equity 8,494 8,466
------------- -------------
Total liabilities and partners' equity $ 32,398 $ 32,376
============= =============
</TABLE>
See accompanying notes to consolidated financialstatements.
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
March 31,
------------------
1998 1997
------------- -------------
<S> <C> <C>
Revenue:
Rental income $ 1,608 $ 1,484
Interest and other income 38 24
------------- -------------
Total revenue 1,646 1,508
------------- -------------
Expenses:
Operating 637 630
Interest 479 482
Depreciation 232 228
General and administrative 84 79
------------- -------------
Total expenses 1,432 1,419
------------- -------------
Income before minority interest 214 89
Minority interest (11) (4)
-------------- -------------
Net income $ 203 $ 85
============= =============
Net income per limited partnership unit $ 0.07 $ 0.03
============= =============
Distributions per preferred unit:
From net income $ 0.07 $ 0.03
Representing return of capital 0.01 0.05
------------- -------------
Total distributions per preferred unit $ 0.08 $ 0.08
============= =============
Weighted average number of limited
partnership units outstanding during
the period used to compute net
income per limited partnership unit 2,822,828 2,825,071
============= =============
Weighted average number of preferred units
outstanding during the period used to compute
distributions per preferred unit 2,121,285 2,121,285
============= =============
See accompanyingnotes to consolidated financial statements.
</TABLE>
Page 4 of 12
<PAGE>
RANCON PACIFIC REALTY L.P.
Consolidated Statements of Partners' Equity (Deficit)
For the three months ended March 31,1998 and 1997
(in thousands)
(Unaudited)
<TABLE>
<CAPTION>
General Limited
Partner Partners Total
------------- ------------ -------------
<S> <C> <C> <C>
Balance at December 31, 1997 $ (85) $ 8,551 $ 8,466
Net income 2 201 203
Distributions -- (175) (175)
-------------- ------------- ------------
Balance at March 31, 1998 $ (83) $ 8,577 $ 8,494
============== ============ =============
Balance at December 31, 1996 $ (90) $ 8,697 $ 8,607
Net income 1 84 85
Distributions -- (175) (175)
-------------- ------------- ------------
Balance at March 31, 1997 $ (89) $ 8,606 $ 8,517
============== ============= ============
</TABLE>
See accompanying notes to consolidated financialstatements.
Page 5 of 12
<PAGE>
RANCON PACIFIC REALTY L.P.
Consolidated Statements of Cash Flows
(in thousands)
(Unaudited)
<TABLE>
<CAPTION>
Three months ended
March 31,
----------------------------
1998 1997
----------------------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 203 $ 85
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 232 228
Amortization of loan fees, included in interest expense 18 18
Minority interest in net income and distributions (10) (3)
Changes in certain assets and liabilities:
Other assets (146) (62)
Accounts payable and accrued expenses 86 101
Interest payable (1) (1)
Other liabilities (3) 25
----------- ----------
Net cash provided by operating activities 379 391
---------- ----------
Cash flows from investing activities:
Additions to real estate (111) (19)
----------- ----------
Net cash used for investing activities (111) (19)
----------- ----------
Cash flows from financing activities:
Note payable principal payments (78) (75)
Distributions to partners (175) (175)
----------- -----------
Net cash used for financing activities (253) (250)
----------- -----------
Net increase in cash and cash equivalents 15 122
Cash and cash equivalents at beginning of period 1,876 1,407
---------- ----------
Cash and cash equivalents at end of period $ 1,891 $ 1,529
========== ==========
Supplemental disclosure of cash flow information:
Cash paid for interest $ 462 $ 465
========== ===========
</TABLE>
See accompanying notes to consolidated financialstatements.
Page 6 of 12
<PAGE>
RANCON PACIFIC REALTY L.P.
Notes to Consolidated Financial Statements
March 31, 1998
(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)
("Glenborough"), 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 March 31, 1998 and
December 31, 1997, and the related consolidated statements of income, changes in
partners' equity (deficit) and cash flows for the three months ended March 31,
1998 and 1997.
Effective January 1, 1995, Rancon Financial Corporation (RFC), an affiliate of
the Partnership, entered into an agreement with 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. Effective January 1, 1998 the agreement was amended to eliminate
Glenborough's responsibility for providing investor relation services. According
to the contract, the Partnership will pay Glenborough for its services as
follows: (i) a specified asset administration fee ($181,000 in 1998); (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. Glenborough is not
an affiliate of RFC or the Partnership.
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 significant intercompany
balances and transactions have been eliminated in the consolidation.
Reclassification - Certain 1997 balances have been reclassified to conform to
the current year presentation.
Note 2. REFERENCE TO 1997 AUDITED FINANCIAL STATEMENTS
----------------------------------------------
These unaudited financial statements should be read in conjunction with the
consolidated Notes to Financial Statements included in the 1997 audited
financial statements.
Page 7 of 12
<PAGE>
RANCON PACIFIC REALTY, L.P.
Notes to Consolidated Financial Statements
March 31, 1998
(Unaudited)
Note 3. COMMITMENT AND CONTINGENCY
--------------------------
Organizational and Transitional Management Fee
- ----------------------------------------------
Pursuant to a plan of exchange which was consummated in 1988, Glenborough,
through an Assignment of Right to Receive Organizational and Transitional
Management Fees from 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 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
March 31, 1998 and its results of operations for the three months ended March
31, 1998 and 1997. This information should be read in conjunction with the
Partnership's audited December 31, 1997 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 March 31, 1998, the
Partnership had cash and cash equivalents of $1,891,000. The remainder of the
Partnership's assets consists primarily of its investments in three residential
properties which have a net book value totaling approximately $29,867,000 at
March 31, 1998.
The Partnership currently owns three properties: Pacific Bay Club Apartments (a
159 unit apartment complex in San Diego, California), La Jolla Canyon Apartments
(a 157 unit apartment complex in San Diego, California) and Villa La Jolla
Condominiums (a 385 unit condominium complex in San Diego, California).
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 has continued 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. Due to the explosive San Diego apartment market, we are
currently offering the assets for sale at a gross minimum price of
$54,7000,000.00, which is considerably higher than is reflected in our financial
statements.
The increase in other assets of $146,000, or 168%, is due to a $73,000 decrease
in tenant prepaid rent from December 31, 1997 to March 31, 1998 combined with a
$73,000 increase in impound accounts, as required by a lender.
Accounts payable and accrued expenses increased from $72,000 at December 31,
1997 to $158,000 at March 31, 1998 due to the accrual of property taxes which
are payable in April 1998.
RESULTS OF OPERATIONS
- ---------------------
Rental income for the three months ended March 31, 1998 as compared to the same
period in 1997 increased 8% or $124,000 primarily due to increased rental rates
at all of the Partnership's properties and an increase in occupancy at Villa La
Jolla. Occupancy rates as of March 31, 1998 were 98%, 99% and 99% for Pacific
Bay Club, La Jolla Canyon and Villa La Jolla, respectively, compared to 98%, 99%
and 97%, respectively, as of the same date in 1997.
Page 9 of 12
<PAGE>
The increase in interest income and other income is due to a $7,000 increase in
laundry income and a $7,000 increase in interest income during the three months
ended March 31, 1998 compared to the three months ended March 31, 1997.
Operating expense and depreciation and amortization expense remained consistent
during the three months ended March 31, 1998 and the three months ended March
31, 1997.
Interest expense continues to decline due to the decreasing balance of the
Partnership's outstanding debt.
General and administrative costs increased $5,000 or 6% for the three months
ended March 31, 1998 compared to 1997 primarily due to an appraisal fee paid in
1998 rendered in connection with the valuation of the properties.
Year 2000 Compliance
- --------------------
The Partnership utilizes a number of computer software programs and operating
systems across its entire organization, including applications used in financial
business systems and various administrative functions. To the extent that the
Partnership's software applications contain a source code that is unable to
appropriately interpret the upcoming calendar year "2000" and beyond, some level
of modification, or replacement of such applications will be necessary. The
Partnership has completed its identification of applications that are not yet
"Year 2000" compliant and has commenced modification or replacement of such
applications, as necessary. Given the information known at this time about the
Partnership's systems that are non-compliant, coupled with the Partnership's
ongoing, normal course-of-business efforts to upgrade or replace critical
systems, as necessary, management does not expect "Year 2000" compliance costs
to have any material adverse impact on the Partnership's liquidity or ongoing
results of operations. No assurance can be given, however, that all of the
Partnership's systems will be "Year 2000" compliant or that compliance costs or
the impact of the Partnership's failure to achieve substantial "Year 2000"
compliance will not have a material adverse effect on the Partnership's future
liquidity or results of operations.
Page 10 of 12
<PAGE>
Part II. OTHER INFORMATION
Item 1. Legal Proceedings
None.
Item 2. Changes in Securities
Not applicable.
Item 3. Defaults Upon Senior Securities
Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders
None.
Item 5. Other Information
None.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
#27 - Financial Data Schedule.
(b) Reports on Form 8-K:
None.
Page 11 of 12
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
RANCON PACIFIC REALTY, L.P.
A CALIFORNIA LIMITED PARTNERSHIP
(Registrant)
By: RC PACIFIC REALTY PARTNERS, L.P.
General Partner
Date: May 14, 1998 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
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000823610
<NAME> Ranco Pacific Realty, L.P.
<MULTIPLIER> 1000
<CURRENCY> U.S. Dollars
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> Dec-31-1998
<PERIOD-START> Jan-01-1998
<PERIOD-END> Mar-31-1998
<EXCHANGE-RATE> 1.000
<CASH> 1,891
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 2,124
<PP&E> 42,847
<DEPRECIATION> 12,980
<TOTAL-ASSETS> 32,398
<CURRENT-LIABILITIES> 430
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 8,494
<TOTAL-LIABILITY-AND-EQUITY> 32,398
<SALES> 0
<TOTAL-REVENUES> 1,646
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 721
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 479
<INCOME-PRETAX> 203
<INCOME-TAX> 0
<INCOME-CONTINUING> 203
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 203
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
