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EX-32 - EXHIBIT 32 - RANCON REALTY FUND IV | v423894_ex32.htm |
EX-31 - EXHIBIT 31 - RANCON REALTY FUND IV | v423894_ex31.htm |
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2015
OR
¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
Commission file number: 0-14207
RANCON REALTY FUND IV,
A CALIFORNIA LIMITED PARTNERSHIP
(Exact name of registrant as specified in its charter)
California | 33-0016355 | |
(State or other jurisdiction of | (I.R.S. Employer | |
incorporation or organization) | Identification No.) |
400 South El Camino Real, Suite 1100 | ||
San Mateo, California | 94402-1708 | |
(Address of principal | (Zip Code) | |
executive offices) |
(650) 343-9300
(Registrant's telephone number, including area code)
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 ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definition of “accelerated filer, large accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
Large Accelerated Filer ¨ Accelerated Filer ¨ Non-accelerated filer ¨ Smaller reporting company x
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ¨ No x
INDEX
RANCON REALTY FUND IV,
A CALIFORNIA LIMITED PARTNERSHIP
2 |
PART I. | FINANCIAL INFORMATION |
Item 1. | Financial Statements |
A CALIFORNIA LIMITED PARTNERSHIP
Consolidated Balance Sheets
(in thousands, except units outstanding)
(Unaudited)
September 30, | December 31, | |||||||
2015 | 2014 | |||||||
Assets | ||||||||
Investments in real estate: | ||||||||
Rental properties | $ | - | $ | 8,623 | ||||
Accumulated depreciation | - | (3,724 | ) | |||||
Total investments in real estate | - | 4,899 | ||||||
Cash and cash equivalents | 2,366 | 3,468 | ||||||
Accounts receivable, net | 757 | 68 | ||||||
Deferred costs, net of accumulated amortization of $397 as of December 31, 2014 | - | 356 | ||||||
Prepaid expenses and other assets | - | 214 | ||||||
Assets held for sale | 4,379 | 33,580 | ||||||
Total assets | $ | 7,502 | $ | 42,585 | ||||
Liabilities and Partners’ Equity (Deficit) | ||||||||
Liabilities: | ||||||||
Note payable and line of credit | $ | - | $ | 28,153 | ||||
Accounts payable and other liabilities | 169 | 295 | ||||||
Deferred gain on disposition of assets | 740 | - | ||||||
Prepaid rent | - | 27 | ||||||
Liaiblities related to assets held for sale | 583 | 350 | ||||||
Total liabilities | 1,492 | 28,825 | ||||||
Commitments and contingent liabilities (Note 7) | ||||||||
Partners’ Equity (Deficit): | ||||||||
General Partner | 60 | (909 | ) | |||||
Limited partners, 65,819 limited partnership units outstanding as of September 30, 2015 and December 31, 2014 | 5,950 | 14,669 | ||||||
Total partners’ equity | 6,010 | 13,760 | ||||||
Total liabilities and partners’ equity | $ | 7,502 | $ | 42,585 |
The accompanying notes are an integral part of these consolidated financial statements.
3 |
A CALIFORNIA LIMITED PARTNERSHIP
Consolidated Statements of Operations
(in thousands, except per unit amounts and units outstanding)
(Unaudited)
Three Months Ended | Nine Months Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2015 | 2014 | 2015 | 2014 | |||||||||||||
Operating revenue | ||||||||||||||||
Rental revenue and other | $ | 145 | $ | 145 | $ | 382 | $ | 428 | ||||||||
Tenant reimbursements | 11 | 16 | 65 | 77 | ||||||||||||
Total operating revenue | 156 | 161 | 447 | 505 | ||||||||||||
Operating expenses | ||||||||||||||||
Property operating expenses | 65 | 105 | 256 | 346 | ||||||||||||
Depreciation and amortization | 19 | 56 | 123 | 175 | ||||||||||||
General and administrative | 252 | 198 | 740 | 811 | ||||||||||||
Total operating expenses | 336 | 359 | 1,119 | 1,332 | ||||||||||||
Operating loss | (180 | ) | (198 | ) | (672 | ) | (827 | ) | ||||||||
Interest and other income | - | - | 1 | - | ||||||||||||
Gain on sale of assets | - | - | 2,018 | - | ||||||||||||
Interest expense (including amortization of loan fees) | - | (179 | ) | (46 | ) | (541 | ) | |||||||||
(Loss) income from continuing operations | (180 | ) | (377 | ) | 1,301 | (1,368 | ) | |||||||||
Loss on extinguishment of debt | - | - | (1,096 | ) | - | |||||||||||
Gains on sales of assets | - | - | 16,762 | - | ||||||||||||
Income (loss) from discontinued operations | 96 | (266 | ) | 283 | (218 | ) | ||||||||||
Total (loss) income from discontinued operations | 96 | (266 | ) | 15,949 | (218 | ) | ||||||||||
Net (loss) income | $ | (84 | ) | $ | (643 | ) | $ | 17,250 | $ | (1,586 | ) | |||||
Basic and diluted net (loss) income from continuing operations per limited partnership unit | $ | (6.79 | ) | $ | (5.68 | ) | $ | 14.23 | $ | (20.57 | ) | |||||
Basic and diluted net (loss) income per limited partnership unit | $ | (5.48 | ) | $ | (9.68 | ) | $ | 243.56 | $ | (23.85 | ) | |||||
Weighted average number of limited partnership units outstanding | 65,819 | 65,819 | 65,819 | 65,819 |
The accompanying notes are an integral part of these consolidated financial statements.
4 |
A CALIFORNIA LIMITED PARTNERSHIP
Consolidated Statement of Partners’ Equity
For the nine months ended September 30, 2015
(in thousands)
(Unaudited)
General | Limited | |||||||||||
Partner | Partners | Total | ||||||||||
Balance (deficit) at December 31, 2014 | $ | (909 | ) | $ | 14,669 | $ | 13,760 | |||||
Net income | 1,219 | 16,031 | 17,250 | |||||||||
Distributions | (250 | ) | (24,750 | ) | (25,000 | ) | ||||||
Balance at September 30, 2015 | $ | 60 | $ | 5,950 | $ | 6,010 |
The accompanying notes are an integral part of these consolidated financial statements.
5 |
A CALIFORNIA LIMITED PARTNERSHIP
Consolidated Statements of Cash Flows
(in thousands)
(Unaudited)
Nine Months Ended | ||||||||
September 30, | ||||||||
2015 | 2014 | |||||||
Cash flows from operating activities: | ||||||||
Net income (loss) | $ | 17,250 | $ | (1,586 | ) | |||
Adjustments to reconcile net income (loss) to net cash (used in) provided by operating activities: | ||||||||
Depreciation and amortization | 123 | 2,629 | ||||||
Amortization of loan fees, included in interest expense | - | 185 | ||||||
Loss on early extinguishment of debt | 1,096 | - | ||||||
Gain on sale of real estate | (18,780 | ) | - | |||||
Changes in certain assets and liabilities: | ||||||||
Accounts receivable | (696 | ) | 140 | |||||
Deferred costs | (379 | ) | (267 | ) | ||||
Prepaid expenses and other assets | 332 | 84 | ||||||
Accounts payable and other liabilities | 221 | 290 | ||||||
Deferred gain on disposition of assets | 740 | - | ||||||
Prepaid rent | (140 | ) | (93 | ) | ||||
Net cash (used in) provided by operating activities | (233 | ) | 1,382 | |||||
Cash flows from investing activities: | ||||||||
Additions to real estate investments | (523 | ) | (91 | ) | ||||
Proceeds from sale of real estate | 53,724 | - | ||||||
Net cash provided by (used in) investing activities | 53,201 | (91 | ) | |||||
Cash flows from financing activities: | ||||||||
Note payable principal payments | (20,404 | ) | (376 | ) | ||||
Repayments on line of credit | (7,749 | ) | - | |||||
Payment of prepayment penalties | (917 | ) | - | |||||
Redemption of limited partnership units | - | - | ||||||
Distribution to limited partners | (24,750 | ) | - | |||||
Distributions to General Partner | (250 | ) | - | |||||
Net cash used in financing activities | (54,070 | ) | (376 | ) | ||||
Net (decrease) increase in cash and cash equivalents | (1,102 | ) | 915 | |||||
Cash and cash equivalents at beginning of period | 3,468 | 2,888 | ||||||
Cash and cash equivalents at end of period | $ | 2,366 | $ | 3,803 | ||||
Supplemental disclosure of cash flow information: | ||||||||
Cash paid for interest | $ | 246 | $ | 1,050 | ||||
Supplemental disclosure of non-cash operating activities: | ||||||||
Write-off of fully depreciated rental property assets | $ | - | $ | 817 | ||||
Write-off of fully amortized deferred costs | $ | 33 | $ | 322 | ||||
Supplemental disclosure of non-cash investing activities: | ||||||||
Amounts included in accounts payable and accrued liabilities related to investments in real estate and capital expenditures which are Held for Sale | $ | 192 | $ | 29 |
The accompanying notes are an integral part of these consolidated financial statements.
6 |
A California Limited Partnership
Notes to Consolidated Financial Statements
(Unaudited)
NOTE 1. | ORGANIZATION |
Rancon Realty Fund IV, a California Limited Partnership, (“the Partnership”), was organized in accordance with the provisions of the California Uniform Limited Partnership Act for the purpose of acquiring, developing, operating and disposing of real property. The Partnership was organized in 1984 and reached final funding in July 1987. The general partners of the Partnership are Daniel L. Stephenson and Rancon Financial Corporation (“RFC”), hereinafter collectively referred to as the General Partner. RFC is wholly-owned by Daniel L. Stephenson. The Partnership has no employees.
As of September 30, 2015, there were 65,819 Units (“Units”) outstanding.
The Partnership commenced on April 3, 1984 and had a term which was set to expire on December 31, 2015, in accordance with the provisions of the Partnership Agreement. On April 21, 2014 the Partnership sent a Consent Solicitation Statement to its Limited Partners seeking their consent to the dissolution of the Partnership prior to December 31, 2015 in accordance with the terms of a Plan of Liquidation adopted by the General Partner on April 10, 2014. The dissolution required the approval of Limited Partners holding a majority of the outstanding units. On May 8, 2014, the dissolution was approved by Limited Partners holding a majority of the outstanding units, and the Plan of Liquidation became effective. Consequently, the General Partner has begun an orderly liquidation of the Partnership’s assets. Management anticipates that the Partnership will complete the sale of its properties by the first quarter of 2016. However, because of numerous uncertainties, the sale process may take longer than expected. Dissolution can be a complex process that may depend on a number of factors, most of which are beyond the Partnership’s control. There can be no assurance that the dissolution will be completed within a specified time frame. In the first quarter of 2015, the sales of five retail buildings and all of the office properties were completed as well as the partial sale of another retail property. Mimi’s Café sold on January 9, 2015 for $2,331,000, Palm Retail 1 sold on January 15, 2015 for $2,524,000, Service Retail sold on January 22, 2015 for $2,400,000, Palm Retail 2 sold on February 13, 2015 for $2,502,000, and TGI Fridays sold on February 19, 2015 for $3,350,000. On March 20, 2015, the Partnership sold the five office properties including Carnegie Business Center 1, Northcourt Plaza, North River Place, One Vanderbilt and Vanderbilt Plaza for $39,975,000. One parcel of Promotional Retail Center I was sold on March 28, 2015 for $3,985,000. Promotional Retail II and the remaining parcels of Promotional Retail Center I are currently held for sale.
On August 14, 2015, the Partnership made its first distribution to Partners as part of the Plan of Liquidation. The distribution represents approximately $376 per unit and was paid from the cash available for distribution as a result of the sales of properties to investors of record as of August 1, 2015. The Partnership anticipates transferring any remaining assets into a liquidating trust and making another distribution to Partners after the remaining properties have been sold.
Allocation of Net Income and Net Loss
Allocation of net income and net loss is 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 Partner. Net losses from operations are allocated 99% to the limited partners and 1% to the General Partner; however, if the limited partners or the General Partner would have, as a result of an allocation of cumulative net losses, a deficit balance in their capital accounts, then net losses shall not be allocated to the limited partners or General Partner, as the case may be, so as to create a capital account deficit, but such losses shall be allocated to the limited partners or General Partner with positive capital account balances until the positive capital account balances of such other partners are reduced to zero. However, if deficits are the result of cumulative distributions in excess of earnings, losses will continue to be allocated to the General Partner. Capital accounts shall be determined after taking into account all other allocations and distributions for the fiscal year.
Net income other than net income from operations shall be allocated as follows: (i) first, to the partners who have a deficit balance in their capital account, provided that, in no event, shall the General Partner 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 required to increase their capital accounts to an amount equal to the sum of the adjusted invested capital of their units plus an additional cumulative non-compounded 6% return per annum (plus additional amounts depending on the date Units were purchased); (iii) third, to the partners in the minimum amount required to first equalize their capital accounts 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 Partner into the ratio of 4 to 1; and (iv) the balance, if any, 80% to the limited partners and 20% to the General Partner. In no event shall the General Partner be allocated less than 1% of the net income other than net income from operations for any period.
Net losses other than net losses from operations are allocated 99% to the limited partners and 1% to the General Partner. Such net losses will be allocated among limited partners as necessary to equalize their capital accounts in proportion to their Units, and thereafter will be allocated in proportion to their Units.
7 |
RANCON REALTY FUND IV,
A California Limited Partnership
Notes to Consolidated Financial Statements
(Unaudited)
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.
Distribution of Cash
The Partnership shall make annual or more frequent distributions of substantially all cash available to be distributed to partners as determined by the General Partner, subject to the following: (i) distributions may be restricted or suspended for limited periods when the General Partner determines in their absolute discretion that it is in the best interests of the Partnership; and (ii) all distributions are subject to the payment of Partnership expenses and maintenance of reasonable reserves for debt service, alterations and improvements, maintenance, replacement of furniture and fixtures, working capital and contingent liabilities.
All excess cash from operations shall be distributed 90% to the limited partners and 10% to the General Partner.
All cash from sales or refinancing and any other cash determined by the General Partner to be available for distribution other than cash from operations shall be distributed in the following order of priority: (i) first, 1% to the General Partner and 99% to the limited partners in proportion to the outstanding positive amounts of Adjusted Invested Capital (as defined in the Partnership Agreement) for each of their Units until Adjusted Invested Capital (as defined in the Partnership Agreement) for each Unit is reduced to zero; (ii) second, 1% to the General Partner and 99% to the limited partners until each of the limited partners has received an amount which, including cash from operations previously distributed to the limited partners equals a 12% annual cumulative non-compounded return on the Adjusted Invested Capital (as defined in the Partnership Agreement) of their Units plus such limited partners’ Limited Incremental Preferential Return (as defined in the Partnership Agreement), if any, with respect to each such Unit, on the Adjusted Investment Capital (as defined in the Partnership Agreement) of such Units for the twelve month period following the date upon which such Unit was purchased from the Partnership and following the admission of such limited partner; (for limited partners admitted to the Partnership before March 31, 1985, there are additional cumulative non-compounded returns of 9%, 6%, or 3% depending on purchase date, through October 31, 1985); (iii) third, 99% to the General Partner and 1% to the limited partners, until the General Partner has received an amount equal to 20% of all distributions of cash from sales or refinancing; and (iv) the balance, 80% to the limited partners, pro rata in proportion to the number of Units held by each, and 20% to the General Partner.
NOTE 2. | SIGNIFICANT ACCOUNTING POLICIES |
Basis of Presentation
The accompanying financial statements present the consolidated financial position of the Partnership and its subsidiaries as of September 30, 2015 and December 31, 2014, and the consolidated results of operations of the Partnership and its subsidiaries for the three and nine months ended September 30, 2015 and 2014, the consolidated statement of partners’ equity for the nine months ended September 30, 2015 and cash flows of the Partnership for the nine months ended September 30, 2015 and 2014. All significant intercompany transactions, receivables and payables have been eliminated in consolidation.
The accompanying interim financial statements are unaudited; however, the financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and in conjunction with the rules and regulations of the Securities and Exchange Commission. Accordingly, they do not include all of the disclosures required by accounting principles generally accepted in the United States of America for complete financial statements.
In the opinion of the General Partner, the accompanying unaudited consolidated financial statements contain all adjustments (consisting of only normal accruals) necessary to present fairly the consolidated financial position of the Partnership as of September 30, 2015 and December 31, 2014, and the related consolidated statements of operations for the three and nine months ended September 30, 2015 and 2014, the consolidated statement of partners’ equity for the nine months ended September 30, 2015, and the consolidated statements of cash flows for the nine months ended September 30, 2015 and 2014.
Use of Estimates
The preparation of financial statements in conformity with generally accepted accounting principles in the United States of America (“GAAP”) requires management to make estimates and assumptions that affect 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.
8 |
RANCON REALTY FUND IV,
A California Limited Partnership
Notes to Consolidated Financial Statements
(Unaudited)
Rental Properties
Rental properties, including the related land, are stated at depreciated cost unless events or circumstances indicate that such amounts cannot be recovered, in which case, the carrying value of the property is reduced to its estimated fair value to the extent the carrying value is greater than the undiscounted future cash flows excluding interest. Estimated fair value is computed using estimated sales price, as determined by prevailing market values for comparable properties and/or the use of capitalization rates applied to annualized net operating income based upon the age, construction and use of the building. 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. Rental properties are reviewed for impairment whenever there is a triggering event and at least annually.
Depreciation is provided using the straight-line method over the useful lives of the respective assets. The useful lives are as follows:
Building and improvements | 5 to 40 years |
Tenant improvements | Lesser of the initial term of the related lease, or the estimated useful life of the improvements |
Furniture and equipment | 5 to 7 years |
The Partnership periodically classifies real estate assets as held for sale. An asset is classified as held for sale after the approval of Management and after an active program to sell the asset has commenced. Upon the classification of a real estate asset as held for sale, the carrying value of the asset is reduced to the lower of its net book value or its estimated fair value, less costs to sell the asset. Subsequent to the classification of assets as held for sale, no further depreciation expense is recorded. Real estate assets held for sale are stated separately on the accompanying consolidated balance sheets. Upon a decision to no longer market an asset for sale, the asset is classified as an operating asset and depreciation expense is reinstated. As of September 30, 2014, the Partnership had five office and five retail properties classified as held for sale on the consolidated balance sheet. As of September 30, 2015, the Partnership had the remaining two properties classified as held for sale on the consolidated balance sheet.
Sale of Real Estate
The Partnership recognizes sales of real estate when a contract has been executed, a closing has occurred, the buyer’s initial and continuing investment is adequate to demonstrate a commitment to pay for the property and the Partnership does not have a substantial continuing involvement in the property. For the year ended December 31, 2014, each property was deemed a separately identifiable component of the Partnership and was reported in discontinued operations when the operations and cash flows of the property were eliminated from the ongoing operations of the Partnership as a result of a disposal transaction or the property is classified as held for sale. Interest expense associated with a mortgage loan is classified as a component of discontinued operations if that loan is directly collateralized by a property classified as a discontinued operation. Beginning January 1, 2015, the Partnership adopted ASU No. 2014-08 which clarifies that discontinued operations presentation applies only to disposals representing a strategic shift that has (or will have) a major effect on an entity’s operations financial results (e.g., a disposal of a major geographical area, a major line of business, a major equity method investment or other major parts of an entity).
Fair Value of Investments
The guidance related to accounting for fair value measurements defines fair value and establishes a framework for measuring fair value in order to meet disclosure requirements for fair value measurements. Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. This guidance also establishes a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. This hierarchy describes three levels of inputs that may be used to measure fair value.
Financial assets and liabilities recorded at fair value on the consolidated balance sheets are categorized based on the inputs to the valuation techniques as follows:
Level 1. Quoted prices in active markets for identical assets or liabilities. Level 1 assets and liabilities include debt and equity securities and derivative contracts that are traded in an active exchange market.
Level 2. Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities. Level 2 assets and liabilities include debt securities with quoted prices that are traded less frequently than exchange-traded instruments and derivative contracts whose value is determined using a pricing model with inputs that are observable in the market or can be derived principally from or corroborated by observable market data.
Level 3. Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. Level 3 assets and liabilities include financial instruments whose value is determined using pricing models, discounted cash flow methodologies, or similar techniques, as well as instruments for which the determination of fair value requires significant management judgment or estimation using unobservable inputs. This category generally includes long-term derivative contracts, real estate and unconsolidated joint ventures.
9 |
RANCON REALTY FUND IV,
A California Limited Partnership
Notes to Consolidated Financial Statements
(Unaudited)
Cash and Cash Equivalents
The Partnership considers short-term investments with an original maturity of three months or less at the time of investment to be cash and cash equivalents.
Deferred Costs
Deferred loan fees are capitalized and amortized on a straight-line basis, which approximates the effective interest method, over the life of the related loan. Deferred lease commissions are capitalized and amortized on a straight-line basis over the initial fixed term of the related lease agreements.
Revenues
The Partnership recognizes rental revenue on a straight-line basis over the term of the leases. Actual amounts collected could be lower than the amounts recognized on a straight-line basis if specific tenants are unable to pay rent that the Partnership has previously recognized as revenue. For tenants with percentage rent, the Partnership recognizes revenue when the tenants’ specified sales targets have been met. The reimbursements from tenants for real estate taxes and other recoverable operating expenses are recognized as revenue on an estimated basis during the current year. The Partnership develops a revised estimate of the amount recoverable from tenants based on updated expenses for the year and amounts to be recovered and records adjustments to income in the current year financial statement accounts. Any final changes in estimate based on lease-by-lease reconciliations and tenant negotiations and collection are recorded in the period those negotiations are settled.
Net (Loss) Income Per Limited Partnership Unit
Net (loss) income per Unit is calculated using the weighted average number of Units outstanding during the period and the limited partners’ allocable share of the net loss.
Net (loss) income per Unit is as follows (in thousands, except for weighted average units and per unit amounts):
For the three months ended | For the nine months ended | |||||||||||||||||||||||||||||||
September, 30 2015 | September 30, 2014 | September, 30 2015 | September 30, 2014 | |||||||||||||||||||||||||||||
General | Limited | General | Limited | General | Limited | General | Limited | |||||||||||||||||||||||||
Partner | Partners | Partner | Partners | Partner | Partners | Partner | Partners | |||||||||||||||||||||||||
Income (loss) allocation: | ||||||||||||||||||||||||||||||||
Net income (loss) | $ | 277 | $ | (361 | ) | $ | (6 | ) | $ | (637 | ) | $ | 1,219 | $ | 16,031 | $ | (16 | ) | $ | (1,570 | ) | |||||||||||
Weighted average number of limited partnership units outstanding during each period | 65,819 | 65,819 | 65,819 | 65,819 | ||||||||||||||||||||||||||||
Basic and diluted income (loss) per limited partnership unit | $ | (5.48 | ) | $ | (9.68 | ) | $ | 243.56 | $ | (23.85 | ) | |||||||||||||||||||||
Basic and diluted income (loss) from discontinued operations per limited partnership unit | $ | 1.31 | $ | (4.00 | ) | $ | 229.33 | $ | (3.28 | ) |
The calculation of net income (loss) per Unit assumes that the income (loss) otherwise allocable to the limited partners is first used to fund distributions to the General Partner. As discussed in Note 1, the terms of the Partnership Agreement call for the General Partner to restore any deficits that may exist in its tax capital account. Such a deficit will not exist as a result of the allocation to the General Partner pursuant to the terms of the Partnership Agreement of taxable gains from the sale of the properties owned by the Partnership.
Income Taxes
Income taxes on Partnership income are the responsibility of the individual partners. Accordingly, no provision for income taxes is included in the accompanying consolidated financial statements. The Partnership determines whether a tax position of the Partnership is more likely than not to be sustained upon examination by the applicable taxing authority, including resolution of any related appeals or litigation processes, based on the technical merits of the position. The tax benefit to be recognized is measured as the largest amount of benefit that is greater than fifty percent likely of being realized upon ultimate settlement which could result in the Partnership recording a tax liability that would reduce partners’ capital. Based on its analysis, the Partnership has determined it has not incurred any liability for unrecognized tax benefits as of September 30, 2015. However, the Partnership’s conclusions may be subject to review and adjustment at a later date based on factors including, but not limited to, ongoing analysis of changes to tax laws, regulations and interpretations thereof. As of September 30, 2015, the tax years that remain subject to examination by the major tax jurisdictions under the statute of limitations are 2011, 2012, 2013 and 2014.
10 |
RANCON REALTY FUND IV,
A California Limited Partnership
Notes to Consolidated Financial Statements
(Unaudited)
The Partnership files US Federal tax returns and state tax returns in California, Georgia, Indiana, Missouri, New Jersey, New York, Pennsylvania, and West Virginia.
Reference to 2014 audited consolidated financial statements
These unaudited consolidated financial statements should be read in conjunction with the notes to the audited consolidated financial statements included in the Partnership’s December 31, 2014 audited consolidated financial statements on Form 10-K.
Recent Accounting Pronouncements
On April 10, 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2014-08, “Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity” (“ASU No. 2014-08”). ASU No. 2014-08 clarified that discontinued operations presentation applies only to disposals representing a strategic shift that has (or will have) a major effect on an entity’s operations and financial results (e.g., a disposal of a major geographical area, a major line of business, a major equity method investment or other major parts of an entity). Our adoption of ASU 2014-08 as of January 1, 2015 resulted in the operating results and gains on sales of real estate from operating properties sold during the quarter ended March 31, 2015, not previously held for sale prior to December 31, 2014, not being reflected within Discontinued Operations in our Consolidated Statements of Operations. Assets currently held for sale do not qualify as discontinued operations under ASU No. 2014-08.
NOTE 3. | INVESTMENTS IN REAL ESTATE |
Rental properties consist of the following (in thousands):
September 30, | December 31, | |||||||
2015 | 2014 | |||||||
Land | $ | - | $ | 1,246 | ||||
Buildings | - | $ | 7,129 | |||||
Building and tenant improvements | - | $ | 248 | |||||
- | 8,623 | |||||||
Less: accumulated depreciation | - | $ | (3,724 | ) | ||||
Total rental properties, net | $ | - | $ | 4,899 |
As of September 30, 2015, the Partnership’s rental properties consist of two retail properties (see detailed listing of properties in Item 2), both of which are classified as assets held for sale.
NOTE 4. | ASSETS HELD FOR SALE AND DISCONTINUED OPERATIONS |
In response to the Limited Partners May 8, 2014 approval of the dissolution of the Partnership, the General Partner began an orderly liquidation of the Partnership’s assets and began actively marketing 10 buildings for sale. Carnegie Business Center I, Mimi’s Café, Northcourt Plaza, North River Place, One Vanderbilt, Palm Court Retail I, Palm Court Retail II, Service Retail Center, TGI Friday’s and Vanderbilt Plaza were sold in the first quarter of 2015. As discussed in Note 2, the related assets and liabilities of those properties were classified as held for sale as of September 30, 2014. A portion of Promotional Retail Center I was sold in the first quarter of 2015 but had not been considered held for sale at December 31, 2014. As of September 30, 2015, the remaining portion of Promotional Retail Center I and Promotional Retail II are considered held for sale.
11 |
RANCON REALTY FUND IV,
A California Limited Partnership
Notes to Consolidated Financial Statements
(Unaudited)
Reconciliation of Total Assets and Liabilities
of the Properties Held for Sale
That are Presented Separately in the Consolidated Balance Sheet
(in thousands)
September 30, | December 31, | |||||||
2015 | 2014 | |||||||
Carrying amounts of major classes of assets included as part of held for sale: | ||||||||
Investments in real estate: | ||||||||
Rental properties, net | $ | 3,734 | $ | 29,857 | ||||
Accounts receivable, net | 126 | 119 | ||||||
Deferred costs, net of accumulated amortization of $37 and $2,133 as of September 30, 2015 and December 31, 2014 respectively | 421 | 1,580 | ||||||
Prepaid expenses and other assets | 98 | 2,024 | ||||||
Total assets classified as held for sale | $ | 4,379 | $ | 33,580 | ||||
Carrying amounts of major classes of liabilities included as part of held for sale: | ||||||||
Accounts payable and other liabilities | $ | 518 | $ | 172 | ||||
Prepaid rent | 65 | 178 | ||||||
Total liabilities classified as held for sale | $ | 583 | $ | 350 |
Investments in real estate held for sale consisted of the following (in thousands):
September 30, | December 31, | |||||||
2015 | 2014 | |||||||
Land | $ | 945 | $ | 3,371 | ||||
Buildings | 4,996 | 40,708 | ||||||
Building and tenant improvements | 187 | 8,971 | ||||||
Construction in Progress | 289 | - | ||||||
6,417 | 53,050 | |||||||
Less: accumulated depreciation | (2,683 | ) | (23,193 | ) | ||||
Total rental properties, net | $ | 3,734 | $ | 29,857 |
In accordance with guidance relating to discontinued operations, the related operating results from the properties held for sale as of September 30, 2014 are classified as discontinued operations in the accompanying statement of operations as follows. Properties sold during the first quarter of 2015, which were not previously held for sale, were not included as discontinued operations as they did not qualify under ASU No. 2014-08. Assets currently held for sale do not qualify as discontinued operations under ASU No. 2014-08.
12 |
RANCON REALTY FUND IV,
A California Limited Partnership
Notes to Consolidated Financial Statements
(Unaudited)
Reconciliation of Line Items Constituting Discontinued
Operations That Are Disclosed in the Notes to Financial Statements
That Are Presented in the Statements of Operations
For the three months ended | For the nine months ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2015 | 2014 | 2015 | 2014 | |||||||||||||
Major classes of line items constituting income from discontinued operations: | ||||||||||||||||
Rental revenue and other | $ | - | $ | 1,646 | $ | 1,244 | $ | 5,261 | ||||||||
Tenant reimbursements | (7 | ) | 192 | 33 | 490 | |||||||||||
Revenue | (7 | ) | 1,838 | 1,277 | 5,751 | |||||||||||
Operating expenses | (103 | ) | 1,118 | 795 | 2,821 | |||||||||||
Depreciation and amortization | - | 755 | - | 2,454 | ||||||||||||
Total operating expenses | (103 | ) | 1,873 | 795 | 5,275 | |||||||||||
Operating income (loss) | 96 | (35 | ) | 482 | 476 | |||||||||||
Interest expense (including amortization of loan fees) | - | (231 | ) | (199 | ) | (694 | ) | |||||||||
Loss on extinguishment of debt | - | - | (1,096 | ) | - | |||||||||||
Gain on sale of assets | - | - | 16,762 | - | ||||||||||||
Total income (loss) from discontinued operations | $ | 96 | $ | (266 | ) | $ | 15,949 | $ | (218 | ) |
NOTE 5. | NOTE PAYABLE AND LINE OF CREDIT |
Note payable and line of credit consist of the following (in thousands):
September 30, | December 31, | |||||||
2015 | 2014 | |||||||
Note payable collateralized by first deeds of trust on eight properties (discussed below). The note has a fixed interest rate of 5.46%, a maturity date of January 1, 2016, with a 30-year amortization requiring monthly payments of principal and interest totaling $136. | $ | - | $ | 20,404 | ||||
Line of credit | - | 7,749 | ||||||
Total note payable and line of credit | $ | - | $ | 28,153 |
The note payable was collateralized by Promotional Retail II, Mimi’s Café, Palm Court Retail I and II, Promotional Retail Center I, Service Retail Center, TGI Friday’s and One Vanderbilt. This note provided for a one-time loan assumption and release provisions for individual assets. The note was paid in full on March 20, 2015 with the proceeds from the sale of the office properties.
The line of credit was collateralized by Carnegie Business Center, Vanderbilt Plaza, North River Place and Northcourt Plaza and had a total availability of $15,000,000, an interest rate of 30-day LIBOR plus 3.00% and a maturity of June 30, 2015. The line of credit was paid in full on March 20, 2015 with the proceeds from the sale of the office properties.
NOTE 6. | RELATED PARTY TRANSACTIONS |
Glenborough LLC earns fees from the Partnership as prescribed by the Property Management and Services Agreement (the “Agreement”). The Agreement is in effect until the earlier of December 31, 2015 or the completion of the sale of all real property assets of the Partnership. The terms and conditions of the Agreement are to perform services for the following fees:
13 |
RANCON REALTY FUND IV,
A California Limited Partnership
Notes to Consolidated Financial Statements
(Unaudited)
Nine Months Ended | ||||||||
September 30, | September 30, | |||||||
2015 | 2014 | |||||||
(i) property management fees of 2.5% of gross rental revenue which were included in property operating expenses in the accompanying consolidated statements of operations | $ | 49,000 | $ | 167,000 | ||||
(ii) construction services fees which were capitalized and included in rental properties on the accompanying consolidated balance sheets | 2,000 | 21,000 | ||||||
(iii) an asset and Partnership management fee which was included in general and administrative expenses in the accompanying consolidated statements of operations | 187,000 | 187,000 | ||||||
(iv) leasing services fees which were included in deferred costs on the accompanying consolidated balance sheets | 6,500 | 184,000 | ||||||
(v) a sales fee of 1% for all properties which was included in gains on sale of assets in the accompanying consolidated statements of operations | 576,000 | - | ||||||
(vi) data processing fees which were included in property operating expenses in the accompanying consolidated statements of operations | 36,000 | 80,000 | ||||||
(vii) engineering fees which were included in property operating expenses in the accompanying consolidated statements of operations | - | 17,000 |
On October 1, 2010, Glenborough Holdings, LLC (“Glenborough Holdings”) transferred all of its interest in the Partnership to Glenborough Investors, LLC, which currently holds those units in its subsidiary, Glenborough Property Partners, LLC (“Glenborough Property Partners”). As part of the same transaction Glenborough Holdings transferred its ownership of Glenborough LLC to Glenborough Investors, LLC, which currently holds the ownership interests in that entity in its subsidiary, Glenborough Service, LP, the parent of Glenborough Property Partners. As of September 30, 2015, Glenborough Property Partners LLC, an affiliate of Glenborough LLC, held 7,386 or 11.22% of the Units.
In addition, a related party of the General Partner, not affiliated with the Partnership nor with Glenborough, LLC, earned a 0.5% sales fee of $265,410 during the first quarter of 2015.
NOTE 7. | COMMITMENTS AND CONTINGENT LIABILITIES |
Environmental Matters
The Partnership follows a policy of monitoring its properties for the presence of hazardous or toxic substances. The Partnership is not aware of any environmental liability with respect to the properties that would have a material adverse effect on the Partnership’s business, assets or results of operations. There can be no assurance that such a material environmental liability does not exist. The existence of any such material environmental liability could have an adverse effect on the Partnership’s consolidated results of operations and cash flows.
Approximately 14.7 acres of the Tri-City land owned by the Partnership was part of a 27-acre landfill operated by the City of San Bernardino (“the City”) from approximately 1950 to 1960. This landfill incorporates two land parcels and part of a third parcel. In 1996, the Santa Ana Regional Water Quality Control Board ("SARWQCB"), with regulatory jurisdiction over the closure and monitoring of landfills, determined that the City was primarily responsible for the landfill. Therefore, the City and the Partnership entered into a Limited Access Easement Agreement, giving the City access to the site for development, implementation and financial responsibility for a plan for the remediation of the landfill. It was determined that the City was to improve the landfill cover system (The Waterman Landfill Cover Improvement Plans, April 2002), perform groundwater monitoring and install a permanent gas extraction system (Landfill Gas Collection System). Under the Limited Access Easement Agreement with the Partnership, methane monitoring is handled directly by the City. The City's installation of the cover improvement system was completed in the first quarter of 2007 along with the gas extraction system. The system is now operational and working properly to eliminate methane from the landfill. All controlled wells are in compliance with County standards. Presently, the Partnership does not have any plans to develop this site. The Partnership is currently in discussion with the City of San Bernardino to transfer the land to the City as the responsible party for the remediation. No assurance can be made that circumstances will not arise which could impact the Partnership’s responsibility related to the land.
General Uninsured Losses
The Partnership carries property and liability insurance with respect to the properties. This coverage has policy specification and insured limits customarily carried for similar properties. However, certain types of losses (such as from earthquakes and floods) may be either uninsurable or not economically insurable. Should the properties sustain damage as a result of an earthquake or flood, the Partnership may incur losses due to insurance deductibles, co-payments on insured losses or uninsured losses. Additionally, the Partnership has elected to obtain insurance coverage for “certified acts of terrorism” as defined in the Terrorism Risk Insurance Act of 2002, as amended and reauthorized to date; however, our policies of insurance may not provide coverage for other acts of terrorism. Any losses from such other acts of terrorism might be uninsured. Should an uninsured loss occur, the Partnership could lose some or all of its capital investment, cash flow and anticipated profits related to the properties.
14 |
RANCON REALTY FUND IV,
A California Limited Partnership
Notes to Consolidated Financial Statements
(Unaudited)
Other Matters
The Partnership is contingently liable for subordinated real estate commissions payable to the General Partner in the aggregate amount of $643,000 at September 30, 2015, for sales that were completed 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 12% per annum on their adjusted invested capital. Since the circumstances under which these commissions would be payable are considered remote, the liability has not been recognized in the accompanying consolidated financial statements; however, the amount will be recorded when and if it becomes probable. As of September 30, 2015, management believes this is unlikely to occur.
15 |
RANCON REALTY FUND IV,
A California Limited Partnership
Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations |
The following discussion should be read in conjunction with our December 31, 2014 audited consolidated financial statements and the notes thereto included in our latest Annual Report on Form 10-K.
Background
During 1984 and 1985, our initial acquisition of property consisted of approximately 76.56 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 and all of the parcels thereof are separately owned by us and Rancon Realty Fund V (“Fund V”), a partnership sponsored by the General Partner.
The Partnership commenced on April 3, 1984 and had a term which was set to expire on December 31, 2015, in accordance with the provisions of the Partnership Agreement. On April 21, 2014 the Partnership sent a Consent Solicitation Statement to its Limited Partners seeking their consent to the dissolution of the Partnership prior to December 31, 2015 in accordance with the terms of a Plan of Liquidation adopted by the General Partner on April 10, 2014. The dissolution required the approval of Limited Partners holding a majority of the outstanding units. On May 8, 2014, the dissolution was approved by Limited Partners holding a majority of the outstanding units, and the Plan of Liquidation became effective. Consequently, the General Partner has begun an orderly liquidation of the Partnership’s assets. Management anticipates that the Partnership will complete the sale of its properties by the first quarter of 2016. However, because of numerous uncertainties, the sale process may take longer than expected. Dissolution can be a complex process that may depend on a number of factors, most of which are beyond the Partnership’s control. There can be no assurance that the dissolution will be completed within a specified time frame. In the first quarter of 2015, the sales of five retail buildings and all of the office properties were completed as well as the partial sale of another retail property. Mimi’s Café sold on January 9, 2015 for $2,331,000, Palm Retail 1 sold on January 15, 2015 for $2,524,000, Service Retail sold on January 22, 2015 for $2,400,000, Palm Retail 2 sold on February 13, 2015 for $2,502,000, and TGI Fridays sold on February 19, 2015 for $3,350,000. On March 20, 2015, the Partnership sold the five office properties including Carnegie Business Center 1, Northcourt Plaza, North River Place, One Vanderbilt and Vanderbilt Plaza for $39,975,000. One parcel of Promotional Retail Center I was sold on March 28, 2015 for $3,985,000. Promotional Retail II and the remaining parcels of Promotional Retail Center I are currently held for sale.
On August 14, 2015, the Partnership made its first distribution to Partners as part of the Plan of Liquidation. The distribution represents approximately $376 per unit and was paid from the cash available for distribution as a result of the sales of properties to investors of record as of August 1, 2015. The Partnership anticipates transferring any remaining assets into a liquidating trust and making another distribution to Partners after the remaining properties have been sold.
Overview
Tri-City Properties
As of September 30, 2015, our held for sale properties consist of two retail properties totaling approximately 80,000 square feet.
Property | Type | Square Footage | ||||
Promotional Retail Center I | Three retail buildings | 41,202 | ||||
Promotional Retail Center II | Retail building | 39,123 | ||||
80,325 |
Promotional Retail Center I was 100% leased as of September 30, 2015 and Promotional Retail Center II remained unoccupied but a lease with a fitness company has been signed and build out of the space is underway for an expected occupancy in the first quarter of 2016.
Land
As of September 30, 2015, we owned approximately 14.7 acres of unimproved land.
Approximately 14.7 acres of the Tri-City land owned by the Partnership was part of a 27-acre landfill operated by the City of San Bernardino (“the City”) from approximately 1950 to 1960. This landfill incorporates two land parcels and part of a third parcel. In 1996, the Santa Ana Regional Water Quality Control Board ("SARWQCB"), with regulatory jurisdiction over the closure and monitoring of landfills, determined that the City was primarily responsible for the landfill. Therefore, the City and the Partnership entered into a Limited Access Easement Agreement, giving the City access to the site for development, implementation and financial responsibility for a plan for the remediation of the landfill. It was determined that the City was to improve the landfill cover system (The Waterman Landfill Cover Improvement Plans, April 2002), perform groundwater monitoring and install a permanent gas extraction system (Landfill Gas Collection System). Under the Limited Access Easement Agreement with the Partnership, methane monitoring is handled directly by the City. The City's installation of the cover improvement system was completed in the first quarter of 2007 along with the gas extraction system. The system is now operational and working properly to eliminate methane from the landfill. All controlled wells are in compliance with County standards. Presently, the Partnership does not have any plans to develop this site. The Partnership is currently in discussion with the City of San Bernardino to transfer the land to the City as the responsible party for the remediation. No assurance can be made that circumstances will not arise which could impact the Partnership’s responsibility related to the land.
16 |
RANCON REALTY FUND IV,
A California Limited Partnership
Results of Operations
Comparison of the three and nine months ended September 30, 2015 to the three and nine months ended September 30, 2014.
Revenue
Rental Revenue was $145,000 for the three months ended September 30, 2015 and 2014. Rental revenue decreased by $46,000, or 11%, for the nine months ended September 30, 2015 compared to the nine months ended September 30, 2014 due to the March 28, 2015 sale of one parcel of Promotional Retail Center I, partially offset by the June 2015 occupancy of another portion of Promotional Retail Center I.
Tenant reimbursements decreased $5,000, or 31%, and $12,000, or 16%, for the three and nine months ended September 30, 2015 compared to the three and nine months ended September 30, 2014, respectively, due to a corresponding decrease in reimbursable expenses.
Expenses
Property operating expenses decreased $40,000, or 38%, and $90,000, or 26% for the three and nine months ended September 30, 2015 compared to the three and nine months ended September 30, 2014, respectively, due to lower repairs and maintenance expenditures, the sale of one parcel of Promotional Retail Center I and a prior period property tax refund as the result of successful appeals.
Depreciation and amortization decreased $37,000, or 66%, and $52,000, or 30%, for the three and nine months ended September 30, 2015 compared to the three and nine months ended September 30, 2014, respectively, due to the sale of one parcel of Promotional Retail Center I and the cessation of depreciation and amortization when the remaining properties were determined to be held for sale.
General and administrative expenses increased $54,000, or 27%, for the three months ended September 30, 2015 compared to the three months ended September 30, 2014, due to higher investor relations and legal expenses related to the pending liquidation of the Partnership. General and administrative expenses decreased $71,000, or 8%, for the nine months ended September 30, 2015 compared to the nine months ended September 30, 2014 due to higher 2014 investor relations expenses related to the dissolution proxy.
Gain on the sale of assets for the nine months ended September 30, 2015 in the amount of $2,018,000 represents the gain on the sale of one parcel of Promotional Retail Center I, sold on March 28, 2015.
No interest expense was incurred in the three months ended September 30, 2015 compared with $179,000 in the three months ended September 30, 2014. Interest expense decreased $495,000, or 91%, for the nine months ended September 30, 2015 compared to the nine months ended September 30, 2014. These decreases were due to the March 2015 payoff of all debt from the proceeds of the property sales.
Loss on extinguishment of debt for the nine months ended September 30, 2015 in the amount of $1,096,000 represents prepayment penalties and the write-off of unamortized loan fees associated with the full repayment of the note payable and line of credit in the first quarter of 2015.
Gains on sales of assets included in income from discontinued operations for the nine months ended September 30, 2015 in the amount of $16,762,000 represents the gains from the sales of Mimi’s Café, Palm Retail I, Service Retail, Palm Retail 2, TGI Fridays, and the five office properties in the first quarter of 2015.
Income from discontinued operations of $96,000 and $283,000 for the three and nine months ended September 30, 2015, respectively, represents the operating revenue less operating expenses of Mimi’s Café, Palm Retail I, Service Retail, Palm Retail 2, TGI Fridays, and the five office properties in the first quarter of 2015. Income for the three months ended September 30, 2015 is primarily related to prior period property tax refunds as the result of successful appeals.
Liquidity and Capital Resources
As of September 30, 2015, we have cash and cash equivalents of $2,366,000.
17 |
RANCON REALTY FUND IV,
A California Limited Partnership
We are contingently liable for subordinated real estate commissions payable to the General Partner in the aggregate amount of $643,000 at September 30, 2015, 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 12% per annum on their adjusted invested capital. Since the conditions under which these commissions would be payable are considered remote, the liability has not been recognized in the accompanying consolidated financial statements; however, the amount will be recorded when and if it becomes probable. As of September 30, 2015, management believes this is unlikely to occur.
Cash Flows
For the nine months ended September 30, 2015, cash used in operating activities was $233,000, as compared to cash provided by operating activities of $1,382,000 for the same period in 2014. The change was primarily due to higher cash flows from operating net income as well as changes in certain assets and liabilities, in particular accounts receivable and accounts payable. For the nine months ended September 30, 2015, cash from investing activities was $53,201,000 compared to $91,000 used in investing activities for the same period in 2014 due to the 2015 proceeds from the sales of the properties. For the nine months ended September 30, 2015, cash used in financing activities was $54,070,000 compared to $376,000 for the same period in 2014 due to the 2015 payment in full of the note payable and line of credit and distributions of $25,000,000.
Our expectation is that cash and cash equivalents as of September 30, 2015, together with cash from operations and sales will be adequate to meet our operating requirements on a short-term basis and for the reasonably foreseeable future. There can be no assurance that our results of operations will not fluctuate in the future and at times affect our ability to meet operating requirements.
Operationally, our primary source of funds consists of cash provided by rental activities. Other sources of funds may be from property sales.
Critical Accounting Policies
In the preparation of financial statements, we utilize certain critical accounting policies. There has been no change to our significant accounting policies included in the notes to our audited financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2014.
Inflation
Substantially all of the leases at the retail properties provide for pass-through to tenants of certain operating costs, including real estate taxes, common area maintenance expenses, and insurance. We anticipate that these provisions may permit us to increase rental rates or other charges to tenants in response to rising prices and, therefore, serve to reduce our exposure to the adverse effects of inflation.
Forward Looking Statements; Factors That May Affect Operating Results
This Report on Form 10-Q contains forward looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, including statements regarding our expectations, hopes, intentions, beliefs and strategies regarding the future. These forward looking statements include statements relating to our belief that we will be able to sell our remaining properties and complete our dissolution within a certain time frame.
All forward-looking statements included in this document are based on information available to us on the date hereof. Because these forward looking statements involve risk and uncertainty, there are important factors that could cause our actual results to differ materially from those stated or implied in the forward-looking statements.
The forward-looking statements in this Quarterly Report on Form 10-Q are subject to additional risks and uncertainties further discussed under “Item 1A. Risk Factors” of our Annual Report on Form 10-K for the year ended December 31, 2014. We assume no obligation to update or supplement any forward looking-statement.
Risks of Litigation
Certain claims and lawsuits have arisen against us in our normal course of business. We believe that such claims and lawsuits will not have a material adverse effect on our financial position, cash flow or results of operations.
Item 3. | Qualitative and Quantitative Disclosures About Market Risk |
Not applicable.
18 |
RANCON REALTY FUND IV,
A California Limited Partnership
Item 4. | Controls and Procedures |
The principal executive officer and principal financial officer of the General Partner have evaluated the disclosure controls and procedures of the Partnership as of the end of the period covered by this quarterly report. As used herein, the term “disclosure controls and procedures” has the meaning given to the term by Rule 13a-15 under the Securities Exchange Act of 1934, as amended (“Exchange Act”), and includes the controls and other procedures of the Partnership that are designed to ensure that information required to be disclosed by the Partnership in the reports that it files with the SEC under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Based upon his evaluation, the principal executive officer and principal financial officer of the General Partner has concluded that the Partnership’s disclosure controls and procedures were effective such that the information required to be disclosed by the Partnership in this quarterly report is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms applicable to the preparation of this report and is accumulated and communicated to the General Partner’s management, including the General Partner’s principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosures.
There have not been any changes in the Partnership’s internal control over financial reporting that occurred during the Partnership’s fiscal quarter ended September 30, 2015 that have materially affected, or are reasonably likely to materially affect, the Partnership’s internal control over financial reporting.
19 |
RANCON REALTY FUND IV,
A California Limited Partnership
Item 1. | Legal Proceedings |
Certain claims and lawsuits have arisen against the Partnership in its normal course of business. The Partnership believes that such claims and lawsuits will not have a material adverse effect on the Partnership’s financialposition, cash flow or results of operations.
Item 1A. | Risk Factors |
There are no material changes to any of the risk factors as previously disclosed in Item 1A. to Part I of the Partnership’s Annual Report on Form 10-K for the fiscal year ended December 31, 2014.
Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds |
None.
Item 3. | Defaults Upon Senior Securities |
None.
Item 4. | Mine Safety Disclosures |
None.
Item 5. | Other Information |
None.
Item 6. | Exhibits |
31 | Certification of Daniel L. Stephenson, Chief Executive Officer and Chief Financial Officer of the General Partner Pursuant to Rule 13a-14(a) of the Exchange Act. |
32 | Certification of Daniel L. Stephenson, Chief Executive Officer and Chief Financial Officer of the General Partner Pursuant to Rule 13a-14(b) of the Exchange Act and 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. This certification, required by Section 906 of the Sarbanes-Oxley Act of 2002, other than as required by Section 906, is not to be deemed “filed” with the Commission or subject to the rules and regulations promulgated by the Commission under the Securities Exchange Act of 1934, as amended, or to the liabilities of Section 18 of said Act. |
101.INS | XBRL Instance Document. |
101.SCH | XBRL Taxonomy Extension Schema Document. |
101.CAL | XBRL Taxonomy Extension Calculation Linkbase Document. |
101.DEF | XBRL Taxonomy Extension Definition Linkbase Document. |
101.LAB | XBRL Taxonomy Extension Labels Linkbase Document. |
101.PRE | XBRL Taxonomy Extension Presentation Linkbase Document. |
20 |
Pursuant to the requirements of Section 13 or Section 15(d) of the Securities Exchange Act of 1934, the Partnership has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
RANCON REALTY FUND IV, | |||
a California limited partnership | |||
By: | Rancon Financial Corporation | ||
a California corporation, | |||
its General Partner | |||
Date: | November 16, 2015 | By: | /s/ Daniel L. Stephenson |
Daniel L. Stephenson, President | |||
Date: | November 16, 2015 | By: | /s/ Daniel L. Stephenson |
Daniel L. Stephenson, General Partner |
21 |
EXHIBIT INDEX
RANCON REALTY FUND IV,
A CALIFORNIA LIMITED PARTNERSHIP
Exhibit 31 |
Certification of Chief Executive Officer and Chief Financial Officer of the General Partner Pursuant to Rule 13a-14(a) of the Exchange Act. | |
Exhibit 32 | Certification of Daniel L. Stephenson, Chief Executive Officer and Chief Financial Officer of theGeneral Partner Pursuant to 18 U.S.C Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. This certification, required by Section 906 of the Sarbanes-Oxley Act of 2002, other than as required by Section 906, is not to be deemed “filed” with the Commission or subject to the rules and regulations promulgated by the Commission under the Securities Exchange Act of 1934, as amended, or to the liabilities of Section 18 of said Act. | |
101.INS |
XBRL Instance Document. | |
|
||
101.SCH |
XBRL Taxonomy Extension Schema Document. | |
101.CAL |
XBRL Taxonomy Extension Calculation Linkbase Document. | |
101.DEF | XBRL Taxonomy Extension Definition Linkbase Document. | |
101.LAB | XBRL Taxonomy Extension Labels Linkbase Document. | |
101.PRE |
XBRL Taxonomy Extension Presentation Linkbase Document. |
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