Back to GetFilings.com
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, 1999
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: 0-14207
RANCON REALTY FUND IV,
A CALIFORNIA LIMITED PARTNERSHIP
---------------------------------
(Exact name of registrant as specified in its charter)
California 33-0016355
------------------------ --------------
(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.
Page 1 of 50
Part I
Item 1. Business
Rancon Realty Fund IV, a California Limited Partnership, ("the Partnership") was
organized in accordance with the provisions of the California Uniform Limited
Partnership Act for the purpose of acquiring, developing, operating and
ultimately selling real property. The Partnership was organized in 1984 and
reached final funding in July 1987. The general partners of the Partnership are
Daniel L. Stephenson ("DLS") and Rancon Financial Corp. ("RFC"), collectively,
the General Partner. RFC is wholly owned by DLS. At December 31, 1999, 76,765
limited partnership units ("Units") were outstanding. The Partnership has no
employees.
In April 1996, the Partnership formed Rancon Realty Fund IV Tri-City Limited
Partnership, a Delaware limited partnership ("RRF IV Tri-City"). As required by
the lender (Bear, Stearns Funding, Inc.) of a $6,400,000 loan obtained by the
Partnership in 1996, the Partnership contributed three of its operating
properties to RRF IV Tri-City to provide a bankruptcy remote borrower for the
lender. The loan, secured by the properties in RRF IV Tri-City, has a principal
balance of $6,196,000 at December 31, 1999, and matures on May 1, 2006 with an
8.744% fixed interest rate and a 25-year amortization of principal. The limited
partner of RRF IV Tri-City is the Partnership and the general partner is Rancon
Realty Fund IV, Inc. ("RRF IV, Inc."), a corporation wholly owned by the
Partnership. Since the Partnership owns 100% of RRF IV, Inc. and indirectly owns
100% of RRF IV Tri-City, the Partnership considers all assets owned by RRF IV,
Inc. and RRF IV Tri-City to be owned by the Partnership.
As of December 31, 1999, the Partnership owned ten rental properties and
approximately 23 acres of unimproved land ("Tri-City Properties") in a
master-planned development known as Tri-City Corporate Centre ("Tri-City") in
San Bernardino, California, and approximately two acres of unimproved land in
Temecula, California (the "Remaining Property"). Tri-City is zoned for mixed
commercial, office, hotel, transportation-related, and light industrial uses and
all of the parcels thereof are separately owned by the Partnership and Rancon
Realty Fund V ("Fund V"), a partnership sponsored by the General Partner of the
Partnership.
Asset Sale and Dissolution Proposal
- - --------------------------------------
The Partnership's business strategy has been to focus on the eventual
disposition of its assets at the optimal time and sales price. A Consent
Solicitation Statement (the "Solicitation") was sent to the holders of limited
partnership units ("Unitholders" or "Limited Partners") on July 6, 1999. The
Solicitation (incorporated by reference to the Schedule 14A - Preliminary Proxy
Statement filed with the United States Securities and Exchange Commission
("Commission") in the second quarter of 1999), discussed the General Partner's
proposal to sell all of the Partnership's assets ("Asset Sale") and liquidate
the Partnership thereafter ("Dissolution Proposal"). The Partnership's
properties consist of ten rental properties and approximately 23 acres of
unimproved land in the Tri-City Corporate Centre in San Bernardino, California
(the "Tri-City Properties") and approximately 2 acres of unimproved land in
Temecula, California (the "Remaining Property"). The General Partner currently
intends to sell all of the Partnership's properties, distribute the proceeds and
liquidate the Partnership after all of the properties are sold and the cash
proceeds thereof received. The General Partner does not expect the Dissolution
to occur until at least the second half of 2000 (and potentially not until 2001)
as some of the properties may be sold with the purchase price payable on an
installment basis. The resolution must be completed within 90 days of thefinal
receipt of cash proceeds from the sale of Partnership property.
Page 2 of 50
The period over which the sales transactions and dissolution are to take place
is not currently known.
As of August 25, 1999, the expiration of the voting period, 76,765 limited
partnership units ("Units") were outstanding. The holders of 61,429 Units, or
80% of the Units outstanding, have voted ("Units Voted") and no response was
received from the remaining 20%. A final tabulation of the results of the
Solicitation was made on August 25, 1999, with holders of 54,010 Units, or 88%,
of the Units Voted in favor, holders of 5,783 Units, or 9%, against and holders
of 1,636 Units, or 3%, abstaining.
Subsequent to obtaining the consent of the majority of the Unitholders, the
General Partner grouped the Tri-City Properties into packages of properties
(such as separate packages of retail properties, office properties and
unimproved land) and included properties in the Tri-City Corporate Centre which
are owned by Rancon Realty Fund V ("Fund V"), a partnership also sponsored by
the General Partner. Bidders for any package of properties containing Tri-City
Properties and Fund V properties will be required to specify how their overall
bid is allocated among the individual properties in the package, and the
proceeds and expenses from the sales of any such package will be apportioned
between the Partnership and Fund V based upon such allocation. The General
Partner hired an independent real estate firm to market the properties and to
prepare marketing materials and informational brochures. The informational
brochures were presented to a number of prospective buyers and as of the end of
September 1999, the General Partner had received 39 signed confidentiality
agreements requesting offering memorandums. The General Partner assessed all
offers on the properties in an effort to achieve the highest possible sales
price and return value for the properties. The General Partner has closed the
bidding process with a request for "best and final offers" and received six
final bids on the Tri-City properties in early November 1999. In November 1999,
the General Partner entered into a due diligence period with a potential buyer.
In January 2000, this due diligence period was terminated largely due to impact
of rising interst rates on the potential buyer's ability to fund. The General
Partner has received two written offers from prospective buyers and is giving
serious consideration to those offers.
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
Tri-City Properties, although the Partnership did, in 1997, granted to
Glenborough Realty Trust Incorporated, a Maryland corporation ("GLB"), a right
to match offers for the purchase of the Partnership's properties ("GLB Matching
Right"). GLB is not an affiliate of the Partnership.
Pursuant to the GLB Matching Right and the right of first refusal, the General
Partner is required to give prompt written notice to GLB of the price and other
terms and conditions of any offer, received from an unaffiliated third party.
The General Partner is willing to accept to sell all or a portion of the
Partnership's properties. GLB has ten days after receipt of the Partnership's
written notice to accept or reject the purchase price and other terms and
conditions of the sale. If GLB exercises its matching right and agrees to
purchase all or a portion of the Partnership's properties at the specified price
and on the other terms and conditions, the Partnership and GLB must promptly
execute a purchase agreement, which is to contain a reasonable feasibility study
period for GLB. If, on the other hand, GLB notifies the Partnership that it does
not intend to exercise its matching right or fails to respond within the ten-day
period, then the Partnership has the right to sell all or a portion of the
Partnership's properties to the unaffiliated third party buyer as set forth in
the Partnership's notice to GLB. The GLB Matching Right applies to the Tri-City
Properties and the Remaining Property.
Prior to the completion of the sale of all of the Partnership's properties and
the receipt in cash of the proceeds thereof, the General Partner currently
intends, but is not obligated, to make interim
Page 3 of 50
distributions to the Limited Partners, from time to time, of all or a portion of
the net proceeds from the sale of the properties. The General Partner will not
receive any of the net proceeds from the sale of the properties or upon
dissolution of the Partnership with respect to its general partnership
interests. In November 1999, the General Partner distributed $767,000 from the
net proceeds of the January 1999 sale of the Perris land.
The discussion above contains forward-looking statements regarding the
Partnership's plans, goals and expectations, including statements regarding the
Partnership's estimates of sales proceeds and future distributions resulting
from the Asset Sale, estimates of the timing of the sale of the properties, the
dissolution of the Partnership and the distribution of sales proceeds.
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. All
forward-looking statements included in this document are based on information
available to the Partnership on the date hereof, and reflect the best judgment
of the management of the Partnership. The General Partner's current plans are
subject to change, both as of result 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 the Asset
Sale and Dissolution Proposal will be consummated, or if and when the properties
will be sold that the proceeds will be distributed, and the Partnership
liquidated. The timing of any sale of the Partnership's 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
properties, liquidation of the Partnership, and distribution of proceeds
significantly beyond the time periods estimated above. Among such uncertainties
are 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.
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 tenants improvements commensurate with local
market conditions. Although management believes the Partnership's 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.
Page 4 of 50
Working Capital
- - ---------------
The Partnership's practice is to maintain cash reserves for normal repairs,
replacements, working capital and other contingencies.
Other Factors
- - -------------
Approximately 15 acres of the Tri-City Corporate Centre land owned by the
Partnership was part of a landfill operated by the City of San Bernardino ("the
City") from approximately 1950 to 1960. There are no records of which the
Partnership is aware, which disclose that hazardous wastes exist at the
landfill. The Partnership's landfill monitoring program currently meets or
exceeds all regulatory requirements and no material capital expenditures have
been incurred with respect thereto. The Partnership is working with the Santa
Ana Region of the California Regional Water Quality Control Board and the City
to determine the need and responsibility for any further testing. There is no
current requirement to ultimately clean up the site; however, no assurance can
be made that circumstances will not arise which could impact the Partnership's
responsibility related to the property.
Page 5 of 50
Item 2. Properties
Tri-City Corporate Center
- - -------------------------
Between December 24, 1984 and August 19, 1985, the Partnership acquired a total
of 76.56 acres of partially developed land in Tri-City for an aggregate purchase
price of $9,917,000. During that time, Fund V acquired the remaining 76.21 acres
within Tri-City.
Tri-City 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.
Tri-City Properties
- - -------------------
The Partnership's improved properties in the Tri-City Corporate Centre are as
follows:
Property Type Square Feet
---------------------------- ---------------------------------- -----------
One Vanderbilt Four story office building 73,730
Two Vanderbilt Four story office building 69,046
Carnegie Business Center I Two R & D buildings 62,539
Service Retail Center Two retail buildings 20,780
Promotional Retail Center Four strip center retail buildings 66,265
Inland Regional Center Two story office building 81,079
TGI Friday's Restaurant 9,386
Circuit City Retail building 39,123
Office Max Retail building 23,500
Mimi's Cafe Restaurant 6,455
These ten operating properties total approximately 452,000 square feet and offer
a wide range of retail, commercial, R & D and office products 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 23% as of December
31, 1999, according to research conducted by an independent broker.
Within the Tri-City Corporate Centre at December 31, 1999, the Partnership has
223,855 square feet of office space with an average vacancy rate of 4%, 165,509
square feet of retail space with no vacancy, and 62,539 square feet of R & D
space with a vacancy rate of 23%.
Page 6 of 50
Occupancy levels for the Partnership's Tri-City buildings at December 31, 1999,
1998, 1997, 1996 and October 31, 1995, expressed as a percentage of the total
net rentable square feet, are as follows:
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
One Vanderbilt 88% 91% 80% 86% 70%
Two Vanderbilt 100% 100% 93% 25% 95%
Carnegie Business Center I 77% 78% 69% 90% 97%
Service Retail Center 100% 95% 100% 100% 90%
Promotional Retail Center 100% 98% 97% 98% 97%
Inland Regional Center (commenced
June 1996) 100% 100% 100% 100% N/A
TGI Friday's (commenced February 1997) 100% 100% 100% N/A N/A
Circuit City (commenced May 1997) 100% 100% 100% N/A N/A
Office Max (commenced October 1998) 100% 100% N/A N/A N/A
Mimi's Cafe
(placed in service December 1998) 100% 100% N/A N/A N/A
In 1999, management renewed two leases totaling 3,675 square feet of space,
expanded two existing tenants by 4,416 square feet, and executed four new leases
totaling 4,189 square feet of space. During 2000, there are four leases totaling
18,627 square feet that are due to expire. Management believes that one tenant
with 5,651 square feet of space will renew their lease for another 5 years, and
one tenant with 9,506 square feet of space will vacate when their lease expires
in 2000. The remaining two tenants totaling 3,472 square feet of space have not
indicated whether they will renew their lease or vacate the premises.
The annual effective rent per square foot for the years ended December 31, 1999,
1998, 1997 and 1996 and October 31, 1995 were as follows:
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
One Vanderbilt $17.88 $17.38 $17.13 $18.07 $20.94
Two Vanderbilt $18.88 $16.58 $15.35 $13.91 $19.16
Carnegie Business Center I $10.59 $10.33 $10.51 $10.02 $11.00
Service Retail Center $16.34 $16.08 $15.71 $14.37 $14.63
Promotional Retail Center $10.72 $10.41 $10.10 $ 9.85 $10.49
Inland Regional Center $14.43 $13.62 $13.62 $13.49 N/A
TGI Friday's $19.18 $19.18 $19.18 N/A N/A
Circuit City $13.38 $13.38 $13.38 N/A N/A
Office Max $11.75 $11.75 N/A N/A N/A
Mimi's Cafe $13.17 $13.17 N/A N/A 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.
The annual effective rental rate at Two Vanderbilt increased by 14% in 1999
compared to 1998 due to rental increases under existing leases during 1999.
At December 31, 1999, the Partnership's annual rental rates ranged from $14.43
to $22.25 per square foot for office space; $9.90 to $20.40 per square foot for
commercial space; and $9.00 to $13.94 per square foot for R & D space.
Page 7 of 50
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 $15 to $17.40. Since there is no
comparable R & D space or measurable commercial space available in the market,
management determines the asking rents based on discussions with independent
leasing brokers.
The Partnership's Tri-City properties had the following seven tenants which
occupied a significant portion of the net rentable square footage as of December
31, 1999:
Inland
Inland ITT Empire
Regional Educational Health Plan Office Max
Center Center Comp USA PetsMart Circuit City
------------- -------------- -------------- --------------- -------------- ------------ --------------
Inland Carnegie Promotional Promotional Circuit City Two Office Max
Building Regional Business Retail Center Retail Center Vanderbilt
Center Center I
Nature of Social Educational Computer Pet Retail Electronics HMO Supplies
Business Services Services Retail Retail Retail
Lease Term 13 years 12 years 10 years 15 years 20 years 5 years 15 years
Expiration Date 7/16/09 12/31/04 8/31/03 1/10/09 1/13/18 3/31/02 10/31/13
Square Feet 81,079 33,551 23,000 25,015 39,123 44,094 23,500
(%of rentable 18% 7% 5% 6% 9% 10% 5%
total)
Annual Rent $1,104,000 $392,268 $229,360 $273,840 $563,868 $591,078 $276,125
Future Rent 6% every 3% annually 10% in 2003 5% in 1999 lesser of 3% in 2000 5% in 2003
Increases 2.5 years and 2004 10% or 5 yr.
CPI every
5-years
during lease
term
Renewal Options four 5-year one 5-year three 5-year one 5-year four 5-year none 15 5-year
options option options option options options
Page 8 of 50
The Partnership's Tri-City Properties are owned by the Partnership, in fee,
subject to the following notes and deeds of trust:
Service Retail Center,
Carnegie Business
Center and Promotional Circuit City
One Vanderbilt Retail Center Inland Regional and TGI
Security Center Friday's
----------------- ------------------------- ------------------ ---------------
Principal balance at
December 31, 1999 $2,248,000 $6,196,000 $2,390,000 $5,000,000
Interest Rate 9% 8.74% 8.75% 1% in excess
of Prime Rate
Monthly payment $20,141 $53,413 $20,771 Interest only
Maturity date 1/1/05 5/1/06 4/23/01 4/30/00
Tri-City Land
- - -------------
Approximately 23 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.
Temecula Property
- - -----------------
In June 1992, the Partnership acquired 12.4 acres of undeveloped commercial
property in Temecula, Riverside County, California (referred to as Rancon Towne
Village). On January 2, 1996, a final map approval was received to divide the
property into twelve parcels to accommodate retail and commercial development.
This enabled the Partnership to market these smaller parcels for sale. In 1997,
the Partnership sold nine of the Rancon Towne Village lots totaling
approximately 8.53 acres for an aggregate sales price of $2,534,000. In 1998,
the Partnership sold one of the three remaining Rancon Towne Village lots to an
unaffiliated entity for $270,000. In 1998, management determined that the
carrying value of the two remaining Rancon Towne Village lots was in excess of
its estimated fair value and, accordingly, recorded a provision for impairment
of investment in real estate of $167,000.
The Partnership is contingently liable for a subordinated note payable in
connection with the land in Temecula, California, that the Partnership
reacquired in June 1992 through a deed in lieu of foreclosure in satisfaction of
a $2,276,000 note receivable. The subordinated note payable and accrued interest
totaled $566,000 at December 31, 1999. This amount is payable upon the sale of
the property only after the Partnership receives the full amount of the prior
note receivable with accrued and unpaid interest, costs of development, costs of
sale, and other amounts paid to obtain good title to the property, subject to
certain release provisions. Since the circumstances under which this liability
would be payable are limited, the note payable and accrued interest have not
been recorded in the accompanying consolidated financial statements; however,
the amount will be recognized prior to recording any gain on the sale of the
related land.
Page 9 of 50
Lake Elsinore Property
- - ----------------------
In 1988, the Partnership acquired 17 parcels, totaling approximately 24.8 acres
in Lake Elsinore, Riverside County, California (referred to as Lake Elsinore
Plaza) for a purchase price of $4,475,000. Lake Elsinore Plaza was sold on
December 27, 1999 for $2,450,000 and the Partnership received $2,193,000 of net
sales proceeds.
Perris Property
- - ---------------
In 1988, the Partnership acquired 17.14 acres of unimproved land near Perris
Lake in Perris, Riverside County, California at a purchase price of $3,000,000.
During 1997, the Perris land had been written down to its then estimated fair
value of $1,386,000. During 1998, the Partnership determined that the carrying
value of the Perris land was further impaired and accordingly recorded an
additional provision for impairment of $1,086,000.
On January 15, 1999, the Perris property was sold for $334,800 and the
Partnership received $296,000 of net sales proceeds
Item 3. Legal Proceedings
None.
Item 4. Submission of Matters to a Vote of Security Holders
Incorporated herein by reference to Item 1 of Part I of this Annual Report on
Form 10-K.
Page 10 of 50
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, 1999, there were 10,742 holders of Partnership Units.
Distributions
- - -------------
Distributions are paid from either Cash From Operations or Cash From Sales or
Refinancing (as such terms are defined in the Partnership Agreement).
On November 30, 1999, the Partnership distributed $767,650 to the Limited
Partners from the proceeds of the January 1999 sale of the Perris land. On
November 30, 1998, the Partnership distributed $40,000 and $3,960,000 to the
General Partner and Limited Partners, respectively, from the proceeds of the
June 1998 sale of the Shadowridge Woodbend Apartments.
Cash from Operations includes all cash receipts from operations in the ordinary
course of business (except for the sale, refinancing, 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, plus a 12 percent return on their unreturned
capital contributions (less prior distributions of Cash from Operations); (ii)
second, to Limited Partners who purchased their units of limited partnership
interest prior to April 1, 1985, 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 October
31, 1985); and (iii) third, 20 percent to the General Partner and 80 percent to
the Limited Partners. A more explicit statement of these distribution policies
is set forth in the Partnership Agreement.
Page 11 of 50
Item 6. Selected Financial Data
The following is selected financial data for the years ended December 31, 1999,
1998, 1997 and 1996, the two months ended December 31, 1995 and the year ended
October 31, 1995 (in thousands, except per Unit data:
For the two For the
For the years ended months ended Year ended
Dec. 31 Dec. 31 Oct. 31
------------------------------------------------------ --------------- --------------
1999 1998 1997 1996 1995 1995
---- ---- ---- ---- ------ -----
Rental Income $ 6,638 $ 6,678 $ 7,275 $ 5,149 $ 768 $ 5,784
Gain (loss) on sale of real $ 257 $ 5,457 $ (253) $ -- $ -- $ --
estate
Provision for impairment
of real estate investments $ -- $ (2,864) $ (947) $ -- $ -- $ (12,224)
Net income (loss) $ (461) $ 1,904 $ (3,066) $ (1,510) $ (308) $ (13,417)
Net income (loss) allocable
to Limited Partners $ (474) $ 1,631 $ (3,066) $ (1,510) $ (308) $ (13,417)
Net income (loss) per Unit $ (6.18) $ 21.22 $ (38.40) $ (18.91) $ (3.86)
$(168.03)
Total assets $ 43,769 $ 45,509 $ 53,401 $ 52,695 $ 48,282 $ 49,321
Long-term obligations $ 15,834 $ 16,005 $ 22,004 $ 17,256 $ 11,757 $ 11,766
Cash distributions per Unit $ 9.99 $ 51.58 $ -- $ -- $ -- $ --
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations
LIQUIDITY AND CAPITAL RESOURCES
- - -------------------------------
The following discussion of the Partnership's financial condition and results of
operations should be read in conjunction with the audited consolidated financial
statements and the notes thereto in Item 14 of Part IV.
At December 31, 1999, the Partnership had cash of $6,133,000 (exclusive of
$269,000 in restricted cash). The remainder of the Partnership's assets consist
primarily of its net investments in real estate, totaling approximately
$34,880,000, which includes $32,680,000 in rental properties, $1,655,000 of land
held for development and $545,000 of undeveloped land held for sale. The
Partnership's primary liabilities at December 31, 1999 include notes payable,
totaling approximately $15,834,000, which consist of four secured loans
encumbering properties with an aggregate net book value of approximately
$25,822,000 and maturity dates of April 30, 2000 to May 1, 2006. Three of the
Partnership's notes payable require monthly principal and interest payments, and
bear fixed interest rates between 8.744% and 9%, and one note payable requires
monthly interest-only payments and bears interest at a variable rate of 1% over
the lender's Prime Rate.
The Partnership's improved cash position at December 31, 1999 compared to
December 31, 1998 is primarily due to the net proceeds (after repayment of debt
and distributions to partners) from the sale of Perris land in January 1999 and
the sale of Lake Elsinore in December 1999.
Page 12 of 50
The Partnership's restricted cash at December 31, 1999 consists of a $269,000
certificate of deposit ("CD") for Inland Regional Center's security deposit
("IRC CD"). Pursuant to the lease, the IRC CD will be converted to prepaid rent
after the 60th month of the lease and will be applied towards the IRC's monthly
rent until exhausted, provided that IRC is not in default of the lease and IRC
receives a five-year extension for its contract term with the State of
California. A $100,000 CD held as collateral for subdivision improvements and
monument bonds related to the land for sale in Temecula, California was
converted from restricted cash to cash after the Partnership paid $40,000 in
August 1999 to the City of Temecula as a contribution to the city traffic
signal.
The Partnership is contingently liable for subordinated real estate commissions
payable to the Sponsors in the aggregate amount of $643,000 at December 31, 1999
for sales that transpired in previous years. 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.
The Partnership is also contingently liable for a subordinated note payable in
connection with the land in Temecula, California, that the Partnership
reacquired in June 1992 through a deed in lieu of foreclosure in satisfaction of
a $2,276,000 note receivable. The subordinated note payable and accrued interest
totaled $566,000 at December 31, 1999. This amount is payable upon the sale of
the property only after the Partnership receives the full amount of the prior
note receivable with accrued and unpaid interest, costs of development, costs of
sale, and other amounts paid to obtain good title to the property, subject to
certain release provisions. Since the circumstances under which this liability
would be payable are limited, the note payable and accrued interest have not
been recorded in the accompanying consolidated financial statements; however,
the amount will be recognized prior to recording any gain on the sale of the
related land.
Operationally, the Partnership's primary source of fund consists 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 distribution to the partners.
Management believes that the Partnership's cash balance as of December 31, 1999,
together with 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.
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. In
addition, the Partnership is not subject to any covenants pursuant to its
secured debt that would constrain its ability to obtain additional capital.
Page 13 of 50
Operating Activities
- - --------------------
During the year ended December 31 1999, the Partnership's cash provided by
operating activities totaled $626,000.
The $214,000, or 15%, decrease in prepaid expenses and other assets at December
31, 1999, compared to December 31, 1998, is due primarily to the collection of
December 31, 1998 tenant receivables in the first quarter of 1999.
The $340,000, or 37%, decrease in accounts payable and other liabilities at
December 31, 1999, compared to December 31, 1998, is due primarily to the
payment of December 31, 1998 accounts payable related to tenant improvements
during the first half of 1999. The construction of the tenant improvements was
completed in May 1999.
Investing Activities
- - --------------------
During the year ended December 31, 1999, the Partnership's cash provided by
investing activities totaled $2,049,000, which included $2,489,000 of net cash
proceeds from the sale of land and $440,000 of cash used for additions to real
estate.
The Partnership received net cash proceeds of $296,000 from the January 1999
sale of approximately 17 acres of land, referred to as the Perris land, and net
cash proceeds of $2,193,000 from the December 1999 sale of approximately 24.8
acres of land, referred to as Lake Elsinore.
During 1999, the Partnership invested, by way of improvements, approximately
$320,000 in rental properties, $80,000 in land held for development and $40,000
in land held for sale.
Financing Activities
- - --------------------
During the year ended December 31, 1999, the Partnership's cash used for
financing activities totaled $839,000, which consisted of $171,000 in principal
payments on its four notes payable, $767,000 of distributions to the Limited
Partners from sales proceeds, $1,000 paid to redeem two limited partnership
units ("Units") and receipt of $100,000 of restricted cash released from the
City of Temecula.
RESULTS OF OPERATIONS
- - ---------------------
1999 versus 1998
- - ----------------
Revenue
- - -------
Rental income for the year ended December 31, 1999 decreased $40,000 compared to
the year ended December 31, 1998 primarily due to the June 1998 sale of
Shadowridge Woodbend Apartments ("Shadowridge"). This decrease was offset by an
increase due to the commencement of operations of Office Max in October 1998 and
Mimi's Cafe in January 1999.
Page 14 of 50
Occupancy rates at the Partnership's Tri-City properties as of December 31,
1999, 1998, 1997 and 1996, and October 31, 1995 were as follows:
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
One Vanderbilt 88% 91% 80% 86% 70%
Two Vanderbilt 100% 100% 93% 25% 95%
Carnegie Business Center I 77% 78% 69% 90% 97%
Service Retail Center 100% 95% 100% 100% 90%
Promotional Retail Center 100% 98% 97% 98% 97%
Inland Regional Center (commenced
June 1996) 100% 100% 100% 100% N/A
TGI Friday's (commenced February 1997) 100% 100% 100% N/A N/A
Circuit City (commenced May 1997) 100% 100% 100% N/A N/A
Office Max (commenced October 1998) 100% 100% N/A N/A N/A
Mimi's Cafe
(placed in service December 1998) 100% 100% N/A N/A N/A
In 1999, tenants at Tri-City occupying substantial portions of leased rental
space included: (i) Inland Empire Health Plan with a lease through March 2002;
(ii) CompUSA with a lease through August 2003; (iii) ITT Educational Services
with a lease through December 2004; (iv) PetsMart with a lease through January
2009; (v) Inland Regional Center with a lease through July 2009; (vi) Circuit
City with a lease through January 2018; and (vii) Office Max with a lease
through October 2013. These seven tenants, in the aggregate, occupied
approximately 269,000 square feet of the 452,000 total leasable square feet at
Tri-City and accounted for approximately 56% of the rental income of the
Partnership in 1999.
The 3-percentage point decrease in occupancy from December 31, 1998 to December
31, 1999 at One Vanderbilt was due to the expiration of a 6,699 sq. ft. office
lease in May 1999. This space had not been re-leased as of December 31, 1999.
Slightly offsetting this decrease in occupancy was an increase due to the
leasing of 3,987 square feet of previously vacant space to two new tenants.
The 5-percentage point increase in occupancy from December 31, 1998 to December
31, 1999 at Service Retail Center was attributed to the leasing of 1,466 square
feet of previously vacant space to three new tenants.
The gain on sale of land of $257,000 during the year ended December 31, 1999
resulted from the December 1999 sale of Lake Elsinore.
Interest and other income for the year ended December 31, 1999 decreased $33,000
from the year ended December 31, 1998 due to a decrease in cash reserves
resulting from the November 1998 distribution of $4,000,000 from the Shadowridge
sale proceeds.
Expenses
- - --------
Operating expenses decreased $179,000, or 6%, for the year ended December 31,
1999, compared to the year ended December 31, 1998, primarily due to the June
1998 sale of Shadowridge. This decrease was partially offset by an increase in
property operating expenses attributable to the commencement of operations of
Office Max and Mimi's Cafe.
Interest expense decreased $182,000 or 11% during the year ended December 31,
1999 compared to
Page 15 of 50
the year ended December 31, 1998 due primarily to the payoff of the $5,800,000,
7.95% fixed rate loan secured by Shadowridge.
Depreciation and amortization increased $208,000 or 15% during the year ended
December 31, 1999 compared to the year ended December 31, 1998 primarily due to
the commencement of operations of Office Max and Mimi Cafe.
The loss on sale of real estate of $4,000 during the year ended December 31,
1999 resulted from the sale of the Perris land.
Expenses associated with undeveloped land increased $23,000, or 6%, during the
year ended December 31, 1999 compared to the year ended December 31, 1998 due to
(i) a timing difference in payment of the 1st quarter of 1998 maintenance
association dues that was paid in the 4th quarter of 1997 and (ii) a reduction
in property taxes as a result of the sale of the Perris land in January 1999.
General and administrative expenses decreased $245,000, or 20%, during the year
ended December 31, 1999, compared to the year ended December 31, 1998, primarily
due to a decrease in asset management fees resulting from the 1998 sale of
Shadowridge.
The $429,000 and $102,000 of proposed dissolution costs in 1999 and 1998,
respectively, consist of expenses incurred to explore the possibility of the
Partnership selling all of its real estate assets. See Item 1 of Part I for
further details.
1998 versus 1997
- - ----------------
Revenue
- - -------
Rental income for the year ended December 31, 1998 decreased $597,000 or 8%
compared to the year ended December 31, 1997 primarily as a result of the loss
of rental income due to the June 1998 sale of Shadowridge Woodbend Apartments
("Shadowridge"). This decrease was offset by the commencement of the operations
of Office Max in October 1998 and increased occupancy at One Vanderbilt, Two
Vanderbilt, Carnegie Business Center I, and Promotional Retail Center.
Occupancy rates at the Partnership's Tri-City properties as of December 31,
1998, 1997 and 1996, and October 31, 1995 are indicated above.
An eleven-percent increase in occupancy from December 31, 1997 to December 31,
1998 at One Vanderbilt was attributed to leasing 15,946 square feet to a new
tenant and expanding the leased space of an existing tenant.
An seven-percent increase in occupancy from December 31, 1997 to December 31,
1998 at Two Vanderbilt was attributed to the expansion of the leased space of an
existing tenant.
An nine-percent increase in occupancy from December 31, 1997 to December 31,
1998 at Carnegie Business Center I was attributed to leasing 3,221 square feet
of space to a new tenant and expanding another lease by 1,608 square feet.
The construction of Office Max and Mimi's Cafe, 23,500 and 6,455 square foot
build-to-suit retail buildings, were completed during 1998, with lease
commencements on October 15, 1998 and January 4, 1999, respectively.
Page 16 of 50
In 1998, tenants at Tri-City occupying substantial portions of leased rental
space included: (i) Inland Empire Health Plan with a lease through March 2002;
(ii) CompUSA with a lease through August 2003; (iii) ITT Educational Services
with a lease which expires in December 2004; (iv) PetsMart with a lease through
January 2009; (v) Inland Regional Center with a lease through July 2009; (vi)
Circuit City with a lease through January 2018; and (vii) Office Max with a
lease through October 2013. These seven tenants, in the aggregate, occupied
approximately 269,000 square feet of the 452,000 total leasable square feet at
Tri-City and account for approximately 54% of the rental income generated at
Tri-City and 47% of the total rental income for the Partnership in 1998.
The gain on sale of rental property of $5,468,000 during the year ended December
31, 1998 resulted from the June 1998 sale of Shadowridge.
Interest and other income for the year ended December 31, 1998 increased
$218,000 from the year ended December 31, 1997 as a result of the increase in
cash reserves resulting from the sales proceeds of Shadowridge.
Expenses
- - --------
Operating expenses decreased $376,000 or 12% during the year ended December 31,
1998 compared to the year ended December 31, 1997 due to the sale of
Shadowridge.
Interest expense decreased $236,000 or 13% during the year ended December 31,
1998 compared to the year ended December 31, 1997 due to the payoff of the
$5,800,000, 7.95% fixed rate loan secured by Shadowridge.
Depreciation and amortization decreased $330,000 or 19% during the year ended
December 31, 1998 compared to the year ended December 31, 1997 primarily due to
ceasing depreciation on Shadowridge upon classification of the property as
rental property held for sale effective December 31, 1997.
In 1998 and 1997, management determined that the carrying value of certain of
the Partnership's investments in real estate were in excess of the estimated
fair value of such property and, accordingly, recorded provisions for impairment
of real estate investments of $2,864,000 and $947,000, respectively, which are
detailed in the following table. The fair values were based on independent
appraisals of the Partnership's real estate.
1998 1997
------------- ---------
Rental property:
Inland Regional Center $1,482,000 $ --
Land held for development:
San Bernardino, CA 129,000 275,000
Land held for sale:
Temecula, CA 167,000 672,000
Perris, CA 1,086,000 --
------------- ----------
Total provision for impairment
of real estate investments $2,864,000 $ 947,000
============= ==========
The loss on sale of land of $11,000 during the year ended December 31, 1998
resulted from the sale of one parcel in Rancon Towne Village. The loss on sale
of land of $253,000 during the year ended December 31, 1997 resulted from the
sale of eight parcels in Rancon Towne Village.
Page 17 of 50
Expenses associated with undeveloped land decreased $260,000 or 38% during the
year ended December 31, 1998 compared to the year ended December 31, 1997, due
to: (i) the reduction in property taxes resulting from the sale of ten parcels
in Rancon Towne Village during the period from July 1997 through December 31,
1998; (ii) the capitalization of expenses during the construction of Office Max
and Mimi's Cafe in 1998; and (iii) a decrease in maintenance association dues in
1998.
The $102,000 and $445,000 of proposed dissolution costs in 1998 and 1997,
respectively, consist of expenses incurred to explore the possibility of the
Partnership selling all of its real estate assets followed by a liquidation of
the Partnership. See Item 1 of Part I for further details.
Item 7A. Qualitative and Quantitative Information About Market Risk
Interest Rates
- - --------------
The Partnership's primary market risk exposure is to changes in interest rates
obtainable on its secured borrowings. The Partnership does not believe that
changes in market interest rates will have a material impact on the performance
or fair value of its portfolio.
Approximately 32% and 31% of the Partnership's outstanding debt was subject to
variable rates at December 31, 1999 and 1998, respectively. In addition, the
average interest rate on the Partnership's debt increased from 8.78% at December
31, 1998 to 9.02% at December 31, 1999. The Partnership reviews interest rate
exposure in the portfolio quarterly in an effort to minimize the risk of
interest rate fluctuations. The Partnership does not have any other material
market-sensitive financial instruments. It is not the Partnership's policy to
engage in hedging activities for previously outstanding debt instruments or for
speculative or trading purposes.
The table below provides information about the Partnership's financial
instruments that are sensitive to changes in interest rates. For debt
obligations, the table presents principal cash flows and related weighted
average interest rates by expected maturity dates. Weighted average variable
rates are based on rates in effect at the reporting date.
Expected Maturity Date
--------------------------------------------------------------------------
Fair
2000 2001 2002 2003 2004 Thereafter Total Value
---- ---- ---- ---- ---- ---------- ----- ----------
(in thousands)
Secured Fixed $ 187 $ 2,497 $ 172 $ 188 $ 171 $ 7,619 $ 10,834 $ 10,834
Average interest rate 8.80% 8.75% 8.82% 8.82% 8.83% 8.81% 8.80%
Secured Variable $ 5,000 $ -- $ -- $ -- $ -- $ -- $ 5,000 $ 5,000
Average interest rate 9.50% -- -- -- -- -- 9.50%
The Partnership believes that the interest rates given in the table for fixed
rate borrowings approximate the rates the Partnership could currently obtain for
instruments of similar terms and maturities and that the fair values of such
instruments approximate carrying value at December 31, 1999.
A change of 1/8% in the index rate to which the Partnership's variable rate debt
is tied would change the annual interest incurred by the Partnership by $6,250,
based upon the balances outstanding on variable rate instruments at December 31,
1999.
Page 18 of 50
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.
Page 19 of 50
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 56, founded RFC (formerly known as Rancon Corporation) in
1971 for the purpose of establishing a commercial, industrialand 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 which 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 (I.R.A.) 4 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 Agreement; (ii)
termination and dissolution of the Partnership; (iii) sale, exchange or pledge
of all or substantially all of the assets of
Page 20 of 50
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; and (vi) extension of the
term of the Partnership.
Item 13. Certain Relationships and Related Transactions
During the year ended December 31, 1999, the Partnership did not incur any
expenses or costs reimbursable to RFC, DLS or any other affiliate of the
Partnership.
Page 21 of 50
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, 1999 and 1998
Consolidated Statements of Operations for the years ended
December 31, 1999, 1998 and 1997
Consolidated Statements of Partners' Equity (Deficit) for the
years ended December 31, 1999, 1998 and 1997
Consolidated Statements of Cash Flows for the years ended
December 31, 1999, 1998 and 1997
Notes to Consolidated Financial Statements
(2) Financial Statement Schedule:
Schedule III - Real Estate and Accumulated Depreciation as of
December 31, 1999 and Notes thereto
(3) Exhibits:
(3.1) Second Amended and Restated Certificate and Agreement
of Limited Partnership of the Partnership (included
as Exhibit B to the Prospectus dated December 29,
1986, as amended on January 5, 1987, filed pursuant
to Rule 424(b), file number 2-90327), is incorporated
herein by reference.
(3.2) First Amendment to the Second Amended and Restated
Agreement and Certificate of Limited Partnership of
the Partnership, dated March 11, 1991 (included as
Exhibit 3.2 to 10-K dated October 31, 1992, File
number 0-14207), is incorporated herein by reference.
(3.3) Limited Partnership Agreement of RRF IV Tri-City
Limited Partnership, a Delaware limited partnership
of which Rancon Realty Fund IV, a California Limited
Partnership is the limited partner (filed as Exhibit
3.3 to the Partnership's annual report on Form 10-K
for the year ended December 31, 1996), is
incorporated herein by reference.
Page 22 of 50
(10.1) First Amendment to the Second Amended Management,
Administration and Consulting Agreement and amendment
thereto 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 $6,400,000, dated
April 19, 1996, secured by Deeds of Trust on three of
the Partnership's Properties (filed as Exhibit 10.6
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
No report on Form 8-K was filed with the Securities and Exchange
Commission during the fourth quarter of 1999.
Page 23 of 50
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 IV,
a California limited partnership
By: Rancon Financial Corporation
a California corporation
its General Partner
Date: March 30, 2000 By: /s/ DANIEL L. STEPHENSON
--------------------------
Daniel L. Stephenson, President
Date: March 30, 2000 By: /s/ DANIEL L. STEPHENSON
--------------------------
Daniel L. Stephenson, General Partner
Page 24 of 50
INDEX TO FINANCIAL STATEMENTS
AND SCHEDULE
Financial Statements and Schedule Page
Financial Statements:
Report of Independent Public Accountants 26
Consolidated Balance Sheets as of December 31, 1999, 1998 and 1997 27
Consolidated Statements of Operations for the years ended December 31,
1999, 1998 and 1997 28
Consolidated Statements of Partners' Equity (Deficit) for the years
ended December 31, 1999, 1998 and 1997 29
Consolidated Statements of Cash Flows for the years ended
December 31, 1999, 1998 and 1997 30-31
Notes to Consolidated Financial Statements 32-44
Schedule:
III - Real Estate and Accumulated Depreciation
as of December 31, 1999 and Notes thereto 45
All other schedules are omitted because they are not applicable or the required
information is shown in the financial statements or notes thereto.
Page 25 of 50
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Partners of
RANCON REALTY FUND IV, A CALIFORNIA LIMITED PARTNERSHIP:
We have audited the accompanying consolidated balance sheets of RANCON REALTY
FUND IV, A CALIFORNIA LIMITED PARTNERSHIP as of December 31, 1999 and 1998 and
the related consolidated statements of operations, partners' equity (deficit)
and cash flows for the years ended December 31, 1999, 1998 and 1997. 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 auditing standards generally accepted
in the United States. 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.
As discussed in Note 1, the unitholders of the Partnership have adopted a plan
to sell all of its remaining properties and liquidate the Partnership.
Management is currently working to identify and negotiate with potential buyers.
The terms of the plan of liquidation require the Partnership to be dissolved 90
days after receipt of the final cash proceeds that result from the sales
transaction. The period over which the sales transactions and dissolution are to
take place is not currently known.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of RANCON
REALTY FUND IV, A CALIFORNIA LIMITED PARTNERSHIP, as of December 31, 1999 and
1998 and the results of its operations and its cash flows for the years ended
December 31, 1999, 1998 and 1997, in conformity with accounting principles
generally accepted in the United States.
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 4, 2000
(except with respect to the matters discussed in Note 10,
as to which the date is March 15, 2000)
Page 26 of 50
RANCON REALTY FUND IV,
A CALIFORNIA LIMITED PARTNERSHIP
Consolidated Balance Sheets
December 31, 1999 and 1998
(in thousands, except units outstanding)
Assets 1999 1998
- - ------ ---- ----
Investments in real estate:
Rental property, net of accumulated depreciation of $14,144
and $12,723 as of December 31, 1999 and 1998, respectively $ 32,680 $ 33,781
Land held for development 1,655 1,575
Land held for sale 545 2,741
---------- -----------
Total real estate investments 34,880 38,097
---------- -----------
Cash and cash equivalents 6,133 4,297
Restricted cash 269 369
Deferred financing costs and other fees, net of
accumulated amortization of $1,486 and $1,195 as of
December 31, 1999 and 1998, respectively 1,267 1,312
Prepaid expenses and other assets 1,220 1,434
---------- -----------
Total assets $ 43,769 $ 45,509
========== ===========
Liabilities and Partners' Equity (Deficit)
- - ------------------------------------------
Notes payable $ 15,834 $ 16,005
Accounts payable and accrued expenses 589 929
---------- -----------
Total liabilities 16,423 16,934
---------- -----------
Commitments and contingent liabilities (see Note 8)
Partners' equity (deficit):
General partners (645) (658)
Limited partners, 76,765 and 76,767 limited partnership units
outstanding at December 31, 1999 and 1998, respectively 27,991 29,233
------------ -------------
Total partners' equity 27,346 28,575
------------ -------------
Total liabilities and partners' equity $ 43,769 $ 45,509
============ ============
The accompanying notes are an integral part of these consolidated financial statements
Page 27 of 50
RANCON REALTY FUND IV,
A CALIFORNIA LIMITED PARTNERSHIP
Consolidated Statements of Operations For the years ended
December 31, 1999, 1998 and 1997 (in thousands, except per unit
amounts and
units outstanding)
1999 1998 1997
--------------- ------------ --------------
Revenue:
Rental income $ 6,638 $ 6,678 $ 7,275
Gain on sale of rental property --- 5,468 --
Gain on sale of land 257 --- --
Interest and other income 208 241 23
--------------- ------------ -------------
Total revenue 7,103 12,387 7,298
--------------- ------------ -------------
Expenses:
Operating 2,611 2,790 3,166
Interest expense 1,469 1,651 1,887
Depreciation and amortization 1,626 1,418 1,748
Provision for impairment of investments
in real estate -- 2,864 947
Loss on sales of land 4 11 253
Expenses associated with undeveloped land 441 418 678
General and administrative 984 1,229 1,240
Proposed dissolution costs 429 102 445
--------------- ------------ -------------
Total expenses 7,564 10,483 10,364
--------------- ------------ -------------
Net income (loss) $ (461) $ 1,904 $ (3,066)
================ ============ ==============
Net income (loss) per limited partnership unit $ (6.18) $ 21.22 $ (38.40)
================ =========== ==============
Distributions per limited partnership unit:
From net income $ -- $ 21.22 $ --
Representing return of capital 10.00 30.32 --
--------------- ----------- --------------
Total distributions per limited partnership unit 10.00 51.54 --
=============== =========== ==============
Weighted average number of limited partnership
units outstanding during each period 76,765 76,828 79,846
=============== ============ ==========
The accompanying notes are an integral part of these consolidated financial statements
Page 28 of 50
RANCON REALTY FUND IV,
A CALIFORNIA LIMITED PARTNERSHIP
Consolidated Statements of Partners' Equity (Deficit) For the
years ended December 31, 1999, 1998 and 1997
(in thousands)
General Limited
Partners Partners Total
----------- ----------- -----------
Balance at December 31, 1996 $ (891) $ 35,550 $ 34,659
Retirement of limited partnership units -- (827) (827)
Net loss -- (3,066) (3,066)
------------- --------- ------------
Balance at December 31, 1997 (891) 31,657 30,766
Retirement of limited partnership units -- (95) (95)
Net income 273 1,631 1,904
Distributions (40) (3,960) (4,000)
----------- ----------- ------------
Balance at December 31, 1998 (658) 29,233 28,575
Retirement of limited partnership units -- (1) (1)
Net income (loss) 13 (474) (461)
Distributions (767) (767)
---------- ----------- ------------
Balance at December 31, 1999 $ (645) $ 27,991 $ 27,346
========== =========== ============
The accompanying notes are an integral part of these consolidated financial statements
Page 29 of 50
RANCON REALTY FUND IV,
A CALIFORNIA LIMITED PARTNERSHIP
Consolidated Statements of Cash Flows For the years ended
December 31, 1999, 1998 and 1997
(in thousands)
1999 1998 1997
---------- ------------ -------
Cash flows from operating activities:
Net income (loss) $ (461) $ 1,904 $ (3,066)
Adjustments to reconcile net income (loss) to
net cash provided by (used for) operating activities:
Net (gain) loss on sales of real estate (253) (5,457) 253
Depreciation and amortization 1,626 1,418 1,748
Amortization of loan fees, included
in interest expense 86 98 105
Provision for impairment of investments
in real estate --- 2,864 947
Changes in certain assets and liabilities:
Deferred financing costs and other fees (246) (207) (292)
Prepaid expenses and other assets 214 (377) (247)
Accounts payable and accrued expenses (340) 298 (149)
-------- ---------- ----------
Net cash provided by (used for)
operating activities 626 541 (701)
------- ---------- ----------
Cash flows from investing activities:
Net proceeds from sales of real estate 2,489 15,896 1,890
Net additions to real estate investments (440) (2,834) (4,030)
------- ----------- ----------
Net cash provided by (used for)
investing activities 2,049 13,062 (2,140)
------- ---------- ----------
Cash flows from financing activities:
Net loan proceeds -- -- 6,500
Notes payable principal payments (171) (5,999) (1,752)
Decrease (increase) in restricted cash, net 100 --- (267)
Payment of loan fees -- --- (122)
Cash distribution to partners (767) (4,000) --
Retirement of limited partnership units (1) (95) (827)
------- ---------- ----------
Net cash provided by (used for) financing
activities (839) (10,094) 3,532
------- ----------- ----------
(continued)
Page 30 of 50
RANCON REALTY FUND IV,
A CALIFORNIA LIMITED PARTNERSHIP
Consolidated Statements of Cash Flows (continued) For the years
ended December 31, 1999, 1998 and 1997
(in thousands)
1999 1998 1997
-------------- ------------ -----------
Net increase in cash and cash equivalents $ 1,836 $ 3,509 $ 691
Cash and cash equivalents at beginning of year 4,297 788 97
---------- ------------ -----------
Cash and cash equivalents at end of year $ 6,133 $ 4,297 $ 788
========== ============ ===========
Supplemental disclosure of cash flow information:
Cash paid for interest (exclusive of capitalized
interest costs) $ 1,383 $ 1,555 $ 1,783
=========== ========= ===========
Interest capitalized $ 33 $ 103 $ ---
=========== ========= ===========
Supplemental disclosure of non-cash financing activity:
New financing $ -- $ --- $ 7,700
Original financing paid-off in escrow -- --- (1,200)
---------- --------- -----------
Net loan proceeds $ -- $ --- $ 6,500
=========== ========= ===========
The accompanying notes are an integral part of these consolidated financial statements
Page 31 of 50
RANCON REALTY FUND IV,
A CALIFORNIA LIMITED PARTNERSHIP
Notes to Consolidated Financial Statements
December 31, 1999, 1998 and 1997
Note 1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
------------------------------------------------
Organization
- - ------------
Rancon Realty Fund IV, a California Limited Partnership, ("the Partnership"),
was organized in accordance with the provisions of the California Uniform
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 referred to as the Sponsor
or the General Partner. RFC is wholly-owned by Daniel L. Stephenson. The
Partnership reached final funding in July 1987. As of December 31, 1999, there
were 76,765 Units outstanding.
Asset Sale and Dissolution Proposal
- - --------------------------------------
The Partnership's business strategy has been to focus on the eventual
disposition of its assets at the optimal time and sales price. A Consent
Solicitation Statement (the "Solicitation") was sent to the holders of limited
partnership units ("Unitholders" or "Limited Partners") on July 6, 1999. The
Solicitation (incorporated by reference to the Schedule 14A - Preliminary Proxy
Statement filed with the United States Securities and Exchange Commission
("Commission") in the second quarter of 1999), discussed the General Partner's
proposal to sell all of the Partnership's assets ("Asset Sale") and liquidate
the Partnership thereafter ("Dissolution Proposal"). The Partnership's
properties consist of ten rental properties and approximately 23 acres of
unimproved land in the Tri-City Corporate Centre in San Bernardino, California
(the "Tri-City Properties") and approximately 2 acres of unimproved land in
Temecula, California (the "Remaining Property"). The General Partner currently
intends to sell all of the Partnership's properties , distribute the proceeds
and liquidate the Partnership after all of the properties are sold and the cash
proceeds thereof received. The General Partner does not expect the Dissolution
to occur until at least the second half of 2000 (and potentially not until 2001)
as some of the properties may be sold with the purchase price payable on an
installment basis. The resolution must be completed within 90 days of the final
receipt of cash proceeds from the sale of Partnership property. The period over
which the sales transactions and dissolution are to take place is not currently
known.
As of August 25, 1999, the expiration of the voting period, 76,765 limited
partnership units ("Units") were outstanding. Of the total Units outstanding,
holders of 61,429 Units, or 80%, had voted ("Units Voted") and no response was
received from the remaining 20%. A final tabulation of the results of the
Solicitation was made on August 25, 1999, with holders of 54,010 Units, or 88%,
of the Units Voted in favor, holders of 5,783 Units, or 9%, against and holders
of 1,636 Units, or 3%, abstaining.
Subsequent to obtaining the consent of the majority of the Unitholders, the
General Partner grouped the Tri-City Properties into two or more packages of
properties (such as separate packages of retail properties, office properties
and unimproved land) and included properties in the Tri-City Corporate Centre
which are owned by Rancon Realty Fund V ("Fund V"), a partnership also sponsored
by the General Partner. Bidders for any package of properties containing
Tri-City Properties and Fund V properties will be required to specify how their
overall bid is allocated among the individual properties
Page 32 of 50
in the package, and the proceeds and expenses from the sales of any such package
will be apportioned between the Partnership and Fund V based upon such
allocation. The General Partner hired an independent real estate firm to market
the properties and to prepare marketing materials and informational brochures.
The informational brochures were presented to a number of prospective buyers and
as of the end of September 1999, the General Partner had received 39 signed
confidentiality agreements requesting offering memorandums. The General Partner
assessed all offers on the properties in an effort to achieve the highest
possible sales price and return value for the properties. The General Partner
has closed the bidding process with a request for "best and final offers" and
received six final bids on the Tri-City properties in early November 1999. In
November 1999, the General Parnter entered into a due diligence period with a
potential buyer. In January 2000, this due diligence period was terminated
largely due to the impact of rising interest rates on the potential buyer's
ablility to fund. The General Partner has currently received two written offers
from prospective buyers and is giving serious consideration to those offers
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
Tri-City Properties, although the Partnership has, in 1997, granted to
Glenborough Realty Trust Incorporated, a Maryland corporation ("GLB"), a right
to match offers for the purchase of the Partnership's properties ("GLB Matching
Right"). GLB is not an affiliate of the Partnership.
Pursuant to the GLB Matching Right and the right of first refusal, the General
Partner is required to give prompt written notice to GLB of the price and other
terms and conditions of any offer, received from an unaffiliated third party,
the General Partner is willing to accept to sell all or a portion of the
Partnership's properties. GLB has ten days after receipt of the Partnership's
written notice to accept or reject the purchase price and other terms and
conditions of the sale. If GLB exercises its matching right and agrees to
purchase all or a portion of the Partnership's properties at the specified price
and on the other terms and conditions, the Partnership and GLB must promptly
execute a purchase agreement, which is to contain a reasonable feasibility study
period for GLB. If, on the other hand, GLB notifies the Partnership that it does
not intend to exercise its matching right or fails to respond within the ten-day
period, then the Partnership has the right to sell all or a portion of the
Partnership's properties to the unaffiliated third party buyer as set forth in
the Partnership's notice to GLB. The GLB Matching Right applies to the Tri-City
Properties and the Remaining Property.
Prior to the completion of the sale of all of the Partnership's properties and
the receipt in cash of the proceeds thereof, the General Partner currently
intends, but is not obligated, to make interim distributions to the Limited
Partners, from time to time, of all or a portion of the net proceeds from the
sale of the properties. The General Partner will not receive any of the net
proceeds from the sale of the properties or upon dissolution of the Partnership
with respect to its general partnership interests. The General Partner
distributed $767,000 in November 1999 from the net proceeds of the January 1999
sale of the Perris land.
Page 33 of 50
Allocation of Net Income and Net Loss
- - -----------------------------------------
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 capital account
balances until such balances are reduced to zero. Net income other than net
income from operations shall be allocated as follows: (i) first, to the partners
who have a deficit balance in their capital account, provided that, in no event
shall the general partners be allocated more than 5% of the net income other
than net income from operations until the earlier of sale or disposition of
substantially all of the assets or the distribution of cash (other than cash
from operations) equal to the Unitholder's original invested capital; (ii)
second, to the limited partners in proportion to and to the extent of the
amounts to increase their capital accounts to an amount equal to the sum of the
adjusted invested capital of their units plus an additional cumulative
non-compounded 6% return per annum (plus additional amounts depending on the
date Units were purchased); (iii) third, to the partners in the minimum amount
required to first equalize their capital account in proportion to the number of
units owned, and then, to bring the sum of the balances of the capital accounts
of the limited partners and the general partners into the ratio of 4 to 1; and
(iv) the balance, if any, 80% to the limited partners and 20% to the general
partners. In no event shall the general partners be allocated less than 1% of
the net income for any period.
The terms of the Partnership agreement call for the general partner to restore
any deficits that may exist in its capital account after allocation of gains and
losses from the sale of the final property owned by the Partnership, but prior
to any liquidating distributions being made to the partners.
General Partner and Management Matters
- - --------------------------------------
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 management and consulting services for a period of ten years or
until the liquidation of the Partnership, whichever comes first. Effective
January 1, 1998, the agreement was amended to eliminate Glenborough's
responsibility for providing investor relation services and Preferred
Partnership Services, Inc., a California Corporation unaffiliated with the
Partnership, contracted to assume these 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.
Page 34 of 50
According to the contract, the Partnership will pay Glenborough for its services
as follows: (i) a specified asset administration fee ($597,000 in 1999, $806,000
in 1998 and $989,000 in 1997); (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 consolidated 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. They include the accounts of certain wholly owned
subsidiaries. All intercompany transactions and balances have been eliminated in
consolidation.
The consent of the Unitholders to the 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 timing of the last cash receipt from the sale of the last property 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.
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 consolidated
financial statements do not provide for adjustments with regard to these
uncertainties.
Page 35 of 50
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.
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.
Interest and property taxes related to property constructed by the Partnership
are capitalized during periods of construction. Interest of $33,000 and property
taxes of $13,000 related to the construction of Small Shop and La Jolla
Mattress, respectively, were capitalized during the year ended December 31,
1999. These construction projects are expected to be completed in the fourth
quarter of 2000.
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 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 upon
independent appraisals or prevailing market rates for comparable properties.
Appraisals are estimates of fair value based upon assumptions about the property
and the market in which it is located.
Page 36 of 50
Cash and Cash Equivalents - The Partnership considers short-term investments
(including certificates of deposit and money market funds) with a maturity of
less than ninety days at the time of investment 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
Partnership, 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 term of the
related lease.
Net Income/Loss Per Limited Partnership Unit - Net income or 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 income or loss.
Income Taxes - No provision for income taxes is included in the accompanying
consolidated financial statements, as the Partnership's results of operations
are allocated to the partners for inclusion in their respective income tax
returns. Net income (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, provisions for impairment of investments in real estate, capitalization
of development period interest and income and loss recognition.
Note 3. INVESTMENTS IN REAL ESTATE
--------------------------
Rental property components at December 31, 1999 and 1998 are as follows (in
thousands):
1999 1998
----------- -----------
Land $ 4,273 $ 4,318
Buildings 31,151 31,031
Leasehold and other improvements 11,400 11,155
----------- -----------
46,824 46,504
Less: accumulated depreciation (14,144) (12,723)
------------ -----------
Total rental property, net $ 32,680 $ 33,781
=========== ===========
At December 31, 1999 and 1998, the Partnership's rental property included ten
projects at the Tri-City Corporate Centre in San Bernardino, California.
Page 37 of 50
Land held for development consists of the following at December 31, 1999 and
1998 (in thousands):
1999 1998
---------- --------
23 acres at Tri-City Corporate Centre,
San Bernardino, CA $ 1,655 $ 1,575
---------- ----------
Total land held for development $ 1,655 $ 1,575
========== ==========
The increase in land held for development in San Bernardino, CA is due to the
construction in progress of Small Shop and La Jolla Mattress.
Land held for sale consists of the following at December 31, 1999 and 1998 (in
thousands):
1999 1998
------------ -----------
17.14 acres in Perris, CA $ -- $ 300
1.80 acres in Temecula, CA 545 505
24.8 acres in Lake Elsinore, CA -- 1,936
----------- -----------
Total land held for sale $ 545 $ 2,741
=========== ===========
On January 15, 1999, the Partnership sold the 17.14 acres of land in Perris, CA
for $334,800 and received $296,000 of net sales proceeds.
On December 27, 1999, the Partnership sold the 24.8 acres of land in Lake
Elsinore for $2,450,000 and received $2,193,000 of net sales proceeds.
The increase in the carrying value of the 1.80 acres of land held for sale in
Temecula, California was due to the payment of $40,000 to the City of Temecula
for releasing a subdivision improvement bond (see Note 4).
The Partnership does not intend to develop the remaining sites held for sale.
The proceeds generated from future sales would be added to the Partnership's
cash reserves, pending use in development of other properties, or distribution
to the partners.
Provisions for impairment of real estate investments:
- - -----------------------------------------------------
There was no provision for impairment in 1999. 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):
Page 38 of 50
1998 1997
-------------- ----------
Rental property:
Inland Regional Center $ 1,482 $ --
Land held for development:
San Bernardino, CA 129 275
Land held for sale:
Perris, CA 1,086 --
Temecula, CA 167 672
-------------- ----------
Total provision for impairment
of real estate investments $ 2,864 $ 947
============= ==========
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
investments in real estate were in excess of the estimated fair value of such
property and accordingly, recorded provisions for impairment as shown above.
Approximately 15 acres of the Tri-City Corporate Centre land owned by the
Partnership was part of a landfill operated by the City of San Bernardino ("the
City") from approximately 1950 to 1960. There are no records of which the
Partnership is aware disclosing that hazardous wastes exist at the landfill. The
Partnership's landfill monitoring program currently meets or exceeds all
regulatory requirements and no material capital expenditures have been incurred.
The Partnership is working with the Santa Ana Region of the California Regional
Water Quality Control Board and the City to determine the need and
responsibility for any further testing. There is no current requirement to
ultimately clean up the site; however, no assurance can be made that
circumstances will not arise which could impact the Partnership's responsibility
related to the property.
Note 4. RESTRICTED CASH
---------------
On March 12, 1997, pursuant to the Inland Regional Center ("IRC") lease, a
$269,000 certificate of deposit ("CD") was opened. The $269,000 CD represents a
security deposit, that the Partnership will retain in the event of default by
IRC. Provisions in the lease allow for the security deposit plus accrued
interest to be converted to prepaid rent after the 60th month (June 2001) of the
lease if the tenant is not in default of the provisions of the lease.
In addition, a $100,000 CD held as collateral for subdivision improvements and
monument bonds related to the land held for sale in Temecula, California has
been converted from restricted cash to cash as of December 31, 1999. The
improvement bonds were released after the Partnership paid $40,000 in August
1999 to the City of Temecula as a contribution to the city traffic signal.
Page 39 of 50
Note 5. NOTES PAYABLE
-------------
Notes payable as of December 31, 1999 and 1998 were as follows (in thousands):
1999 1998
----------- ----------
Note payable secured by first deed of trust on Service Retail Center,
Promotional Retail Center and Carnegie Business Center I. The loan, which
matures May 1, 2006, is a 10-year, 8.744% fixed rate loan with a 25-year
amortization requiring monthly payments of principal and interest totaling $53. $ 6,196 $ 6,290
Note payable secured by first deed of trust on the IRC building. Interest
accrues at a fixed rate of 8.75% per annum. Monthly payments of principal and
interest totaling $21 are due until the loan matures on April 23, 2001. 2,390 2,429
Note payable secured by first deed of trust on the One Vanderbilt building. The
note bears interest at a fixed rate of 9% per annum. Monthly payments of
principal and interest totaling $20 are due until January 1, 2005, at which time
the unpaid principal and interest are payable in
full. 2,248 2,286
Note payable secured by first deeds of trust on Circuit City and TGI Friday's.
Interest is payable monthly at one percent (1%) per annum in excess of the
lender's "Prime Rate" (effective rates were 9.5% and 8.75% at December 1999 and
1998 respectively) until the loan matures on April 30, 2000, at which time the
unpaid principal and interest are due (see below for further discussion) 5,000 5,000
------------- --------------
Total notes payable$ $ 15,834 $ 16,005
============= ==============
The Partnership is currently applying for an extension of the maturity date on
the note payable secured by Circuit City and TGI Friday's. (see note 10 for
further discussion).
Page 40 of 50
The annual maturities of the Partnership's notes payable subsequent to December
31, 1999 are as follows (in thousands):
2000 $ 5,187
2001 2,497
2002 172
2003 188
2004 171
Thereafter 7,619
------------
Total $ 15,834
============
Note 6. PROPOSED DISSOLUTION COSTS
--------------------------
Costs totaling $429,000, $102,000 and $445,000 related to the Solicitation and
the Asset Sale and Dissolution Proposal (as defined in Note 1), have been
incurred and are reflected in the accompanying consolidated statements of
operations for the years ended December 31, 1999, 1998 and 1997, respectively.
These costs include expenses incurred for the preparation of the preliminary
proxy materials and charges for work performed by independent appraisers and
other consultants.
Note 7. LEASES
------
The Partnership's rental properties are leased under non-cancelable operating
leases that expire at various dates through January 2018. 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. Future minimum rents under
non-cancelable operating leases as of December 31, 1999 are as follows (in
thousands):
2000 $ 6,058
2001 5,757
2002 4,685
2003 4,229
2004 3,728
Thereafter 23,004
------------
Total $ 47,461
============
Note 8. COMMITMENTS AND CONTINGENT LIABILITIES
--------------------------------------
The Partnership is contingently liable for subordinated real estate commissions
payable to the Sponsors in the aggregate amount of $643,000 at December 31, 1999
for sales that transpired in previous years. 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
consolidated financial statements; however, the amount will be recorded when and
if it
Page 41 of 50
becomes payable.
The Partnership is also contingently liable for a subordinated note payable in
connection with the land in Temecula, California, that the Partnership
reacquired in June 1992 through a deed in lieu of foreclosure in satisfaction of
a $2,276,000 note receivable. The subordinated note payable and accrued interest
totaled $566,000 at December 31, 1999. This amount is payable upon the sale of
the property only after the Partnership receives the full amount of the prior
note receivable with accrued and unpaid interest, costs of development, costs of
sale, and other amounts paid to obtain good title to the property, subject to
certain release provisions. Since the circumstances under which this liability
would be payable are limited, the note payable and accrued interest have not
been recorded in the accompanying consolidated financial statements; however,
the amount will be recognized prior to recording any gain on the sale of the
related land.
Note 9. 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.
Page 42 of 50
The following is a reconciliation for the years ended December 31, 1999, 1998
and 1997 of the net income (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):
1999 1998 1997
--------------- ------------- --------
Net income (loss) per financial statements $ (461) $ 1,904 $ (3,066)
Provision for impairment of investments
in real estate -- 2,864 672
Gain on sale of property in excess of
recognized gain for tax reporting (7,145) (362) --
Financial reporting depreciation in excess
of tax reporting depreciation 185 (28) 200
Property taxes capitalized for tax 286 391 388
Costs of dissolution capitalized for tax reporting 429 --
Expenses of undeveloped land capitalized for tax 435 --
- - --
Operating expenses recognized in a
different period for financial reporting
than for income tax reporting, net (532) (81) 432
--------------- ------------- -----------
Net income (loss) for federal
income tax purposes $ (6,803) $ 4,688 $ (1,374)
=============== ============= ============
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, 1999 and 1998 (in thousands):
1999 1998
------------- -----------
Partners' equity per financial statements $ 27,346 $ 28,575
Cumulative provision for impairment of
investments in real estate 250 17,610
Financial reporting depreciation in excess
of tax reporting depreciation 5,334 4,537
Net difference in capitalized costs of development 9,660 --
Operating expenses recognized in a
different period for financial reporting
than for income tax reporting, net (4,742) 51
Property taxes capitalized for tax -- 932
------------- -----------
Partners' capital for federal
income tax purposes $ 37,848 $ 51,705
============= ===========
Page 43 of 50
Note 10. SUBSEQUENT EVENTS
On March 15, 2000, a one-year extension for the loan secured by Circuit City and
TGI Friday's was approved. The loan fees for the extension will be 0.50% of the
loan amount and the financing service fee to Glenborough Corp. will be 1% of the
loan amount, or $50,000. The maturity date will be April 30, 2001. The interest
rate will be one percent (1%) per annum in excess of the lender's "Prime Rate"
Page 44 of 50
RANCON REALTY FUND IV,
A CALIFORNIA LIMITED PARTNERSHIP
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
DECEMBER 31, 1999
(in thousands)
- - ------------------------------------------------------------------------------------------------------------------------------------
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
- - ------------------------------------------------------------------------------------------------------------------------------------
Initial Cost to Cost Capitalized Subsequent Gross Amount Carried
Partnership to Acquisition at December 31, 1999
----------------------- --------------------------- ----------------------------
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 Vanderbilt $ 2,248 $ 572 $ -- $ 9,197 $ -- $ 572 $ 9,197 $ 9,769
Two Vanderbilt -- 443 -- 7,042 -- 443 7,042 7,485
Carnegie Business Center I (c) 380 -- 5,095 -- 380 5,095 5,475
Inland Regional Center 2,390 608 -- 7,779 -- 946 7,441 8,387
Provision for impairment of
real estate (b) -- (196) -- (1,482) -- (196) (1,482) (1,678)
------- -------- -------- -------- ------- ------- ------- -------
4,638 1,807 -- 27,631 -- 2,145 27,293 29,438
------- -------- -------- -------- ------ ------- ------- -------
Commercial Retail Space, San Bernardino, County, CA:
Service Retail Center (c) 300 -- 1,766 -- 301 1,765 2,066
Provision for impairment of
real estate (b) -- -- -- (250) -- (41) (209) (250)
Promo Retail (c) 811 -- 5,986 -- 811 5,986 6,797
Provision for impairment of
real estate (b) -- -- -- (119) -- (7) (112) (119)
TGI Friday's (d) 181 1,624 -- -- 181 1,624 1,805
Circuit City (d) 284 -- 3,597 -- 454 3,427 3,881
Office Max -- 324 2,045 (53) -- 276 2,040 2,316
Mimi's Cafe -- 149 675 66 -- 153 737 890
------- -------- -------- -------- ------ ------- ------- --------
11,196 2,049 4,344 10,993 -- 2,128 15,258 17,386
------- -------- -------- -------- ------ ------- ------- --------
Land Held for Development:
San Bernardino County, CA:
23 acres - Tri-City -- 4,186 -- 5,097 -- 9,283 -- 9,283
Provision for impairment of
real estate (b) -- (244) -- (7,384) -- (7,628) -- (7,628)
-------- --------- -------- ------- ------- -------- --------
-- 3,942 -- (2,287) -- 1,655 -- 1,655
------- -------- -------- --------- ------ ------- ------- --------
Land Held for Sale:
Riverside County, CA:
Temecula property 1.80 acres -- 712 -- 121 -- 833 -- 833
Provision for impairment of
real estate (b) -- -- -- (288) -- (288) -- (288)
-------- -------- -------- ------ ------- ------- --------
-- 712 -- (167) -- 545 -- 545
------- -------- -------- --------- ------ ------- ------- --------
$15,834 $ 8,510 $ 4,344 $ 36,170 $ -- $ 6,473 $42,551 $49,024
======= ======== ======== ======== ====== ======= ======= ========
- - ---------------------------------------------------------------------------------------------
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 Be $ 4,842 11/30/85 11/06/84 3-40 yrs.
One Vanderbilt 3,737 1/30/86 11/06/84 3-40 yrs.
Two Vanderbilt 2,792 7/31/86 11/06/84 3-40 yrs.
Carnegie Business Center I 674 1/96 6/26/87 10-40 yrs.
Inland Regional Center
Provision for impairment of --
real estate (b) --------
12,045
--------
Commercial Retail Space, San Bernard 643 7/31/86 11/06/84 3-40 yrs
Service Retail Center
Provision for impairment of --
real estate (b) 889 2/01/93 11/06/84 10-40 yrs.
Promo Retail
Provision for impairment of --
real estate (b) 115 N/A 2/28/97 40yrs.
TGI Friday's 356 7/96 11/06/84 20-40yrs.
Circuit City 72 7/98 11/06/84 40yrs.
Office Max 24 7/98 11/06/84 40yrs.
Mimi's Cafe --------
2,099
--------
Land Held for Development:
San Bernardino County, CA: -- N/A 11/06/84 N/A
23 acres - Tri-City
Provision for impairment of --
real estate (b) --------
--
--------
Land Held for Sale:
Riverside County, CA: -- N/A 6/01/92 N/A
Temecula property 1.80 acres
Provision for impairment of --
real estate (b) --------
--
--------
$ 14,144
========
(a) The aggregate cost of land and buildings for federal income tax purposes is $ 49,678.
(b) See Note 3 to Financial Statements.
(c) Service Retail Centre, Carnegie Business Center I and Promotional
Retail Center are collateral for debt in the aggregate amount of
$6,196.
(d) TGI Friday's and Circuit City are collateral for debt in the aggregate amount of $5,000.
Page 45 of 50
RANCON REALTY FUND IV,
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,
1999 1998 1997
-------------- -------------- ----------
Investment in real estate
Balance at beginning of period $ 50,820 $ 64,480 $ 63,135
Additions during period:
Purchases and improvements 440 2,834 4,030
Capitalized carrying costs -- -- --
Provision for impairment of
investments in real estate -- (2,864) (947)
Retirements during period (2,236) (13,630) (1,738)
-------------- ------------- -----------
Balance at end of period $ 49,024 $ 50,820 $ 64,480
============= ============ ==========
Accumulated Depreciation
Balance at beginning of period $ 12,723 $ 14,666 $ 13,077
Additions charged to expense 1,421 1,249 1,589
Retirements during period -- (3,192) --
--------------- ------------- ----------
Balance at end of period $ 14,144 $ 12,723 $ 4,666
============== ============= ==========
Page 46 of 50
EXHIBIT INDEX
Exhibit No. Exhibit Title
(3.1) Second Amended and Restated Certificate and Agreement
of Limited Partnership of the Partnership (included
as Exhibit B to the Prospectus dated December 29,
1986, as amended on January 5, 1987, filed pursuant
to Rule 424(b),file number 2-90327),is incorporated
herein by reference.
(3.2) First Amendment to the Second Amended and Restated
Agreement and Certificate of Limited Partnership of
the Partnership, dated March 11, 1991 (included as
Exhibit 3.2 to 10-K dated October 31, 1992, File
number 0-14207), is incorporated herein by reference.
(3.3) Limited Partnership Agreement of RRF IV Tri-City
Limited Partnership, a Delaware limited partnership
of which Rancon Realty Fund IV, a California Limited
Partnership is the limited partner (filed as Exhibit
3.3 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 and amendment
thereto 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 $6,400,000, dated
April 19, 1996, secured by Deeds of Trust on three of
the Partnership's Properties (filed as Exhibit 10.6
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.
Page 47 of 50
Agreement
This Agreement is made as of August 31, 1998, by and between
Glenborough Corporation, a California corporation ("GC"), Rancon Realty Fund IV,
a California limited partnership ("Fund IV"), Daniel L. Stephenson ("DLS") and
Rancon Financial Corporation, a California corporation ("RFC").
Recitals
A. DLS and RFC are general partners of Fund IV.
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 IV, 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 IV, and Fund IV 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 IV in the amount of $2,110,306 ("Liquidated Damages") if the Agreement
is terminated by Fund IV 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 IV agrees to
maintain the Management Fees and Asset Fees at a specified amount, and Fund IV
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. GC hereby waives any and all claims to Liquidated Damages
from Fund IV.
2. Asset Fees and Management Fees. For the period beginning on the date of this
Agreement and ending December 31, 2000, Fund IV 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
Page 48 of 50
Management Fees, respectively, as are applicable to the property known as
Shadowridge, which was sold in June 1998, or (ii) the amount payable under the
terms of the Agreement. Fund IV specifically guarantees that Asset Fees and
Management Fees shall be paid at these respective amounts regardless of whether
Fund IV 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 IV ____________________________________
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
Page 49 of 50
Exhibit A
Rancon Realty Fund IV
Asset Administration Fees
and
Property Management Fees
Asset Administration Fees: A monthly amount based on an annual
total of $597,000 per year
(i.e., $49,750 per month)
Property Management Fees
for the Tri-City property: A monthly amount
based on an annual total equal to actual
property management fees for the period
January 1, 1999 through December 31,
1999.
Page 50 of 50