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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, 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: 0-16467
RANCON REALTY FUND V,
A CALIFORNIA LIMITED PARTNERSHIP (Exact
name of registrant as specified in its charter)
California 33-0098488
(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)
Partnership's telephone number, including area code (650) 343-9300
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Units of Limited Partnership Interest
(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 Partnership. Not applicable
No market for the Limited Partnership units exists and therefore a market value
for such units cannot be determined.
DOCUMENTS INCORPORATED BY REFERENCE:
Prospectus dated December 29, 1986, as amended on January 5, 1987, filed
pursuant to Rule 424(b), File no. 2-90327, is incorporated by reference in Part
IV hereof.
Part I
Item 1. Business
Rancon Realty Fund V, a California Limited Partnership, ("the Partnership") was
organized in accordance with the provisions of the California Revised Limited
Partnership Act for the purpose of acquiring, developing, operating and
ultimately selling real property. The Partnership was organized in 1985 and
completed its public offerings of limited partnership units ("Units") in
February, 1989. The general partners of the Partnership are Daniel L. Stephenson
("DLS") and Rancon Financial Corporation ("RFC"), collectively, the "General
Partner". RFC is wholly owned by DLS. At December 31, 1998, 96,444 Units were
outstanding. The Partnership has no employees.
The Partnership's initial acquisition of property in June, 1985 was for
approximately 76.21 acres of partially developed and unimproved land located in
San Bernardino, California. The property is part of a master-planned development
of 153 acres known as Tri-City Corporate Centre ("Tri-City") and is zoned for
mixed commercial, office, hotel, transportation-related, and light industrial
uses. The balance of Tri-City is owned by Rancon Realty Fund IV ("Fund IV"), a
partnership sponsored by the General Partners of the Partnership. Since the
acquisition of the land, the Partnership has constructed eight projects at
Tri-City consisting of five office projects, one industrial property, a 25,000
square foot health club, and a 6,500 square foot restaurant, all of which are
more fully described in Item 2. Fund IV has constructed three office buildings,
one industrial property, and five commercial properties.
Subsequent acquisitions have included approximately 56.3 acres of unimproved
land in Ontario, California (known as Rancon Centre Ontario) in May, 1987, a
portion of which has since been developed, approximately 23.8 acres of
unimproved land in Perris, California (known as Perris-Ethanac Road) in March,
1989 and approximately 83 acres of unimproved land in Perris, California (known
as Perris-Nuevo Road) in December, 1989. Each of these properties are further
described in Item 2.
In May 1996, the Partnership formed Rancon Realty Fund V Tri-City Limited
Partnership, a Delaware limited partnership ("RRF V Tri-City"). As required by
the lender (Bear, Stearns Funding, Inc.) of a $9,600,000 loan obtained by the
Partnership in 1996, the Partnership contributed three of its operating
properties to RRF V Tri-City to provide a bankruptcy remote borrower for the
lender. The loan, secured by the properties in RRF V Tri-City, has a principal
balance of $9,330,000 at December 31, 1998, and matures on August 1, 2006 with a
9.39% fixed interest rate and a 25 year amortization of principal. The limited
partner of RRF V Tri-City is the Partnership and the general partner is Rancon
Realty Fund V, Inc. ("RRF V, Inc."), a corporation wholly owned by the
Partnership. Since the Partnership owns 100% of RRF V, Inc. and indirectly owns
100% of RRF V Tri-City, the Partnership considers all assets owned by RRF V,
Inc. and RRF V Tri-City to be owned by the Partnership.
In 1997, the Partnership entered into an agreement to sell all of its real
estate assets to Glenborough Realty Trust Incorporated, a Maryland corporation
("GLB") and Glenborough Properties L.P. ("GPLP") (collectively as the "Buyer"),
and then to liquidate the Partnership as described in a Consent Solicitation
Statement sent to the Unitholders on October 17, 1997 (and filed with the
Securities and Exchange Commission on the same date under cover of Schedule 14A)
upon the completion of the sale. In November 1997, the Unitholders consented to
the sale of the Partnership's real estate assets and the subsequent liquidation
of the Partnership with fifty-nine percent of the total outstanding Units cast
in favor of such proposal. However; in December 1997, the General Partner
determined that it would be in the best interest of the Partnership to rescind
the agreement for the sale of the real estate assets. The General Partner
experienced greater than anticipated opposition to the timing of the sale by the
Limited Partners who voted against (9% of the outstanding Units), abstained from
(1% of the outstanding Units)
or did not respond to (30% of the outstanding Units) the proposal. In addition,
the General Partner, sensing the beginning of positive changes in the real
estate market, believed that holding the Partnership's real estate assets for an
additional period of time would provide the Partnership with the opportunity to
recognize an appreciation in its value.
As part of the Partnership's agreement with the Buyer to rescind the agreement
for the sale of the real estate assets, the Partnership granted to the Buyer a
right to match offers for the purchase of the Partnership's properties ("GLB
Matching Right"). Pursuant to the GLB Matching Right, the Partnership agreed
that if it decided to sell all or any portion of the properties, it would do so
by requesting multiple party offers, and upon its decision to accept an offer,
the Partnership is required to give prompt written notice to the Buyer of the
price and other terms and conditions of the offer upon which it is willing to
sell the properties. The Buyer has ten days after receipt of the written notice
to accept or reject the purchase price and other terms and conditions of the
sale. If the Buyer exercises its matching right, the Partnership and the Buyer
must promptly execute a purchase agreement, and if on the other hand, the Buyer
notifies the Partnership that it does not intend to or fails to respond within
the ten day period, the Partnership has the right to sell the properties to the
third party offerer on the identical terms and conditions as set forth in the
Partnership's notice to the Buyer.
The General Partner currently plans to seek the Limited Partners' consent to
sell all of the Partnership's remaining properties and liquidate the
Partnership. The General Partner hopes to mail consent solicitation materials to
the Limited Partners in the second quarter of 1999 and has filed preliminary
consent solicitation materials with the United States Securities and Exchange
Commission (the "Commission"). Assuming a proposal to sell all of the
Partnership's remaining properties and liquidate the Partnership is submitted to
and approved by the Limited Partners, the General Partner currently intends to
sell all of the Partnership's remaining properties in 1999 and distribute the
proceeds and liquidate the Partnership after all of the properties are sold and
the cash proceeds thereof received, which is not expected to occur prior to at
least early to mid-2000 (and potentially not until 2001) as some of the
properties may be sold with the purchase price payable on an installment basis.
The Partnership has not, as of the date of the filing of this Annual Report on
Form 10-K with the Commission, entered into any agreement for the sale of its
remaining properties. If the Limited Partners consent to the Partnership selling
all of its remaining properties and then liquidating, the General Partner
currently intends to offer the Partnership's remaining properties for sale by
soliciting bids from various potential purchasers.
The discussion above contains forward-looking statements regarding the
Partnership's plans, goals and expectations, including statements regarding the
Partnership's estimate of the timing of the sale of the Partnership's remaining
properties, the distribution of proceeds and the liquidation of the Partnership.
Forward-looking statements are necessarily speculative, there being certain
risks and uncertainties that could cause actual events or results to differ
materially from those referred to in the forward-looking statements. The General
Partners' current plans are subject to change, including in the event of changes
in general business and economic conditions as well as changes in the local real
estate markets where the Partnership's properties are located. There can be no
assurance that regulatory approval will be obtained, if and when consent
solicitation materials will be mailed to Limited Partners, that a proposal for
the sale of all of the Partnership's remaining properties and liquidation of the
Partnership will be approved, or if and when the properties will be sold, the
proceeds distributed and the Partnership liquidated. The timing of any sale of
the Partnership's remaining properties, the distribution of proceeds, and the
liquidation of the Partnership are subject to various and significant
uncertainties, many of which are beyond the Partnership's control and which
could delay any sale of the Partnership's remaining properties, liquidation of
the Partnership, and distribution of proceeds
significantly beyond the time periods estimated above. Among such uncertainties
are the date when any consent solicitation materials are mailed to the Limited
partners, the date when consent of the Limited Partners is obtained (assuming it
is obtained), the demand for the Partnership's properties by potential
purchasers, the availability of capital for potential purchasers, the actual
dates when properties are sold, and the duration of any installment sales of any
of the properties.
If a proposal for the sale of the Partnership's properties and liquidation of
the Partnership is submitted to the Limited Partners, but not approved, the
Partnership currently intends to continue to operate the properties and attempt
to sell such properties in single or multiple sales and develop properties it
believes are developable and would improve its return on investment.
Competition Within the Market
The Partnership competes in the leasing and sale of its properties primarily
with other available properties in the local real estate market. Management is
not aware of any specific competitors of the Partnership's properties doing
business on a significant scale in the local 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. Additional competitive factors with
respect to commercial and industrial properties are the ease of access to the
property, the adequacy of related facilities, such as parking, and the ability
to provide rent concessions and tenant improvements commensurate with local
market conditions. 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, 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.
Item 2. Properties
Tri-City Corporate Centre
On June 3, 1985, the Partnership acquired 76.21 acres of partially developed
land in Tri-City for a total acquisition price of $14,118,000. In 1984 and 1985,
a total of 76.56 acres within Tri-City was acquired by Fund IV.
Tri-City Corporate Center is located at the northeastern quadrant of the
intersection of Interstate 10 (San Bernardino Freeway) and Waterman Avenue in
the southernmost part of the City of San Bernardino, and is in the heart of the
Inland Empire, the most densely populated area of San Bernardino and Riverside
counties.
The Partnership has constructed and owns the following eight operating
properties in Tri-City:
Property Type Square Feet
- - --------------------------- ------------------------------- -----------
One Carnegie Plaza Two, two story office buildings 107,276
Two Carnegie Plaza Two story office building 68,956
Carnegie Business Center II Two R & D buildings 50,867
Santa Fe One story office building 36,288
Lakeside Tower Six story office building 112,747
One Parkside Four story office building 70,069
Bally's Health Club Health club facility 25,000
Outback Steakhouse Restaurant 6,500
These properties total approximately 478,000 leasable square feet and offer a
wide range of commercial, R & D and office product to the market.
The Inland Empire is generally broken down into two major markets, Inland Empire
East and Inland Empire West. Tri-City Corporate Centre is located within the
Inland Empire East market, which consists of a total of 10,440,330 square feet
of office space and an overall vacancy rate of approximately 25% as of December
31, 1998, according to research conducted by an independent broker.
Within the Tri-City Corporate Centre at December 31, 1998, the Partnership has
395,336 square feet of office space with a vacancy rate of 22%, 50,867 square
feet of R & D space with a vacancy rate of 22% and 31,500 square feet of
commercial space with a 0% vacancy rate.
Occupancy levels for the Partnership's Tri-City buildings at December 31, 1998,
1997 and 1996, and November 30, 1995 and 1994, expressed as a percentage of the
total net rentable square feet, are as follows:
December 31, November 30,
---------------------- -------------------
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
One Carnegie Plaza 50% 85% 87% 93% 66%
Two Carnegie Plaza 82% 81% 83% 87% 86%
Carnegie Business Center II 78% 74% 65% 68% 76%
Santa Fe 100% 100% 100% 100% 100%
Lakeside Tower 93% 86% 90% 69% 76%
One Parkside 79% 66% 92% 83% 83%
Bally's Health Club 100% 100% 100% N/A N/A
Outback Steakhouse 100% 100% 100% N/A N/A
In 1998, management renewed 12 leases totaling 47,938 square feet, expanded two
existing tenants by 20,450 square feet and executed 16 new leases totaling
45,274 square feet of space. Also in 1998, there were various vacancies of
tenants, the most noteworthy of which was a 35,300 square foot tenant who
exercised its right to terminate its lease on February 1, 1998. In 1999, 21
leases totaling 89,809 square feet are due to expire. Management is currently
negotiating lease renewals for three tenants totaling 8,800 square feet of
space, while four tenants occupying 6,332 square feet of space have vacated or
have indicated that they will vacate upon their lease expiration. The remaining
tenants occupying 74,677 square feet of space, with lease expirations in the
latter part of 1999 have not yet indicated whether they will renew their lease
or vacate the premises.
The annual effective rent per square foot for the years ended December 31, 1998,
1997 and 1996 and the year ended November 30, 1995 were:
1998 1997 1996 1995
-------- -------- --------- ---------
One Carnegie Plaza $ 14.96 $ 14.74 $ 14.85 $ 13.57
Two Carnegie Plaza $ 15.41 $ 15.70 $ 15.91 $ 16.50
Carnegie Business Center II $ 10.56 $ 10.73 $ 10.91 $ 11.11
Santa Fe $ 17.03 $ 16.87 $ 16.64 $ 16.50
Lakeside Tower $ 18.59 $ 17.43 $ 16.72 $ 18.58
One Parkside $ 18.19 $ 17.80 $ 17.86 $ 18.23
Bally's Health Club $ 9.85 $ 9.85 $ 9.85 N/A
Outback Steakhouse $ 13.85 $ 13.85 $ 13.85 N/A
Annual effective rent is calculated by dividing the aggregate of annualized
current month rental income for each tenant by the total square feet occupied at
the property.
At December 31, 1998, the Partnership's Tri-City annual rental rates ranged from
$13.80 to $21.00 per square foot for office space; $7.20 to $11.40 per square
foot for R & D space; and $9.85 to $13.85 per square foot for commercial space.
According to research conducted by the Partnership's property manager, the
average annual effective rent per square foot for office space in the
Partnership's competitive market ranges from $13.08 to $20.16. Since there is no
comparable R & D or commercial space in the market, management has determined
the asking rents based on discussions with independent leasing brokers.
The Partnership's Tri-City properties had the following four tenants which
occupied a significant portion of the net rentable square footage as of December
31, 1998:
Atchison, Topeka
and Santa Fe Holiday Spa
Railway Sterling Chicago Health
Tenant Company Software Title Club
Building Santa Fe One Carnegie One Parkside Bally's Health
Plaza Club
Real Estate
Nature of Business Transportation Software Services Health Club
Lease Term 10 yrs. 5 yrs. 10 yrs. 14 yrs.
Expiration Date 9/30/99 11/30/00 2/03/04 12/31/10
Square Feet 36,288 26,144 31,249 25,000
(% of rentable total) 8% 5% 7% 5%
Annual Rent $618,135 $362,915 $560,151 $246,250
Future Rent Increases None 2% in 1999 None 15% in 2001
and 2006
Renewal Options Four 5-yr. options Two 3-yr. options None Three 5-yr. options
Based on management's discussions with Atchison, Topeka and Santa Fe Railway
Company, the tenant plans on exercising its option to extend the term of the
lease for 5 years.
In the opinion of management, the properties are adequately covered by
insurance.
The Partnership's Tri-City rental properties are owned by the Partnership, in
fee, subject to the following notes and deeds of trust:
One Lakeside Tower,
Carnegie One Parkside and
Security Plaza Two Carnegie Plaza
Principal balance at December 31, 1998 $4,178,000 $9,330,000
Interest Rate 8.25% 9.39%
Monthly Payment $33,995 $83,142
Maturity Date 12/01/01 8/1/06
During 1998 the Partnership's Tri-City rental properties were assessed $651,000
in property taxes based on an average realty tax rate of 1.11%.
Tri-City Land
Approximately 14 acres of the Tri-City land owned by the Partnership remains
undeveloped. The Partnership's intention has been to develop parcels of this
land as tenants become available or dispose of the property at the optimal time
and sales price. During 1997, management determined that the carrying value of
the land was in excess of its estimated fair value and, accordingly, recorded a
provision for impairment of the real estate. See footnote 3 in Item 14 for
further discussion.
During 1998, the Partnership's Tri-City land was assessed $479,000 in property
taxes based on an average realty tax rate of 3.57% (which includes 2.46% in
additional assessments).
Rancon Centre Ontario
In 1987, the Partnership acquired approximately 56.3 acres of undeveloped land
in Ontario, San Bernardino County, California, for a purchase price of
$5,905,000. The property is immediately north of Interstate 10 near Interstate
15 and is zoned for industrial and light manufacturing use.
The Partnership completed the first of three phases of development in 1988,
consisting of seven distribution-center buildings totaling 326,000 square feet
of which two buildings totaling 81,000 square feet have been sold. In an effort
to facilitate build-to-suits, the Partnership purchased a 5.76-acre parcel of
land in December 1995 located between Phase II and Phase III. This purchase
prevented development adverse to the Partnership's interests.
On December 31, 1998, the Partnership sold the 38.5 acres of unimproved land at
Rancon Centre Ontario to an unaffiliated third party for $5,500,000. The
Partnership recognized a loss on the sale of land of approximately $34,000 and
realized net proceeds of $5,266,000, which were added to the cash reserves.
The five remaining distribution center buildings at this property (the "RCO
Buildings") had a 38% occupancy rate at December 31, 1998 and 100% occupancy
rate at December 31, 1997 and 1996. In 1998, six tenants occupying 225,425
square feet or 92% of the rentable space at this property vacated upon their
respective lease termination dates. Two of the six tenants, United Pacific Mills
and USCO Distribution Services, Inc. ("USCO") occupied a significant portion of
the total square footage of the RCO Buildings. United Pacific Mills, whose
five-year lease expired on April 30, 1998, occupied 74,850 square feet or 31% of
RCO Buildings. USCO, whose one-year lease expired on June 30, 1998, occupied
50,000 square feet or 20% of RCO Buildings. Reasons cited for not renewing their
leases included the need to consolidate into larger facilities and the desire to
relocate out of the Ontario area. On January 29, 1999, the Partnership sold the
RCO Buildings to an unaffiliated entity for $7,650,000 and realized a gain of
approximately $3,309,000. As part of the terms of the sale, the Partnership
loaned $5,715,000 to the buyer (the "RCO Note"). The RCO Note is secured by a
deed of trust encumbering the RCO Buildings, bears interest at 8% and matures on
January 1, 2000. The sale generated net proceeds of $1,648,000 which were added
to the cash reserves.
At December 31, 1998 and at the time of sale, the RCO Buildings were
unencumbered.
During 1998, the RCO Buildings and the unimproved land were assessed $87,000 and
$61,000 in property taxes, respectively, based on an average realty tax rate of
1.0531%.
Perris-Ethanac Road
In 1989, the Partnership purchased 23.8 acres of unimproved land at the
intersection of Ethanac Road and Interstate 215 in Perris, Riverside County,
California, for a purchase price of $2,780,000. The property is zoned for
commercial uses and is adjacent to a freeway interchange. There has been no
development of this property to date.
As of December 31, 1997, the Perris-Ethanac land had a carrying value of
$775,000. In 1998, management determined that the carrying value of the
Perris-Ethanac land was in excess of its estimated fair value and, accordingly,
recorded a provision for impairment of the real estate of $323,000. In December
1998, the Partnership entered into an agreement to sell the Perris-Ethanac land
to an unaffiliated third party for $502,200. On January 20, 1999, the
Perris-Ethanac land was sold and the Partnership realized a net loss of the sale
of approximately $6,000 and received $446,000 of net sales proceeds which were
added to cash reserves. At December 31, 1998 and at the time of sale, the
Perris-Ethanac Road property was unencumbered.
During 1998, the Perris-Ethanac Road property was assessed $23,000 in property
taxes based on an average realty tax rate of 1.06%.
Perris-Nuevo Road
On December 28, 1989, the Partnership acquired approximately 83 acres of
undeveloped property at the intersection of Nuevo Road and Interstate 215 in
Perris, Riverside County, California for a purchase price of $5,140,000 in an
all cash transaction. The property is zoned for light industrial, commercial and
retail use. There has been no development of this property to date.
In December 1998, the Partnership entered into an agreement to sell the
Perris-Nuevo land to an a third party buyer for $675,000, of which $475,000 is
payable by a promissory note, secured by the land, bearing interest rate of 6%
per annum, with principal and interest due November 15, 1999. The sale closed
escrow on January 29, 1999 and realized net proceeds of $135,000.At December 31,
1998 and at the time of sale, the Perris-Nuevo Road Property was unencumbered.
During 1998, the Perris-Nuevo Road property was assessed $92,000 in property
taxes based on an average realty tax rate of 7.05% (which includes 6.04% in
additional assessments).
Item 3. Legal Proceedings
None.
Item 4. Submission of Matters to a Vote of Security Holders
No matters were submitted to a vote of the Limited Partners during the fourth
quarter of 1998.
Part II
Item 5. Market for Partnership's Common Equity and Related Stockholder Matters
Market Information
There is no established trading market for the Units issued by the Partnership.
Holders
As of December 31, 1998, there were 12,063 holders of Partnership Units.
Dividends
Distributions are paid from either Cash From Operations or Cash From Sales or
Refinancing (as such terms are defined in the Partnership Agreement).
Cash From Operations includes all cash receipts from operations in the ordinary
course of business (except for the sale, exchange or other disposition of real
property in the ordinary course of business) after deducting payments for
operating expenses. All distributions of Cash From Operations are paid in the
ratio of 90% to the Limited Partners and 10% to the General Partners.
Cash From Sales or Refinancing is the net cash realized by the Partnership from
the sale, disposition or refinancing of any property after retirement of
applicable mortgage debt and all expenses related to the transaction, together
with interest on any notes taken back by the Partnership upon the sale of a
property. All distributions of Cash From Sales or Refinancing are generally
allocated as follows: (i) first, 1 percent to the General Partner and 99 percent
to the Limited Partners until the Limited Partners have received an amount equal
to their capital contributions; (ii) second, 1 percent to the General Partner
and 99 percent to the Limited Partners until the Limited Partners have received
a 12 percent return on their unreturned capital contributions (less prior
distributions of Cash From Operations); (iii) third, 1 percent to the General
Partner and 99 percent to the Limited Partners who purchased their Units prior
to April 1, 1986, to the extent they receive an additional return (depending on
the date on which they purchased the Units) on their unreturned capital of
either 9 percent, 6 percent or 3 percent (calculated through the anniversary
date of the purchase of the Units); (iv) fourth, 99 percent to the General
Partner and 1 percent to the Limited Partners until the General Partner has
received an amount equal to 20 percent of all distributions of Cash From Sales
or Refinancing previously made under clauses (ii) and (iii) above, reduced by
the amount of prior distributions made to the General Partner under clauses (ii)
and (iii); and (v) fifth, the balance 20 percent to the General Partner and 80
percent to the Limited Partners. A more explicit statement of the distribution
policies is set forth in the Partnership Agreement.
There were no distributions made by the Partnership during the three most recent
fiscal years.
Item 6. Selected Financial Data
The following is selected financial data for the years ended December 31, 1998,
1997 and 1996, the one month ended December 31, 1995, and the years ended
November 30, 1995, and 1994 (in thousands, except per Unit data).
For the one For the
For the years ended month ended years ended
December 31, December 31, November 30,
------------------------------------- ------------- ----------------
1998 1997 1996 1995 1995 1994
---- ---- ---- ---- ------ -----
Rental income $ 6,387 $ 6,894 $ 6,969 $ 461 $ 6,200 $ 6,023
Loss on sale of real estate $ (34) $ -- $ -- $ -- $ -- $ (391)
Provision for impairment
of real estate investments $ (323) $ (1,688) $ -- $ -- $ (14,760) $ (2,965)
Net loss $ (1,747) $ (3,293) $ (1,307) $ (199) $ (16,148) $ (5,558)
Net loss allocable
to Limited Partners $ (1,730) $ (3,260) $ (1,294) $ (197) $ (15,986) $ (5,503)
Net loss per Unit $ (17.92) $ (32.68) $ (12.97) $ (1.97) $ (160.18) $ (55.11)
Total assets $ 47,625 $ 50,191 $ 54,193 $ 50,175 $ 51,347 $ 64,771
Long-term obligations $ 13,508 $ 13,684 $ 13,845 $ 8,615 $ 8,621 $ 6,209
Cash distributions per Unit $ -- $ -- $ -- $ -- $ -- $ --
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
LIQUIDITY AND CAPITAL RESOURCES
The following discussions should be read in conjunction with the financial
statements and the notes thereto in Item 14 of Part IV.
As of December 31, 1998, the Partnership had cash of $3,073,000 (exclusive of
$353,000 in pledged cash). The remainder of the Partnership's assets consisted
primarily of its net investments in real estate totaling approximately
$35,841,000, which includes $28,572,000 in rental properties, $3,970,000 in
rental property held for sale, $2,702,000 of land held for development within
the Tri-City area, and $597,000 of undeveloped land held for sale in Perris,
California.
The Partnership's business strategy has been to focus on the eventual
disposition of its assets at the optimal time and sales price. As discussed in
Item 1, the General Partner currently plans to seek the Limited Partners'
consent to sell all of the Partnership's remaining properties and liquidate the
Partnership, and the General Partner has filed preliminary consent solicitation
materials with the Securities and Exchange Commission.
In 1998 and 1997, management determined that the carrying values of certain of
the Partnership's land held for development and the land held for sale were in
excess of the estimated fair value of such property and recorded provisions for
impairment of real estate investments totaling $323,000 and $1,688,000 in 1998
and 1997, respectively.
Operationally, the Partnership's primary sources of funds consist of cash
provided by its rental activities. Other sources of funds may include permanent
financing, property sales, interest income on certificates of deposit and other
deposits of funds invested temporarily. Cash generated from property sales are
generally added to the Partnership's cash reserves, pending use in development
of other properties, or are distributed to the partners.
The Partnership's pledged cash consists primarily of a certificate of deposit
held as collateral for subdivision improvement bonds relating to the
Perris-Nuevo property owned by the Partnership. Upon the sale of the
Perris-Nuevo land in January 1999, the cash collateral was released to the
Partnership.
The increase in prepaid expenses and other assets is due to the $5,487,000 of
net sales proceeds held in an escrow account upon the December 31, 1998 sale of
the Ontario land.
In January 1999, the Partnership sold the RCO Buildings and the Perris-Nuevo and
the Perris-Ethanac land parcels. The Partnership received a total of $2,229,000
of net proceeds upon the sales, which were added to the cash reserves. In
addition, the Partnership loaned the buyer of the RCO Buildings $5,715,000 and
the buyer of the Perris-Nuevo land $475,000. The note secured by the RCO
Buildings bears interest at 8% per annum and matures on January 1, 2000. The
note secured by the Perris-Nuevo land bears interest at 6% per annum and matures
on November 15, 1999.
The Partnership is contingently liable for subordinated real estate commissions
payable to the General Partner in the amount of $102,000 at December 31, 1998.
The subordinated real estate commissions are payable only after the Limited
Partners have received distributions equal to their original invested capital
plus a cumulative non-compounded return of six percent per annum on their
adjusted invested capital. Since the circumstances under which these commissions
would be payable are limited, the liability has not been recognized in the
accompanying financial statements; however, the amount will be recorded when and
if it becomes payable.
Aside from the foregoing and the current plan to potentially sell all of the
Partnership's remaining properties and liquidate the Partnership, the
Partnership knows of no demands, commitments, events or uncertainties, which
might effect its liquidity or capital resources in any material respect. The
effect of inflation on the Partnership's business should be no greater than its
effect on the economy as a whole. In addition, the Partnership is not subject to
any covenants pursuant to its secured debt that would constrain its ability to
obtain additional capital.
Management believes that the Partnership's cash balance as of December 31, 1998
together with the cash from operations, sales and financing, will be sufficient
to finance the Partnership's and the properties' continued operations and
development plans, on a short-term basis and for the reasonably foreseeable
future. There can be no assurance that the Partnership's results of operations
will not fluctuate in the future and at times affect its ability to meet its
operating requirements.
RESULTS OF OPERATIONS
1998 versus 1997
Revenue
Rental income decreased $507,000 or 7% for the year ended December 31, 1998
compared to the year ended December 31, 1997 due primarily to the decline in
occupancy at One Carnegie Plaza and Rancon Centre Ontario.
Occupancy rates at the Partnership's Tri-City and Rancon Centre Ontario
properties as of December 31, 1998, 1997 and 1996, and November 30, 1995 and
1994 were as follows:
December 31, November 30,-
-------------------------- ----------------
1998 1997 1996 1995 1994
---- ---- ---- ------ ----
One Carnegie Plaza 50% 85% 87% 93% 66%
Two Carnegie Plaza 82% 81% 83% 87% 86%
Carnegie Business Center II 78% 74% 65% 68% 76%
Lakeside Tower 93% 86% 90% 69% 76%
Santa Fe 100% 100% 100% 100% 100%
One Parkside 79% 66% 92% 83% 83%
Rancon Centre Ontario 38% 100% 100% 92% 100%
Bally's Health Club 100% 100% 100% N/A N/A
Outback Steakhouse 100% 100% 100% N/A N/A
The 35-percentage point drop in occupancy at One Carnegie Plaza from December
31, 1997 to December 31, 1998 is a result of a tenant, who occupied 35,300
square feet, vacating on February 1, 1998 and relocating to a state owned
building. Management is marketing this vacant space for lease and is negotiating
lease terms with a prospective tenant for 17,000 square feet of space. The
62-percentage point drop in occupancy at Rancon Centre Ontario is due to three
tenants, who occupied an aggregate 151,850 square feet of space, vacating upon
their lease expirations during 1998. On January 29, 1999, the Partnership sold
the Rancon Centre Ontario rental property (see Note 11).
The Atchison, Topeka and Santa Fe Railway Company, Sterling Software, Chicago
Title and Holiday Spa Health Club, occupy substantial portions of leased space
at Tri-City with leases expiring at various dates between September, 1999 and
December, 2010. Based on management's discussions with Atchison, Topeka and
Santa Fe Railway Company, the tenant plans on exercising its option to extend
the term of the lease for 5 years. These four tenants, in the aggregate, occupy
approximately 118,681 square feet of the 478,000 total leasable square feet at
Tri-City and account for approximately 33% of the rental income generated at
Tri-City and approximately 28% of the total rental income for the Partnership.
Interest and other income for the year ended December 31, 1998 decreased $42,000
or 11% from the year ended December 31, 1997 due to a decrease in interest
income as the average invested cash balance in 1998 was lower than that in 1997.
Expenses
Operating expenses decreased $33,000 or 1% during the year ended December 31,
1998 compared to the year ended December 31, 1997. This decrease in operating
costs associated with decreased occupancy at One Carnegie Plaza and Rancon
Centre Ontario was offset by increased operating costs due to increased
occupancy at Lakeside Tower, One Parkside and Carnegie Business Center II.
Interest expense remained consistent during the year ended December 31, 1998 as
compared to the year ended December 31, 1997.
Depreciation and amortization expense decreased $317,000 or 15% during the year
ended December 31, 1998 compared to the year ended December 31, 1997 due to
tenant improvements and lease commissions becoming fully amortized during 1998,
and due to ceasing depreciation of Rancon Centre Ontario upon reclassification
of the property to held for sale.
In 1998 and 1997, management determined that the carrying values of the land
held for development and the land held for sale were in excess of the estimated
fair value of such property and, accordingly, recorded provisions for impairment
of real estate investments. The fair values were based on independent appraisals
of the Partnerships' real estate.
The Partnership made the following provisions to reduce the carrying value of
investments in real estate for the years ended December 31, 1998 and 1997:
1998 1997
---- ----
Land held for development:
San Bernardino, CA $ -- $ 1,603,000
Land held for sale:
60.14 acres in Perris, CA (Perris-Nuevo) -- 85,000
23.8 acres in Perris, CA (Perris-Ethanac) 323,000 --
--------- -------------
Total provision for impairment
of real estate investments $ 323,000 $ 1,688,000
========= =============
Expenses associated with undeveloped land decreased $58,000 or 9% during the
year ended December 31, 1998 compared to December 31, 1997 due primarily to a
decrease in maintenance association dues in 1998.
The loss on sale of real estate during the year ended December 31, 1998 resulted
from the sale of the 38.5 acres of unimproved land in Rancon Centre Ontario.
General and administrative expenses remained consistent during the year ended
December 31, 1998 as compared to the year ended December 31, 1997.
The $125,000 and $479,000 of proposed dissolution costs in 1998 and 1997,
respectively, is for work performed and expenses incurred while exploring the
possibilities of selling all of the Partnership's Properties followed by a
liquidation. See Item 1 for further detail.
1997 versus 1996
Revenue
Rental income for the year ended December 31, 1997 remained comparable to the
year ended December 31, 1996. The decrease in occupancy as of December 31, 1997
compared to December 31, 1996 at One Carnegie, Two Carnegie, Lakeside Tower and
One Parkside was offset by an increase in occupancy at Carnegie Business Center
II as well as a full year of rental income for Outback Steakhouse in 1997 versus
less than three months in 1996.
Interest and other income for the year ended December 31, 1997 increased
$173,000 or 84% from the year ended December 31, 1996 due to the increase in
cash reserves as a result of the proceeds of the permanent financing obtained by
the Partnership in May 1996.
Expenses
All expenses except for the provision for impairment of investments in real
estate and proposed dissolution costs remained consistent during the year ended
December 31, 1997 as compared to the year ended December 31, 1996.
Year 2000 Compliance
State of Readiness. Glenborough Corporation (Glenborough), the Partnership's
asset and property manager, utilizes a number of computer software programs and
operating systems. These programs and systems primarily comprise information
technology systems ("IT Systems") (i.e., software programs and computer
operating systems) that serve the management operations. Although the
Partnership does not utilize any significant IT Systems of its own, it does
utilize embedded systems such as devices used to control, monitor or assist the
operation of equipment and machinery systems (e.g., HVAC, fire safety and
security) at its properties ("Property Systems"). To the extent that 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 these IT Systems and Property Systems will be necessary.
IT Systems. Employing a team made up of internal personnel and third-party
consultants Glenborough has completed an identification of IT Systems, including
hardware components that are not yet Year 2000 compliant. To the best of
Glenborough's knowledge based on available information and a reasonable level of
inquiry and investigation, such upgrading as appears to be called for under the
circumstances has been completed in accordance with prevailing industry
practice. Glenborough has commenced a testing program which will be completed
during 1999. In addition, the Partnership is currently communicating with third
parties with whom it does significant business, such as financial institutions,
tenants and vendors, to determine their readiness for Year 2000 compliance.
Property Systems. An identification of Property Systems, including hardware
components, that are not yet Year 2000 compliant, has also been completed.
Upgrading of such systems as appears to be called for under the circumstances
based on available information and a reasonable level of inquiry and
investigation, and in accordance with prevailing industry practice has
commenced. Upon completion of such upgrading, a testing program will be
initiated and completed during 1999. To the best of Glenborough's knowledge, the
Partnership has no Property Systems, the failure of which would have a material
effect on its operations.
Costs of Addressing Year 2000 issues. Given the information known at this time
about systems that are non-compliant, coupled with ongoing, normal course-of
business efforts to upgrade or replace critical systems, as necessary, the
Partnership does not expect Year 2000 compliance costs to have a material
adverse impact on its liquidity or ongoing results of operations. The costs of
assessment and remediation of the Property Systems will be paid by the
Partnership as an operating expense.
Risks of Year 2000 issues. In light of the assessment and upgrading efforts to
date, and assuming completion of the planned, normal course-of-business upgrades
and subsequent testing, the Partnership believes that any residual Year 2000
risk will be limited to non-critical business applications and support hardware,
and to short-term interruptions affecting Property Systems which, if they occur
at all, will not be material to overall operations. Glenborough and the
Partnership believe that all IT Systems and Property Systems will be Year 2000
compliant and that compliance will not materially adversely affect its future
liquidity or results of operations or its ability to service debt. However,
absolute assurance that this is the case cannot be given.
Contingency Plans. The Partnership is currently developing a contingency plan
for all operations which will address the most reasonably likely worst case
scenario regarding Year 2000 compliance. Such a plan, however, will recognize
material limitations on the ability to respond to major regional or industrial
failures such as power outages or communications breakdowns. Management expects
such a contingency plan to be completed during 1999.
Item 8. Financial Statements and Supplementary Data
For information with respect to this 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
None.
Part III
Item 10. Directors and Executive Officers of the Partnership
Daniel Lee Stephenson and RFC are the general partners of the Partnership. The
executive officer and director of RFC is:
Daniel L. Stephenson Director, President, Chief Executive Officer and Chief
Financial Officer
There is no fixed term of office for Mr. Stephenson.
Mr. Stephenson, age 55, 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 has, from inception, held the position of Director. In addition, Mr.
Stephenson was President and Chief Executive Officer of RFC from 1971 to 1986,
from August 1991 to September 1992 and from March 31, 1995 to present. Mr.
Stephenson is Chairman of the Board of PacWest Group, Inc., a real estate firm
that has acquired a portfolio of assets from the Resolution Trust Corporation.
Item 11. Executive Compensation
The Partnership has no executive officers. For information relating to fees,
compensation, reimbursement 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
Title Amount and Nature of Percent
of Class Name of Beneficial Owner Beneficial Ownership of Class
Units Daniel Lee Stephenson (IRA) 3 Units (direct) *
Units Daniel Lee Stephenson Family Trust 100 Units (direct) *
* Less than 1 percent
Changes in Control
The Limited Partners have no right, power or authority to act for or bind the
Partnership. However, the Limited Partners generally have the power to vote upon
the following matters affecting the basic structure of the Partnership, passage
of each of which requires 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)
removal of the General Partner or any successor General Partner; (v) election of
a new
General Partner or General Partners upon the removal, retirement, death,
insanity, insolvency, bankruptcy or dissolution of the General Partner or any
successor General Partner; (vi) modification of the terms of any agreement
between the Partnership and the General Partner or an affiliate of the General
Partner; and (vii) extension of the term of the Partnership.
Item 13. Certain Relationships and Related Transactions
During the year ended December 31, 1998, the Partnership did not incur any
expenses or costs reimbursable to RFC or any other affiliate of the Partnership.
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:
Report of Independent Public Accountants
Consolidated Balance Sheets as of December 31, 1998 and 1997
Consolidated Statements of Operations for the years ended December 31,
1998, 1997 and 1996
Consolidated Statements of Partners' Equity (Deficit) for the years
ended December 31, 1998, 1997 and 1996
Consolidated Statements of Cash Flows for the years ended December
31, 1998, 1997 and 1996
Notes to Consolidated Financial Statements
(2) Financial Statement Schedule:
Schedule III -- Real Estate and Accumulated Depreciation as
of December 31, 1998 and Note thereto
All other schedules are omitted because they are not applicable or the
required information is shown in the financial statements or notes thereto.
(3) Exhibits:
(3.1) Amended and Restated Agreement of Limited Partnership of the
Partnership (included as Exhibit B to the Prospectus dated March
3, 1988, filed pursuant to Rule 424(b), File Number 2-97837, is
incorporated herein by reference).
(3.2) Third Amendment to the Amended and Restated Agreement of Limited
Partnership of the Partnership, dated April 1, 1989 (filed as
Exhibit 3.2 to the Partnership's annual report on Form 10-K for
the fiscal year ended November 30, 1991 is incorporated herein by
reference).
(3.3) Fourth Amendment to the Amended and Restated Agreement of Limited
Partnership of the Partnership, dated March 11, 1992 (filed as
Exhibit 3.3 to the Partnership's annual report on Form 10-K for
the fiscal year ended November 30, 1991 is incorporated herein by
reference).
(3.4) Limited Partnership Agreement of RRF V Tri-City Limited
Partnership, A Delaware limited partnership of which Rancon
Realty Fund V, A California Limited Partnership is the limited
partner (filed as Exhibit 3.4 to the Partnership's annual report
on Form 10-K for the year ended December 31, 1996 is incorporated
herein by reference). (10.1) First Amendment to the Second
Amended Management, administration and consulting agreement for
services rendered by Glenborough Corporation dated August 31,
1998.
(10.2) Management, administration and consulting agreement and amendment
thereto for services rendered by Glenborough Inland Corporation
dated December 20, 1994 and March 30, 1995, respectively (filed
as Exhibit 10.2 to the Partnership's annual report on Form 10-K
for the year ended December 31, 1995 is incorporated herein by
reference).
(10.3) Promissory note in the amount of $9,600,000 dated May 9, 1996
secured by Deeds of Trust on three of the Partnership Properties
(filed as Exhibit 10.3 to the Partnership's annual report on Form
10-K for the year ended December 31, 1996 is incorporated herein
by reference).
(27) Financial Data Schedule
(b) Reports on Form 8-K
On January 14, 1999, the Partnership filed a report on Form 8-K reporting
under Item 2 thereof the sale of the 38.5 acres of unimproved land in
Rancon Centre Ontario and including under Item 7 thereof certain pro
forma financial statements with respect thereto.
On February 12, 1999, the Partnership filed a report on Form 8-K
reporting under Item 2 thereof the sales of the Rancon Centre Ontario
Buildings, the Perris-Nuevo land and the Perris-Ethanac land and
including under Item 7 thereof certain pro forma financial statements
with respect thereto (including the sale of the 38.5 acres of unimproved
land in Rancon Centre Ontario).
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 REALTY FUND V,
a California Limited Partnership
By Rancon Financial Corporation
a California corporation
its General Partner
Date: March 30, 1999 By: /s/ DANIEL L. STEPHENSON
--------------------------
Daniel L. Stephenson, President
By: /s/ DANIEL L. STEPHENSON
Daniel L. Stephenson, General Partner
INDEX TO FINANCIAL STATEMENTS
AND SCHEDULE
Financial Statements and Schedule Page
Financial Statements:
Report of Independent Public Accountants 23
Consolidated Balance Sheets as of December 31, 1998 and 1997 24
Consolidated Statements of Operations for the years ended
December 31, 1998, 1997 and 1996 25
Consolidated Statements of Partners' Equity (Deficit) for
the years ended December 31, 1998, 1997 and 1996 26
Consolidated Statements of Cash Flows for the years ended
December 31, 1998, 1997 and 1996 27
Notes to Consolidated Financial Statements
28
Schedule:
III - Real Estate and Accumulated Depreciation
as of December 31, 1998 and Note thereto 38
All other schedules are omitted because they are not applicable or the
required information is shown in the financial statements or notes
thereto.
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Partners of
RANCON REALTY FUND V, A CALIFORNIA LIMITED PARTNERSHIP:
We have audited the accompanying consolidated balance sheets of RANCON REALTY
FUND V, A CALIFORNIA LIMITED PARTNERSHIP as of December 31, 1998 and 1997, and
the related consolidated statements of operations, partners' equity (deficit)
and cash flows for the years ended December 31, 1998, 1997 and 1996. 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 consolidated financial statements referred to above present
fairly, in all material respects, the financial position of RANCON REALTY FUND
V, A CALIFORNIA LIMITED PARTNERSHIP, as of December 31, 1998 and 1997, and the
results of its operations and its cash flows for the years ended December 31,
1998, 1997 and 1996, 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
purposes 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.
San Francisco, California
February 12, 1999
RANCON REALTY FUND V,
A CALIFORNIA LIMITED PARTNERSHIP
Consolidated Balance Sheets
December 31, 1998 and 1997
(in thousands, except units outstanding)
Assets 1998 1997
------ ----------- ----------
Investments in real estate:
Rental property, net of accumulated depreciation
of $16,666 and $16,911 as of December 31, 1998
and 1997, respectively $ 28,572 $ 33,486
Rental property held for sale, net 3,970 --
Land held for development 2,702 7,980
Land held for sale 597 920
----------- -----------
Total real estate investments 35,841 42,386
----------- -----------
Cash and cash equivalents 3,073 4,361
Pledged cash 353 353
Accounts receivable 1,239 1,349
Deferred financing costs and other fees, net of
accumulated amortization of $2,259 and $1,953
as of December 31, 1998 and 1997, respectively 998 1,097
Prepaid expenses and other assets 6,121 645
----------- -----------
Total assets $ 47,625 $ 50,191
=========== ===========
Liabilities and Partners' Equity (Deficit)
------------------------------------------
Liabilities:
Notes payable $ 13,508 $ 13,684
Accounts payable and other liabilities 157 693
Interest payable 73 74
----------- -----------
Total liabilities 13,738 14,451
----------- -----------
Commitments and contingent liabilities (see Note 9) -- --
Partners' equity (deficit):
General partners (971) (954)
Limited partners 96,444 and 96,754 limited
partnership units outstanding at December
31, 1998 and 1997, respectively 34,858 36,694
----------- -----------
Total partners' equity 33,887 35,740
----------- -----------
Total liabilities and partners' equity $ 47,625 $ 50,191
=========== ===========
The accompanying notes are an integral part of these financial statements.
Consolidated Statements of Operations
For the years ended December 31, 1998, 1997 and 1996
(in thousands, except per unit amounts and units outstanding)
1998 1997 1996
--------- --------- ---------
Revenue:
Rental income $ 6,387 $ 6,894 $ 6,969
Interest and other income 337 379 206
--------- --------- ---------
Total revenue 6,724 7,273 7,175
--------- --------- ---------
Expenses:
Operating 3,157 3,190 3,257
Interest expense 1,283 1,298 1,271
Depreciation and amortization 1,753 2,065 2,087
Provision for impairment of
real estate investments 323 1,688 --
Expenses associated with undeveloped land 557 615 629
Loss on sale of real estate 34 -- --
General and administrative expenses 1,239 1,231 1,238
Proposed dissolution costs 125 479 --
--------- --------- ---------
Total expenses 8,471 10,566 8,482
--------- --------- ---------
Net loss $ (1,747) $ (3,293) $ (1,307)
========= ========= =========
Net loss per limited partnership unit $ (17.92) $ (32.68) $ (12.97)
========= ========= =========
Weighted average number of limited
partnership units outstanding during each
period used to compute net loss per limited
partnership unit 96,548 99,767 99,767
========= ========= ==========
The accompanying notes are an integral part of these financial statements.
Consolidated Statements of Partners' Equity (Deficit)
For the years ended December 31, 1998, 1997 and 1996
(in thousands)
General Limited
Partners Partners Total
Balance at December 31, 1995 $ (908) $ 42,412 $ 41,304
Net loss (13) (1,294) (1,307)
---------- ----------- ---------
Balance at December 31, 1996 (921) 40,918 39,997
Retirement of limited partnership units -- (964) (964)
Net loss (33) (3,260) (3,293)
---------- ----------- ---------
Balance at December 31, 1997 (954) 36,694 35,740
Retirement of limited partnership units -- (106) (106)
Net loss (17) (1,730) (1,747)
---------- ----------- ---------
Balance at December 31, 1998 $ (971) $ 34,858 $ 33,887
========== =========== ==========
The accompanying notes are an integral part of these financial statements.
RANCON REALTY FUND V,
A California Limited Partnership
Consolidated Statements of Cash Flows
For the years ended December 31, 1998, 1997 and 1996
(in thousands)
1998 1997 1996
---------- ---------- ----------
Cash flows from operating activities:
Net loss $ (1,747) $ (3,293) $ (1,307)
Adjustments to reconcile net loss to net
cash provided by (used for) operating activities:
Net loss on sales of real estate 34 -- --
Depreciation and amortization 1,753 2,065 2,087
Amortization of loan fees, included in interest expense 54 54 87
Provision for impairment of real estate investments 323 1,688 --
Changes in certain assets and liabilities:
Accounts receivable 110 45 (1,225)
Deferred financing costs and other fees (207) (184) (158)
Prepaid expenses and other assets (5,476) 155 206
Accounts payable and other liabilities (536) 417 20
Interest payable (1) (1) 75
---------- ---------- ----------
Net cash provided by (used for) operating activities (5,693) 946 (215)
---------- ---------- ----------
Cash flows from investing activities:
Net proceeds from sale of real estate 5,266 -- --
Additions to real estate investments (579) (467) (309)
Pledged cash -- -- (2)
---------- ---------- ----------
Net cash provided by (used for) investing activities 4,687 (467) (311)
---------- ---------- ----------
Cash flows from financing activities:
Net loan proceeds -- -- 6,768
Loan fees paid -- -- (305)
Notes payable principal payments (176) (161) (1,606)
Purchase and retirement of limited partnership units (106) (964) --
---------- ---------- ----------
Net cash provided by (used for) financing activities (282) (1,125) 4,857
---------- ---------- ----------
Net increase (decrease) in cash and cash equivalents (1,288) (646) 4,331
Cash and cash equivalents at beginning of year 4,361 5,007 676
---------- ---------- ----------
Cash and cash equivalents at end of year $ 3,073 $ 4,361 $ 5,007
========== ========== ==========
Supplemental disclosure of cash flow information:
Cash paid for interest $ 1,230 $ 1,245 $ 1,135
========== ========== ==========
Interest capitalized $ -- $ -- $ 26
========== ========== ==========
The accompanying notes are an integral part of these financial statements.
RANCON REALTY FUND V,
A California Limited Partnership
Notes to Consolidated Financial Statements
December 31, 1998, 1997 and 1996
Note 1. ORGANIZATION
Rancon Realty Fund V, a California Limited Partnership, ("the Partnership"), was
organized in accordance with the provisions of the California Revised Limited
Partnership Act for the purpose of acquiring, developing and operating real
property. The general partners of the Partnership are Daniel L. Stephenson and
Rancon Financial Corporation ("RFC"), hereinafter collectively referred to as
the Sponsor or the General Partner. RFC is wholly-owned by Daniel L. Stephenson.
The Partnership reached final funding in February, 1989. As of December 31,
1997, a total of 3,246 limited partnership units ("Units") were repurchased and
retired as a result of the Partnership's offer to redeem limited partnership
units. During the year ended December 31, 1998, an additional 310 units were
repurchased and retired by the Partnership. As of December 31, 1998, there were
96,444 Units outstanding.
The General Partner currently plans to seek the Limited Partners' consent to
sell all of the Partnership's remaining properties and liquidate the Partnership
and has filed preliminary consent solicitation materials with the United States
Securities and Exchange Commission with the goal of mailing consent solicitation
materials to the Limited Partners in the second quarter of 1999. Assuming a
proposal to sell all of the Partnership's remaining properties and liquidate the
Partnership is submitted to and approved by the limited partners, the General
Partner currently intends to sell all of the Partnership's remaining properties
in 1999 and distribute the proceeds and liquidate the Partnership after all of
the properties are sold and the cash proceeds thereof received, which the
General Partner does not expect will occur prior to at least early to mid-2000
(and potentially not until 2001) as some of the properties may be sold with the
purchase price payable on an installment basis.
The Partnership has not, as of the date hereof, entered into any agreement for
the sale of its remaining properties. If the limited partners consent to the
Partnership selling all of its remaining properties and then liquidating, the
General Partner currently intends to offer the Partnership's remaining
properties for sale by soliciting bids from various potential purchasers.
If a proposal for the sale of the Partnership's properties and liquidation of
the Partnership is submitted to the limited partners, but not approved, the
Partnership currently intends to continue to operate the properties and attempt
to sell such properties in single or multiple sales and develop properties it
believes are developable and would improve its return on investment.
Allocation of profits and losses are made pursuant to the terms of the
Partnership Agreement. Generally, net income from operations is allocated 90% to
the limited partners and 10% to the general partners. Net losses from operations
are allocated 99% to the limited partners and 1% to the general partners until
such time as a partner's capital account is reduced to zero. Additional losses
will be allocated entirely to those partners with positive account balances
until such balances are reduced to zero. In no event will the General Partners
be allocated less than 1% of net loss for any period.
Effective January 1, 1995, Glenborough Corporation (successor by merger with
Glenborough Inland Realty Corporation) ("Glenborough") entered into an 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
RANCON REALTY FUND V,
A California Limited Partnership
Notes to Consolidated Financial Statements
December 31, 1998, 1997 and 1996
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
responsibilities for providing investor relations services. In August 1998, the
management agreement was further amended to provide Glenborough with a guarantee
of a specified amount of asset management and property management fees through
December 31, 1999, regardless of whether the Partnership sells any or all of its
properties prior to such date. In exchange, Glenborough waived any and all
claims related to liquidated damages under the agreement to which it may have
otherwise been entitled.
According to the contract, the Partnership will pay Glenborough for its services
as follows: (i) a specified asset administration fee, $820,000 in 1998, and
$967,000 in 1997 and 1996; (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 duties for the General Partner of the Rancon Partnerships. 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.
Note 2. 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.
The consent of the Unitholders to a proposal to sell all of the Partnership's
remaining properties and liquidate the Partnership will not impact the
accounting treatment applied by the Partnership in its financial statements
prepared in accordance with generally accepted accounting principles as the
liquidation proceeds and the timing thereof are not currently estimable. The
Partnership will classify as "held for use" or "held for development", all of
its operating and undeveloped properties until such time as an acceptable buyer
is identified and an offer which is reasonably assured of consummation is
obtained. At that time, the Partnership will reclassify the appropriate portions
of its assets to "held for sale" and depreciation of those assets will be
discontinued.
When the sale price and timing of the last property disposal is reasonably
determinable, the Partnership will adopt liquidation basis accounting in that
quarter. At that time, all assets and liabilities will be adjusted to their
settlement amounts and an amount to be distributed to the Unitholders upon
liquidation will be estimated.
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.
RANCON REALTY FUND V,
A California Limited Partnership
Notes to Consolidated Financial Statements
December 31, 1998, 1997 and 1996
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.
New Accounting Pronouncements - In June 1997, the Financial Accounting Standards
Board issued Statement of Financial Accounting Standards No. 131 (SFAS 131),
"Disclosures about Segments of an Enterprise and Related Information." SFAS 131
is effective for fiscal years beginning after December 15, 1997. As the
Partnership operates in only one geographic location and one industry, and
allocates resources solely for the optimization of the Partnership's overall
return, management has determined that no additional disclosure in the
Partnership's financial statements is necessary.
Rental Property - Rental properties, including the related land, are stated at
cost unless events or circumstances indicate that cost cannot be recovered, in
which case, the carrying value of the property is reduced to its estimated fair
value. Estimated fair value: (i) is based upon the Partnership's plans for the
continued operations of each property; and (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. 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.
Rental Property Held for Sale - Rental property held for sale is stated at the
lower of cost or estimated fair value less costs to sell. Estimated fair value
is based upon 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. The fulfillment of the Partnership's
plans to dispose of property is dependent upon, among other things, the presence
of economic conditions which will enable the Partnership to hold the property
for eventual sale. The Partnership discontinues depreciating rental property
once it is classified as held for sale.
Land Held for Development - Land held for development is stated at cost, unless
events or circumstances indicate that cost cannot be recovered, in which case
the carrying value is reduced to estimated fair value. Estimated fair value: (i)
is based on the Partnership's plans for the development of each property; (ii)
is computed using estimated sales price, based upon market values for comparable
properties, and (iii) considers the cost to complete and the estimated fair
value of the completed project. 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 either hold
the properties for eventual sale or obtain financing to further develop the
properties.
RANCON REALTY FUND V,
A California Limited Partnership
Notes to Consolidated Financial Statements
December 31, 1998, 1997 and 1996
Land Held for Sale - Land held for sale is stated at the lower of cost or
estimated fair value less costs to sell. Estimated fair value is based on market
values for comparable properties or appraisals prepared by qualified independent
third parties. Appraisals are estimates of fair value based upon assumptions
about the property and the market in which it is located.
Cash and Cash Equivalents - The Partnership considers certificates of deposit
and money market funds with original maturities of less than ninety days to be
cash equivalents.
Fair Value of Financial Instruments - Statement of Financial Accounting
Standards No. 107 requires disclosure about fair value for all financial
instruments. Based on the borrowing rates currently available to the Company,
the carrying amount of debt approximates fair value. Cash and cash equivalents
consist of demand deposits, certificates of deposit and short-term investments
with financial institutions. The carrying amount of cash and cash equivalents
approximates fair value.
Deferred Financing Costs and Other Fees - Deferred loan fees are amortized on a
straight-line basis over the life of the related loan and deferred lease
commissions are amortized over the initial fixed term of the related lease
agreement.
Rental Income - Rental income is recognized as earned over the life of the
respective leases.
Net Loss Per Limited Partnership Unit - Net loss per limited partnership unit is
calculated using the weighted average number of limited partnership units
outstanding during the period 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 allocated
to the partners for inclusion in their respective income tax returns. Net loss
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, including depreciation expense, capitalization of development
period interest, income recognition and provisions for impairment of investments
in real estate.
Consolidation - In May, 1996, the Partnership formed Rancon Realty Fund V
Tri-City Limited Partnership, a Delaware limited partnership ("RRF V Tri-City"),
as required by the lender of a $9,600,000 loan obtained by the Partnership in
1996. This loan, secured by three of the Partnership's properties, which have
been contributed to RRF V Tri-City by the Partnership, has a principal balance
of $9,330,000 at December 31, 1998, and matures on August 1, 2006 with a 9.39%
fixed interest rate and a 25 year amortization of principal. The limited partner
of RRF V Tri-City is the Partnership and the general partner is Rancon Realty
Fund V, Inc. ("RRF V, Inc."), a corporation wholly owned by the Partnership.
Since the Partnership owns 100% of RRF V, Inc. and indirectly owns 100% of RRF V
Tri-City, the financial statements of RRF V, Inc. and RRF V Tri-City have been
consolidated with those of the Partnership. All intercompany balances and
transactions have been eliminated in the consolidation.
RANCON REALTY FUND V,
A California Limited Partnership
Notes to Consolidated Financial Statements
December 31, 1998, 1997 and 1996
Reclassifications - Certain prior year balances have been reclassified to
conform with the current year presentation.
Note 3. INVESTMENTS IN REAL ESTATE
Rental property components at December 31, 1998 and 1997 are as follows (in
thousands):
1998 1997
-------------- --------------
Land $ 5,449 $ 6,586
Buildings 27,803 31,614
Leasehold and other improvements 11,986 12,197
-------------- --------------
45,238 50,397
Less: accumulated depreciation (16,666) (16,911)
-------------- --------------
Total rental property $ 28,572 $ 33,486
============== ==============
The Partnership's rental property includes eight projects at the Tri-City
Corporate Centre in San Bernardino, California.
Rental Property Held for Sale at December 31, 1998
The Partnership began marketing the Rancon Center Ontario property for sale in
1998. Accordingly, in August 1998, the Partnership reclassified $ 3,970,000 (net
of $1,746,000 of accumulated depreciation) from rental property to real estate
held for sale and ceased depreciation of the property. On January 29, 1999 the
Rancon Center Ontario property was sold (see Note 11).
Land held for development consists of the following at December 31, 1998 and
1997 (in thousands):
1998 1997
-------------- -------------
14 acres at Tri-City Corporate Centre,
San Bernardino, CA $ 2,702 $ 2,691
38.5 acres in Ontario, CA -- 5,289
-------------- -------------
Total land held for development $ 2,702 $ 7,980
============== =============
On December 31, 1998, the Partnership sold the land located in Ontario,
California for $5,500,000. The Partnership realized a loss on the sale, after
selling expenses, of approximately $34,000, which is reflected in the
accompanying 1998 statement of operations.
The land held for development is unencumbered at December 31, 1998 and 1997.
RANCON REALTY FUND V,
A California Limited Partnership
Notes to Consolidated Financial Statements
December 31, 1998, 1997 and 1996
Land held for sale as of December 31, 1998 and 1997 includes the following (in
thousands):
1998 1997
-------------- -------------
23.8 acres in Perris, CA (Ethanac Road) $ 452 $ 775
60.14 acres in Perris, CA (Nuevo Road) 145 145
-------------- -------------
Total land held for sale $ 597 $ 920
============== =============
In January 1999, the Partnership sold the Perris-Ethanac and Perris-Nuevo land
parcels. See Note 11 for detail on these sales.
The land held for sale is unencumbered at December 31, 1998 and 1997.
During the years ended December 31, 1998 and 1997, the Partnership recorded the
following provisions to reduce the carrying value of investments in real estate
(in thousands):
1998 1997
---------- ----------
Land Held for Development:
Tri-City Corporate Center, San Bernardino, CA $ -- $ 1,603
Land Held for Sale:
Perris, CA, (Perris-Nuevo) -- 85
Perris, CA (Perris-Ethanac) 323 --
323 85
---------- -----------
Total provision for impairment of
real estate investments $ 323 $ 1,688
========== ===========
The Partnership's business strategy has been to focus on the eventual
disposition of its assets at the optimal time and sales price. In 1998 and 1997,
management determined that the carrying values of certain of the Partnership's
land held for development and the land held for sale were in excess of the
estimated fair value of such property and thus, recorded provisions for
impairment of real estate as shown above.
Note 4. PLEDGED CASH
Pledged cash of $353,000 consists primarily of a $351,000 certificate of deposit
held as collateral for subdivision improvement bonds related to the 60.14-acre
Perris-Nuevo property owned by the Partnership. The cash collateral was released
to the Partnership in January 1999, upon the sale of the land to a third party.
RANCON REALTY FUND V,
A California Limited Partnership
Notes to Consolidated Financial Statements
December 31, 1998, 1997 and 1996
Note 5. PREPAID EXPENSES AND OTHER ASSETS
Included in prepaid expenses and other assets at December 31, 1998 are the
$5,487,000 net sales proceeds placed in an escrow account upon the December 31,
1998 sale of the Ontario land.
Note 6. NOTES PAYABLE
Notes payable as of December 31, 1998 and 1997, were as follows (in thousands):
1998 1997
-------- --------
Note payable, secured by first deed of trust
on Lakeside Tower, One Parkside and Two Carnegie
Plaza. The loan, which matures August 1, 2006,
is a 10-year, 9.39% fixed rate loan and with a
25-year amortization requiring $83 of principal
and interest payments due monthly. $ 9,330 $ 9,446
Note payable, secured by first deed of trust on One
Carnegie Plaza. The note bears interest at 8.25%,
provides for monthly principal and interest payments
totaling $34 and matures on December 1, 2001. 4,178 4,238
-------- --------
Total notes payable $ 13,508 $ 13,684
======== =========
The annual maturities on the Partnership's notes payable for the next five years
and thereafter, as of December 31, 1998, are as follows (in thousands):
1999 $ 193
2000 211
2001 4,194
2002 168
2003 185
Thereafter 8,557
-----------
Total $ 13,508
===========
Note 7. PROPOSED DISSOLUTION COSTS
In 1997, the Partnership entered into an agreement to sell all of its real
estate assets and then to liquidate the Partnership as described in a Consent
Solicitation Statement sent to the Unitholders on October 17, 1997 (and filed
with the Securities and Exchange Commission on the same date under cover of
Schedule 14A) upon the completion of the sale. In November 1997, the Unitholders
consented to the sale of the Partnership's real estate assets and the subsequent
liquidation of the Partnership with fifty-nine percent of
RANCON REALTY FUND V,
A California Limited Partnership
Notes to Consolidated Financial Statements
December 31, 1998, 1997 and 1996
the total outstanding Units cast in favor of such proposal. However; in December
1997, the General Partner determined that it would be in the best interest of
the Partnership to rescind the agreement for the sale of the real estate assets.
The General Partner experienced greater than anticipated opposition by the
Limited Partners to the timing of the sale. In addition, the General Partner
believed that holding the Partnership's real estate assets for an additional
period of time would provide the Partnership with the opportunity to recognize
an appreciation in its value. Costs totaling $479,000 related to the sale and
proposed dissolution were expensed in 1997.
The General Partner currently plans to seek the Limited Partners' consent to
sell all of the Partnership's remaining properties and liquidate the
Partnership, and the General Partner has filed preliminary consent solicitation
materials with the Securities and Exchange Commission. The Partnership's
remaining properties consist of eight rental properties and approximately 14
acres of unimproved land it owns in the Tri-City Corporate Center in San
Bernardino California. Costs totaling $125,000 related to the proposal to sell
all of the Partnership's remaining properties and liquidate the Partnership have
been incurred and are expensed in the accompanying statement of operations for
the year ended December 31, 1998.
Note 8. LEASES
The Partnership's rental properties are leased under non-cancelable operating
leases that expire at various dates through December, 2010. In addition to
monthly base rents, several of the leases provide for additional rents based
upon a percentage of sales levels attained by the tenants; however, no
contingent rentals were realized during the years ended December 31, 1998, 1997
and 1996. Future minimum rents under non-cancelable operating leases (excluding
Rancon Centre Ontario, sold in January 1999) as of December 31, 1998 are as
follows (in thousands):
1999 $ 5,328
2000 4,083
2001 3,147
2002 2,422
2003 1,697
Thereafter 3,813
----------
Total $ 20,490
==========
Note 9. COMMITMENTS AND CONTINGENT LIABILITIES
The Partnership is contingently liable for subordinated real estate commissions
payable to the General Partner in the amount of $102,000 at December 31, 1998.
The subordinated real estate commissions are payable only after the Limited
Partners have received distributions equal to their original invested capital
plus a cumulative non-compounded return of six percent per annum on their
adjusted invested capital. Since the circumstances under which these commissions
would be payable are limited, the liability has not been recognized in the
accompanying financial statements; however, the amount will be recorded when and
if it becomes payable.
RANCON REALTY FUND V,
A California Limited Partnership
Notes to Consolidated Financial Statements
December 31, 1998, 1997 and 1996
Note 10. TAXABLE INCOME (LOSS)
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 reconciliation has been prepared using tax amounts estimated on a
calendar year basis.
The following is a reconciliation for the years ended December 31, 1998, 1997
and 1996, of the net loss for financial reporting purposes to the estimated
taxable income (loss) determined in accordance with accounting practices used in
preparation of federal income tax returns (in thousands).
1998 1997 1996
--------- ---------- --------
Net loss per financial statements $ (1,747) $ (3,293) $ (1,307)
Provision for impairment of investments
in real estate 323 1,688 --
Financial reporting depreciation in excess
of tax reporting depreciation 170 269 558
Loss on sale of property less than recognized
loss for tax reporting (217) -- --
Operating revenues and expenses recognized in
a different period for financial reporting
than for income tax reporting, net (9) 1,486 (175)
Property taxes capitalized for tax 493 436 487
--------- --------- --------
Net loss for federal income tax purposes $ (987) $ 586 $ (437)
========= ========= ========
The following is a reconciliation of partner's equity for financial reporting
purposes to estimated partners' capital for federal income tax purposes as of
December 31, 1998 and 1997 (in thousands).
1998 1997
------------- -----------
Partners' equity per financial statements $ 33,892 $ 35,740
Cumulative provision for impairment of
investments in real estate 23,736 23,413
Cumulative financial reporting depreciation in
excess of tax reporting depreciation 7,322 7,152
Operating revenues and expenses recognized in
a different period for financial reporting
than for income tax reporting, net 2,142 2,155
Property taxes capitalized for tax 1,676 1,400
Syndication costs (1,987) (1,987)
Other, net -- 964
------------- -----------
Partners' capital for federal
income tax purposes $ 66,781 $ 68,837
============= ===========
RANCON REALTY FUND V,
A California Limited Partnership
Notes to Consolidated Financial Statements
December 31, 1998, 1997 and 1996
Note 11. SUBSEQUENT EVENTS
On January 20, 1999, the Partnership sold approximately 24 acres of land
(referred to as the Perris-Ethanac land) located in Perris, Riverside County,
California, to an unaffiliated entity for $502,200. The Partnership realized a
$6,000 loss on the sale which will be reflected in its 1999 financial
statements. The sale generated net proceeds of $446,000, which were added to the
Partnership's cash reserves.
On January 29, 1999, the Partnership sold five distribution-center buildings
(referred to as Rancon Centre Ontario) located in Ontario, California, to an
unaffiliated entity for $7,650,000. As part of the terms of the sale, the
Partnership loaned $5,715,000 to the buyer (the "RCO Note"). The RCO Note is
secured by a deed of trust encumbering the Rancon Centre Ontario property, bears
interest at 8% per annum and matures on January 1, 2000. The sale generated net
proceeds of $1,648,000, which were added to cash reserves. Since the sale of
Rancon Centre Ontario included a $5,715,000 loan from the Partnership to the
buyer, the Partnership will defer recognition of the $3,309,000 gain on the sale
until collection of the note is assured.
Also on January 29, 1999, the Partnership sold 60.14 acres of land (referred to
as the Perris-Nuevo land) located in Perris, Riverside County, California, to an
unaffiliated entity for $675,000. As part of the terms of the sale, the
Partnership loaned $475,000 to the buyer (the "Nuevo Note"). The Nuevo Note is
secured by a deed of trust encumbering the Perris Nuevo land, bears interest at
6% per annum and matures on November 15, 1999. The sale generated net proceeds
of $135,000, which were added to the Partnership's cash reserves. Since the sale
of the Perris Nuevo land included a $475,000 loan from the Partnership to the
buyer, the Partnership will defer recognition of the $444,000 gain on the sale
until collection of the note is assured.
RANCON REALTY FUND V,
A California Limited Partnership
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
December 31, 1998
(In Thousands)
- - ------------------------------------------------------------------------------------------------------------------------------------
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
Cost Capitalized
Initial Cost to Subsequent to Gross Amount Carried
Partnership Acquisition at December 31, 1998
Buildings Buildings
and Carrying and (A)
Description Encumbrances Land Improvements Improvements Cost Land Improvements Total
- - ------------------------------------------------------------------------------------------------------------------------------------
Rental Properties:
Commercial Office Complexes
San Bernardino County, CA:
One Carnegie Plaza $ 4,178 $ 1,583 $ -- $ 9,628 $ -- $ 1,583 $ 9,628 $11,211
Provision for impairment of
investment in real estate (B) -- -- -- (1,657) -- (256) (1,401) (1,657)
Two Carnegie Plaza (C) 873 -- 5,658 -- 873 5,658 6,531
Carnegie Business Center II -- 544 -- 3,611 -- 544 3,611 4,155
Provision for impairment of
investment in real estate (B) -- -- -- (299) -- (41) (258) (299)
Lakeside Tower (C) 834 -- 11,526 -- 834 11,526 12,360
Santa Fe -- 501 -- 2,530 -- 501 2,530 3,031
One Parkside (C) 529 -- 6,552 -- 529 6,552 7,081
Provision for impairment of
investment in real estate (B) -- -- -- (700) -- (65) (635) (700)
Health Club -- 786 -- 1,932 -- 786 1,932 2,718
Outback Steakhouse -- -- -- 808 -- 161 647 808
------- ------- ------- -------- ------- ------- ------- ------
13,508 5,650 -- 39,588 -- 5,449 39,789 45,238
------- ------- ------- -------- ------- ------- ------- ------
Rental Property for Sale:
San Bernardino County, CA:
Rancon Centre Ontario -- 1,735 -- 6,790 -- 1,735 6,790 8,525
Provision for impairment of
investment in real estate (B) -- -- -- (2,809) -- (598) (2,211) (2,809)
------- ------- ------- -------- ------- ------- ------- ------
-- 1,735 -- 3,981 -- 1,137 4,579 5,716
------- ------- ------- -------- ------- ------- ------- ------
Land Held for Development:
San Bernardino County, CA:
14 acres - Tri-City -- 5,676 -- 5,904 -- 11,580 -- 11,580
Provision for impairment of
investment in real estate (B) -- (2,431) -- (6,447) -- (8,878) -- (8,878)
------- ------- ------- -------- ------- -------- ------- -------
-- 3,245 -- (543) -- 2,702 -- 2,702
------- ------- ------- -------- ------- ------- ------- ------
Land Held for Sale:
Riverside County, CA:
23.8 acres - Perris - Ethanac Rd. -- 2,780 -- 202 -- 2,982 -- 2,982
Provision for impairment of
investment in real estate (B) -- (2,027) -- (503) -- (2,530) -- (2,530)
60.14 acres - Perris - Nuevo Rd. -- 5,955 -- 1,053 -- 7,008 -- 7,008
Provision for impairment of
investment in real estate (B) -- (5,770) -- (1,093) -- (6,863) -- (6,863)
------- ------- ------- -------- ------- ------- ------- ------
-- 938 -- (341) -- 597 -- 597
------- ------- ------- -------- ------- ------- ------- ------
TOTAL $13,508 $11,568 $ -- $ 42,685 $ -- $ 9,884 $ 44,369 $54,253
======= ======= ======= ======== ====== ======= ======== =======
(A) The aggregate cost for federal income tax purposes is $79,083.
(B) See Note 4 to Financial Statements
(C) Two Carnegie Plaza, Lakeside Tower and One Parkside are collateral for the debt in the aggregate amount of $9,330.
RANCON REALTY FUND V,
A California Limited Partnership
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
December 31, 1998
(In Thousands)
- - --------------------------------------------------------------------------------
COLUMN A COLUMN F COLUMN G COLUMN H COLUMN I
Date Life
Accumulated Construction Date Depreciated
Description Depreciation Began Acquired Over
- - ----------------------------------- --------------------------------------------
Rental Properties:
Commercial Office Complexes
San Bernardino County, CA:
One Carnegie Plaza $4,121 8/86 6/03/85 3-40 yrs.
Provision for impairment of
investment in real estate (B) --
Two Carnegie Plaza 2,554 1/88 6/03/85 3-40 yrs.
Carnegie Business Center II 1,943 10/86 6/03/85 3-40 yrs.
Provision for impairment of
investment in real estate (B) --
Lakeside Tower 4,935 3/88 6/03/85 3-40 yrs.
Santa Fe 1,223 2/89 6/03/85 5-40 yrs.
One Parkside 1,634 2/92 6/03/85 5-40 yrs.
Provision for impairment of
investment in real estate (B) --
Health Club 224 1/95 6/03/85 5-40 yrs.
Outback Steakhouse 32 1/96 6/03/851 5-40 yrs.
------
16,666
------
Rental Property for Sale:
San Bernardino County, CA:
Rancon Centre Ontario 1,746 1/88 5/22/87 3-40 yrs.
Provision for impairment of
investment in real estate (B) --
------
1,746
------
Land Held for Development:
San Bernardino County, CA:
14 acres - Tri-City -- N/A 6/03/85 N/A
Provision for impairment of
investment in real estate (B) --
-----
--
------
Land Held for Sale:
Riverside County, CA:
23.8 acres - Perris - Ethanac Rd. -- N/A 3/30/89 N/A
Provision for impairment of
investment in real estate (B) --
60.14 acres - Perris - Nuevo Rd. -- N/A 12/28/89 N/A
Provision for impairment of
investment in real estate (B) --
----
--
------
TOTAL $18,412
======
RANCON REALTY FUND V,
A CALIFORNIA LIMITED PARTNERSHIP
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
(in thousands)
Reconciliation of gross amount at which real estate was carried:
For the years ended
December 31,
1998 1997 1996
------------ -------------- ---------
Investments in real estate:
Balance at beginning of period $ 59,297 $ 60,518 $ 60,209
Additions during period:
Improvements 579 467 309
Capitalized carrying costs -- -- --
Retirement during period (5,300) -- --
Provision for impairment of
investments in real estate (323) (1,688) --
---------- ------------- -----------
Balance at end of period $ 54,253 $ 59,297 $ 60,518
========= ============ ===========
Accumulated Depreciation:
Balance at beginning of period $ 16,911 $ 15,180 $ 13,405
Additions charged to expenses 1,501 1,731 1,775
--------- ------------ -----------
Balance at end of period $ 18,412(1) $ 16,911 $ 15,180
========= ============ ===========
(1) Included in the accumulated depreciation balance
at December 31, 1998 is $1,746 of accumulated depreciation of
the Rancon Centre Ontario property which is classified as
rental property held for sale in the accompanying consolidated
balance sheet as of December 31, 1998.
EXHIBIT INDEX
Exhibit No. Exhibit Title
10.1 First Amendment to Second Amended Management, Administration
and Consultation Agreement for services rendered by Glenborough
Corporation dated August 31, 1998.
Agreement
This Agreement is made as of August 31, 1998, by and between
Glenborough Corporation, a California corporation ("GC"), Rancon Realty Fund V,
a California limited partnership ("Fund V"), Daniel L. Stephenson ("DLS") and
Rancon Financial Corporation, a California corporation ("RFC").
Recitals
A. DLS and RFC are general partners of Fund V.
B. Reference is made to that certain Management, Administration and
Consulting Agreement dated December 20, 1994, by and among (among others)
Glenborough Inland Realty Corporation ("GIRC," GC's predecessor-in-interest),
Fund V, DLS and RFC, as amended on March 30, 1995 (the "Agreement").
C. Under the Agreement, GC is required, as GIRC's
successor-in-interest, to perform services for Fund V, and Fund V is required to
pay to GC, among other things, (i) property management fees ("Management Fees")
and (ii) Asset Administration Fees ("Asset Fees"). The Agreement also
establishes similar contractual arrangements between GIRC and a number of other
partnerships in which DLS and/or RFC or affiliates thereof serve as general
partners (the "Other Rancon Partnerships"), and GC is also successor-in-interest
to GIRC with respect to such contractual arrangements.
D. Under Section 11.6 of the Agreement, GC is entitled to Liquidated
Damages from Fund V in the amount of $2,120,349 ("Liquidated Damages") if the
Agreement is terminated by Fund V prior to the date five (5) years after the
Commencement Date of January 3, 1995.
E. GC is willing to waive its right to Liquidated Damages if Fund V
agrees to maintain the Management Fees and Asset Fees at a specified amount, and
Fund V is willing to so maintain the amount of the Management Fees and Asset
Fees.
Agreement
Now, therefore, in consideration of the mutual promises, covenants and
agreements contained herein, it is hereby agreed as follows:
1. Liquidated Damages. GIRC hereby waives any and all claims to
Liquidated Damages from Fund V.
2. Asset Fees and Management Fees. For the period beginning on the date
of this Agreement and ending December 31, 1999, Fund V shall pay to GC Asset
Fees and Management Fees in an amount equal to the greater of (i) the amount of
Asset Fees and Management Fees in effect as of the date of this Agreement, as
set forth in Exhibit A hereto, reduced only for such
Asset Fees (in accordance with Exhibit E to the Agreement) and Management Fees,
respectively, as are applicable to the property known as Rancon Center Ontario,
and only if such property is sold at some point during such period, or (ii) the
amount payable under the terms of the Agreement. Fund V specifically guarantees
that Asset Fees and Management Fees shall be paid at these respective amounts
regardless of whether Fund V sells any or all of its remaining properties during
such time.
3. Other Compensation. All other compensation payable to GC
under the Agreement shall be paid in accordance with the terms of the Agreement.
In witness whereof, the parties have executed this Agreement as of the
date and year first above written.
Glenborough Corporation Rancon Financial Corporation,
a California corporation a California corporation
By ___________________________ By ___________________________
Rancon Realty Fund V ____________________________________
a California limited partnership Daniel L. Stephenson
By Rancon Financial Corporation,
a California corporation
its General Partner
By ___________________________
Daniel L. Stephenson, President
By _______________________________
Daniel L. Stephenson, General Partner
Exhibit A
Rancon Realty Fund V
Asset Administration Fees
and
Property Management Fees
Asset Administration Fees: A monthly amount based on an annual total of $819,644
per year (i.e., $68,303.67)
Property Management Fees: A monthly amount based on an annual total equal to
actual property management fees for the period
January 1, 1998 through June 30, 1998, multiplied
by 2.