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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934.
For the year ended December 31, 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: 0-16467
RANCON REALTY FUND V,
A CALIFORNIA LIMITED PARTNERSHIP
------------------------------------
(Exact name of registrant as specified in its charter)
California 33-0098488
-------------------------------- --------------
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
400 South El Camino Real, Suite 1100 94402-1708
------------
San Mateo, California (Zip Code)
---------------------
(Address of principal executive offices)
Partnership's telephone number, including area code (650) 343-9300
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Units of Limited Partnership Interest
(Title of class)
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days
Yes X No
----- -----
State the aggregate market value of the voting stock held by non-affiliates of
the Partnership. Not applicable
No market for the Limited Partnership units exists and therefore a market value
for such units cannot be determined.
DOCUMENTS INCORPORATED BY REFERENCE:
Prospectus dated December 29, 1986, as amended on January 5, 1987, filed
pursuant to Rule 424(b), File no. 2-90327, is incorporated by reference in Part
IV hereof.
Page 1 of 46
Part I
Item 1. Business
Rancon Realty Fund V, a California Limited Partnership, ("the Partnership") was
organized in accordance with the provisions of the California Revised Limited
Partnership Act for the purpose of acquiring, developing, operating and
ultimately selling real property. The Partnership was organized in 1985 and
completed its public offerings of limited partnership units ("Units") in
February 1989. The general partners of the Partnership are Daniel L. Stephenson
("DLS") and Rancon Financial Corporation ("RFC"), collectively, the "General
Partner". RFC is wholly owned by DLS. At December 31, 1999, 96,412 Units were
outstanding. The Partnership has no employees.
The Partnership's initial acquisition of property in June 1985 was for
approximately 76.21 acres of partially developed and unimproved land located in
San Bernardino, California. The property is part of a master-planned development
of 153 acres known as Tri-City Corporate Centre ("Tri-City") and is zoned for
mixed commercial, office, hotel, transportation-related, and light industrial
uses. The balance of Tri-City is owned by Rancon Realty Fund IV ("Fund IV"), a
partnership sponsored by the General Partner of the Partnership. Since the
acquisition of the land, the Partnership has constructed eight projects at
Tri-City consisting of five office projects, one industrial property, a 25,000
square foot health club, and a 6,500 square foot restaurant, all of which are
more fully described in Item 2. Fund IV has constructed three office buildings,
one industrial property, and five commercial properties.
Subsequent acquisitions have included approximately 56.3 acres of unimproved
land in Ontario, California (known as Rancon Centre Ontario) in May 1987, a
portion of which has since been developed, approximately 23.8 acres of
unimproved land in Perris, California (known as Perris-Ethanac Road) in March
1989 and approximately 83 acres of unimproved land in Perris, California (known
as Perris-Nuevo Road) in December 1989. Each of these properties are further
described in Item 2.
In May 1996, the Partnership formed Rancon Realty Fund V Tri-City Limited
Partnership, a Delaware limited partnership ("RRF V Tri-City"). As required by
the lender (Bear, Stearns Funding, Inc.) of a $9,600,000 loan obtained by the
Partnership in 1996, the Partnership contributed three of its operating
properties to RRF V Tri-City to provide a bankruptcy remote borrower for the
lender. The loan, secured by the properties in RRF V Tri-City, has a principal
balance of $9,203,000 at December 31, 1999 and matures on August 1, 2006 with a
9.39% fixed interest rate and a 25 year amortization of principal. The limited
partner of RRF V Tri-City is the Partnership and the general partner is Rancon
Realty Fund V, Inc. ("RRF V, Inc."), a corporation wholly owned by the
Partnership. Since the Partnership owns 100% of RRF V, Inc. and indirectly owns
100% of RRF V Tri-City, the Partnership considers all assets owned by RRF V,
Inc. and RRF V Tri-City to be owned by the Partnership.
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 real estate assets ("Asset Sale") and
liquidate the Partnership thereafter ("Dissolution"). 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
Page 2 of 46
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.
As of August 25, 1999, the expiration of the voting period, 96,442 limited
partnership units ("Units") were outstanding. Of the total Units outstanding,
76,475 Unitholders, or 79%, have voted ("Units Voted") and no response was
received from the remaining 21%. A final tabulation of the results of the
Solicitation was made on August 25, 1999, with holders of 67,498 Units, or 88%,
of the Units Voted in favor, holders of 7,271 Units, or 10%, against and holders
of 1,706 Units, or 2%, abstaining. During the third quarter of 1999, a total of
32 Units were repurchased as a result of a Unitholder's request for the
Partnership to take over such Units. As of December 31, 1999, there were 96,412
Units outstanding.
Subsequent to obtaining the consent of the majority of the Unitholders, the
General Partner grouped the 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 IV ("Fund IV"), a partnership also sponsored by
the General Partner. Bidders for any package of properties containing the
Partnership's and Fund IV's 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 IV 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 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 the
impact of rising interest rates on the potential buyer's ability to fund. The
General Partner has received two written offers from prospective buyers and is
currently 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
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.
Page 3 of 46
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 discussion above contains forward-looking statements regarding the
Partnership's plans, goals and expectations, including statements regarding the
Partnership's estimate of the timing of the sale of the Partnership's remaining
properties, the distribution of proceeds and the liquidation of the Partnership.
Forward-looking statements are necessarily speculative, there being certain
risks and uncertainties that could cause actual events or results to differ
materially from those referred to in the forward-looking statements. The General
Partners' current plans are subject to change, 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 regulatory approval will be obtained, if and when consent
solicitation materials will be mailed to Limited Partners, that a proposal for
the sale of all of the Partnership's remaining properties and liquidation of the
Partnership will be approved, or if and when the properties will be sold, that
the proceeds will be distributed and the Partnership liquidated. The timing of
any sale of the Partnership's remaining properties, the distribution of
proceeds, and the liquidation of the Partnership are subject to various and
significant uncertainties, many of which are beyond the Partnership's control
and which could delay any sale of the Partnership's remaining properties,
liquidation of the Partnership, and distribution of proceeds significantly
beyond the time periods estimated above. Among such uncertainties are the date
when any consent solicitation materials are mailed to the Limited partners, the
date when consent of the Limited Partners is obtained (assuming it is obtained),
the demand for the Partnership's properties by potential purchasers, the
availability of capital for potential purchasers, the actual dates when
properties are sold, and the duration of any installment sales of any of the
properties.
Competition Within the Market
- - -----------------------------
The Partnership competes in the leasing and sale of its properties primarily
with other available properties in the local real estate market. Management is
not aware of any specific competitors of the Partnership's properties doing
business on a significant scale in the local market. Management believes that
characteristics influencing the competitiveness of a real estate project are the
geographic location of the property, the professionalism of the property manager
and the maintenance and appearance of the property, in addition to external
factors such as general economic circumstances, trends, and the existence of
new, competing properties in the vicinity. Additional competitive factors with
respect to commercial and industrial properties are the ease of access to the
property, the adequacy of related facilities, such as parking, and the ability
to provide rent concessions and tenant improvements commensurate with local
market conditions. Although management believes the Partnership'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 46
Working Capital
- - ---------------
The Partnership's practice is to maintain cash reserves for normal repairs,
replacements, working capital and other contingencies.
Page 5 of 46
Item 2. Properties
Tri-City Corporate Centre
- - -------------------------
On June 3, 1985, the Partnership acquired 76.21 acres of partially developed
land in Tri-City for a total acquisition price of $14,118,000. In 1984 and 1985,
a total of 76.56 acres within Tri-City was acquired by Fund IV.
Tri-City Corporate Center is located at the northeastern quadrant of the
intersection of Interstate 10 (San Bernardino Freeway) and Waterman Avenue in
the southernmost part of the City of San Bernardino, and is in the heart of the
Inland Empire, the most densely populated area of San Bernardino and Riverside
counties.
Tri-City Properties
- - -------------------
The Partnership's improved properties in the Tri-City Corporate Centre are as
follows:
Property Type Square Feet
---------------------------- ------------------------------- -----------
One Carnegie Plaza Two, two story office buildings 107,276
Two Carnegie Plaza Two story office building 68,956
Carnegie Business Center II Two R & D buildings 50,867
Santa Fe One story office building 36,288
Lakeside Tower Six story office building 112,747
One Parkside Four story office building 70,069
Bally's Health Club Health club facility 25,000
Outback Steakhouse Restaurant 6,500
These eight properties total approximately 478,000 leasable square feet and
offer a wide range of commercial, R & D and office product to the market.
The Inland Empire is generally broken down into two major markets, Inland Empire
East and Inland Empire West. Tri-City Corporate Centre is located within the
Inland Empire East market, which consists of a total of 10,440,330 square feet
of office space and an overall vacancy rate of approximately 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
395,336 square feet of office space with a vacancy rate of 14%, 50,867 square
feet of R & D space with a vacancy rate of 22% and 31,500 square feet of
commercial space with no vacancy.
Page 6 of 46
Occupancy levels for the Partnership's Tri-City buildings at December 31, 1999,
1998, 1997 and 1996 and November 30, 1995, expressed as a percentage of the
total net rentable square feet, are as follows:
1999 1998 1997 1996 1995
---- -------- ------- ---- ----
One Carnegie Plaza 64% 50% 85% 87% 93%
Two Carnegie Plaza 85% 82% 81% 83% 87%
Carnegie Business Center II 78% 78% 74% 65% 68%
Santa Fe 100% 100% 100% 100% 100%
Lakeside Tower 95% 93% 86% 90% 69%
One Parkside 100% 79% 66% 92% 83%
Bally's Health Club 100% 100% 100% 100% N/A
Outback Steakhouse 100% 100% 100% 100% N/A
In 1999, management renewed 17 leases, totaling 112,060 square feet, expanded 9
existing tenants by 34,454 square feet, and executed 7 new leases totaling
43,600 square feet of space. In 2000, 10 leases, totaling 57,140 square feet,
are due to expire. Management has renewed two tenants' leases totaling 4,685
square feet, and is currently negotiating lease renewals for four tenants
totaling 11,595 square feet of space, while four tenants occupying 7,024 square
feet have indicated that they will vacate upon expiration of their leases. The
remaining tenants occupying 33,836 square feet of space, with lease expirations
in the latter part of 2000, have not yet indicated whether they will renew their
leases or vacate the premises.
The annual effective rents per square foot for the years ended December 31,
1999, 1998, 1997 and 1996 and November 30, 1995 were as follows:
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
One Carnegie Plaza $15.09 $14.96 $14.74 $14.85 $13.57
Two Carnegie Plaza $15.59 $15.41 $15.70 $15.91 $16.50
Carnegie Business Center II $10.66 $10.56 $10.73 $10.91 $11.11
Santa Fe $17.18 $17.03 $16.87 $16.64 $16.50
Lakeside Tower $18.69 $18.59 $17.43 $16.72 $18.58
One Parkside $20.63 $18.19 $17.80 $17.86 $18.23
Bally's Health Club $ 9.85 $ 9.85 $ 9.85 $ 9.85 N/A
Outback Steakhouse $13.85 $13.85 $13.85 $13.85 N/A
Annual effective rent is calculated by dividing the aggregate of annualized
current month rental income for each tenant by the total square feet occupied at
the property.
At December 31, 1999, the Partnership's Tri-City annual rental rates ranged from
$12.22 to $23.16 per square foot for office space; $8.90 to $13.26 per square
foot for R & D space; and $9.85 to $13.85 per square foot for commercial space.
The annual effective rental rate at One Parkside increased by 14% in 1999
compared to 1998 resulting from the leasing of 14,524 square feet of previously
vacant space to two new tenants.
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 or commercial space in the market, management has determined
the asking rents based on discussions with independent leasing brokers.
Page 7 of 46
The Partnership's Tri-City properties had the following four tenants which
occupied a significant portion of the net rentable square footage as of December
31, 1999:
Atchison, Topeka
and Santa Fe Holiday Spa
Railway Sterling Chicago Health
Tenant Company Software Title Club
- - ------ ---------------- --------------- -------------- ------------
One Carnegie Bally's
Building Santa Fe Plaza One Parkside Health Club
Real Estate
Nature of Business Transportation Software Services Health Club
Lease Term 5 yrs. 5 yrs. 10 yrs. 14 yrs.
Expiration Date 9/30/04 11/30/00 2/03/04 12/31/10
Square Feet 36,288 26,144 31,249 25,000
(% of rentable total) 8% 5% 7% 5%
Annual Rent $623,508 $391,635 $561,615 $246,250
Future Rent Increases None None None 15% in 2001
and 2006
Renewal Options Three 5-yr. options Two 3-yr. options None Three 5-yr. options
The Partnership's Tri-City rental properties are owned by the Partnership, in
fee, subject to the following notes and deeds of trust:
One Lakeside Tower,
Carnegie One Parkside and
Security Plaza Two Carnegie Plaza
------- ------------------
Principal balance at December 31, 1999 $4,112,000 $9,203,000
Interest Rate 8.25% 9.39%
Monthly Payment $33,995 $83,142
Maturity Date 12/01/01 8/1/06
Tri-City Land
- - -------------
Approximately 14 acres of the Tri-City land owned by the Partnership remains
undeveloped. The Partnership's intention has been to develop parcels of this
land as tenants become available or dispose of the property at the optimal time
and sales price. During 1997, management determined that the carrying value of
the land was in excess of its estimated fair value and, accordingly, recorded a
provision for impairment of the real estate of $1,603,000.
Page 8 of 46
Rancon Centre Ontario
- - ---------------------
In 1987, the Partnership acquired approximately 56.3 acres of undeveloped land
in Ontario, San Bernardino County, California, for a purchase price of
$5,905,000. The property is immediately north of Interstate 10 near Interstate
15 and is zoned for industrial and light manufacturing use.
The Partnership completed the first of three phases of development in 1988,
consisting of seven distribution-center buildings totaling 326,000 square feet
of which two buildings totaling 81,000 square feet were sold. In an effort to
facilitate build-to-suits, the Partnership purchased a 5.76-acre parcel of land
located between Phase II and Phase III in December 1995. This purchase prevented
development adverse to the Partnership's interests.
On December 31, 1998, the Partnership sold the 38.5 acres of unimproved land at
Rancon Centre Ontario to an unaffiliated third party for $5,500,000. The
Partnership recognized a loss on the sale of land of approximately $34,000 and
realized net proceeds of $5,266,000, which were added to cash reserves.
On January 29, 1999, the Partnership sold Rancon Centre Ontario to an
unaffiliated third party for $7,650,000. The Partnership loaned $5,715,000 to
the buyer (the "RCO Note"). The RCO Note is secured by a deed of trust
encumbering the RCO Buildings, bears interest at 8% and had an original maturity
date of March 1, 2000 with an option to extend the maturity date to June 1,
2000. The buyer has exercised this option and extended the note to June 1, 2000.
As the sale of Rancon Centre Ontario included a $5,715,000 loan from the
Partnership to the buyer, the Partnership deferred recognition of the $3,274,000
gain on sale until collection of the note is assured. As of December 31, 1999,
the Partnership had collected interest income totaling $421,000 from the RCO
Note, which is included in the deferred gain in the accompanying consolidated
balance sheet as of December 31, 1999. The Partnership will recognize the gain
when the principal balance of the note is received. The sale generated net
proceeds of $1,529,000.
Perris-Nuevo Road
- - -----------------
On December 28, 1989, the Partnership acquired approximately 83 acres of
undeveloped land at the intersection of Nuevo Road and Interstate 215 in Perris,
Riverside County, California, for a purchase price of $5,140,000. The property
was zoned for light industrial, commercial and retail use.
On January 29, 1999, the Partnership sold the land to an unaffiliated third
party for $675,000. As part of the terms of the sale, the Partnership loaned
$475,000 to the buyer (the "Nuevo Note"). The Nuevo Note is secured by a deed of
trust encumbering the Perris-Nuevo land, bears interest at 6% per annum and had
an original maturity date of November 15, 1999. In 1999, the note was amended to
extend the maturity date to April 15, 2000. In connection with this amendment, a
$100,000 principal payment was made and the current note balance is $375,000. As
the sale included a $475,000 loan from the Partnership to the buyer, the
Partnership deferred recognition of the $443,000 gain on sale until collection
of the note is assured. During the year ended December 31, 1999, the Partnership
recognized a gain of $104,000 after receiving the $100,000 principal payment
discussed above. The Partnership also received interest income totaling $27,000
from the Nuevo Note which is included in interest and other income in the
accompanying consolidated statement of operations for the year ended December
31, 1999. The sale has generated total net proceeds of $213,000 as of December
31, 1999.
Page 9 of 46
Perris-Ethanac Road
- - -------------------
In 1989, the Partnership purchased 23.8 acres of unimproved land at the
intersection of Ethanac Road and Interstate 215 in Perris, Riverside County,
California, for a purchase price of $2,780,000. The property was zoned for
commercial uses and was located adjacent to a freeway interchange. In 1998,
management determined that the carrying value of the Perris-Ethanac land was in
excess of its estimated fair value and, accordingly, recorded a provision for
impairment of the real estate of $323,000.
On January 20, 1999, the Partnership sold the land to an unaffiliated third
party for $502,200. The Partnership realized a $5,000 loss on the sale, which is
reflected in the accompanying, consolidated statement of operations for the year
ended December 31, 1999. The sale generated net proceeds of $446,000.
Item 3. Legal Proceedings
None.
Item 4. Submission of Matters to a Vote of Security Holders
Incorporated herein by reference to Item1 of Part I of this Annual Report on
Form 10-K.
Page 10 of 46
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 11,875 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).
Cash From Operations includes all cash receipts from operations in the ordinary
course of business (except for the sale, exchange or other disposition of real
property in the ordinary course of business) after deducting payments for
operating expenses. All distributions of Cash From Operations are paid in the
ratio of 90% to the Limited Partners and 10% to the General Partners.
Cash From Sales or Refinancing is the net cash realized by the Partnership from
the sale, disposition or refinancing of any property after retirement of
applicable mortgage debt and all expenses related to the transaction, together
with interest on any notes taken back by the Partnership upon the sale of a
property. All distributions of Cash From Sales or Refinancing are generally
allocated as follows: (i) first, 1 percent to the General Partner and 99 percent
to the Limited Partners until the Limited Partners have received an amount equal
to their capital contributions; (ii) second, 1 percent to the General Partner
and 99 percent to the Limited Partners until the Limited Partners have received
a 12 percent return on their unreturned capital contributions (less prior
distributions of Cash From Operations); (iii) third, 1 percent to the General
Partner and 99 percent to the Limited Partners who purchased their Units prior
to April 1, 1986, to the extent they receive an additional return (depending on
the date on which they purchased the Units) on their unreturned capital of
either 9 percent, 6 percent or 3 percent (calculated through the anniversary
date of the purchase of the Units); (iv) fourth, 99 percent to the General
Partner and 1 percent to the Limited Partners until the General Partner has
received an amount equal to 20 percent of all distributions of Cash From Sales
or Refinancing previously made under clauses (ii) and (iii) above, reduced by
the amount of prior distributions made to the General Partner under clauses (ii)
and (iii); and (v) fifth, the balance 20 percent to the General Partner and 80
percent to the Limited Partners. A more explicit statement of the distribution
policies is set forth in the Partnership Agreement.
On November 30, 1999, the Partnership distributed $5,013,424 to the Limited
Partners from the proceeds of the sale of Rancon Center Ontario. There were no
distributions made by the Partnership in 1998 and 1997.
Page 11 of 46
Item 6. Selected Financial Data
The following is selected financial data for the years ended December 31, 1999,
1998, 1997, 1996 and the one month ended December 31, 1995, and the year ended
November 30, 1995 (in thousands, except per Unit data).
For the one For the
For the years ended month ended year ended
Dec. 31 Dec. 31 Nov. 30
------------------------------------------------------ --------------- --------------
1999 1998 1997 1996 1995 1995
---- ---- ---- ---- ---- ----
Rental income $ 6,404 $ 6,387 $ 6,894 $ 6,969 $ 461 $ 6,200
Gain (loss) on sale of real
estate $ 99 $ (34) $ -- $ -- $ -- $ --
Provision for impairment
of real estate investments $ -- $ (323) $ (1,688) $ -- $ -- $ (14,760)
Net loss $ (990) $ (1,747) $ (3,293) $ (1,307) $ (199) $ (16,148)
Net loss allocable
to Limited Partners $ (984) $ (1,730) $ (3,260) $ (1,294) $ (197) $ (15,986)
Net loss per Unit $ (10.21) $ (17.92) $ (32.68) $ (12.97) $ (1.97) $ (160.18)
Total assets $ 45,631 $ 47,625 $ 50,191 $ 54,193 $ 50,175 $ 51,347
Long-term obligations $ 13,315 $ 13,508 $ 13,684 $ 13,845 $ 8,615 $ 8,621
Cash distributions per Unit $ 51.99 $ ___ $ -- $ -- $ -- $ --
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations
LIQUIDITY AND CAPITAL RESOURCES
- - -------------------------------
The following discussion should be read in conjunction with the financial
statements and the notes thereto in Item 14 of Part IV.
As of December 31, 1999, the Partnership had cash of $5,413,000. The remainder
of the Partnership's assets consisted primarily of its net investments in real
estate of approximately $31,222,000, which includes $28,465,000 of rental
properties and $2,757,000 of land held for development within the Tri-City area
and $6,090,000 in note receivable from buyers of Partnership property..
The Partnership's improved cash position at December 31, 1999, compared to
December 31, 1998, was primarily due to the net proceeds (after repayment of
debt and distributions to partners) from the sales of Rancon Centre Ontario,
Perris-Nuevo Land and Perris-Ethanac Land in January 1999.
As of December 31, 1998, the Partnership's pledged cash consisted primarily of a
certificate of deposit held as collateral for subdivision improvement bonds
relating to the Perris-Nuevo property owned by the Partnership. Upon the sale of
the Perris-Nuevo land in January 1999, the cash collateral was released to the
Partnership.
Page 12 of 46
In January 1999, the Partnership sold Rancon Centre Ontario and the Perris-Nuevo
and Perris-Ethanac land parcels. The Partnership received a total of $2,188,000
of net proceeds from the sales, which was added to cash reserves. In addition,
the Partnership loaned the buyer of Rancon Centre Ontario $5,715,000 and the
buyer of the Perris-Nuevo land $475,000. The note secured by Rancon Centre
Ontario bears interest at 8% per annum and had an original maturity of January
1, 2000. The maturity date has been extended to June 1, 2000. The note secured
by the Perris-Nuevo land bears interest at 6% per annum and had an original
maturity of November 15, 1999. A principal payment of $100,000 has been received
on this note and the maturity date for the remaining note amount of $375,000 has
been extended to April 15, 2000.
The Partnership is contingently liable for subordinated real estate commissions
payable to the General Partner in the amount of $102,000 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, which is not expected to be achieved as a result of the Asset Sale. As
a result, such subordinated real estate commissions will not be paid to the
General Partner and will be eliminated.
Operationally, the Partnership's primary source of funds 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 is
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 current plan to potentially sell all of the Partnership's
remaining properties and liquidate the Partnership, the Partnership knows of no
demands, commitments, events or uncertainties which might effect its liquidity
or capital resources in any material respect. The effect of inflation on the
Partnership's business should be no greater than its effect on the economy as a
whole. In addition, the Partnership is not subject to any covenants pursuant to
its secured debt that would constrain its ability to obtain additional capital.
Operating Activities
- - --------------------
For the year ended December 31, 1999, the Partnership's cash provided by
operating activities totaled $6,499,000.
The $88,000, or 7%, increase in accounts receivable at December 31, 1999,
compared to December 31, 1998, was due primarily to the accrued interest
receivable for the RCO Note and the Nuevo Note.
The $5,470,000, or 89%, decrease in prepaid expenses and other assets at
December 31, 1999, compared to December 31, 1998, was due primarily to the
receipt in 1999 of the Ontario Land sale proceeds which were placed in an escrow
account in 1998.
Page 13 of 46
The $181,000, or 79%, increase in accounts payable and other liabilities at
December 31, 1999, compared to December 31, 1998, was primarily due to accruals
of building operating expenses in 1999. There were no accruals in 1998.
Investing Activities
- - --------------------
During the year ended December 31, 1999, the Partnership's cash provided by
investing activities totaled $1,060,000, which included $2,188,000 of net cash
proceeds from property sales, $1,481,000 of cash used for additions to real
estate, and $353,000 of pledged cash released upon the sale of the Perris-Nuevo
Land (as discussed above).
In 1999, the Partnership received net cash proceeds of $1,529,000 from the sale
of Rancon Centre Ontario for $7,650,000, net cash proceeds of $446,000 from the
sale of approximately 23.8 acres of land, referred to as Perris-Ethanac for
$502,200 and net cash proceeds of $213,000 from the sale of 60.14 acres of land,
referred to as Perris-Nuevo land for $675,000.
The Partnership invested, by way of improvements, approximately $1,426,000 in
rental properties and $55,000 in land held for development.
Financing Activities
- - --------------------
During the year ended December 31, 1999, the Partnership's cash used for
financing activities totaled $5,219,000, which consisted of $193,000 in
principal payments on its two notes payable, $5,014,000 of distributions to the
Limited Partners from sales proceeds and $12,000 paid to redeem 32 limited
partnership units ("Units").
RESULTS OF OPERATIONS
- - ---------------------
1999 versus 1998
- - ----------------
Revenue
- - -------
Rental income increased $17,000 for the year ended December 31, 1999 compared to
the year ended December 31, 1998 due to the increase in occupancy at One
Carnegie Plaza and One Parkside.
Occupancy rates at the Partnership's Tri-City and Rancon Centre Ontario
properties as of December 31, 1999, 1998, 1997 and 1996, and November 30, 1995
were as follows:
1999 1998 1997 1996 1995
--------- -------- --------- -------- --------
One Carnegie Plaza 64% 50% 85% 87% 93%
Two Carnegie Plaza 85% 82% 81% 83% 87%
Carnegie Business Center II 78% 78% 74% 65% 68%
Lakeside Tower 95% 93% 86% 90% 69%
Santa Fe 100% 100% 100% 100% 100%
One Parkside 100% 79% 66% 92% 83%
Rancon Centre Ontario N/A 38% 100% 100% 92%
Bally's Health Club 100% 100% 100% 100% N/A
Outback Steakhouse 100% 100% 100% 100% N/A
Page 14 of 46
As of December 31, 1999, tenants at the Tri-City occupying substantial portions
of leased rental space included: (i) Atchison, Topeka and Santa Fe Railway
Company with a lease through September 2004; (ii) Chicago Title with a lease
through February 2004; (iii) Sterling Software with a lease through November
2000; and (iv) Holiday Spa Health Club with a lease through December 2010. These
four tenants, in the aggregate, occupy approximately 119,000 square feet of the
478,000 total leasable square feet at Tri-City and account for approximately 25%
of the rental income generated at Tri-City and for the Partnership.
The 13-percentage point increase in occupancy at One Carnegie Plaza from
December 31, 1998 to December 31, 1999 was a result of leasing 17,000 square
feet of previously vacant office space.
The 3-percentage point increase in occupancy at Two Carnegie Plaza from December
31, 1998 to December 31, 1999 was attributed to leasing of 3,307 square feet of
previously vacant space to two tenants. Slightly offsetting this increase in
occupancy was a decrease due to a 1,285 square foot tenant moving out upon its
lease expiration in May 1999. Management is currently negotiating lease renewals
with two existing tenants occupying a total of 7,024 square feet of space and is
negotiating a lease expansion with an existing tenant for 1,084 square feet of
space.
The 2-percentage point increase in occupancy at Lakeside Tower from December 31,
1998 to December 31, 1999 was attributed to the leasing of 2,138 square feet of
previously vacant space to a new tenant.
The 21-percentage point increase in occupancy at One Parkside from December 31,
1998 to December 31, 1999 was attributed to the expansion of two tenants to an
aggregate 10,970 square feet of space and the leasing of approximately 3,554
square feet of previously vacant space to a new tenant.
Interest and other income for the year ended December 31, 1999 increased
$265,000 or 78% from the year ended December 31, 1998 due to a higher average
invested cash balance resulting from the 1999 real estate sales.
Expenses
- - --------
Operating expenses decreased $67,000, or 2%, during the year ended December 31,
1999, compared to the year ended December 31, 1998. This decrease in operating
costs is associated with the sale of Rancon Centre Ontario and was offset by
increased operating costs due to increased occupancy at One Carnegie Plaza and
One Parkside.
Interest expense decreased $44,000, or 3%, during the year ended December 31,
1999, compared to the year ended December 31, 1998, due to the interest expense
being capitalized to the cost of the land under development.
Depreciation and amortization expense increased $49,000 or 3% during the year
ended December 31, 1999 compared to the year ended December 31, 1998 due to
additions to rental properties.
In 1998, management determined that the carrying value of the Perris-Ethanac
land held for sale was in excess of the estimated fair value of such property
and, accordingly, recorded a provision for impairment of real estate investment
of $323,000. The fair value was based on an independent appraisal of the
Partnership's real estate. There was no provision for impairment of real estate
during 1999.
Page 15 of 46
Expenses associated with undeveloped land decreased $223,000 or 40% during the
year ended December 31, 1999 compared to December 31, 1998 primarily due to the
reduction in property taxes resulting from the 1999 land sales.
The loss on sale of real estate of $5,000 during the year ended December 31,
1999 resulted from the sale of the 23.8 acres land in Perris-Ethanac. The loss
on sale of real estate of $34,000 during the year ended December 31, 1998,
resulted from the sale of the 38.5 acres of unimproved land in Rancon Centre
Ontario.
General and administrative expenses decreased $53,000, or 4%, 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 sale of the RCO
Buildings.
The proposed dissolution costs of $444,000 and $125,000 during the years ended
December 31, 1999 and 1998, respectively, consisted of expenses incurred related
to the Solicitation and the Asset Sale and Dissolution Proposal as discussed in
Item 1 of Part I.
1998 versus 1997
- - ----------------
Revenue
- - -------
Rental income decreased $507,000 or 7% for the year ended December 31, 1998
compared to the year ended December 31, 1997 due primarily to the decline in
occupancy at One Carnegie Plaza and Rancon Centre Ontario.
Interest and other income for the year ended December 31, 1998 decreased $42,000
or 11% from the year ended December 31, 1997 due to a lower average invested
cash balance in 1998.
Expenses
- - --------
Operating expenses decreased $33,000 or 1% during the year ended December 31,
1998 compared to the year ended December 31, 1997. This decrease in operating
costs was associated with decreased occupancy at One Carnegie Plaza and Rancon
Centre Ontario, offset by increased operating costs due to increased occupancy
at Lakeside Tower, One Parkside and Carnegie Business Center II.
Interest expense remained consistent during the year ended December 31, 1998 as
compared to the year ended December 31, 1997.
Depreciation and amortization expense decreased $312,000 or 15% during the year
ended December 31, 1998 compared to the year ended December 31, 1997 due to
tenant improvements and lease commissions becoming fully amortized during 1998,
and due to ceasing depreciation of Rancon Centre Ontario upon reclassification
of the property to held for sale.
In 1998 and 1997, management determined that the carrying values of the land
held for development and the land held for sale were in excess of the estimated
fair values of such property and, accordingly, recorded provisions for
impairment of real estate investments as follows. The fair values were based on
independent appraisals of the Partnership's real estate.
Page 16 of 46
1998 1997
---- ----
Land held for development:
San Bernardino, CA $ -- $ 1,603,000
Land held for sale:
60.14 acres in Perris, CA (Perris-Nuevo) -- 85,000
23.8 acres in Perris, CA (Perris-Ethanac) 323,000 --
------------ -------------
Total provision for impairment
of real estate investments $ 323,000 $ 1,688,000
============ =============
Expenses associated with undeveloped land decreased $58,000 or 9% during the
year ended December 31, 1998 compared to December 31, 1997 due primarily to a
decrease in maintenance association dues in 1998.
The loss on sale of real estate of $34,000 during the year ended December 31,
1998 resulted from the sale of the 38.5 acres of unimproved land in Rancon
Centre Ontario.
General and administrative expenses remained consistent during the year ended
December 31, 1998 as compared to the year ended December 31, 1997.
The proposed dissolution costs of $125,000 and $479,000 during the years ended
December 31, 1998 and 1997, respectively, consisted of expenses incurred related
to the Solicitation and the Asset Sale and Dissolution Proposal as discussed in
Item 1 of Part I.
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.
All of the Partnership's outstanding debt was subject to fixed rates at December
31, 1999 and 1998, respectively. In addition, the average interest rate on the
Partnership's debt remained stable at 9.04% at December 31, 1998 and 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.
Page 17 of 46
Expected Maturity Date
--------------------------------------------------------------------------
Fair Value
2000 2001 2002 2003 2004 Thereafter Total
---- ---- ---- ---- ---- ---------- -----
(in thousands)
Secured Fixed $ 210 $ 4,194 $ 168 $ 185 $ 203 $ 8,355 $ 13,315 $ 13,315
Average interest rate 9.01% 8.29% 9.39% 9.39% 9.39% 9.39% 9.04%
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.
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 18 of 46
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 irector, 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, industrial and residential
property syndication, development and brokerage concern. Mr. Stephenson has,
from inception, held the position of Director. In addition, Mr. Stephenson was
President and Chief Executive Officer of RFC from 1971 to 1986, from August 1991
to September 1992, and from March 1995 to present. Mr. Stephenson is Chairman of
the Board of PacWest Group, Inc., a real estate firm that has acquired a
portfolio of assets from the Resolution Trust Corporation.
Item 11. Executive Compensation
The Partnership has no executive officers. For information relating to fees,
compensation, reimbursement and distributions paid to related parties, reference
is made to Item 13 below.
Item 12. Security Ownership of Certain Beneficial Owners and Management
Security Ownership of Certain Beneficial Owners
- - -----------------------------------------------
No person is known by the Partnership to be the beneficial owner of more than 5%
of the Units.
Security Ownership of Management
- - --------------------------------
Title Amount and Nature of Percent
of Class Name of Beneficial Owner Beneficial Ownership of Class
-------- ------------------------ -------------------- --------
Units Daniel Lee Stephenson (IRA) 3 Units (direct) *
Units Daniel Lee Stephenson Family Trust 100 Units (direct) *
* Less than 1 percent
Changes in Control
- - ------------------
The Limited Partners have no right, power or authority to act for or bind the
Partnership. However, the Limited Partners generally have the power to vote upon
the following matters affecting the basic structure of the Partnership, passage
of each of which requires the approval of Limited Partners holding a majority of
the outstanding Units: (i) amendment of the Partnership Agreement; (ii)
termination and dissolution of the Partnership; (iii) sale, exchange or pledge
of all or substantially all of the assets of the Partnership; (iv) removal of
the General Partner or any successor General Partner; (v) election of a new
General Partner or
Page 19 of 46
General Partners upon the removal, retirement, death, insanity, insolvency,
bankruptcy or dissolution of the General Partner or any successor General
Partner; (vi) modification of the terms of any agreement between the Partnership
and the General Partner or an affiliate of the General Partner; and (vii)
extension of the term of the Partnership.
Item 13. Certain Relationships and Related Transactions
During the year ended December 31, 1999 the Partnership did not incur any
expenses or costs reimbursable to RFC or any other affiliate of the Partnership.
Page 20 of 46
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
All other schedules are omitted because they are not
applicable or the required information is shown in the
financial statements or notes thereto.
(3) Exhibits:
(3.1) Amended and Restated Agreement of Limited Partnership
of the Partnership (included as Exhibit B to the
Prospectus dated March 3, 1988, filed pursuant to
Rule 424(b), File Number 2-97837, is incorporated
herein by reference).
(3.2) Third Amendment to the Amended and Restated Agreement
of Limited Partnership of the Partnership, dated
April 1, 1989 (filed as Exhibit 3.2 to the
Partnership's annual report on Form 10-K for the
fiscal year ended November 30, 1991 is incorporated
herein by reference).
(3.3) Fourth Amendment to the Amended and Restated
Agreement of Limited Partnership of the Partnership,
dated March 11, 1992 (filed as Exhibit 3.3 to the
Page 21 of 46
Partnership's annual report on Form 10-K for the
fiscal year ended November 30, 1991 is incorporated
herein by reference).
(3.4) Limited Partnership Agreement of RRF V Tri-City
Limited Partnership, A Delaware limited partnership
of which Rancon Realty Fund V, A California Limited
Partnership is the limited partner (filed as Exhibit
3.4 to the Partnership's annual report on Form 10-K
for the year ended December 31, 1996 is incorporated
herein by reference).
(10.1) First Amendment to the Second Amended Management,
administration and consulting agreement for services
rendered by Glenborough Corporation dated August 31,
1998.
(10.2) Management, administration and consulting agreement
and amendment thereto for services rendered by
Glenborough Inland Corporation dated December 20,
1994 and March 30, 1995, respectively (filed as
Exhibit 10.2 to the Partnership's annual report on
Form 10-K for the year ended December 31, 1995 is
incorporated herein by reference).
(10.3) Promissory note in the amount of $9,600,000 dated May
9, 1996 secured by Deeds of Trust on three of the
Partnership Properties (filed as Exhibit 10.3 to the
Partnership's annual report on Form 10-K for the year
ended December 31, 1996 is incorporated herein by
reference).
(27) Financial Data Schedule
(b) Reports on Form 8-K
On January 14, 1999, the Partnership filed a report on Form 8-K
reporting under Item 2 thereof the sale of the 38.5 acres of
unimproved land in Rancon Centre Ontario and including under Item
7 thereof certain pro forma financial statements with respect
thereto.
On February 12, 1999, the Partnership filed a report on Form 8-K
reporting under Item 2 thereof the sales of the Rancon Centre
Ontario Buildings, the Perris-Nuevo land and the Perris-Ethanac
land and including under Item 7 thereof certain pro forma
financial statements with respect thereto (including the sale of
the 38.5 acres of unimproved land in Rancon Centre Ontario).
Page 22 of 46
SIGNATURES
Pursuant to the requirements of Section 13 or Section 15(d) of the Securities
Exchange Act of 1934, the Partnership has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
RANCON REALTY FUND V,
a California Limited Partnership
By Rancon Financial Corporation
a California corporation
its General Partner
Date: March 30, 2000 By: /s/ DANIEL L. STEPHENSON
--------------------------
Daniel L. Stephenson, President
By: /s/ DANIEL L. STEPHENSON
--------------------------
Daniel L. Stephenson, General Partner
Page 23 of 46
INDEX TO FINANCIAL STATEMENTS
AND SCHEDULE
Financial Statements and Schedule Page
----
Financial Statements:
Report of Independent Public Accountants 25
Consolidated Balance Sheets as of December 31, 1999 and 1998
26
Consolidated Statements of Operations for the years ended December
31, 1999, 1998 and 1997
27
Consolidated Statements of Partners' Equity (Deficit) for the
years ended December 31, 1999, 1998 and 1997
28
Consolidated Statements of Cash Flows for the years ended December
31, 1999, 1998 and 1997
29
Notes to Consolidated Financial Statements
30
Schedule:
III - Real Estate and Accumulated Depreciation
as of December 31, 1999 and Notes thereto 41
All other schedules are omitted because they are not applicable or the
required information is shown in the financial statements or notes
thereto.
Page 24 of 46
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Partners of
RANCON REALTY FUND V, A CALIFORNIA LIMITED PARTNERSHIP:
We have audited the accompanying consolidated balance sheets of RANCON REALTY
FUND V, A CALIFORNIA LIMITED PARTNERSHIP as of December 31, 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 transaction 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 financial position of RANCON REALTY FUND
V, 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
Page 25 of 46
RANCON REALTY FUND V,
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 $18,199 and $16,666 as of December 31, 1999
and 1998, respectively $ 28,465 $ 28,572
Rental property held for sale, net -- 3,970
Land held for development 2,757 2,702
Land held for sale -- 597
----------- -----------
Total real estate investments 31,222 35,841
----------- -----------
Cash and cash equivalents 5,413 3,073
Pledged cash -- 353
Accounts receivable 1,327 1,239
Notes receivable (see Note 3) 6,090 --
Deferred financing costs and other fees, net of
accumulated amortization of $2,342 and $2,259
as of December 31, 1999 and 1998, respectively 928 998
Prepaid expenses and other assets 651 6,121
----------- -----------
Total assets $ 45,631 $ 47,625
=========== ===========
Liabilities and Partners' Equity (Deficit)
------------------------------------------
Liabilities:
Notes payable 13,315 $ 13,508
Accounts payable and other liabilities 411 230
Deferred gain on sale of property (see Note 7) 4,034 --
----------- -----------
Total liabilities 17,760 13,738
----------- -----------
Commitments and contingent liabilities (see Note 10) -- --
Partners' equity (deficit):
General partners (978) (971)
Limited partners 96,412 and 96,444 limited partnership
units outstanding at December 31, 1999
and 1998, respectively 28,849 34,858
----------- -----------
Total partners' equity 27,871 33,887
----------- -----------
Total liabilities and partners' equity $ 45,631 $ 47,625
=========== ===========
The accompanying notes are an integral part of these consolidated financial statements
Page 26 of 46
RANCON REALTY FUND V,
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 $ 6,404 $ 6,387 $ 6,894
Gain on sale of property 104 -- --
Interest and other income 602 337 379
------------ ------------- -----------
Total revenue 7,110 6,724 7,273
------------ ------------- -----------
Expenses:
Operating 3,090 3,157 3,190
Interest expense 1,239 1,283 1,298
Depreciation and amortization 1,802 1,753 2,065
Provision for impairment of
real estate investments -- 323 1,688
Expenses associated with undeveloped land 334 557 615
Loss on sale of real estate 5 34 --
General and administrative expenses 1,186 1,239 1,231
Proposed dissolution costs 444 125 479
------------ ------------- -----------
Total expenses 8,100 8,471 10,566
------------ ------------- -----------
Net loss $ (990) $ (1,747) $ (3,293)
============ ============= ============
Net loss per limited partnership unit $ (10.21) $ (17.92) $ (32.68)
============ ============== ============
Distributions per limited partnership unit:
From net income $ -- $ -- $ --
Representing return of capital 51.98 -- --
------------ ------------- -------------
Total distributions per limited partnership unit $ 51.98 $ -- $ --
============ ============= =============
Weighted average number of limited partnership units
outstanding during each period used to compute net
loss per limited partnership unit 96,435 96,548 99,767
============ ============ =============
The accompanying notes are an integral part of these consolidated financial statements
Page 27 of 46
RANCON REALTY FUND V,
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 $ (921) $ 40,918 $ 39,997
Retirement of limited partnership units -- (964) (964)
Net loss (33) (3,260) (3,293)
---------- ----------- --------
Balance at December 31, 1997 (954) 36,694 35,740
Retirement of limited partnership units -- (106) (106)
Net loss (17) (1,730) (1,747)
---------- ----------- --------
Balance at December 31, 1998 (971) 34,858 33,887
Retirement of limited partnership units -- (12) (12)
Net loss (6) (984) (990)
Distributions (1) (5,013) (5,014)
---------- -------- --------
Balance at December 31, 1999 $ (978) $28,849 $27,871
========== ====== ======
The accompanying notes are an integral part of these consolidated financial statements
Page 28 of 46
RANCON REALTY FUND V,
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 loss $ (990) $ (1,747) $ (3,293)
Adjustments to reconcile net loss to net
cash provided by (used for) operating activities:
Net gain (loss) on sales of real estate (99) 34 --
Depreciation and amortization 1,802 1,753 2,065
Amortization of loan fees, included in interest expense 55 54 54
Provision for impairment of real estate investments -- 323 1,688
Changes in certain assets and liabilities:
Accounts receivable (88) 110 45
Deferred financing costs and other fees (253) (207) (184)
Prepaid expenses and other assets 5,470 (5,476) 155
Accounts payable and other liabilities 181 (537) 416
---------- ---------- -----------
Net cash provided by (used for) operating activities 6,078 (5,693) 946
---------- ---------- -----------
Cash flows from investing activities:
Net proceeds from sale of real estate 2,188 5,266 --
Additions to real estate investments (1,481) (579) (467)
Pledged cash 353 -- --
Deferred gain on sale 421 -- --
---------- ---------- -----------
Net cash provided by (used for) investing activities 1,481 4,687 (467)
---------- ---------- -----------
Cash flows from financing activities:
Notes payable principal payments (193) (176) (161)
Cash distribution to Partners (5,014) -- --
Purchase and retirement of limited partnership units (12) (106) (964)
---------- ---------- -----------
Net cash used for financing activities (5,219) (282) (1,125)
---------- ---------- -----------
Net increase (decrease) in cash and cash equivalents 2,340 (1,288) (646)
Cash and cash equivalents at beginning of year 3,073 4,361 5,007
---------- ---------- -----------
Cash and cash equivalents at end of year $ 5,413 $ 3,073 $ 4,361
========== ========== ===========
Supplemental disclosure of cash flow information:
Cash paid for interest $ 1,213 $ 1,230 $ 1,245
========== ========== ===========
Interest capitalized $ 27 $ -- $ --
========== ========== ===========
Deferred interest income $ 421 $ -- $ --
========== ========== ===========
Supplemental disclosure of non-cash investing activities:
Sales of real estate through issuance of notes receivable $ 6,090 $ -- $ --
========== ========== ===========
The accompanying notes are an integral part of these consolidated financial statements
Page 29 of 46
RANCON REALTY FUND V,
A California Limited Partnership
Notes to Consolidated Financial Statements
December 31, 1999, 1998 and 1997
Note 1. ORGANIZATION
Rancon Realty Fund V, a California Limited Partnership, ("the Partnership"), was
organized in accordance with the provisions of the California Revised Limited
Partnership Act for the purpose of acquiring, developing and operating real
property. The general partners of the Partnership are Daniel L. Stephenson and
Rancon Financial Corporation ("RFC"), hereinafter collectively referred to as
the Sponsor or the General Partner. RFC is wholly-owned by Daniel L. Stephenson.
The Partnership reached final funding in February 1989. As of December 31, 1997,
a total of 3,246 limited partnership units ("Units") were repurchased and
retired as a result of the Partnership's offer to redeem limited partnership
units. During the years ended December 31, 1999 and 1998, additional 32 and 310
units respectively were repurchased and retired by the Partnership. As of
December 31, 1999, there were 96,412 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 real estate assets ("Asset Sale") and
liquidate the Partnership thereafter ("Dissolution"). The General Partner
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
As of August 25, 1999, the expiration of the voting period, 96,442 limited
partnership units ("Units") were outstanding. The holders of 76,475 Units, or
79%, have voted ("Units Voted") and no response was received from the remaining
21%. A final tabulation of the results of the Solicitation was made on August
25, 1999, with holders of 67,498 Units, or 88%, of the Units Voted in favor,
holders of 7,271 Units, or 10%, against and holders of 1,706 Units, or 2%,
abstaining. During the third quarter of 1999, a total of 32 Units were
repurchased as a result of a Unitholder's request for the Partnership to take
over such Units. As of December 31, 1999, there were 96,412 Units outstanding.
Subsequent to obtaining the consent of the majority of the Unitholders, the
General Partner grouped the 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 IV ("Fund IV"), a partnership also sponsored by
the General Partner. Bidders for any package of properties containing the
Partnership's and Fund IV's 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 IV based upon such allocation. The General
Partner
Page 30 of 46
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 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 the 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 currently
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.
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.
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 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
Page 31 of 46
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 12% 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 ("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
responsibilities for providing investor relations 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.
According to the contract, the Partnership will pay Glenborough for its services
as follows: (i) a specified asset administration fee, $759,000 in 1999, $820,000
in 1998 and $967,000 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.
Page 32 of 46
Note 2: Significant Accounting Policies
-------------------------------
Basis of Accounting - The accompanying financial statements have been prepared
on the accrual basis of accounting in accordance with generally accepted
accounting principles under the presumption that the Partnership will continue
as a going concern. 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 a proposal to sell all of the Partnership's
remaining properties and liquidate the Partnership will not impact the
accounting treatment applied by the Partnership in its financial statements
prepared in accordance with generally accepted accounting principles as the
liquidation proceeds and the timing thereof are not currently estimable. The
Partnership will classify as "held for use" or "held for development", all of
its operating and undeveloped properties until such time as an acceptable buyer
is identified and an offer which is reasonably assured of consummation is
obtained. At that time, the Partnership will reclassify the appropriate portions
of its assets to "held for sale" and depreciation of those assets will be
discontinued.
When the sale price and timing of the last property disposal is reasonably
determinable, the Partnership will adopt liquidation basis accounting in that
quarter. At that time, all assets and liabilities will be adjusted to their
settlement amounts and an amount to be distributed to the Unitholders upon
liquidation will be estimated.
Use of Estimates - The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that effect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported results of operations during the reporting period.
Actual results could differ from those estimates.
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.
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
Page 33 of 46
things, the presence of economic conditions which will enable the Partnership to
continue to hold and operate the properties prior to their eventual sale. Due to
uncertainties inherent in the valuation process and in the economy, it is
reasonably possible that the actual results of operating and disposing of the
Partnership's properties could be materially different than current
expectations.
Depreciation is provided using the straight line method over the useful lives of
the respective assets.
Rental Property Held for Sale - Rental property held for sale is stated at the
lower of cost or estimated fair value less costs to sell. Estimated fair value
is based upon prevailing market values for comparable properties and/or the use
of capitalization rates multiplied by annualized rental income based upon the
age, construction and use of the building. The fulfillment of the Partnership's
plans to dispose of property is dependent upon, among other things, the presence
of economic conditions which will enable the Partnership to hold the property
for eventual sale. The Partnership discontinues depreciating rental property
once it is classified as held for sale.
Land Held for Development - Land held for development is stated at cost, unless
events or circumstances indicate that cost cannot be recovered, in which case
the carrying value is reduced to estimated fair value. Estimated fair value: (i)
is based on the Partnership's plans for the development of each property; (ii)
is computed using estimated sales price, based upon market values for comparable
properties, and (iii) considers the cost to complete and the estimated fair
value of the completed project. The fulfillment of the Partnership's plans
related to each of its properties is dependent upon, among other things, the
presence of economic conditions which will enable the Partnership to either hold
the properties for eventual sale or obtain financing to further develop the
properties.
Interest and property taxes related to property constructed by the Partnership
are capitalized during the period of construction.
Land Held for Sale - Land held for sale is stated at the lower of cost or
estimated fair value less costs to sell. Estimated fair value is based on market
values for comparable properties or appraisals prepared by qualified independent
third parties. Appraisals are estimates of fair value based upon assumptions
about the property and the market in which it is located.
Cash and Cash Equivalents - The Partnership considers certificates of deposit
and money market funds with original maturities of less than ninety days to be
cash equivalents.
Fair Value of Financial Instruments - Statement of Financial Accounting
Standards No. 107 requires disclosure about fair value for all financial
instruments. Based on the borrowing rates currently available to the
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.
Page 34 of 46
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.
Deferred Gain on Sale of Property - Deferred gain on sale of property represents
amounts which will recorded as income when cash in excess of the related
property's carrying costs is received.
Rental Income - Rental income is recognized as earned over the life of the
respective leases.
Net Income (Loss) Per Limited Partnership Unit - Net income (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 (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, capitalization of development period interest, income recognition and
provisions for impairment of investments in real estate.
Note 3. INVESTMENTS IN REAL ESTATE
--------------------------
Rental property components at December 31, 1999 and 1998 are as follows (in
thousands):
1999 1998
-------------- --------------
Land $ 5,449 $ 5,449
Buildings 27,971 27,803
Leasehold and other improvements 13,244 11,986
-------------- --------------
46,664 45,238
Less: accumulated depreciation (18,199) (16,666)
-------------- --------------
Total rental property $ 28,465 $ 28,572
============== ==============
The Partnership's rental property includes eight projects at the Tri-City
Corporate Centre in San Bernardino, California.
Rental Property Held for Sale at December 31, 1998
- - --------------------------------------------------
In 1998, the Partnership began marketing five distribution-center buildings
located in Ontario, California (referred to as Rancon Centre Ontario) for sale.
Accordingly, in August 1998, the Partnership reclassified the book value of this
property of $3,970,000 (net of $1,746,000 of accumulated depreciation) from
rental property to rental property held for sale and ceased depreciation of the
property.
Page 35 of 46
On January 29, 1999, the Partnership sold Rancon Centre Ontario to an
unaffiliated entity for $7,650,000. The net book value of the land was
$3,921,000 at the time of sale. The Partnership incurred costs of $406,000 to
complete the transaction. As part of the terms of the sale, the Partnership
loaned $5,715,000 to the buyer (the "RCO Note"). The RCO Note is secured by a
deed of trust encumbering the Rancon Centre Ontario property, bears interest at
8% per annum and had an original maturity date of March 1, 2000, with an option
to extend the maturity date to June 1, 2000. The buyer has exercised the option
to extend the maturity date to June 1, 2000. The note also provides that the
borrower may prepay up to, but no more than, $3,000,000 of the principal balance
prior to January 1, 2000 and the entire balance after January 1, 2000. Payments
received from the buyer will be first applied to recover the Partnership's
costs. Gains will then be recorded as additional cash is received. As the sale
of Rancon Centre Ontario included a $5,715,000 loan from the Partnership to the
buyer, the Partnership deferred recognition of the $3,274,000 gain on sale until
collection of the note is assured. As of December 31, 1999, the Partnership had
collected interest income totaling $421,000 from the RCO Note, which is included
in the deferred gain in the accompanying consolidated balance sheet as of
December 31, 1999. The Partnership will recognize the gain when the principal
balance of the note is received. The sales generated net proceeds of $1,529,000
and have added to the Parntership's cash reserves.
Land held for development consists of the following at December 31, 1999 and
1998 (in thousands):
1999 1998
-------------- -------------
14 acres at Tri-City Corporate Centre,
San Bernardino, CA $ 2,757 $ 2,702
-------------- -------------
Total land held for development $ 2,757 $ 2,702
============== =============
Land held for sale at December 31, 1998 includes the following (in thousands):
1998
-------------
23.8 acres in Perris, CA (Ethanac Road) $ 452
60.14 acres in Perris, CA (Nuevo Road) 145
-------------
Total land held for sale $ 597
=============
On January 20, 1999, the Partnership sold the Perris-Ethanac land for $502,000
and realized a $5,000 loss on the sale and net proceeds of $446,000. The net
book value of the land was $452,000 at the time of sale. The Partnership
incurred costs of $55,000 to complete the transaction.
On January 29, 1999, the Partnership sold the Perris-Nuevo land, located in
Perris, Riverside County, California, to an unaffiliated entity for $675,000.
The net book value of the land was $145,000 at the time of sale. The Partnership
incurred costs of $88,000 to complete the transaction. As part of the terms of
the sale, the Partnership loaned $475,000 to the buyer (the "Nuevo Note"). The
Nuevo Note is secured by a deed of trust encumbering the Perris-Nuevo land,
bears interest at 6% per annum and had
Page 36 of 46
an original maturity date of November 15,
1999. In 1999, the note was amended to extend the maturity date to April 15,
2000. In connection with this amendment, a $100,000 principal payment was made
and the current note balance is $375,000. Payments received from the buyer will
be first applied to recover the Partnership's costs. Gain will then be recorded
as additional cash is received. The Partnership initially deferred recognition
of the $443,000 gain. In December 1999, after the Partnership had received a
$100,000 principal payment from the buyer as discussed above, approximately
$104,000 of the deferred gain was recognized. In addition, as of December 31,
1999, the partnership has also recognized $27,000 of interest income on the
receivable. Cash proceeds generated by the sale have been added to the
Partnership's cash reserves.
Provisions for Impairment of Real Estate Investments:
During the years ended December 31, 1998 and 1997, the Partnership recorded the
following provisions to reduce the carrying value of its investments in real
estate (in thousands):
1998 1997
----------- --------
Land Held for Development:
Tri-City Corporate Center, San Bernardino, CA $ -- $ 1,603
Land Held for Sale
Perris, CA (Perris-Nuevo) -- 85
Perris, CA (Perris-Ethanac) 323 --
----------- ---------
Total provision for impairment of
real estate investments $ 323 $ 1,688
============= =========
The Partnership's business strategy has been to focus on the eventual
disposition of its assets at the optimal time and sales price. In 1998 and 1997,
management determined that the carrying values of the Partnership's land held
for development and the land held for sale were in excess of the estimated fair
value of such property and thus, recorded provisions for impairment of real
estate as shown above.
There is no provision for impairment of real estate in 1999.
Note 4. PLEDGED CASH
------------
At December 31, 1998, pledged cash of $353,000 consisted primarily of a $351,000
certificate of deposit held as collateral for subdivision improvement bonds
related to the 60.14-acre Perris-Nuevo property owned by the Partnership. The
cash collateral was released to the Partnership in January 1999 upon the sale of
the land to a third party.
Page 37 of 46
Note 5. PREPAID EXPENSES AND OTHER ASSETS
---------------------------------
Included in prepaid expenses and other assets at December 31, 1998 are
$5,487,000 of net sales proceeds placed in an escrow account upon the December
31, 1998 sale of the Ontario land. On January 29, 1999, the sale of Ontario land
was completed and the net sales proceeds were received.
Note 6. 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 Lakeside Tower, One Parkside and
Two Carnegie Plaza. The loan, which matures August 1, 2006, is a 10-year, 9.39%
fixed rate loan with a 25-year amortization requiring $83 of principal and
interest payments due monthly. $ 9,203 $ 9,330
Note payable, secured by first deed of trust on One Carnegie Plaza. The note
bears interest at a fixed rate of 8.25%, provides for monthly principal and
interest payments totaling $34 and matures on
December 1, 2001. 4,112 4,178
----------- -----------
Total notes payable $ 13,315 $ 13,508
=========== ===========
The annual maturities on the Partnership's notes payable for the next five years
and thereafter, as of December 31, 1999, are as follows (in thousands):
2000 $ 210
2001 4,194
2002 168
2003 185
2004 203
Thereafter 8,355
-----------
Total $ 13,315
===========
Note 7. DEFERRED GAIN ON SALE OF PROPERTY
---------------------------------
The Partnership's deferred gain on sale of property of $4,034,000 as of December
31, 1999, consists of the remaining deferred gains on sale of Rancon Centre
Ontario and the Perris-Nuevo land. See Note 3 for further discussion.
Page 38 of 46
Note 8. PROPOSED DISSOLUTION COSTS
--------------------------
Costs totaling $444,000, $125,000 and $479,000, 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 9. LEASES
------
The Partnership's rental properties are leased under non-cancelable operating
leases that expire at various dates through December 2010. In addition to
monthly base rents, several of the leases provide for additional rents based
upon a percentage of sales levels attained by the tenants; however, no
contingent rentals were realized during the years ended December 31, 1999, 1998
and 1997. Future minimum rents under non-cancelable operating leases as of
December 31, 1999 are as follows (in thousands):
2000 $ 6,634
2001 5,586
2002 4,622
2003 4,024
2004 2,164
Thereafter 3,792
----------
Total $ 26,822
==========
Note 10. COMMITMENTS AND CONTINGENT LIABILITIES
--------------------------------------
The Partnership is contingently liable for subordinated real estate commissions
payable to the General Partner in the amount of $102,000 at December 31, 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, which is not expected to be achieved as a result of the Asset Sale. As
a result, such subordinated real estate commissions will not be paid to the
General Partner and will be eliminated.
Note 11. 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.
Page 39 of 46
The Partnership's tax returns are filed on a calendar year basis. As such, the
following reconciliation has been prepared using tax amounts estimated on a
calendar year basis.
The following is a reconciliation for the years ended December 31, 1999, 1998
and 1997, of the net loss for financial reporting purposes to the estimated
taxable income (loss) determined in accordance with accounting practices used in
preparation of federal income tax returns (in thousands):
1999 1998 1997
-------------- ------------- ---------
Net loss per financial statements $ (990) $ (1,747) $ (3,293)
Provision for impairment of investments
in real estate -- 323 1,688
Financial reporting depreciation in excess
of tax reporting depreciation 323 170 269
Loss on sale of property less than recognized
loss for tax reporting (5,011) (217) --
Property taxes capitalized for tax reporting 215 493 436
Costs of dissolution capitalized for tax reporting 444 -- --
Expenses of undeveloped land capitalized for tax 334 -- --
Operating revenues and expenses reported in
a different period for financial reporting
than for income tax reporting, net 644 (9) 1,486
------------ ------------- ------------
Net income (loss) for federal income tax purpose $ (4,041) $ (987) $ 586
============ ============= ============
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 $ 27,871 $ 33,887
Cumulative provision for impairment of
investments in real estate 2,211 23,736
Financial reporting depreciation in
excess of tax reporting depreciation 8,396 7,322
Property taxes capitalized for tax -- 1,676
Net difference in capitalized costs of development 12,717 --
Syndication costs (1,987) (1,987)
Operating revenues and expenses recognized in
a different period for financial reporting
than for income tax reporting, net (4,946) 2,147
-------------- ------------
Partners' capital for federal
income tax purposes $ 44,262 $ 66,781
============== ============
Page 40 of 46
RANCON REALTY FUND V
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
Cost Capitalized
Initial Cost to Subsequent to Gross Amount Carried
Partnership 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 Carnegie Plaza $4,112 $ 1,583 $ -- $ 10,168 $ -- $ 1,583 $ 10,168 $11,751
Less: Provision for impairment
of investment in real estate(B) -- -- -- (1,657) -- (256) (1,401) (1,657)
Two Carnegie Plaza (C) 873 -- 5,786 -- 873 5,786 6,659
Carnegie Business Center II -- 544 -- 3,635 -- 544 3,635 4,179
Less: Provision for impairment
of investment in real estate(B) -- -- -- (299) -- (41) (258) (299)
Lakeside Tower (C) 834 -- 11,822 -- 834 11,822 12,656
Santa Fe -- 501 -- 2,562 -- 501 2,562 3,063
One Parkside (C) 529 -- 6,957 -- 529 6,957 7,486
Less: Provision for impairment
of investment in real estate(B) -- -- -- (700) -- (65) (635) (700)
Health Club -- 786 -- 1,932 -- 786 1,932 2,718
Outback Steakhouse -- -- -- 808 -- 161 647 808
------ ------- ------- -------- ------- ------- ------- ------
13,315 5,650 -- 41,014 -- 5,449 41,215 46,664
------ ------- ------- -------- ------- ------- ------- ------
Land Held for Development:
San Bernardino County, CA:
14 acres - Tri-City -- 5,676 -- 5,959 -- 11,635 -- 11,635
Less: Provision for impairment
of investment in real estate(B) -- (2,431) -- (6,447) -- (8,878) -- (8,878)
------- -------- -------- -------- -------- -------- ------ --------
-- 3,245 -- (488) -- 2,757 -- 2,757
------ ------- ------- --------- ------- ------- ------ ---------
TOTAL $13,315 $ 8,895 $ -- $ 40,526 $ -- $ 8,206 $ 41,215 $49,421
====== ======= ======= ========= ====== ======= ======== ========
- - -------------------------------------------------------------------------------
COLUMN A COLUMN F COLUMN G COLUMN H COLUMN I
Date Life
Accumulated Construction Date Depreciated
Description Depreciation Began Acquired Over
- - -------------------------------------------------------------------------------
Rental Properties:
Commercial Office Complexes
San Bernardino County, CA:
One Carnegie Plaza $ 4,430 8/86 6/03/85 3-40 yrs
Less: Provision for impairment
of investment in real estate(B) --
Two Carnegie Plaza 2,744 1/88 6/03/85 3-40 yrs.
Carnegie Business Center II 2,020 10/86 6/03/85 3-40 yrs.
Less: Provision for impairment
of investment in real estate(B) --
Lakeside Tower 5,375 3/88 6/03/85 3-40 yrs.
Santa Fe 1,332 2/89 6/03/85 5-40 yrs.
One Parkside 1,979 2/92 6/03/85 5-40 yrs.
Less: Provision for impairment
of investment in real estate(B) --
Health Club 270 1/95 6/03/85 5-40 yrs.
Outback Steakhouse 49 1/96 6/03/85 15-40 yrs.
------
18,199
------
Land Held for Development:
San Bernardino County, CA:
14 acres - Tri-City -- N/A 6/03/85 N/A
Less: Provision for impairment
of investment in real estate(B) --
------
--
------
TOTAL $18,199
======
(A) The aggregate cost of land and buildings for federal income tax purposes is
$50,593. (B) See Note 3 to Financial Statements (C) Two Carnegie Plaza, Lakeside
Tower and One Parkside are collateral for debt in the aggregate amount of
$9,203.
Page 41 of 46
RANCON REALTY FUND V,
A CALIFORNIA LIMITED PARTNERSHIP
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
(in thousands)
Reconciliation of gross amount at which real estate was carried:
For the years ended
December 31,
1999 1998 1997
---------------- --------------- ---------
Investments in real estate:
Balance at beginning of period $ 54,253 $ 59,297 $ 60,518
Additions during period:
Improvements 1,481 579 467
Retirements during period (6,313) (5,300) --
Provision for impairment of
investments in real estate -- (323) (1,688)
------------ ------------- ------------
Balance at end of period $ 49,421 $ 54,253 $ 59,297
============ ============ ============
Accumulated Depreciation:
Balance at beginning of period $ 18,412 $ 16,911 $ 15,180
Additions charged to expenses 1,533 1,501 1,731
Retirement from sales (1,746) -- --
------------- ------------ -----------
Balance at end of period $ 18,199 $ 18,412(1) $ 16,911
============ ============ ===========
(1) Included in the accumulated depreciation balance at December 31, 1998 is
$1,746 of accumulated depreciation of the Rancon Centre Ontario property, which
is classified as rental property held for sale in the accompanying consolidated
balance sheet as of December 31, 1998.
Page 42 of 46
EXHIBIT INDEX
Exhibit No. Exhibit Title
-----------------------------------------------------
(3.1) Amended and Restated Agreement of Limited Partnership
of the Partnership (included as Exhibit B to the
Prospectus dated March 3, 1988, filed pursuant to
Rule 424(b), File Number 2-97837, is incorporated
herein by reference).
(3.2) Third Amendment to the Amended and Restated Agreement
of Limited Partnership of the Partnership, dated
April 1, 1989 (filed as Exhibit 3.2 to the
Partnership's annual report on Form 10-K for the
fiscal year ended November 30, 1991 is incorporated
herein by reference).
(3.3) Fourth Amendment to the Amended and Restated Agreement
of Limited Partnership of the Partnership, dated March
11, 1992 (filed as Exhibit 3.3 to the Partnership's
annual report on Form 10-K for the fiscal year ended
November 30,1991 is incorporated herein by reference).
(3.4) Limited Partnership Agreement of RRF V Tri-City
Limited Partnership, A Delaware limited partnership
of which Rancon Realty Fund V, A California Limited
Partnership is the limited partner (filed as Exhibit
3.4 to the Partnership's annual report on Form 10-K
for the year ended December 31, 1996 is incorporated
herein by reference).
(10.1) First Amendment to the Second Amended Management,
administration and consulting agreement for services
rendered by Glenborough Corporation dated August 31,
1998.
(10.2) Management, administration and consulting agreement
and amendment thereto for services rendered by
Glenborough Inland Corporation dated December 20,
1994 and March 30, 1995,respectively (filed as Exhibit
10.2 to the Partnership's annual report on Form 10-K
for the year ended December 31, 1995 is incorporated
herein by reference).
(10.3) Promissory note in the amount of $9,600,000 dated
May 9, 1996 secured by Deeds of Trust on three
of the Partnership Properties (filed as Exhibit
10.3 to the Partnership's annual report on Form
10-K for the year ended December 31, 1996 is
incorporated herein by reference).
(27) Financial Data Schedule
Page 43 of 46
Agreement
This Agreement is made as of August 31, 1998, by and between
Glenborough Corporation, a California corporation ("GC"), Rancon Realty Fund V,
a California limited partnership ("Fund V"), Daniel L. Stephenson ("DLS") and
Rancon Financial Corporation, a California corporation ("RFC").
Recitals
A. DLS and RFC are general partners of Fund V.
B. Reference is made to that certain Management, Administration and Consulting
Agreement dated December 20, 1994, by and among (among others) Glenborough
Inland Realty Corporation ("GIRC," GC's predecessor-in-interest), Fund V, DLS
and RFC, as amended on March 30, 1995 (the "Agreement").
C. Under the Agreement, GC is required, as GIRC's successor-in-interest, to
perform services for Fund V, and Fund V is required to pay to GC, among other
things, (i) property management fees ("Management Fees") and (ii) Asset
Administration Fees ("Asset Fees"). The Agreement also establishes similar
contractual arrangements between GIRC and a number of other partnerships in
which DLS and/or RFC or affiliates thereof serve as general partners (the "Other
Rancon Partnerships"), and GC is also successor-in-interest to GIRC with respect
to such contractual arrangements.
D. Under Section 11.6 of the Agreement, GC is entitled to Liquidated Damages
from Fund V in the amount of $2,120,349 ("Liquidated Damages") if the Agreement
is terminated by Fund V prior to the date five (5) years after the Commencement
Date of January 3, 1995.
E. GC is willing to waive its right to Liquidated Damages if Fund V agrees to
maintain the Management Fees and Asset Fees at a specified amount, and Fund V is
willing to so maintain the amount of the Management Fees and Asset Fees.
Agreement
Now, therefore, in consideration of the mutual promises, covenants and
agreements contained herein, it is hereby agreed as follows:
1. Liquidated Damages. GIRC hereby waives any and all claims to Liquidated
Damages from Fund V.
2. Asset Fees and Management Fees. For the period beginning on the date of this
Agreement and ending December 31, 1999, Fund V shall pay to GC Asset Fees and
Management Fees in an amount equal to the greater of (i) the amount of Asset
Fees and Management Fees in effect as of the date of this Agreement, as set
forth in Exhibit A hereto, reduced only for such Asset Fees (in accordance with
Exhibit E to the Agreement) and Management Fees, respectively, as are applicable
to the property known as Rancon Center Ontario, and only if such property is
sold at some point during such period, or (ii) the amount payable under the
terms of the Agreement. Fund
Page 44 of 46
V specifically guarantees that Asset Fees and Management Fees shall be paid at
these respective amounts regardless of whether Fund V sells any or all of its
remaining properties during such time.
3. Other Compensation. All other compensation payable to GC under the Agreement
shall be paid in accordance with the terms of the Agreement.
In witness whereof, the parties have executed this Agreement as of the
date and year first above written.
Glenborough Corporation Rancon Financial Corporation,
a California corporation a California corporation
By ___________________________ By _____________________________
Rancon Realty Fund V _____________________________
a California limited partnership Daniel L. Stephenson
By Rancon Financial Corporation,
a California corporation
its General Partner
By _______________________________
Daniel L. Stephenson, President
By _____________________________________
Daniel L. Stephenson, General Partner
Page 45 of 46
Exhibit A
Rancon Realty Fund V
Asset Administration Fees
and
Property Management Fees
Asset Administration Fees: A monthly amount based on an annual total of
$759,144 per year (i.e., $63,262)
Property Management Fees: 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 46 of 46