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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, 1996
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 (415) 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.
Exhibit Index located on Page 39
Page 1 of 59
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"). RFC is wholly owned by DLS. At
December 31, 1996, 99,767 Units were outstanding. The Partnership has no
employees.
The Partnership's initial acquisition of property in June, 1985 was for
approximately 76.21 acres of partially developed and unimproved land located in
San Bernardino, California. The property is part of a master-planned development
of 153 acres known as Tri-City Corporate Centre ("Tri-City") and is zoned for
mixed commercial, office, hotel, transportation-related, and light industrial
uses. The balance of Tri-City is owned by Rancon Realty Fund IV ("Fund IV"), a
partnership sponsored by the General Partners of the Partnership. Since the
acquisition of the land, the Partnership has constructed eight projects at
Tri-City consisting of five office projects (one of which has two buildings),
one industrial property (consisting of two buildings), 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 (consisting of two buildings), a service retail center, and
four buildings in the Promotional Retail Center at Tri-City. Fund IV currently
has under development a 38,600 square foot build-to-suit building.
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.
During 1988 and 1990, the Partnership sold approximately 19.2 acres of
undeveloped land at Tri-City. An additional 10,300 square feet of undeveloped
land was sold to Fund IV.
During 1988 and 1989, two buildings totaling 81,000 square feet at Rancon Centre
Ontario were sold. During 1991, the Partnership sold approximately 4.9 acres of
the Perris-Nuevo Road property to Riverside County for construction of the Nuevo
Road freeway interchange and a pump station.
In May, 1996, the Partnership formed Rancon Realty Fund V Tri-City Limited
Partnership, a Delaware limited partnership ("RRF V Tri-City") to satisfy
certain lender requirements for a loan obtained in 1996. This loan is secured by
three properties (see Item 2) which have been contributed to RRF V Tri-City by
the Partnership. 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.
Page 2 of 59
Competition Within the Market
Management believes that characteristics influencing the competitiveness of a
real estate project are the geographic location of the property, the
professionalism of the property manager and the maintenance and appearance of
the property, in addition to external factors such as general economic
circumstances, trends, and the existence of new, competing properties in the
vicinity. Additional competitive factors with respect to commercial and
industrial properties are the ease of access to the property, the adequacy of
related facilities, such as parking, and the ability to provide rent concessions
and tenant improvements commensurate with local market conditions. Although
management believes the Partnership properties are competitive with comparable
properties as to those factors within the Partnership's control, over-building
and other external factors could adversely affect the ability of the Partnership
to attract and retain tenants. The marketability of the properties may also be
affected (either positively or negatively) by these factors as well as by
changes in general or local economic conditions, including prevailing interest
rates. Depending on market and economic conditions, the Partnership may be
required to retain ownership of its properties for periods longer than
anticipated, or may need to sell earlier than anticipated or refinance a
property, at a time or under terms and conditions that are less advantageous
than would be the case if unfavorable economic or market conditions did not
exist.
Working Capital
The Partnership's practice is to maintain cash reserves for normal repairs,
replacements, working capital and other contingencies. The Partnership knows of
no statistical information which allows comparison of its cash reserves to those
of its competitors.
Item 2. Properties
Tri-City Corporate Centre
On June 3, 1985, the Partnership acquired 76.21 acres on seven parcels of
partially developed land in Tri-City for a total acquisition price of
$14,118,000. In 1984 and 1985, a total of 73.5 acres within Tri-City was
acquired by Fund IV.
Tri-City is located at the northeastern quadrant of the intersection of
Interstate 10 (San Bernardino Freeway) and Waterman Avenue in the southernmost
part of the City of San Bernardino.
The Partnership has constructed and owns the following eight operating
properties in Tri-City:
Property Type Square Feet
- ---------------------------- ------------------------------ -----------
One Carnegie Plaza Two, two story garden-style
office buildings 102,693
Two Carnegie Plaza Two story garden-style
office building 68,925
Carnegie Business Center II Two light industrial buildings 50,804
Santa Fe One story office building 36,288
Lakeside Tower Six story office building 112,814
One Parkside Four story office building 70,069
Bally's Health Club Health club facility 25,000
Outback Steakhouse Restaurant 6,500
These properties total approximately 473,000 leasable square feet and offer a
wide range of commercial and industrial office product to the market.
Page 3 of 59
TheI-10/San Bernardino corridor consists of approximately 2,865,000 square feet
of office space, with a vacancy rate of 28% as of October, 1996, and
approximately 12,806,000 square feet of light industrial space, with a vacancy
rate of 23% as of October, 1996 (the vacancy rates and square feet amounts are
according to research conducted by the Partnership's property manager).
Within the Tri-City Corporate Centre at December 31, 1996, the Partnership has
390,789 square feet of office space with a vacancy rate of 13%, 50,804 square
feet of light industrial space with a vacancy rate of 35% and 31,500 square feet
of commercial space with a 0% vacancy rate.
The following are the occupancy levels for the Partnership's Tri-City buildings
at December 31, 1996, November 30, 1995, 1994 and 1993, expressed as a
percentage of the total net rentable square feet:
December 31, November 30, November 30, November 30,
1996 1995 1994 1993
----------- ----------- ----------- -----------
One Carnegie Plaza 87% 93% 66% 56%
Two Carnegie Plaza 83% 87% 86% 86%
Carnegie Business Center II 65% 68% 76% 77%
Santa Fe 100% 100% 100% 100%
Lakeside Tower 90% 69% 76% 84%
One Parkside 92% 83% 83% 83%
Bally's Health Club 100% N/A N/A N/A
Outback Steakhouse 100% N/A N/A N/A
In 1996, management renewed several leases totaling 31,274 square feet of space
and executed several new leases totaling 33,321 square feet of space. Management
is currently in various stages of negotiation for three new leases totaling
13,029 square feet of space and is negotiating six lease renewals totaling
23,716 square feet of space.
The annual effective rent per square foot for the years ended December 31, 1996
and November 30, 1995 were:
1996 1995
------- -------
One Carnegie Plaza $ 14.85 $ 13.57
Two Carnegie Plaza $ 15.91 $ 16.50
Carnegie Business Center II $ 10.91 $ 11.11
Santa Fe $ 16.64 $ 16.50
Lakeside Tower $ 16.72 $ 18.58
One Parkside $ 17.86 $ 18.23
Bally's Health Club $ 9.85 N/A
Outback Steakhouse $ 13.85 N/A
At December 31, 1996, annual rental rates ranged from $9.36 (for light
industrial space) to $23.21 per square foot (for highly desirable office space
at Lakeside Tower).
The Lakeside Tower property's annual effective rental rate decreased by 10% in
fiscal year 1996 compared to fiscal year 1995 due to a slight general decrease
in rental rates in 1996.
According to research conducted by the property manager, the average annual
effective rent per square foot in the Partnership's competitive market ranges
from $12.00 to $18.60 for office space and $9.36 to $12.39 for light industrial
space.
Page 4 of 59
Tri-City's rental properties had the following five tenants which occupied a
significant portion of the net rentable square footage of the Partnership's
Tri-City properties as of December 31, 1996:
California Holiday Spa
Department of Santa Fe Sterling Chicago Health
Tenant Transportation Railway Software Title Club
One Bally's
Carnegie One Health
Building [a] Santa Fe Plaza Parkside Club
Governmental Trans- Real Estate Health
Nature of Business Agency portation Software Services Club
Lease Term 5 yrs. 10 yrs. 5 yrs. 10 yrs. 14 yrs.
Expiration Date 7/31/98 9/30/99 11/30/00 2/03/04 12/31/10
Square Feet 36,359 35,000 26,144 29,389 25,000
(% of rentable total) 8% 7% 6% 6% 5%
Annual Rent $564,492 $603,883 $360,304 $531,633 $246,250
Future Rent Increases None None 8.7% in 1998 None 15% in 2001
and 2006
Renewal Options None None Two 3-yr. None Three 5-yr.
options options
[a] The California Department of Transportation occupies space at One Carnegie
Plaza and Carnegie Business Center II.
In the opinion of management, the properties are adequately covered by
insurance.
The Partnership's Tri-City rental properties are owned by the Partnership, in
fee, subject to the following notes and deeds of trust:
One Lakeside Tower
Carnegie One Parkside and
Security Plaza Two Carnegie Plaza
Principal balance
at December 31, 1996 $4,294,000 $9,551,000
Interest Rate 8.25% 9.39%
Monthly Payment $33,995 $83,142
Maturity Date 12/01/01 8/1/06
Page 5 of 59
Approximately 14 acres of the Tri-City property owned by the Partnership remain
undeveloped. It is the Partnership's intention to develop parcels of this
property as tenants become available or dispose of the property at the optimal
time and sales price.
During 1996, the Partnership's Tri-City properties were assessed $798,000 of
property taxes based on an average realty tax rate of 1.78% (including
additional assessments).
Rancon Centre Ontario
In 1987, the Partnership acquired approximately 56.3 acres of undeveloped land
in Ontario, San Bernardino, California, for a purchase price of $5,905,000.
The property is immediately north of Interstate 10 near Interstate 15 and is
zoned for industrial and light manufacturing use.
The Partnership completed the first of three phases of development in 1988,
consisting of seven distribution-center buildings totaling 326,000 square feet
of which two buildings totaling 81,000 square feet have been sold. Phase II was
originally planned to consist of 39 buildings, each ranging between 4,000 and
8,000 square feet. However, as there is currently no demand for such properties,
it is likely that the Partnership will attempt to identify users interested in
large build-to-suit buildings for the Phase II land. In an effort to facilitate
build-to-suits, the Partnership purchased a 5.76 acre parcel previously held by
Southern California Edison as an easement in December, 1995 that was located
between Phase II and Phase III. This purchase also protected the value of the
Partnership's investment and prevents development adverse to the Partnership's
interests. Further development of the unimproved land remaining at Rancon Centre
Ontario will coincide with market demands. As of December 31, 1996, the
Partnership does not yet have definitive plans for further development.
The occupancy percentages at December 31, 1996, November 30, 1995 and 1994 for
the five buildings at this property were 100%, 92% and 100%, respectively. The
lease for one tenant occupying 50,000 square feet of space at this property
expired on January 31, 1997. The tenant has indicated its intention of vacating,
however is currently on a holdover lease. Management is currently marketing this
space for lease. At December 31, 1996, the Partnership's annual rental rates
ranged from $2.52 per square foot (for tenants with leases that commenced in
1993 and who occupy significant square footage) to $4.20 per square foot for
newer and/or smaller tenants.
According to research conducted by the Partnership's Ontario property manager,
there is 105,500,000 square feet of light industrial space in the immediate
market area. The average occupancy was 91% and the average annual rental rate
per square foot ranged from $3.84 to $4.56 at December 31, 1996.
United Pacific Mills, whose five year lease expires on April 30, 1998, and has
an option to renew the lease for five additional years, occupies 74,850 square
feet or 31% of Rancon Centre Ontario. Their annual rent during 1996 was $184,880
with 5% annual increases through the term of the lease.
In the opinion of management, the property is adequately covered by insurance.
At December 31, 1996, the Rancon Centre Ontario property is unencumbered.
During 1996, the Rancon Centre Ontario property was assessed $143,000 in
property taxes based on an average realty tax rate of 1.21%.
Page 6 of 59
Perris-Ethanac Road
In 1989, the Partnership purchased 23.8 acres of unimproved land at the
intersection of Ethanac Road and Interstate 215 in Perris, Riverside County,
California for a purchase price of $2,780,000.
The property is zoned for commercial uses and is adjacent to a freeway
interchange. There has been no development of this property to date.
The Partnership currently holds this property for sale.
In the opinion of management, the property is adequately covered by insurance.
At December 31, 1996, the Perris-Ethanac Road property is unencumbered.
During 1996, the Perris-Ethanac Road property was assessed $23,000 in property
taxes based on an average realty tax rate of 1.06%.
Perris-Nuevo Road
On December 28, 1989, the Partnership acquired 83 acres of undeveloped property
at the intersection of Nuevo Road and Interstate 215 in Perris, Riverside
County, California for a purchase price of $5,140,000 in an all cash
transaction. The property has been zoned for light industrial, commercial and
retail use. In 1991, the Partnership sold approximately 4.6 acres and .3 acres
of Perris-Nuevo Road to the Riverside County for construction of the Nuevo Road
freeway interchange and a pump station, respectively. There has been no
development of this property to date. Total developable land is 60.41 acres at
December 31, 1996.
The Partnership currently holds this property for sale.
In the opinion of management, the property is adequately covered by insurance.
At December 31, 1996, the Perris-Nuevo Road Property is unencumbered.
During 1996, the Perris-Nuevo Road property was assessed $179,000 in property
taxes based on an average realty tax rate of 1.01% (including additional
assessments).
Item 3. Legal Proceedings
On September 19, 1994, the Partnership (incorrectly referred to as "Rancon
Realty") was served by mail with a Summons and Complaint in connection with an
action filed by a single four-unit Partnership investor, in the Circuit Court of
Mobile County, Alabama. In this action (George Jones v. Wallace Quinn; Life
Cycle Financial Planning; Rancon Realty; Phoenix Leasing, Incorporated; First
Securities Corporation et. al; Civil Action No. CV94-3053), the plaintiff
alleged that the defendants, primarily the plaintiff's investment advisors, gave
improper investment advice and misrepresented the suitability of certain
investments, including the Partnership, for the plaintiff's investment
portfolio. The Partnership retained Alabama counsel to represent it in this
action. Such action was settled in December, 1995 resulting in the Partnership
repurchasing the plaintiff's investment of four units.
Item 4. Submission of Matters to a Vote of Security Holders
None.
Page 7 of 59
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 February 11, 1997, there were 12,881 holders of Partnership Units.
Dividends
Distributions are paid from either Cash From Operations or Cash From Sales or
Refinancing.
Cash From Operations generally is defined in the Partnership Agreement as 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 defined in the Partnership Agreement as 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 (a more explicit
statement of these distribution policies is set forth in the Partnership
Agreement): (i) First, 1 percent to the General Partners 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 Partners 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
Partners and 99 percent to the Limited Partners who purchased their Units prior
to April 1, 1986, 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 Partners and 1 percent to the
Limited Partners until the General Partners have 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 Partners under clauses (ii) and (iii); and (v) Fifth, the
balance 20 percent to the General Partners and 80 percent to the Limited
Partners.
There were no distributions made by the Partnership during the three most recent
fiscal years (including the one month stub period ended December 31, 1995).
Page 8 of 59
Item 6. Selected Financial Data
The following is selected financial data for the year ended December 31, 1996,
the one month ended December 31, 1995, and the years ended November 30, 1995,
1994, 1993 and 1992 (in thousands, except per Unit data).
For the For the one
year ended month ended For the years ended November 30,
Dec. 31, Dec. 31, ---------------------------------------
1996 1995 1995 1994 1993 1992
------ ------ ------ ------ ------ -----
Rental Income $ 6,969 $ 461 $ 6,200 $ 6,023 $ 5,949 $ 5,629
Gain (loss) on sale of real estate $ -- $ -- $ -- $ (391) $ 39 $ --
Provision for impairment
of real estate investments $ -- $ -- $(14,760) $(2,965) $ -- $ (4,000)
Net loss $(1,307) $ (199) $(16,148) $(5,558) $ (1,934) $ (5,131)
Net loss Allocable to
Limited Partners $(1,294) $ (197) $(15,986) $(5,503) $ (1,916) $ (5,080)
Net loss per Unit $(12.97) $ (1.97) $(160.18) $(55.11) $ (19.18) $ (50.81)
Total assets $54,193 $50,175 $ 51,347 $64,771 $ 69,548 $ 71,872
Long-term obligations $13,845 $ 8,615 $ 8,621 $ 6,209 $ 5,933 $ 5,970
Cash distributions per Unit $ -- $ -- $ -- $ -- $ -- $ --
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
LIQUIDITY AND CAPITAL RESOURCES:
As of December 31, 1996, the Partnership had cash of $5,007,000. The remainder
of the Partnership's assets consists primarily of its investments in real estate
totaling approximately $46,590,000 at December 31, 1996.
The Partnership's primary sources of funds consist of cash provided by its
rental activities. Other sources of funds include permanent financing, property
sales, interest income on certificates of deposit and other deposits of funds
invested temporarily, pending their use in the development of properties.
All of the Partnership's assets are located within the Inland Empire, a
submarket of Southern California, and have been directly affected by the
economic weakness of the region. Management believes, however, that the market
has flattened and is no longer falling in terms of sales prices. While prices
have not increased significantly, the Southern California real estate market
appears to be improving. Management continues to evaluate the real estate
markets in which the Partnership's assets are located in an effort to determine
the optimal time to dispose of them and realize their maximum value.
The Partnership owns and operates eight properties within the Tri-City Corporate
Centre project in San Bernardino, California ("Tri-City") totaling approximately
473,000 leasable square feet, including a 25,000
Page 9 of 59
square foot building for Bally's Health Club completed in 1995 and the most
recently constructed 6,500 square foot restaurant for Outback Steakhouse in
1996.
On May 10, 1996, the Partnership obtained new permanent financing of $9,600,000,
secured by Two Carnegie Plaza, Lakeside Tower and One Parkside, to fund the
payoff of a $2,764,000 loan, including accrued interest, and replenish cash
reserves for future development and fund final construction costs for Bally's
Health Club and Outback Steakhouse. This loan is a 10-year fixed rate loan with
a 25-year amortization, bearing interest at 9.39%. The loan terms provide for a
maturity date of August 1, 2006 and requires monthly principal and interest
payments of $83,142, commencing July 1, 1996. After paying refinancing fees of
$19,000, funding $49,000 into a reserve/escrow account and paying of the
$2,764,000 loan balance, the Partnership netted $6,768,000. The proceeds were
added to the Partnership's cash reserves to allow management greater flexibility
in exploring different options for strengthening the Partnership's financial
position.
On August 30, 1996, the Partnership refinanced its note payable secured by One
Carnegie Plaza. The new agreement required a $1,500,000 principal paydown in
exchange for a reduction in the stated interest rate from 10% to 8.25%.
Accordingly, on August 30, 1996, the Partnership made a $1,500,000 principal
payment plus paid $57,000 of accrued interest and loan fees. The new loan terms
provide for monthly principal and interest payments totaling $33,995 (reduced
from $53,000) commencing November 1, 1996, and a maturity date of December 1,
2001.
Phase I of Rancon Centre Ontario is completed, with the Partnership continuing
to own approximately 245,000 leasable square feet. Phase II received final
approval from the Ontario Planning Commission during November, 1992. Phase II
was originally scheduled to be subdivided into small lots suitable for
approximately 39 buildings, each ranging between 4,000 and 8,000 square feet.
There is currently no demand for properties such as this and the Partnership has
allowed the tentative map (which would have subdivided the property into small
lots) to expire. It is likely that the Partnership will attempt to identify
users interested in large build-to-suit buildings of approximately 250,000
square feet. In an effort to facilitate such build-to-suits, the Partnership
purchased a 5.76 acre parcel in December, 1995 that was located between Phase II
and an also undeveloped Phase III. This purchase also protected the value of the
Partnership's investment by providing the Partnership ownership of contiguous
land and preventing development adverse to the Partnership's interests. Further
development of the unimproved land remaining at Rancon Centre Ontario will
coincide with market demand.
There has been no development to date at the Partnership's Perris-Ethanac Road
or Perris-Nuevo Road projects. Both properties are being marketed for sale by
the Partnership.
Portions of the land at Tri-City that sold during fiscal 1990 included lots sold
to Home Depot, Office Club and General Mills Restaurants, Inc. Cash generated
from future property sales may be utilized in the development of other
properties or distributed to the partners. The General Partners continue to
assess the real estate market in Southern California in an effort to determine
an appropriate time to liquidate the Partnership and realize the maximum value
for its assets.
The Partnership is contingently liable for subordinated real estate commissions
payable to the Sponsor in the amount of $102,000 at December 31, 1996. 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.
Page 10 of 59
Aside from the foregoing, 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.
Management believes that the Partnership's cash balance as of December 31, 1996,
together with the cash from operations, sales and financing, will be sufficient
to finance the Partnership's and the properties' continued operations and
development plans.
RESULTS OF OPERATIONS:
In 1995, the Partnership's reporting year end changed from November 30 to
December 31. Since the Partnership's operations are not seasonal, the analysis
of results of operations compares the fiscal years ended December 31, 1996 and
November 30, 1995.
Revenues
Rental income for the year ended December 31, 1996 increased $769,000 or 12%
from the year ended November 30, 1995, due primarily to the commencement of
operations of the Bally's Health Club on January 1, 1996 and the increased
average occupancy at two of the Partnership's larger properties, One Carnegie
Plaza and Lakeside Tower. The increase in average occupancy had a smaller impact
on rental revenue than operating expenses due to amortizing free rent over the
term of the related lease whereby rental revenue during the year ended December
31, 1996 was reduced by free rent given in prior years.
Occupancy rates at the Partnership's Tri-City and Rancon Centre Ontario
properties as of December 31, 1996, November 30, 1995, 1994 and 1993 were as
follows:
December 31, November 30, November 30, November 30,
1996 1995 1994 1993
----------- ----------- ----------- -----------
One Carnegie Plaza 87% 93% 66% 56%
Two Carnegie Plaza 83% 87% 86% 86%
Carnegie Business
Center II 65% 68% 76% 77%
Lakeside Tower 90% 69% 76% 84%
Santa Fe 100% 100% 100% 100%
One Parkside 92% 83% 83% 83%
Rancon Centre Ontario 100% 92% 100% 100%
Bally's Health Club 100% N/A N/A N/A
Outback Steakhouse 100% N/A N/A N/A
Tenants at Tri-City occupying substantial portions of leased space include
Medisco Pharmacy, New York Life Insurance, the California Department of
Transportation, State of California Health Services, MacLachlan Burford and
Arias, the Atchison Topeka and Santa Fe Rail Company, Sterling Software, Chicago
Title and Bally's Health Club, with leases expiring at various dates between
June, 1997 and December, 2010. These nine tenants, in the aggregate, occupy
approximately 212,000 square feet of the 473,000 total leasable square feet at
Tri-City and account for approximately 52% of the rental income generated at
Tri-City and approximately 47% of the total rental income for the Partnership.
United Pacific Mills, with a lease expiration date of April, 1998, occupies
74,850 square feet of the 245,000 total leasable square feet at Rancon Centre
Ontario and accounts for 26% of the rental income generated at Rancon Centre
Ontario and the 3% of total rental income for the Partnership.
Page 11 of 59
In addition to the leases existing at December 31, 1996, the Partnership is in
various stages of negotiation for three new leases totaling 13,029 square feet,
six lease renewals for 23,716 square feet of space at Tri-City, as well as
marketing 50,000 square feet of space at Rancon Centre Ontario which will become
available in 1997.
The loss on sale of real estate for the year ended November 30, 1994 of $391,000
resulted from the sale of 25,700 square feet of retail space in Tri-City to Home
Depot. The property was sold to enable Home Depot to enlarge their garden
department. The sales price was negotiated at $12.50 per square foot for a total
of $321,000, however, allocable costs attributable to this parcel exceeded the
sales price and resulted in the loss on sale. The sale of the original Home
Depot site, which took place in 1990, resulted in a gain on sale of $1,458,000,
whereby the two transactions generated a net gain on sale $1,067,000.
Interest and other income for the year ended December 31, 1996 increased
$106,000 or 106% from the year ended November 30, 1995 due to the increase in
cash reserves as a result of the proceeds of the permanent financing obtained by
the Partnership in 1996 as described in the Liquidity and Capital Resources
section above.
Expenses
Operating expenses increased $212,000 or 7% during the year ended December 31,
1996 compared to the year ended November 30, 1995 as a result of increased
operating costs associated with increased occupancy at Lakeside Tower and One
Parkside.
Interest expense increased $603,000 or 90% for the year ended December 31, 1996
over the year ended November 30, 1995 and $71,000 or 12% and for the year ended
November 30 , 1995 over the comparable period in 1994 as a result of additional
debt obtained during those years.
Prior to 1995, the Partnership's business strategy was to hold its properties
for future development and operations. Conclusions about the carrying value of
the Partnership's properties were based upon this strategy. In 1995, the
Partnership modified this strategy to focus on eventual disposition of its
assets at the optimal time and sales price, however, development opportunities
will be pursued for certain sites. The Partnership revalued certain of its
assets based upon the change in strategy, independent appraisals and
management's estimates of development value. Appraisals and development values
are estimates of fair value based upon assumptions about the property and the
market in which it is located. Due to the uncertainties inherent in these
processes, these valuations do not purport to be the price at which a sale
transaction involving these properties can or will take place.
The Partnership made the following provisions to reduce the carrying value of
investments in real estate for the years ended November 30:
1995 1994
-------- ------
Rental Properties:
One Carnegie Plaza $ -- $ 1,657,000
Carnegie Business Center II -- 299,000
Rancon Centre Ontario -- 1,009,000
---------- -----------
-- 2,965,000
Land Held for Development:
San Bernardino, CA 5,775,000 --
Page 12 of 59
Land Held for Sale:
78.1 acres in Perris, CA $ 6,778,000 $ --
23.8 acres in Perris, CA 2,207,000 --
----------- ----------
14,760,000 --
----------- ----------
Total Provision for Impairment
of Real Estate Investments $14,760,000 $2,965,000
=========== ==========
No such provisions were recorded in 1996.
Expenses associated with undeveloped land include property taxes for the
Partnership's non-operating properties that are not currently under construction
as well as maintenance association fees in connection with non-operating
properties. Any expenses associated with land currently under construction
(i.e., undergoing activities necessary to get it ready for its intended use)
have been capitalized pursuant to Statement of Financial Accounting Standards
No. 67 (SFAS 67) "Accounting for Costs and Initial Rental Operations of Real
Estate Projects". These expenses decreased $83,000 or 12% in the year ended
December 31, 1996 from the year ended November 30, 1995 due to the increased
amount capitalized in 1996.
Administrative expenses increased $76,000 or 7% during the year ended December
31, 1996 over the year ended November 30, 1995 primarily due to an
administrative expense refund from the Sponsor in 1995. Administrative expenses,
prior to capitalization, for the year ended November 30, 1995 decreased 4% from
the prior year. The decrease in 1995 is primarily the result of the
administrative expense refund from the Sponsor in 1995 and the one-time payment
of severance totaling $194,000 to RFC's terminated employees in 1994 offset by:
(i) an increase in investor update meetings and the associated costs; (ii) an
increase in legal and consulting fees related to matters involving the
disposition of Partnership assets in 1995; and (iii) the payment and expense of
1994 audit and tax return fees in 1995. Since January 1, 1995, audit and tax
fees have been accrued in the year to which they relate.
In December 1994, RFC entered into an agreement with Glenborough Inland Realty
Corporation ("Glenborough") whereby RFC sold to Glenborough, for approximately
$4,466,000 and the assumption of $1,715,000 of RFC's debt, the contract to
perform the rights and responsibilities under RFC's agreement with the
Partnership and other related Partnerships (collectively, the Rancon
Partnerships) to perform or contract on the Partnership's behalf for financial,
accounting, data processing, marketing, legal, investor relations, asset and
development management and consulting services for the Partnership for a period
of ten years or to the liquidation of the Partnership, whichever comes first.
According to the contract, the Partnership will pay Glenborough for its services
as follows: (i) a specified asset administration fee of $967,000 per year, which
is fixed for five years subject to reduction in the year following the sale of
assets; (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 responsibilities for
the General Partner of the Rancon Partnerships and RFC agreed to cooperate with
Glenborough, should Glenborough attempt to obtain a majority vote of the limited
partners to substitute itself as the Sponsor for the Rancon Partnerships.
Glenborough is not an affiliate of RFC.
RFC entered into the transaction with Glenborough described above, when it
determined to sell that portion of its business relating to investor relations
services, property management services and asset management services, and those
services are now rendered to the Partnership, eight other related partnerships
and third parties by Glenborough.
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.
Page 13 of 59
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
On June 6, 1995, Price Waterhouse LLP was dismissed as the principal independent
accountant for the Partnership. The decision to dismiss Price Waterhouse LLP was
made by the Partnership's General Partner.
The reports of Price Waterhouse LLP on the Partnership's financial statements
for the period ending November 30, 1994, do not contain an adverse opinion or a
disclaimer of an opinion, nor were such opinions modified as to uncertainty,
audit scope, or accounting principles.
During the fiscal year ended November 30, 1994 and the subsequent interim period
from December 1, 1994 to June 6, 1995, there were no disagreements between the
Partnership and Price Waterhouse LLP on any matter of accounting principles or
practices, financial statement disclosure, or auditing scope or procedure,
which, if not resolved to the satisfaction of Price Waterhouse LLP, would have
caused it to make a reference to the subject matter of the disagreement in
connection with its reports. For this purpose the term disagreement does not
include initial differences of opinion based on incomplete facts or preliminary
information that were later resolved to the satisfaction of Price Waterhouse LLP
by obtaining additional relevant facts or information.
During the fiscal year ended November 30, 1994 and the subsequent interim period
from December 1, 1994 to June 6, 1995, there were no "reportable events" of the
type described in Rule 304(a)(1)(v)(A) through (D) of Regulation S-K.
On June 6, 1995, the Partnership engaged Arthur Andersen LLP as its new
principal independent accountant. During the fiscal year ended November 30, 1994
and the subsequent interim period from December 1, 1994 through June 6, 1995,
the Partnership did not consult with Arthur Andersen LLP as to the application
of accounting principles to a specified transaction or the type of audit opinion
that might be rendered on the Partnership's financial statements.
Page 14 of 59
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 Rancon is:
Daniel L. Stephenson Director, President, Chief Executive Officer and Chief
Financial Officer
There is no fixed term of office for Mr. Stephenson.
Mr. Stephenson, age 53, founded RFC (formerly known as Rancon Corporation) in
1971 for the purpose of establishing itself as a commercial, industrial and
residential property syndication, development and brokerage concern. Mr.
Stephenson has, from inception, held the position of Director. In addition, Mr.
Stephenson was President and Chief Executive Officer of RFC from 1971 to 1986,
from August 1991 to September 1992 and from March 31, 1995 to present. Mr.
Stephenson is Chairman of the Board of PacWest Group, Inc., a real estate firm
which has acquired a portfolio of assets from the Resolution Trust Corporation.
Rancon Development Fund VII (RDFVII), a partnership sponsored by the General
Partners filed for protection under Chapter 11 of Federal Bankruptcy Law on May
6, 1994 in order to put an automatic stay on RDFVII's property and to forestall
the pending foreclosure. In March, 1994, the General Partners were approached by
a non-affiliated party interested in acquiring the interests of RDFVII's general
partners and attempting to restructure the partnership and its secured debt.
Although the necessary majority-in-interest of RDFVII's limited partners was
received, an agreement regarding the terms of the transfer and the plan of
reorganization could not be reached. The holder of the note secured by RDFVII's
property filed for and was granted a relief from the stay thereby allowing the
foreclosure sale to proceed. Such sale took place on September 15, 1994 and the
bankruptcy was dismissed, as the property was RDFVII's only asset.
Six Stoneridge L.P. (SSRLP), a partnership formed by Rancon Development Fund VI
(RDFVI), a partnership sponsored by the General Partners filed for protection
under Chapter 11 of Federal Bankruptcy Law in December, 1992. Efforts to
negotiate a modification of the purchase agreement of Stoneridge I, to obtain
loans, joint venture partners or other vehicles to meet or modify the cash
payment requirements were unsuccessful. In February, 1993, an adversary
complaint was filed against SSRLP in the bankruptcy court to determine the
nature and extent of SSRLP's interest in Stoneridge I and the debt associated
with the property. A tentative agreement has been reached and the bankruptcy was
dismissed effective November 8, 1995. As of December 31, 1996, SSRLP and RDFVI
have been dissolved.
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.
Page 15 of 59
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
Amount and
Nature of
Title Beneficial Percent
of Class Name of Beneficial Owner 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 have the power to vote upon the
following matters affecting the basic structure of the Partnership, each of
which shall require the approval of Limited Partners holding a majority of the
outstanding Units: (i) amendment of the Partnership's Partnership Agreement;
(ii) termination and dissolution of the Partnership; (iii) sale, exchange or
pledge of all or substantially all of the assets of the Partnership; (iv)
removal of the General Partners or any successor General Partner; (v) election
of a new General Partner or General Partners upon the removal, retirement,
death, insanity, insolvency, bankruptcy or dissolution of the General Partners
or any successor General Partner; (vi) modification of the terms of any
agreement between the Partnership and the General Partners or an affiliate of
the General Partners; and (vii) extension of the term of the Partnership.
Item 13. Certain Relationships and Related Transactions
There were no related party transactions during the year ended December 31,
1996, or the one month ended December 31, 1995.
Page 16 of 59
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:
Reports of Independent Accountants
Consolidated Balance Sheets as of December 31, 1996 and 1995
and November 30, 1995
Consolidated Statements of Operations for the year ended
December 31, 1996, the one month ended December 31, 1995, and
the years ended November 30, 1995 and 1994
Consolidated Statements of Partners' Equity (Deficit) for the
year ended December 31, 1996, the one month ended December
31, 1995, and the years ended November 30, 1995 and 1994
Consolidated Statements of Cash Flows for the year ended
December 31, 1996, the one month ended December 31, 1995, and
the years ended November 30, 1995 and 1994
Notes to Consolidated Financial Statements
(2) Financial Statement Schedule:
Schedule III -- Real Estate and Accumulated Depreciation as
of December 31, 1996 and Note thereto
All other schedules are omitted because they are not
applicable or the required information is shown in the
financial statements or notes thereto.
(3) Exhibits:
(3.1) Amended and Restated Agreement of Limited Partnership
of the Partnership (included as Exhibit B to the
Prospectus dated March 3, 1988, filed pursuant to
Rule 424(b), File Number 2-97837, is incorporated
herein by reference).
(3.2) Third Amendment to the Amended and Restated Agreement
of Limited Partnership of the Partnership, dated
April 1, 1989 (filed as Exhibit 3.2 to the
Partnership's annual report on Form 10-K for the
fiscal year ended November 30, 1991 is incorporated
herein by reference).
(3.3) Fourth Amendment to the Amended and Restated
Agreement of Limited Partnership of the Partnership,
dated March 11, 1992 (filed as Exhibit 3.3 to the
Partnership's annual report on Form 10-K for the
fiscal year ended November 30, 1991 is incorporated
herein by reference).
Page 17 of 59
(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) Documents related to the sale of a portion of Lot 28
at Tri-City Corporate Centre (25,700 square feet sold
to Home Depot) (filed as Exhibit 10.1 to the
Partnership's annual report on Form 10-K for the
fiscal year ended November 30, 1994 is incorporated
herein by reference).
(10.2) Management, administration and consulting agreement
and amendment thereto for services rendered by
Glenborough Inland Realty Corporation dated December
20, 1994 and March 30, 1995, respectively.
(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
None.
Page 18 of 59
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
(Partnership)
Date: March 27, 1997 By: /s/ DANIEL L. STEPHENSON
--------------------------
Daniel L. Stephenson, General Partner and
Director, President, Chief Executive Officer and
Chief Financial Officer of
Rancon Financial Corporation,
General Partner
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed by the following persons on behalf of the Partnership and in the
capacities and on the dates indicated.
Date: March 27, 1997 By: /s/ DANIEL L. STEPHENSON
--------------------------
Daniel L. Stephenson, General Partner and
Director, President, Chief Executive Officer and
Chief Financial Officer of
Rancon Financial Corporation,
General Partner
Page 19 of 59
INDEX TO FINANCIAL STATEMENTS
AND SCHEDULE
Financial Statements and Schedule Page
------
Financial Statements:
Reports of Independent Accountants 21 & 22
Consolidated Balance Sheets as of December 31, 1996 and 1995
and November 30, 1995 23
Consolidated Statements of Operations for the year ended
December 31, 1996, the one month ended December 31, 1995, and
the years ended November 30, 1995 and 1994 24
Consolidated Statements of Partners' Equity (Deficit) for the
year ended December 31, 1996, the one month ended December
31, 1995, and the years ended November 30, 1995 and 1994 25
Consolidated Statements of Cash Flows for the year ended
December 31, 1996, the one month ended December 31, 1995, and
the years ended November 30, 1995 and 1994 26
Notes to Consolidated Financial Statements 28
Schedule:
III - Real Estate and Accumulated Depreciation
as of December 31, 1996 and Note thereto 37
All other schedules are omitted because they are not applicable or the
required information is shown in the financial statements or notes
thereto.
Page 20 of 59
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, 1996 and 1995 and
November 30, 1995, and the related consolidated statements of operations,
partners' equity (deficit) and cash flows for the year ended December 31, 1996,
the one month ended December 31, 1995 and year ended November 30, 1995. These
consolidated financial statements and the schedule referred to below are the
responsibility of the Partnership's management. Our responsibility is to express
an opinion on these consolidated financial statements and schedule based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of RANCON REALTY FUND
V, A CALIFORNIA LIMITED PARTNERSHIP, as of December 31, 1996 and 1995 and
November 30, 1995, and the results of its operations and its cash flows for the
year ended December 31, 1996, the one month ended December 31, 1995 and year
ended November 30, 1995, in conformity with generally accepted accounting
principles.
Our audits were made for the purpose of forming an opinion on the basic
consolidated financial statements taken as a whole. The accompanying schedule
listed in the index to financial statements and schedule is presented for
purposes of complying with the Securities and Exchange Commission's rules and is
not a required part of the basic consolidated financial statements. This
information has been subjected to the auditing procedures applied in our audits
of the basic consolidated financial statements and, in our opinion, is fairly
stated in all material respects in relation to the basic consolidated financial
statements taken as a whole.
San Francisco, California
February 12, 1997
Page 21 of 59
REPORT OF INDEPENDENT ACCOUNTANTS
To the General and Limited Partners of
Rancon Realty Fund V
In our opinion, the accompanying statements of operations, of partners' equity
and of cash flows present fairly, in all material respects, the results of
operations and cash flows of Rancon Realty Fund V for the year ended November
30, 1994, in conformity with generally accepted accounting principles. These
financial statements are the responsibility of the Partnership's management; our
responsibility is to express an opinion on these financial statements based on
our audit. We conducted our audit of these statements in accordance with
generally accepted auditing standards which 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,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audit provides a reasonable basis for the opinion expressed
above. We have not audited the financial statements of Rancon Realty Fund V for
any period subsequent to November 30, 1994.
Our audit for the year ended November 30, 1994 was made for the purpose for
forming an opinion on the basic financial statements taken as a whole. Our audit
also included an audit of the Financial Statement Schedule listed in Item 14 (a)
of this Form 10-K. In our opinion, the Financial Statement Schedule presents
fairly, in all material respects, the information set forth therein when read in
conjunction with the related financial statements.
PRICE WATERHOUSE LLP
San Diego, California
February 8, 1995
Page 22 of 59
RANCON REALTY FUND V,
A CALIFORNIA LIMITED PARTNERSHIP
Consolidated Balance Sheets
December 31, 1996 and 1995 and November 30, 1995
(in thousands, except units outstanding)
December 31, December 31, November 30,
Assets 1996 1995 1995
------ ------------ ------------ ----------
Investments in real estate:
Rental property, net of accumulated
depreciation of $15,180 as of December
31, 1996, $13,405 as of December 31, 1995,
and $13,244 as of November 30, 1995 $ 35,999 $ 36,000 $ 35,833
Land held for development 9,586 9,799 9,166
Land held for sale 1,005 1,005 1,005
---------- ---------- ----------
Total real estate investments 46,590 46,804 46,004
---------- ---------- ----------
Cash and cash equivalents 5,007 676 2,467
Pledged cash 353 351 351
Accounts receivable 145 169 204
Deferred financing costs and other fees,
net of accumulated amortization of
$1,565 as of December 31, 1996, $1,233 as
of December 31, 1995 and $1,203
as of November 30, 1995 1,301 1,218 1,155
Prepaid expenses and other assets 797 957 1,166
---------- ---------- ----------
Total assets $ 54,193 $ 50,175 $ 51,347
========== ========== ==========
Liabilities and Partners' Equity (Deficit)
Liabilities:
Notes payable $ 13,845 $ 8,615 $ 8,621
Accounts payable and accrued expenses 276 256 1,207
Interest payable 75 -- 13
----------- ----------- -----------
Total liabilities 14,196 8,871 9,841
----------- ----------- -----------
Commitments and contingent liabilities (see Note 7)
Partners' equity (deficit):
General partners (921) (908) (906)
Limited partners, 99,767 limited partnership
units outstanding at December 31, 1996
and 1995 and 99,783 limited partnership
units outstanding at November 30, 1995 40,918 42,212 42,412
---------- ----------- ----------
Total partners' equity 39,997 41,304 41,506
---------- ----------- ----------
Total liabilities and partners' equity $ 54,193 $ 50,175 $ 51,347
========== =========== ==========
The accompanying notes are an integral part of these financial statements.
Page 23 of 59
RANCON REALTY FUND V,
A CALIFORNIA LIMITED PARTNERSHIP
Consolidated Statements of Operations
For the year ended December 31, 1996, the one month ended
December 31, 1995, and the years ended November 30, 1995 and 1994
(in thousands, except per unit amounts and units outstanding)
For the year For the one For the year For the year
ended month ended ended ended
Dec. 31, Dec. 31, Nov. 30, Nov. 30,
1996 1995 1995 1994
----------- ------------ ----------- -----------
Revenues:
Rental income $ 6,969 $ 461 $ 6,200 $ 6,023
Loss on sale of real estate -- -- -- (391)
Interest and other income 206 1 100 105
---------- ---------- ---------- ----------
Total revenues 7,175 462 6,300 5,737
---------- ---------- ---------- ----------
Expenses:
Operating, including $27 and $314 paid to
Sponsor for the years ended November 30,
1995 and 1994, respectively 3,257 257 3,045 3,186
Depreciation and amortization 2,087 189 2,101 2,707
Interest expense 1,271 68 668 597
Provision for impairment of
real estate investments -- -- 14,760 2,965
Expenses associated with undeveloped land 629 58 712 712
Administrative, including $84 and $1,117 paid
to Sponsor in 1995 and 1994, respectively 1,238 89 1,162 1,128
---------- ---------- ---------- ----------
Total expenses 8,482 661 22,448 11,295
---------- ---------- ---------- ----------
Net loss $ (1,307) $ (199) $ (16,148) $ (5,558)
=========== =========== =========== ===========
Net loss per limited partnership unit $ (12.97) $ (1.97) $ (160.18) $ (55.11)
========== =========== ========== ===========
Weighted average number of limited partnership
units outstanding during each period used
to compute net loss per limited partnership unit 99,767 99,775 99,800 99,852
========== ========== ========== ===========
The accompanying notes are an integral part of these financial statements
Page 24 of 59
RANCON REALTY FUND V,
A CALIFORNIA LIMITED PARTNERSHI
Consolidated Statements of Partners' Equity
(Deficit) For the year ended December 31,
1996, the one month ended
December 31, 1995, and the years ended November 30, 1995 and 1994
(in thousands)
General Limited
Partners Partners Total
--------- ---------- ---------
Balance at November 30, 1993 $ (689) $ 63,945 $ 63,256
Retirement of Limited Partnership Units -- (35) (35)
Net loss (55) (5,503) (5,558)
-------- --------- ---------
Balance at November 30, 1994 (744) 58,407 57,663
Retirement of Limited Partnership Units -- (9) (9)
Net loss (162) (15,986) (16,148)
-------- --------- ---------
Balance at November 30, 1995 (906) 42,412 41,506
Retirement of Limited Partnership Units -- (3) (3)
Net loss (2) (197) (199)
-------- --------- ---------
Balance at December 31, 1995 (908) 42,212 41,304
Net loss (13) (1,294) (1,307)
-------- --------- ---------
Balance at December 31, 1996 $ (921) $ 40,918 $ 39,997
======== ========= =========
The accompanying notes are an integral part of these financial statements
Page 25 of 59
RANCON REALTY FUND V,
A CALIFORNIA LIMITED PARTNERSHI
Consolidated Statements of Cash
Flows For the year ended December 31, 1996,
the one month ended
December 31, 1995, and the years ended November 30, 1995 and 1994
(in thousands)
For the year For the one For the year For the year
ended month ended ended ended
Dec. 31, Dec. 31, Nov. 30, Nov. 30,
1996 1995 1995 1994
----------- ---------- ---------- -----------
Cash flows from operating activities:
Net loss $ (1,307) $ (199) $ (16,148) $ (5,558)
Adjustments to reconcile net loss to net
cash provided by (used for)
operating activities:
Depreciation and amortization 2,087 189 2,101 2,693
Amortization of loan fees, included in
interest expense 87 1 22 14
Loss on sale of real estate -- -- -- 391
Provision for impairment of real
estate investments -- -- 14,760 2,965
Changes in certain assets and liabilities:
Deferred fees (158) (70) (303) (341)
Accounts receivable 24 35 34 59
Prepaid expenses and other assets 209 209 288 279
Accounts payable and accrued expenses 20 (951) 305 424
Interest payable 75 (13) (37) 1
Payable to Sponsor -- -- (194) 189
----------- ---------- ---------- -----------
Net cash provided by (used for)
operating activities 1,037 (799) 828 1,116
----------- ----------- ---------- -----------
Cash flows from investing activities:
Pledged cash (2) -- -- --
Property acquisition and development costs (1,561) (960) (3,023) (1,564)
Deposit on pending property acquisition -- -- (50) --
Cash proceeds from sale of real estate -- -- -- 303
----------- ---------- ---------- -----------
Net cash used for investing activities (1,563) (960) (3,073) (1,261)
------------ ----------- ----------- -----------
(continued)
Page 26 of 59
RANCON REALTY FUND V,
A CALIFORNIA LIMITED PARTNERSHI
Consolidated Statements of Cash Flows - continued
For the year ended December 31, 1996, the one
month ended December 31, 1995, and the years ended
November 30, 1995 and 1994
(in thousands)
For the year For the one For the year For the year
ended month ended ended ended
Dec. 31, Dec. 31, Nov. 30, Nov. 30,
1996 1995 1995 1994
----------- ----------- ---------- -----------
Cash flows from financing activities:
Net loan proceeds $ 6,768 $ -- $ 2,484 $ 250
Loan fees paid (305) (23) -- (66)
Notes payable principal payments (1,606) (6) (72) (40)
Retirement of Limited Partnership Units -- (3) (9) (35)
Other liabilities -- -- -- (18)
----------- ----------- ---------- -----------
Net cash provided by (used for)
financing activities 4,857 (32) 2,403 91
----------- ------------ ---------- -----------
Net increase (decrease) in cash and
cash equivalents 4,331 (1,791) 158 (54)
Cash and cash equivalents at
beginning of period 676 2,467 2,309 2,363
----------- ----------- ---------- ------------
Cash and cash equivalents at
end of period $ 5,007 $ 676 $ 2,467 $ 2,309
========== ========== ========= ===========
Supplemental disclosure of cash flow information:
Cash paid for interest $ 1,135 $ 79 $ 861 $ 596
========== ========== ========= ==========
Interest capitalized $ 26 $ -- $ 178 $ --
========== ========== ========= ==========
Supplemental disclosure of refinancing activity:
New financing $ 9,600 $ -- $ -- $ --
Original financing paid off in escrow (2,764) -- -- --
Increase in other assets and loan fees paid (68) -- -- --
------------ ---------- ---------- ----------
Net loan proceeds $ 6,768 $ -- $ -- $ --
=========== ========== ========== ==========
The accompanying notes are an integral part of these financial statements
Page 27 of 59
RANCON REALTY FUND V,
A California Limited Partnership
Notes to Consolidated Financial Statements
December 31, 1996, November 30, 1995 and 1994
Note 1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
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 referred to as the Sponsor.
RFC is wholly-owned by Daniel L. Stephenson. The Partnership reached final
funding in February, 1989. 99,767 Partnership Units ("Units") were outstanding
at December 31, 1996 and 1995 and 99,783 Units were outstanding at November 30,
1995.
Allocation of profits, losses and cash distributions from operations and cash
distributions from sale or financing are made pursuant to the terms of the
Partnership Agreement. Generally, net income and distributions from operations
are 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 account is reduced to zero.
Additional losses will be allocated entirely to those partners with positive
account balances until such balances are reduced to zero. In no event will the
General Partners be allocated less than 1% of net loss for any period.
All of the Partnership's assets are located within the Inland Empire, a
submarket of Southern California, and have been directly affected by the
economic weakness of the region. Management believes, however, that the market
has flattened and is no longer falling in terms of sales prices. While prices
have not increased significantly, the Southern California real estate market
appears to be improving. Management continues to evaluate the real estate
markets in which the Partnership's assets are located in an effort to determine
the optimal time to dispose of them and realize their maximum value.
General Partner and Management Matters
Effective January 1, 1994 the Partnership contracted with RFC to perform or
contract on the Partnership's behalf for financial, accounting, data processing,
marketing, legal, investor relations, asset and development management and
consulting services for the Partnership. These services were provided by RFC
subject to the provisions of the Partnership Agreement.
In December 1994, RFC entered into an agreement with Glenborough Inland Realty
Corporation ("Glenborough") whereby RFC sold to Glenborough the contract to
perform the rights and responsibilities under RFC's agreement with the
Partnership and other related Partnerships (collectively, the Rancon
Partnerships) to perform or contract on the Partnership's behalf for financial,
accounting, data processing, marketing, legal, investor relations, asset and
development management and consulting services for the Partnership for a period
of ten years or to the liquidation of the Partnership, whichever comes first.
According to the contract, the Partnership will pay Glenborough for its services
as follows: (i) a specified asset administration fee of $967,000 per year, which
is fixed for five years subject to reduction in the year following the sale of
assets; (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
Page 28 of 59
RANCON REALTY FUND V,
A California Limited Partnership
Notes to Consolidated Financial Statements
December 31, 1996, November 30, 1995 and 1994
perform certain responsibilities for
the General Partner of the Rancon Partnerships and RFC agreed to cooperate with
Glenborough, should Glenborough attempt to obtain a majority vote of the limited
partners to substitute itself as the Sponsor for the Rancon Partnerships. This
agreement became effective January 1, 1995. Glenborough is not an affiliate of
RFC or the Partnership.
As a result of this agreement, RFC terminated several of its employees between
December 31, 1994 and February 28, 1995. Also as a result of this agreement,
certain of the officers of RFC resigned from their positions effective February
28, 1995, March 31, 1995 and July 1, 1995.
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.
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 financial
statements do not provide for adjustments with regard to these uncertainties.
Investments in Real Estate - In March, 1995, the Financial Accounting Standards
Board issued Statement of Financial Accounting Standards No. 121 (SFAS 121),
"Accounting for Impairment of Long-Lived Assets and Long-Lived Assets to be
Disposed Of." The Partnership adopted SFAS 121 in the fourth quarter of fiscal
year 1995. SFAS 121 requires that an evaluation of an individual property for
possible impairment must be performed whenever events or changes in
circumstances indicate that an impairment may have occurred and that long-lived
assets to be disposed of be carried at the lower of carrying amount or fair
value. There was no impact on the financial position or results of operations of
the Partnership from the initial adoption of SFAS 121. The specific accounting
policies for assets to be held and used and those to be disposed of are
described in more detail below.
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 carrying value is reduced to estimated fair value. Estimated fair
value: (i) is based upon the Partnership's plans for the continued operations of
each property; (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, and (iii) does not purport, for a specific
property, to represent the current sales price that the Partnership could obtain
from third parties for such property. The
Page 29 of 59
RANCON REALTY FUND V,
A California Limited Partnership
Notes to Consolidated Financial Statements
December 31, 1996, November 30, 1995 and 1994
fulfillment of the Partnership's plans related to each of its properties is
dependent upon, among other things, the presence of economic conditions which
will enable the Partnership to continue to hold and operate the properties prior
to their eventual sale. Due to uncertainties inherent in the valuation process
and in the economy, it is reasonably possible that the actual results of
operating and disposing of the Partnership's properties could be materially
different than current expectations.
Depreciation is provided using the straight line method over the useful lives of
the respective assets.
Land Held for Development - Land held for development is stated at cost unless
events or circumstances indicate that cost cannot be recovered in which case the
carrying value is reduced to estimated fair value. Estimated fair value: (i) is
based on the Partnership's plans for the development of each property; (ii) is
computed using estimated sales price, based upon market values for comparable
properties, (iii) considers the cost to complete and the estimated fair value of
the completed project; and (iv) does not purport, for a specific property, to
represent the current sales price that the Partnership could obtain from third
parties for such property. 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.
Land Held for Sale - Land held for sale is stated at the lower of cost or
estimated fair value less costs to sell. During fiscal year ended November 30,
1995, the Partnership wrote down the carrying value of the land held for sale
based upon independent appraisals obtained in 1995. Appraisals are estimates of
fair value based upon assumptions about the property and the market in which it
is located. Due to the uncertainties inherent in the appraisal process, these
valuations do not purport to be the price at which a sale transaction involving
these properties can or will take place.
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.
Deferred Financing Costs and Other Fees - Deferred loan fees are amortized on a
straight-line basis over the life of the related loan and deferred lease
commissions are amortized over the initial fixed term of the related lease
agreement.
Rental Income - Rental income is recognized as earned over the life of the
respective leases.
Sales of Real Estate - Gain or loss from sales of real estate is recognized at
the close of escrow, when title has passed, minimum down payment requirements
are met, the terms of any notes received by the Partnership satisfy continuing
payment requirements, and the Partnership is relieved of any requirements for
continued involvement with the property.
Net Loss Per Limited Partnership Unit - Net loss per limited partnership unit is
calculated using the weighted average number of limited partnership units
outstanding during the period and the Limited Partners' allocable share of the
net loss.
Page 30 of 59
RANCON REALTY FUND V,
A California Limited Partnership
Notes to Consolidated Financial Statements
December 31, 1996, November 30, 1995 and 1994
Income Taxes - No provision for income taxes is included in the accompanying
financial statements, as the Partnership's results of operations are allocated
to the partners for inclusion in their respective income tax returns. Net loss
and partners' equity (deficit) for financial reporting purposes will differ from
the Partnership income tax return because of different accounting methods used
for certain items, including depreciation expense, capitalization of development
period interest, income recognition and provisions for impairment of investments
in real estate.
Consolidation - In order to satisfy certain lender requirements for the
Partnership's 1996 loan secured by Two Carnegie Plaza, Lakeside Tower and One
Parkside (see Note 5), Rancon Realty Fund V Tri-City Limited Partnership, a
Delaware limited partnership ("RRF V Tri-City") was formed in May, 1996. The
three properties securing the loan were contributed to RRF V Tri-City by the
Partnership. The limited partner of RRF V Tri-City is the Partnership and the
general partner is Rancon Realty Fund V, Inc., a corporation wholly owned by the
Partnership. Since the Partnership indirectly owns 100% of RRF V Tri-City, the
financial statements of RRF V Tri-City have been consolidated with those of the
Partnership. All intercompany transactions have been eliminated in the
consolidation.
Reclassifications - Certain 1995 and 1994 balances have been reclassified to
conform with the current year presentation.
Note 2. RELATED PARTY TRANSACTIONS
Payable to Sponsor - As a result of the agreement between RFC and Glenborough
(see Note 1), RFC terminated certain employees who were previously responsible
for performing the administrative, legal and development services to the
Partnership. Upon termination, certain employee costs including severance
benefits were allocated to the various Rancon Partnerships. Such costs allocated
to the Partnership aggregated $194,000, and were accrued by the Partnership in
fiscal year 1994 and paid in the first quarter of fiscal year 1995.
Reimbursable Expenses and Management Fees to Sponsor - Through December 31,
1994, the Partnership had an agreement with the Sponsor for property management
services. The agreement provided for a management fee equal to 5% of gross
rentals collected while managing the properties. Fees incurred under this
agreement totaled $27,000 and $314,000 for the years ended November 30, 1995 and
1994, respectively. Effective January 1, 1995, the Partnership contracted with
Glenborough to provide these services to the Partnership (see Note 1).
The Partnership Agreement also provides for the reimbursement of actual costs
incurred by the Sponsor in providing certain administrative, legal and
development services necessary for the prudent operation of the Partnership.
Effective January 1, 1995, such services are being provided by Glenborough as
described in Note 1.
Reimbursable costs incurred by the Partnership totaled $84,000 and $1,117,000
for the years ended November 30, 1995 and 1994, respectively, of which the
Partnership capitalized $11,000 and $173,000 in 1995 and 1994, respectively. No
such reimbursable costs were incurred during 1996. The amount incurred in the
fiscal year 1995 is reduced by an $83,000 rebate of the amounts paid by the
Partnership for services provided by the Sponsor during the 1994 calendar year.
Page 31 of 59
RANCON REALTY FUND V,
A California Limited Partnership
Notes to Consolidated Financial Statements
December 31, 1996, November 30, 1995 and 1994
Note 3. PLEDGED CASH
Pledged cash of $353,000 represents a $351,000 certificate of deposit held as
collateral for subdivision improvement bonds related to the 78.1-acre Perris
property owned by the Partnership. As the Perris property is now being held for
sale by the Partnership, this pledged cash would be a factor in computing the
sales price of such property and would therefore be recovered in the event of a
sale. Pledged cash as of December 31, 1996 also includes a $2,000 certificate of
deposit pledged as security to a utility district for construction of a sewer
crossing.
Note 4. INVESTMENTS IN REAL ESTATE
Rental property components are as follows (in thousands):
December 31, December 31, November 30,
1996 1995 1995
------------- ------------ ------------
Land $ 6,586 $ 6,514 $ 6,514
Buildings 31,580 30,806 31,358
Leasehold and other improvements 13,013 12,085 11,205
----------- ---------- -----------
51,179 49,405 49,077
Less: accumulated depreciation (15,180) (13,405) (13,244)
----------- ------------ ------------
Total rental property $ 35,999 $ 36,000 $ 35,833
============= =========== ===========
The Partnership's rental property includes projects at the Tri-City Corporate
Centre in San Bernardino, California and Rancon Centre Ontario. In September,
1996, the Partnership reclassified $570,000 from land held for development to
rental property, following the completion of the construction of the 6,500
square foot restaurant for Outback Steakhouse.
Land held for development consists of the following (in thousands):
December 31, December 31, November 30,
1996 1995 1995
--------- --------- ---------
14 acres on December 31, 1996 and
30.51 acres on December 31, 1995
and November 30, 1995 at Tri-City
Corporate Centre, San Bernardino, CA $ 4,297 $ 4,512 $ 4,510
33.76 acres in Ontario, CA 5,289 5,287 4,656
-------- -------- --------
Total land held for development $ 9,586 $ 9,799 $ 9,166
======== ======== ========
All land held for development is unencumbered at December 31, 1996.
Land held for sale as of December 31, 1996 and 1995, and November 30, 1995
includes the following (in thousands):
23.8 acres in Perris, CA $ 775
78.1 acres in Perris, CA 230
----------
Total land held for sale $ 1,005
==========
Page 32 of 59
RANCON REALTY FUND V,
A California Limited Partnership
Notes to Consolidated Financial Statements
December 31, 1996, November 30, 1995 and 1994
All land held for sale is unencumbered at December 31, 1996.
During the years ended November 30, 1995 and 1994, the Partnership recorded the
following provisions to reduce the carrying value of investments in real estate
(in thousands):
1995 1994
-------- -------
Rental Properties:
One Carnegie Plaza $ -- $ 1,657
Carnegie Business Center II -- 299
Rancon Centre Ontario -- 1,009
------------ ----------
-- 2,965
Land Held for Development:
San Bernardino, CA 5,775 --
Land Held for Sale:
78.1 acres in Perris, CA 6,778 --
23.8 acres in Perris, CA 2,207 --
------------ ----------
14,760 --
------------ ----------
Total provision for impairment
of real estate investments $ 14,760 $ 2,965
============ ==========
No such provisions were recorded during the year ended December 31, 1996 or
during the month ended December 31, 1995.
Prior to 1995, the Partnership's business strategy was to hold its properties
for future development and operations. Conclusions about the carrying value of
the Partnership's properties were based upon this strategy. In 1994, management
concluded that the carrying value of One Carnegie Plaza, Carnegie Business
Center II and Rancon Center Ontario was in excess of their net realizable value.
Provisions for impairment of the Partnership's investment in those properties
were recorded to reduce their carrying amount to estimated net realizable value.
In 1995, the Partnership modified this strategy to focus on eventual disposition
of its assets at the optimal time and sales price, however, development
opportunities will be pursued for certain sites. The Partnership revalued
certain of its assets based on the business strategy for the assets
(predominantly land). Due to the uncertainties inherent in the valuation
process, the carrying values do not purport to be the price at which a sale
transaction involving these properties can or will take place.
Page 33 of 59
RANCON REALTY FUND V,
A California Limited Partnership
Notes to Consolidated Financial Statements
December 31, 1996, November 30, 1995 and 1994
Note 5. NOTES PAYABLE
Notes payable as of the stated balance sheet dates were as follows (in
thousands):
December 31, December 31, November 30,
1996 1995 1995
--------- --------- ---------
Note payable, secured by first deed
of trust on Lakeside Tower, One
Parkside and Two Carnegie Plaza.
The loan, which matures August 1,
2006, is a 10-year, 9.39% fixed
rate loan and with a 25-year
amortization and requires $83 in
principal and interest payments
due monthly. $ 9,551 $ -- $ --
Note payable, secured by first deed
of trust on One Carnegie Plaza.
On August 30, 1996, the note was
refinanced and required a $1,500
principal paydown in exchange for
a reduction in the stated interest
rate from 10.0% to 8.25%. The new
loan terms provide for monthly
principal and interest payments
totaling $34 commencing November 1,
1996, with a new maturity date of
December 1, 2001. 4,294 5,840 5,844
Loan payable secured by a first
deed of trust on Two Carnegie Plaza.
Interest accrued at the Chino Valley
Bank prime rate plus 2.25%.The loan
was paid off in May, 1996. -- 2,775 2,777
-------- -------- ---------
Total notes payable $ 13,845 $ 8,615 $ 8,621
========= ======== =========
The annual maturities on the Partnership's notes payable for the fiscal years
subsequent to December 31, 1996 are as follows (in thousands):
1997 $ 161
1998 176
1999 192
2000 210
2001 4,196
Thereafter 8,910
--------
Total $ 13,845
========
Page 34 of 59
RANCON REALTY FUND V,
A California Limited Partnership
Notes to Consolidated Financial Statements
December 31, 1996, November 30, 1995 and 1994
Note 6. LEASES
The Partnership's rental properties are leased under operating leases that
expire at various dates through December, 2010. In addition to base monthly
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, 1996, November 30,
1995 and 1994 or the month ended December 31, 1995. Future minimum rents on
non-cancelable operating leases as of December 31, 1996 are as follows (in
thousands):
1997 $ 6,790
1998 5,338
1999 3,455
2000 2,594
2001 1,857
Thereafter 9,559
---------
Total $ 29,593
========
Note 7. COMMITMENTS AND CONTINGENT LIABILITIES
The Partnership is contingently liable for subordinated real estate commissions
payable to the Sponsor in the amount of $102,000 at December 31, 1996. 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.
On September 19, 1994, the Partnership (incorrectly referred to as "Rancon
Realty") was served by mail with a Summons and Complaint in connection with an
action filed by a single four-unit Partnership investor, in the Circuit Court of
Mobile County, Alabama. In this action (George Jones v. Wallace Quinn; Life
Cycle Financial Planning; Rancon Realty; Phoenix Leasing, Incorporated; First
Securities Corporation et. al; Civil Action No. CV94-3053) the plaintiff alleges
that the defendants, primarily the plaintiff's investment advisors, gave
improper investment advice and misrepresented the suitability of certain
investments, including the Partnership, for the plaintiff's investment
portfolio. The Partnership retained Alabama counsel to represent it in this
action. Such action was settled in December, 1995 resulting in the Partnership
repurchasing the plaintiff's investment of four units.
Note 8. TAXABLE INCOME
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 35 of 59
RANCON REALTY FUND V,
A California Limited Partnership
Notes to Consolidated Financial Statements
December 31, 1996, November 30, 1995 and 1994
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, 1996,
November 30, 1995 and 1994, 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).
December 31, November 30, November 30,
1996 1995 1994
---------- --------- ----------
Net loss per financial statements $ (1,307) $ (16,148) $ (5,558)
Provision for impairment of
investments in real estate -- 14,760 2,965
Financial reporting depreciation in
excess of tax reporting depreciation 558 626 1,023
Operating revenues and expenses
recognized in a different period
for financial reporting than for
income tax reporting, net (175) 166 432
Property taxes capitalized for tax 487 477 --
--------- -------- --------
Estimated net loss for federal
income tax purposes $ (437) $ (119) $ (1,138)
========== ======== ========
The following is a reconciliation as of December 31, 1996 and November 30, 1995
of partner's equity for financial reporting purposes to estimated partners'
capital for federal income tax purposes (in thousands).
December 31, November 30,
1996 1995
------------ -----------
Partners' equity per financial
statements $ 39,997 $ 41,506
Cumulative provision for impairment
of investments in real estate 21,725 21,725
Cumulative financial reporting
depreciation in excess of tax
reporting depreciation 6,883 6,325
Operating revenues and expenses
recognized in a different period
for financial reporting than for
income tax reporting, net (175) 166
Property taxes capitalized for tax 964 477
Syndication costs (1,987) (1,987)
Other, net 843 476
------------ ----------
Estimated partners' capital for
federal income tax purposes $ 68,250 $ 68,688
============ ==========
Page 36 of 59
RANCON REALTY FUND V,
A California Limited Partnership
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
December 31, 1996
(In Thousands)
- --------------------------------------------------------------------------------------------------------
COLUMN A COLUMN B COLUMN C COLUMN D
Cost Capitalized
Initial Cost to Subsequent to
Partnership Acquisition
---------------------- ----------------------
Buildings
and Carrying
Description Encumbrances Land Improvements Improvements Cost
- --------------------------------------------------------------------------------------------------------
Rental Properties:
Commercial Office Complexes
San Bernardino County, CA:
6.8 acres - One Carnegie Plaza $4,294 $ 1,583 $ -- $ 9,462 $ 40
Less: Provision for impairment
of investment in real estate (B) -- -- -- (1,657) --
4.5 acres - Two Carnegie Plaza (C) 873 -- 5,562 --
3.7 acres - Carnegie Business
Center II -- 544 -- 3,482 15
Less: Provision for impairment
of investment in real estate (B) -- -- -- (299) --