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, 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 June 30, 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)
June 30, December 31,
1998 1997
-------------- ---------------
Assets
Rental property:
Land $ -- $ 14,213
Buildings and improvements -- 28,523
-------------- --------------
-- 42,736
Less accumulated depreciation -- (12,748)
Net rental property -- 29,988
Cash and cash equivalents 32,555 1,876
Deferred financing costs, net of
accumulated amortization of $207
at December 31, 1997 -- 425
Other assets 30 87
-------------- --------------
Total assets $ 32,585 $ 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>
June 30, December 31,
1998 1997
------------- -------------
<S> <C> <C>
Liabilities and Partners' Equity (Deficit)
- ------------------------------------------
Liabilities:
Notes payable $ -- $ 23,027
Accounts payable and accrued expenses 1,498 72
Interest payable -- 154
Other liabilities -- 275
------------- -------------
Total liabilities 1,498 23,528
------------- -------------
Minority interest 1,492 382
------------- -------------
Partners' equity (deficit):
General Partner 130 (85)
Limited Partners, 2,822,828 limited partnership
units outstanding at June 30, 1998 and
December 31, 1997, respectively
(including 2,121,285 preferred units outstanding
at June 30, 1998 and December 31, 1997) 29,465 8,551
------------- -------------
Total partners' equity 29,595 8,466
------------- -------------
Total liabilities and partners' equity $ 32,585 $ 32,376
============= =============
</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,
------------------------------ -----------------------------
1998 1997 1998 1997
------------- ------------ ----------- -----------
<S> <C> <C> <C> <C>
Revenues:
Rental income $ 1,622 $ 1,526 $ 3,230 $ 3,010
Interest and other income 45 25 83 49
Gain on sales of rental properties 23,565 -- 23,565 --
----------- ------------ ----------- -----------
Total revenue 25,232 1,551 26,878 3,059
----------- ------------ ----------- -----------
Expenses:
Operating 623 622 1,260 1,252
Interest 477 479 956 961
Depreciation 235 229 467 457
General and administrative 105 82 189 161
Organizational and transitional
management fee 1,395 -- 1,395 --
----------- ------------ ----------- -----------
Total expenses 2,835 1,412 4,267 2,831
----------- ------------ ----------- -----------
Income before minority interest 22,397 139 22,611 228
Minority interest (1121) (2) (1132) (6)
----------- ------------- ----------- -----------
Net income $ 21,276 $ 137 $ 21,479 $ 222
============ ============= =========== ===========
Net income per limited partnership unit $ 7.46 $ 0.05 $ 7.53 $ 0.08
=========== ============ =========== ===========
Distributions per preferred unit:
From net income $ 0.08 $ 0.05 $ 0.16 $ 0.08
Representing return of capital -- 0.03 -- 0.08
----------- ------------ ----------- -----------
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 per limited partnership
unit 2,822,828 2,824,155 2,822,828 2,824,621
=========== ============ ============ ===========
Weighted average number of preferred units
outstanding during the period used to
compute distributions per preferred unit 2,121,285 2,121,285 2,121,285 2,121,285
=========== ============ ============ ===========
</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, 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 215 21,264 21,479
Distributions -- (350) (350)
------------- ------------ -------------
Balance at June 30, 1998 $ 130 $ 29,465 $ 29,595
============= ============ =============
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
============= ============ =============
</TABLE>
See accompanying notes to consolidated financial statements.
Page 5 of 12
<PAGE>
RANCON PACIFIC REALTY L.P.
Consolidated Statements of Cash Flows
(in thousands)
(Unaudited)
<TABLE>
<CAPTION>
Six months ended
June 30,
-------------------------------
1998 1997
-------------------------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 21,479 $ 222
Adjustments to reconcile net income to net cash
provided by operating activities:
Gain on sales of rental properties (23,565) --
Depreciation 467 457
Amortization of loan fees, included in interest expense 36 36
Minority interest in net income and distributions 1,110 (26)
Changes in certain assets and liabilities:
Accounts receivable, prepaid and impound accounts (102) 41
Accounts payable and accrued expenses 1,426 5
Interest payable (154) (2)
Security deposits 7 33
---------- ----------
Net cash provided by operating activities 704 766
---------- ----------
Cash flows from investing activities:
Additions to real estate (172) (45)
Sales proceeds (net of closing costs) 53,524 --
---------- -----------
Net cash provided by (used for) investing activities 53,352 (45)
---------- -----------
Cash flows from financing activities:
Notes payable principal payments (23,027) (152)
Distributions to partners (350) (350)
---------- -----------
Net cash used for financing activities (23,377) (502)
---------- ----------
Net increase in cash and cash equivalents 30,679 219
Cash and cash equivalents at beginning of period 1,876 1,407
---------- ----------
Cash and cash equivalents at end of period $ 32,555 $ 1,626
========== ==========
Supplemental disclosure of cash flow information:
Cash paid for interest $ 920 $ 927
========== ==========
</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, 1998
(Unaudited)
Note 1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
------------------------------------------------
In the opinion of RC Pacific Realty Partners, L.P., general partner, 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
June 30, 1998 and December 31, 1997, and the related consolidated statements of
operations for the three and six months ended June 30, 1998 and 1997, and the
changes in partners' equity (deficit) and cash flows for the six months ended
June 30, 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 and
Preferred Partnership Services, Inc. ("PPS"), a California Corporation
unaffiliated with the Partnership, contracted to assume these 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
Notes to Consolidated Financial Statements included in the 1997 audited
financial statements.
Page 7 of 12
<PAGE>
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 would
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 was paid to Glenborough in August 1998,
as the criteria set forth above was met.
Note 4. DISPOSITION OF ASSETS
---------------------
On June 30, 1998, the Partnership sold its two wholly-owned real estate assets,
the Pacific Bay Club and La Jolla Canyon apartments, to an unaffiliated third
party for a total purchase price of $24,400,000. After paying off the underlying
loans and closing costs (including commissions and fees), the Partnership added
the net proceeds of $13,689,000 to its cash reserves.
Also on June 30, 1998, the Partnership's majority owned partnership, Villa La
Jolla Partners, sold its only real estate asset, Villa La Jolla Apartments, to
an unaffiliated third party for a total purchase price of $31,600,000. After
paying off the underlying loan and closing costs (including commissions and
fees), Villa La Jolla Partners added the net proceeds of $17,095,000 to its cash
reserves. Subsequent to June 30, 1998, after reserving funds for unpaid
liabilities, Villa La Jolla Partners made final distributions to the partners
totaling approximately $17,434,000.
On August 3, 1998, the Partnership received its final liquidating distribution
from Villa La Jolla Partners of approximately $15,968,000. After reserving for
potential liabilities and prior to August 31, 1998, the Partnership will make a
preliminary liquidating distribution to the partners totaling approximately
$29,158,000.
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, 1998 and its results of operations for the six months ended June 30, 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
- -------------------------------
On June 30, 1998, the Partnership sold its two wholly-owned real estate assets,
the Pacific Bay Club and La Jolla Canyon apartments, to an unaffiliated third
party for a total purchase price of $24,400,000. After paying off the underlying
loans and closing costs (including commissions and fees), the Partnership added
the net proceeds of $13,689,000 to its cash reserves.
Also on June 30, 1998, the Partnership's majority owned partnership, Villa La
Jolla Partners, sold its only real estate asset, Villa La Jolla Apartments, to
an unaffiliated third party for a total purchase price of $31,600,000. After
paying off the underlying loan and closing costs (including commissions and
fees), Villa La Jolla Partners added the net proceeds of $17,095,000 to its cash
reserves. In August, after reserving fund for unpaid liabilities, Villa La Jolla
Partners made a final distribution to the partners totaling approximately
$17,434,000, of which the Partnership received approximately $15,968,000.
After reserving for potential liabilities and prior to August 31, 1998, the
Partnership will make a preliminary liquidating distribution to the partners
totaling approximately $29,158,000.
As of June 30, 1998, the Partnership had cash and cash equivalents of
$32,555,000, most of which resulted from the sales of the three properties.
Prior to making the final liquidating distributions, the Partnership invested
approximately $ 31,550,000 in certificates of deposits which earned interest at
5.25%.
Accounts payable and accrued expenses increased from $72,000 at December 31,
1997 to $1,498,000 at June 30, 1998 due to the accrual of the organizational and
transitional management fee of $1,395,000 paid to Glenborough in August 1998,
security deposits and net operating expense pro-rations due to the purchasers of
the rental properties and the accrual of tax return preparation fees.
RESULTS OF OPERATIONS
- ---------------------
Rental income for the three and six months ended June 30, 1998 as compared to
1997 increased $96,000 or 6% and $220,000 or 7%, respectively, primarily due to
increased rental rates at all of the Partnership's properties. Occupancy rates
as of June 30, 1998 were 99%, 98% and 98% for Pacific Bay Club, La Jolla Canyon
and Villa La Jolla, respectively, compared to 98%, 97% and 97%, respectively, as
of the same date in 1997.
The increase in interest income and other income is primarily due to an increase
in interest income on invested cash balances for the three and six months ended
June 30, 1998 compared to the same periods in 1997.
Page 9 of 12
<PAGE>
Operating expense and depreciation and amortization expense remained consistent
during the three and six months ended June 30, 1998 and the three and six months
ended June 30, 1997.
Interest expense continued to decline due to the decreasing balance of the
Partnership's outstanding debt.
General and administrative costs increased $23,000 and $28,000 for the three and
six months ended June 30, 1998, respectively, compared to 1997 primarily due to
an appraisal fee paid in 1998 rendered in connection with the valuation of the
properties and an increase of tax preparation fees.
Page 10 of 12
<PAGE>
Part II. OTHER INFORMATION
Item 1. Legal Proceedings
Registrant has been named as a defendant in a case involving
alleged defects in the development of homes in and around
Carlsbad, California. At this time management does not believe
the Registrant has any liability and has filed a motion for
summary judgement to have the entity dismissed with prejudice.
The defense in the case is being provided by the Registrants
insurance carrier.
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:
Registrant filed a Current Report on Form 8-K dated July 14,
1998 reporting the sale of the wholly-owned assets (Pacific
Bay Club and La Jolla Canyon apartments), and also reporting
the sale of the only real estate asset (Villa La Jolla
apartment) owned by Villa La Jolla - the Partnership's
majority owned partnership. Also included were the pro-forma
financial statements.
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, 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
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000823610
<NAME> Rancon Pacific Realty, L.P.
<MULTIPLIER> 1000
<CURRENCY> U.S. Dollars
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> Dec-31-1998
<PERIOD-START> Jan-01-1998
<PERIOD-END> Jun-30-1998
<EXCHANGE-RATE> 1.000
<CASH> 32,555
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 30
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 32,585
<CURRENT-LIABILITIES> 1,498
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 29,595
<TOTAL-LIABILITY-AND-EQUITY> 32,585
<SALES> 0
<TOTAL-REVENUES> 25,232
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 2,358
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 477
<INCOME-PRETAX> 21,276
<INCOME-TAX> 0
<INCOME-CONTINUING> 21,276
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 21,276
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
