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 selling real property. The Partnership was organized in 1985 and reached final funding in February 1989. The general partners of the Partnership are Daniel L. Stephenson (“DLS”) and Rancon Financial Corporation (“RFC”), hereinafter collectively referred to as the “General Partner”. RFC is wholly-owned by DLS. The Partnership has no employees.
The Partnership’s initial acquisition of property in 1985 consisted of 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 approximately 153 acres known as Tri-City Corporate Centre (“Tri-City”) and is zoned for mixed commercial, office, hotel, transportation-related, and light industrial uses. Other than two properties which were sold in 2005 to Chuck E. Cheese and Office Max by the Partnership and Rancon Realty Fund IV (“Fund IV”), a limited partnership sponsored by the General Partner of the Partnership, respectively, all of the parcels thereof are separately owned by the Partnership and Fund IV. As of December 31, 2008, the Partnership has twelve properties consisting of eight office properties, and four retail buildings. The Partnership’s properties are more fully described in Item 2.
In November 2005, in connection with a refinancing, the Partnership formed Rancon Realty Fund V Subsidiary LLC (“RRF V SUB”), a Delaware limited liability company, which is wholly owned by the Partnership. The new entity was formed to satisfy certain lender requirements for a note obtained in the fourth quarter of 2005. The note is collateralized by seven properties (as discussed in Item 2) which have been contributed to RRF V SUB by the Partnership. Since RRF V SUB is wholly owned by the Partnership, the financial statements of RRF V SUB have been consolidated with those of the Partnership.
In April 2006, the Partnership formed Rancon Realty Fund V Subsidiary Two LLC (“RRF V SUB2”), a Delaware limited liability company which is wholly owned by the Partnership. The new entity was formed to satisfy certain lender requirements for a note obtained in the second quarter of 2006. The note is collateralized by four properties (as discussed in Item 2) which have been contributed to RRF V SUB2 by the Partnership. Since RRF V SUB2 is wholly owned by the Partnership, the financial statements of RRF V SUB2 have been consolidated with those of the Partnership.
No limited partnership units (“Units”) were redeemed in 2008. In 2007, and 2006, a total of four and 1,304 Units were redeemed at average prices of $680 and $629, respectively. As of December 31, 2008, there were 83,898 Units outstanding.
The Partnership commenced on May 8, 1985 and shall continue until December 31, 2015, unless previously terminated in accordance with the provisions of the Partnership agreement.
Competition Within the Market
The Partnership competes in the leasing of its properties primarily with other available properties in the local real estate market. Other than Fund IV, management is not aware of any specific competitors of the Partnership’s properties doing business on a significant scale in the local market. Management believes that characteristics influencing the competitiveness of a real estate project are the geographic location of the property, the professionalism of the property manager, the maintenance and appearance of the property and rental rates, 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 include the ease of access to the property, the adequacy of related facilities, such as parking, and the ability to provide rent concessions and tenant improvements commensurate with local market conditions. Although management believes the Partnership’s properties are competitive with comparable properties as to those factors within the Partnership’s control, over-building and other external factors could adversely affect the ability of the Partnership to attract and retain tenants. The marketability of the properties may also be affected (either positively or negatively) by these factors as well as by changes in general or local economic conditions, including prevailing interest rates. Depending on market and economic conditions, the Partnership may be required to retain ownership of its properties for periods longer than anticipated, or may need to sell earlier than anticipated or refinance a property at a time or under terms and conditions that are less advantageous than would be the case if unfavorable economic or market conditions did not exist.
Working Capital
The Partnership’s practice is to maintain cash reserves for normal repairs, replacements, working capital and other contingencies.
Item 1A.
Item 1A. Risk Factors
Risks of the Current Economic Environment
Financial markets have recently experienced unusual volatility and uncertainty. Liquidity has tightened in all financial markets, including the debt and equity markets. The Partnership’s ability to fund normal recurring expenses and capital expenditures as well as its ability to repay or refinance debt maturities could be adversely affected by an inability to secure financing at reasonable terms,
if at all. If economic conditions persist or deteriorate, the Partnership may experience increases in past due accounts, defaults, lower occupancy and reduced effective rents. These conditions could negatively affect the Partnership’s future net income and cash flows and could adversely affect its ability to fund distributions, debt service payments and tenant improvements.
Market Fluctuations in Rental Rates and Occupancy Could Adversely Affect Our Operations
As leases turn over, our ability to re-lease the space to existing or new tenants at rates equal to or greater than those realized historically is impacted by, among other things, the economic conditions of the market in which a property is located, the availability of competing space (including sublease space offered by tenants who have vacated space in competing buildings prior to the expiration of their lease term), and the level of improvements which may be required at the property. We cannot assure you that the rental rates we obtain in the future will be equal to or greater than those obtained under existing contractual commitments. If we cannot lease all or substantially all of the expiring space at our properties promptly, or if the rental rates are significantly lower than expected, then our results of operations and financial condition could be negatively impacted.
Tenants’ Defaults Could Adversely Affect Our Operations
Our ability to manage our assets is subject to federal bankruptcy laws and state laws that limit creditors’ rights and remedies available to real property owners to collect delinquent rents. If a tenant becomes insolvent or bankrupt, we cannot be sure that we could recover the premises from the tenant promptly or from a trustee or debtor-in-possession in any bankruptcy proceeding relating to that tenant. We also cannot be sure that we would receive rent in the proceeding sufficient to cover our expenses with respect to the premises. If a tenant becomes bankrupt, the federal bankruptcy code will apply, which in some instances may restrict the amount and recoverability of our claims against the tenant. A tenant’s default on its obligations to us could adversely affect our results of operations and financial condition.
Potential Liability Due to Environmental Matters
Under federal, state and local laws relating to protection of the environment, or (“Environmental Laws”), a current or previous owner or operator of real estate may be liable for contamination resulting from the presence or discharge of petroleum products or other hazardous or toxic substances on the property. These owners may be required to investigate and clean-up the contamination on the property as well as the contamination which has migrated from the property. Environmental Laws typically impose liability and clean-up responsibility without regard to whether the owner or operator knew of, or was responsible for, the presence of the contamination. This liability may be joint and several unless the harm is divisible and there is a reasonable basis for allocation of responsibility. In addition, the owner or operator of a property may be subject to claims by third parties based on personal injury, property damage and/or other costs, including investigation and clean-up costs, resulting from environmental contamination. Environmental Laws may also impose restrictions on the manner in which a property may be used or transferred or in which businesses may be operated. These restrictions may require expenditures. Under the Environmental Laws, any person who arranges for the transportation, disposal or treatment of hazardous or toxic substances may also be liable for the costs of investigation or clean-up of those substances at the disposal or treatment facility, whether or not the facility is or ever was owned or operated by that person.
Our tenants generally are required by their leases to operate in compliance with all applicable Environmental Laws, and to indemnify us against any environmental liability arising from their activities on the properties. However, we could be subject to strict liability by virtue of our ownership interest in the properties. Also, tenants may not satisfy their indemnification obligations under the leases. We are also subject to the risk that:
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any environmental assessments of our properties may not have revealed all potential environmental liabilities,
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any prior owner or prior or current operator of these properties may have created an environmental condition not known to us, or
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an environmental condition may otherwise exist as to any one or more of these properties.
Any one of these conditions could have an adverse effect on our results of operations and financial condition. Moreover, future environmental laws, ordinances or regulations may have an adverse effect on our results of operations and financial condition. Also, the current environmental condition of those properties may be affected by tenants and occupants of the properties, by the condition of land or operations in the vicinity of the properties (such as the presence of underground storage tanks), or by third parties unrelated to us.
We are not aware of any current liabilities related to environmental matters that are material to us. However, the foregoing risk factor is provided because such risks are inherent to real estate ownership.
Environmental Liabilities May Adversely Affect Operating Costs and Ability to Borrow
The obligation to pay for the cost of complying with existing Environmental Laws as well as the cost of complying with future legislation may affect our operating costs. In addition, the presence of petroleum products or other hazardous or toxic substances at any of our properties, or the failure to remediate those properties properly, may adversely affect our ability to borrow by using those properties as collateral. The cost of defending against claims of liability and the cost of complying with Environmental Laws, including investigation or clean-up of contaminated property, could materially adversely affect our results of operations and financial condition.
General Risks of Ownership of Real Estate
We are subject to risks generally incidental to the ownership of real estate. These risks include:
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changes in general economic or local conditions;
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changes in supply of or demand for similar or competing properties in an area;
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the impact of environmental protection laws;
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changes in interest rates and availability of financing which may render the sale or financing of a property difficult or unattractive;
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changes in tax, real estate and zoning laws; and
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the creation of mechanics’ liens or similar encumbrances placed on the property by a lessee or other parties without our knowledge and consent.
Should any of these events occur, our results of operations and financial condition could be adversely affected.
Uninsured Losses May Adversely Affect Operations
We, or in certain instances, tenants of our properties, carry property and liability insurance with respect to the properties. This coverage has policy specifications 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. Further, certain properties are located in areas that are subject to earthquake activity and floods. Should a property sustain damage as a result of an earthquake or flood, we may incur losses due to insurance deductibles, co-payments on insured losses or uninsured losses. Additionally, we have 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, we could lose some or all of our capital investment, cash flow and anticipated profits related to one or more properties. This could have an adverse effect on our results of operations and financial condition.
Illiquidity of Real Estate May Limit Our Ability to Vary Our Portfolio
Real estate investments are relatively illiquid and, therefore, will tend to limit our ability to vary our portfolio quickly in response to changes in economic or other conditions.
Potential Liability Under the Americans With Disabilities Act
All of our properties are required to be in compliance with the Americans With Disabilities Act. The Americans With Disabilities Act generally requires that places of public accommodation be made accessible to people with disabilities to the extent readily achievable. Compliance with the Americans With Disabilities Act requirements could require removal of access barriers. Non-compliance could result in imposition of fines by the federal government, an award of damages to private litigants and/or a court order to remove access barriers. Because of the limited history of the Americans With Disabilities Act, the impact of its application to our properties, including the extent and timing of required renovations, is uncertain. Pursuant to lease agreements with tenants in certain of the “single-tenant” properties, the tenants are obligated to comply with the Americans With Disabilities Act provisions. If our costs are greater than anticipated or tenants are unable to meet their obligations, our results of operations and financial condition could be adversely affected.
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 1B.
Item 1B. Unresolved Staff Comments
None.
Item 2.
Item 2. Properties
In 1985, the Partnership acquired a total of 76.21 acres of partially developed land in Tri-City for an aggregate purchase price of $14,118,000. In 1984 and 1985, a total of 76.56 acres within Tri-City were 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, and is in the heart of the Inland Empire, the most densely populated area of San Bernardino and Riverside counties.
The Inland Empire is generally broken down into two major markets, Inland Empire East and Inland Empire West. Tri-City is located within the Inland Empire East market, which consists of approximately 13.4 million square feet of office space. According to a fourth quarter 2008 market view report from an independent broker the overall vacancy rate was 21% within the Inland Empire market as of December 31, 2008.
As of December 31, 2008, the Partnership owned twelve rental properties, one property in construction in progress and approximately 4.1 acres of unimproved land.
Properties
The Partnership’s improved properties are as follows:
Property
Type
Square
Footage
One Carnegie Plaza
Two two-story office buildings
107,277
Two Carnegie Plaza
Two-story office building
68,956
Carnegie Business Center II
Two industrial buildings
50,867
Lakeside Tower
Six-story office building
112,716
One Parkside
Four-story office building
70,068
Bally’s Health Club (Bally’s)
Health club facility
25,000
Outback Steakhouse (Outback)
Restaurant
6,500
Palm Court Retail #3
Retail
6,004
Two Parkside
Three-story office building
82,004
Pat & Oscars (commenced operations March 2004)
Restaurant
5,100
Three Carnegie (commenced operations July 2005)
Two-story office building
83,661
Brier Corporate Center (commenced operations February 2006)
Three-story office building
104,348
Total
722,501
The office buildings total approximately 680,000 square feet with an average occupancy rate of 88%, and the retail buildings total approximately 43,000 square feet with an average occupancy rate of 100%, as of December 31, 2008.
As of December 31, 2008, there were six tenants occupying substantial portions of leased rental space. These six tenants, in the aggregate, occupy approximately 243,000 square feet of the 723,000 total rentable square feet and account for approximately 41% of the rental income generated for the Partnership as of December 31, 2008.
Occupancy rates for the Partnership’s buildings for each of the five years ended December 31, 2008 were as follows:
The annual effective rents per square foot for each of the five years ended December 31, 2008 were as follows:
Annual effective rent is calculated by dividing the aggregate of annualized December rental income for each tenant by the total square feet occupied at the property.
The Partnership’s rental properties are owned by the Partnership, in fee, subject to the following notes:
Note payable #1 is collateralized by Bally’s Health Club, Carnegie Business Center II, Lakeside Tower, Outback Steakhouse, Pat & Oscars, Palm Court Retail #3 and One Carnegie Plaza. Note payable #2 is collateralized by Brier Corporate Center, One Parkside, Two Parkside and Two Carnegie Plaza. There is no debt collateralized by Three Carnegie as of December 31, 2008.
Land
As of December 31, 2008, the Partnership owned approximately 5.0 acres of land, of which 0.9 acres are under construction and the remaining 4.1 acres of land are part undeveloped and part used as parking lots. The Partnership is looking into developing all the available acres of land to generate more operating income for the Partnership.
Item 3.
Item 3. 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 in the future have a material adverse effect on the Partnership’s financial position, cash flow or results of operations.
Item 4.
Item 4. Submission of Matters to a Vote of Security Holders
None.
Part II
Item 5.
Item 5. Market for Partnership’s Common Equity, Related Stockholder Matters and Issuer of Equity Securities
Market Information
There is no established trading market for the units of limited partnership interest (“Units’) issued by the Partnership.
Holders
As of December 31, 2008, there were 7,704 holders of Units.
Distributions
Distributions are paid from either Cash From Operations or Cash From Sales or Refinancing (as such terms are defined in the Partnership Agreement).
Cash From Operations includes all cash receipts from operations in the ordinary course of business (except for the sale, exchange or other disposition of real property in the ordinary course of business) after deducting payments for operating expenses. All distributions of Cash From Operations are paid in the ratio of 90% to the limited partners and 10% to the General Partner.
Cash From Sales or Refinancing is the net cash realized by the Partnership from the sale, disposition or refinancing of any property after redemption of applicable mortgage debt and all expenses related to the transaction, together with interest on any notes taken back by the Partnership upon the sale of a property. All distributions of Cash From Sales or Refinancing are generally allocated as follows: (i) first, 1 percent to the General Partner and 99 percent to the limited partners until the limited partners have received an amount equal to their capital contributions; (ii) second, 1 percent to the General Partner and 99 percent to the limited partners until the limited partners have received a 12 percent return on their unreturned capital contributions including prior distributions of Cash From Operations; plus their Limited Incremental Preferred Return for the twelve month period following the purchase date of each Unit and following admission as a limited partner; (iii) third, 99 percent to the General Partner and 1 percent to the limited partners until the General Partner has received an amount equal to 20 percent of all distributions of Cash From Sales or Refinancing previously made under clauses (ii) and (iii) above, reduced by the amount of prior distributions made to the General Partner under clauses (ii) and (iii); and (iv) fourth, the balance 20 percent to the General Partner and 80 percent to the limited partners. A more detailed statement of the distribution policies is set forth in the Partnership Agreement.
For 2008, the Partnership distributed from operations $2,663,000 to the limited partners and $256,000 to the General Partner. In addition, the Partnership paid a final distribution related to 2007 of $57,000 to the General Partner.
For 2007, the Partnership distributed from operations $2,315,000 to the limited partners and $200,000 to the General Partner.
For 2006, the Partnership distributed from operations $2,057,000 to the limited partners and $229,000 to the General Partner. In addition the Partnership paid a final distribution related to 2005 of $200,000 to the General Partner.
There were no redemptions of Units during 2008.
Item 6.
Item 6. Selected Financial Data
The following is selected financial data for each of the five years ended December 31, 2008 (in thousands, except per unit of limited partnership interest data):
Item 7.
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis of our results of operations, liquidity and capital resources, and financial condition should be read in conjunction with the selected financial data in Item 6 and the Consolidated Financial Statements, including the notes thereto, included in Item 15 of Part IV.
Background
The Partnership’s initial acquisition of property in 1985 consisted of 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 limited partnership sponsored by the General Partner of the Partnership. As of December 31, 2008 the Partnership has twelve properties which consisted of eight office buildings and four retail buildings.
Overview
Leasing activities
During 2008, management executed eleven new leases totaling 56,848 square feet of space and renewed eleven leases totaling 55,557 square feet.
Construction
During the second quarter of 2007, the Partnership began developing Three Parkside, a two-story multi-tenant 30,322 square-foot office building on an approximate 0.6 acre land parcel. The project incurred costs of $5,883,000 as of December 31, 2008 and was placed into service in the first quarter of 2009. Management continues to focus on leasing this new building.
Unit redemption
During 2008, no Units were redeemed. As of December 31, 2008, there were 83,898 Units outstanding.
Results of Operations
Comparison of the year ended December 31, 2008 to the year ended December 31, 2007
Revenue
Operating revenue decreased $865,000, or 6%, for the year ended 2008 compared to the year ended 2007. This was due to decreases in rental revenue and decreases in recoveries from tenants of $313,000 and $552,000, respectively. Rental revenue decreased due to several factors. Gross effective rental income was higher compared to 2007 due to increases in rental rates, but this favorable variance was more than offset by higher amortization of straight line rents, higher reserves for bad debts and lower lease termination income, which lowered revenue by $229,000, $114,000 and $168,000, respectively. The decrease in recoveries is due to both a decrease for 2008, which correlates with a decrease in operating expenses, and a credit to tenants in 2008 related to prior year recoveries, which lowered revenue by $428,000 compared to 2007. The final recovery true up for 2007 was performed in the second quarter of 2008 and resulted in lower recoveries than estimated at the end of 2007.
Expenses
Property operating expenses decreased $495,000, or 7%, for the year ended 2008 compared to the year ended 2007, primarily due to decreases in property taxes, utilities and insurance of $242,000, $147,000 and $140,000, respectively.
Depreciation and amortization increased $99,000, or 2%, for the year ended 2008, compared to the year ended 2007, primarily due to the depreciation of capital improvements, of approximately $2,841,000, placed into service in the current year.
Non-operating income / expenses
Interest and other income decreased $418,000, or 74%, during 2008, compared to 2007, primarily due to both lower average investment balances and lower interest rates.
Interest expense increased $38,000, or 1%, during 2008, compared to 2007, due to the cessation of interest capitalization, at the end of 2007, related to the development of Three Parkside.
Comparison of the year ended December 31, 2007 to the year ended December 31, 2006
Revenue
Operating revenue increased $1,427,000, or 10%, for the year ended 2007 compared to the year ended 2006. This was due to increases in rental revenue and other of $541,000, and recoveries from tenants of $886,000. The increase in rental revenue and other was primarily due to an increase in occupancy, principally at Three Carnegie Plaza, One Parkside, and Carnegie Business Center II, which contributed $368,000, $80,000 and $115,000, respectively plus a full year of operations at Brier Corporate Center which contributed $179,000, partially offset by a decrease in occupancy at Lakeside Tower which reduced operating revenues by $170,000. Recoveries were higher due to increased recoveries related to both 2007 and the 2006 recovery reconciliations completed in the second quarter of 2007.
Expenses
Property operating expenses increased $1,135,000, or 20%, for the year ended 2007 compared to the year ended 2006, primarily due to increases in the cost of the earthquake insurance policy, real estate taxes and janitorial costs of $370,000, $212,000, and $100,000 respectively and generally higher expenses across several operating accounts. The remaining was due to a full year of operations at Brier Corporate Center which, excluding insurance and property taxes which are included above, contributed an additional $108,000.
Depreciation and amortization increased $42,000, or 1%, for the year ended 2007, compared to the year ended 2006, primarily due to the depreciation of capital improvements placed into service and an additional month of depreciation associated with Brier Corporate Center in 2007.
General and administrative expenses increased $57,000, or 6%, for the year ended 2007, compared to year ended 2006, primarily due to higher professional fees of $30,000 combined with smaller increases across a broad range of costs.
Non-operating income / expenses
Interest and other income increased $221,000, or 65%, during 2007, compared to 2006, primarily due to interest income earned from the investment of the proceeds of the loan obtained in April 2006.
Interest expense increased $415,000, or 16%, during 2007, compared to 2006, primarily due to a full year of interest expense related to the note payable #2 of $30,000,000 obtained in April 2006, as well as the first quarter of 2006 cessation of interest capitalization associated with the development of Brier Corporate Center.
Liquidity and Capital Resources
As of December 31, 2008, the Partnership had cash and cash equivalents of $4,545,000.
The Partnership’s liabilities at December 31, 2008, include two notes payable. The borrowings totaled approximately $54,539,000, collateralized by properties with an aggregate net carrying value of approximately $47,768,000.
The Partnership is contingently liable for subordinated real estate commissions payable to the General Partner in the amount of $102,000 as of December 31, 2008 for sales that occurred 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 percent per annum on their adjusted invested capital. Since the circumstances under which these commissions would be payable are not met currently, the liability has not been recognized in the accompanying consolidated financial statements; however, the amount will be recorded when and if it becomes payable.
Operationally, the Partnership’s primary source of funds consists of cash provided by its rental activities. Other sources of funds may include permanent financing, proceeds from property sales, and interest income on money market funds and short-term investments. Cash generated from property sales is generally added to the Partnership’s cash reserves, pending use in development of other properties or distribution to the partners.
Management expects that the Partnership’s cash balance at December 31, 2008, together with cash from operations, sales and financings will be sufficient to finance the Partnership’s and the properties’ continuing operations and development plans on a short-term basis and for the reasonably foreseeable future. There can be no assurance that the Partnership’s results of operations will not fluctuate in the future and at times affect its ability to meet its operating requirements.
Contractual Obligations
At December 31, 2008, we had contractual obligations as follows (in thousands):
The Partnership knows of no demands, commitments, events or uncertainties, which might affect its capital resources in any material respect. In addition, the Partnership is not subject to any covenants pursuant to its secured debt that would constrain its ability to obtain additional capital.
Operating Activities
For the year ended December 31, 2008, the Partnership’s cash provided by operating activities totaled $4,416,000.
A decrease in accounts receivable of $289,000 at December 31, 2008, compared to December 31, 2007, is due to a general decrease in accounts receivables balances across multiple properties.
An increase in deferred costs of $774,000 at December 31, 2008, compared to December 31, 2007, was due to lease commissions paid for the leasing activity primarily at Two Parkside, Three Carnegie, One Carnegie and Lakeside Tower of $329,000, $129,000, $98,000 and $79,000 respectively.
A decrease in prepaid expenses and other assets of $224,000 at December 31, 2008, compared to December 31, 2007, was primarily due to the amortization on straight line rent receivables of $159,000, and a decrease in prepaid expenses of $65,000, primarily due to the amortization of prepaid insurance.
An increase in accounts payable and other liabilities of $531,000 at December 31, 2008, compared to December 31, 2007, was primarily due to an increase in property tax accruals of $323,000 related to Two Parkside and Three Parkside and accruals for common area maintenance true up estimates of $147,000.
A decrease in prepaid rents of $105,000 at December 31, 2008, was due to a lower amount of January 2009 rents received in December 2008 of $286,000, as compared to the balance of January 2008 rents received in December 2007 of $391,000.
Investing Activities
During the year ended December 31, 2008, the Partnership’s cash used in investing activities totaled $4,311,000, which primarily consisted of $4,342,000 of additions to real estate investments ($2,841,000 for building and tenant improvements primarily at Lakeside Tower, Two Parkside, Carnegie Business Center II, Three Carnegie and One Carnegie and $1,501,000 of construction costs at Three Parkside).
Financing Activities
During the year ended December 31, 2008, the Partnership’s cash used in financing activities totaled $3,816,000, which primarily consisted of $841,000 of principal payments made on the notes payable, $2,663,000 for payment of distributions to limited partners and $313,000 for payment of distributions to the General Partner.
Cash flows
For the year ended December 31, 2008, cash provided by operating activities was $4,416,000, as compared to $4,900,000 for the same period in 2007. The change was primarily due to a net loss of $504,000 in 2008 compared to net income of $401,000 in 2007, partially offset by changes in certain assets and liabilities. For the year ended December 31, 2008, cash used in investing activities was $4,311,000, as compared to cash provided by investing activities of $3,996,000 for the same period in 2007. The change was primarily due to 2007 including proceeds from the sale of short term investments of $10,290,000, partially offset by lower additions to real estate in 2008 as compared to 2007. For the year ended December 31, 2008, cash used in financing activities was $3,816,000, as compared to cash used in financing activities of $3,314,000 for the same period in 2007. The change was primarily due to higher distributions and payments on the notes payable.
For the year ended December 31, 2007, cash provided by operating activities was $4,900,000, as compared to $1,908,000 for the same period in 2006. The change was primarily due to smaller increases in deferred costs and prepaid expenses and other assets. For the year ended December 31, 2007, cash provided by investing activities was $3,996,000, as compared to cash used in investing activities of $17,198,000 for the same period in 2006. The change was primarily due to the proceeds from the sale of the short term investments of $10,290,000 which were purchased in 2006. For the year ended December 31, 2007, cash used in financing activities was $3,314,000, as compared to cash provided by financing activities of $14,527,000 for the same period in 2006. The change was primarily due to 2006 including a net amount of $18,976,000 of additional financing consisting of $30,000,000 proceeds from the notes payable and $2,338,000 construction note draws, offset by construction note payoffs of $9,362,000 and payoff of the line of credit of $4,000,000. 2007 included no such activities. The remaining difference was due to reduced redemptions of Units and reduced loan fees, offset by higher principal payments on the note payable.
Critical Accounting Policies
Revenue recognized on a straight-line basis
The Partnership recognizes rental revenue on a straight-line basis over the term of its leases. Actual amounts collected could be lower or higher 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. The reimbursements from tenants for real estate taxes are recognized as revenue in the period the expenses are incurred. Other recoverable operating expenses are recognized as revenue on an estimated basis, and the differences between estimated and actual amounts are recognized as revenue in the subsequent year when the amounts are collected. However, where actual expenses are significantly different from estimates, the Partnership will accrue the estimated differences in the same period.
Carrying value of rental properties and land held for development
The Partnership’s rental properties, including the related land, are stated at depreciated cost unless events or circumstances indicate that such amount cannot be recovered, in which case, the carrying value of the property is reduced to its estimated fair value. Estimated fair value is based upon (i) the Partnership’s plans for the continued operations of each property, and (ii) is computed using estimated sales price, as determined by prevailing market values for comparable properties and/or the use of capitalization rates multiplied by annualized rental income based upon the age, construction and use of the building. The fulfillment of the Partnership’s plans related to each of its properties is dependent upon, among other things, the presence of economic conditions which will enable the Partnership to continue to hold and operate the properties prior to their eventual sale. Due to uncertainties inherent in the valuation process and in the economy, it is reasonably possible that the actual results of operating and disposing of the Partnership’s properties could be materially different than current expectations.
Land held for development is stated at cost unless events or circumstances indicate that cost cannot be recovered, in which case, the carrying value is reduced to estimated fair value. Estimated fair value: (i) is based on the Partnership’s plans for the development of each property; (ii) is computed using estimated sales price, based upon market values for comparable properties; and (iii) considers the cost to complete and the estimated fair value of the completed project. The fulfillment of the Partnership’s plans related to each of its properties is dependent upon, among other things, the presence of economic conditions which will enable the Partnership to either hold the properties for eventual sale or obtain financing to further develop the properties.
The pre-development costs for a new project include survey fees and consulting fees. Interest, property taxes and insurance related to the new project are capitalized during periods when activities that are necessary to get the project ready for its intended use are in progress. The capitalization ends when the construction is substantially completed and the project is ready for its intended use.
The actual value of the Partnership’s portfolio of properties and land held for development could be different from their carrying amounts.
Recently Issued Accounting Pronouncements
In September 2006, the Financial Accounting Standards Board (“FASB”) issued Statement No. 157, Fair Value Measurements (“SFAS No. 157”), which defines fair value, establishes a framework for measuring fair value and enhances disclosure requirements for fair value measurements. SFAS No. 157 defines fair value 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. SFAS No. 157 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. The standard describes three levels of inputs that may be used to measure fair value.
Financial assets and liabilities recorded on the 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. This category generally includes certain corporate debt securities and derivative contracts.
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. This category generally includes long-term derivative contracts and real estate.
The Partnership adopted SFAS No. 157 with respect to its financial assets and liabilities but not with respect to its nonfinancial assets (such as real estate, which is not subject to annual fair value measurements) as those provisions of SFAS No. 157 have been deferred. There was no material impact on the Partnership’s financial position, results of operations and cash flows as a result of such adoption.
In October 2008, the FASB issued FASB Staff Position FAS 157-3, Determining the Fair Value of a Financial Asset When the Market for That Asset Is Not Active (“FSP 157-3”). FSP 157-3 clarified the application of FAS 157. FSP 157-3 clarified how the fair value of a financial asset is determined when the market for that financial asset is inactive. FSP 157-3 was effective upon issuance, including prior periods for which financial statements had not been issued. The implementation of this standard did not have an impact on the Partnership’s financial position, results of operations and cash flows.
In February 2007, the FASB issued Statement No. 159, The Fair Value Option for Financial Assets and Financial Liabilities - Including an Amendment of FASB Statement No. 115 (“SFAS No. 159”). SFAS No. 159 expands opportunities to use fair value measurement in financial reporting and permits entities to choose to measure many financial instruments and certain other items at fair value. It also establishes presentation and disclosure requirements designed to facilitate comparisons between entities that choose different measurement attributes for similar types of assets and liabilities. This Statement is effective for fiscal years beginning on or after November 15, 2007. The Partnership does not believe that the adoption of SFAS No. 159 did not have a material impact on its financial position, results of operations and cash flows.
In December 2007, the FASB issued SFAS No. 141(R), Business Combinations, (“SFAS No. 141 (R)”) which improves the relevance, representational faithfulness, and comparability of the information that a reporting entity provides in its financial reports about a business combination and its effects. This Statement is effective for fiscal years beginning after December 15, 2008. The Partnership does not believe that the adoption of SFAS No. 141(R) will have a material impact on its financial position, results of operations and cash flows, except that transaction costs will be expensed as incurred.
In December 2007, the FASB issued SFAS No. 160, Noncontrolling Interests in Consolidated Financial Statements an Amendment of ARB No. 51, (“SFAS No. 160”) which clarifies that a noncontrolling interest in a subsidiary is an ownership interest in the consolidated entity that should be reported as equity in the consolidated financial statements. This Statement is effective for fiscal years beginning after December 15, 2008. The Partnership does not believe that the adoption of SFAS No. 160 will have a material impact on its financial position, results of operations and cash flows.
In March 2008, the FASB issued SFAS No. 161, Disclosures about Derivative Instruments and Hedging Activities-an amendment of FASB Statement No. 133 (“SFAS No. 161”), which requires companies to provide additional disclosures about their objectives and strategies for using derivative instruments, how the derivative instruments and related hedged items are accounted for under SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities, and related interpretations, and how the derivative instruments and related hedged items affect the their financial statements. SFAS No. 161 also requires companies to disclose information about credit risk-related contingent features in their hedged positions. SFAS No. 161 is effective for fiscal years and interim periods beginning after November 15, 2008. The Partnership does not believe that the adoption of SFAS No. 161 will have a material impact on its financial condition or operating results.
Inflation
Leases at the office properties typically provide for rent adjustment and pass-through of certain operating expenses during the term of the lease. Substantially all of the leases at the office and 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-K 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 expectation of making distributions to our partners;
•
Our intent to develop the remaining land to generate more operating income;
•
Our belief that cash and cash generated by operations, sales and financing will be sufficient to meet our operating requirements in both the short and the long-term;
•
Our expectation that changes in market interest rates will not have a material impact on the performance or the fair value of our portfolio;
•
Our belief that certain claims and lawsuits which have arisen against us in the normal course of business will not have a material adverse effect on our financial position, cash flow or results of operations;
•
Our belief that properties are competitive within our market;
•
Our expectation to achieve certain occupancy levels;
•
Our estimation of market strength;
•
Our knowledge of any material environmental matters; and
•
Our expectation that lease provisions may permit us to increase rental rates or other charges to tenants in response to rising prices, and therefore serve to reduce exposure to the adverse effects of inflation.
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. Those important factors include:
•
market fluctuations in rental rates and occupancy;
•
reduced demand for rental space;
•
availability and creditworthiness of prospective tenants;
•
defaults or non-renewal of leases by customers;
•
differing interpretations of lease provisions regarding recovery of expenses;
•
increased operating costs;
•
changes in interest rates and availability of financing that may render the sale or financing of a property difficult or unattractive;
•
failure to obtain necessary outside financing;
•
risks and uncertainties affecting property development and construction (including construction delays, cost overruns, our inability to obtain necessary permits and public opposition to these activities); and
•
the unpredictability of both the frequency and final outcome of litigation;
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. See Item 1A for further discussion.
Item 7A.
Item 7A. Qualitative and Quantitative Disclosures about Market Risk
Interest Rates
The Partnership’s primary market risk exposure is to changes in interest rates obtainable on its secured borrowings. The Partnership expects that changes in market interest rates will not have a material impact on the performance or fair value of its portfolio.
For debt obligations, the table below presents principal cash flows by expected maturity dates.
The Partnership does not own any derivative instruments.
Item 8.
Item 8. Financial Statements and Supplementary Data
For information with respect to this item, see Financial Statements and Schedule as listed in Item 15.
Item 9.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.
Item 9A.
Item 9A. Controls and Procedures
See Item 9A(T).
Item 9A(T). 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 annual 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 annual 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.
The report called for by Item 308T(a) of Regulation S-K is incorporated herein by reference to the “Management’s Annual Report on Internal Control Over Financial Reporting” (“Management’s Report”), included in the financial statements included as an exhibit to this report. Management’s Report shall not be deemed to be filed for purposes of Section 18 of the Exchange Act or otherwise subject to the liabilities of that section.
There have not been any changes in the Partnership’s internal control over financial reporting identified in connection with Management’s Report that occurred during the Partnership’s fourth fiscal quarter ended December 31, 2008 that has materially affected, or is reasonably likely to materially affect, the Partnership’s internal control over financial reporting.
Item 9B.
Item 9B. Other Information
None.
Part III
Item 10.
Item 10. Directors, Executive Officers and Corporate Governance
Daniel L. Stephenson and Rancon Financial Corporation (“RFC”) are the general partners of the Partnership. Mr. Stephenson is the Director, President, Chief Executive Officer and Chief Financial Officer of RFC.
Mr. Stephenson, age 65, founded RFC (formerly known as Rancon Corporation) in 1971 for the purpose of establishing a commercial, industrial and residential property syndication, development and brokerage concern. Mr. Stephenson has, from RFC’s inception, held the position of Director. In addition, Mr. Stephenson was President, Chief Executive Officer and Chief Financial 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 acquired a portfolio of assets from the Resolution Trust Corporation.
Section 16(a) Beneficial Ownership Reporting Compliance
Based on a review of the copies of beneficial ownership reports filed pursuant to Section 16(a) of the Exchange Act received by the Partnership, the Partnership believes that, during the fiscal year ended December 31, 2008, all such ownership reports were filed on a timely basis.
Code of Ethics
The Partnership has not adopted a “code of ethics” as defined in rules adopted by the SEC. Because neither the Partnership nor the General Partner has any employees other than Daniel L. Stephenson, the Partnership has determined that adopting a code of ethics would not appreciably improve the Partnership’s ability to deter wrongdoing or promote the conduct set forth in such SEC rules.
Director Independence
The Partnership has no officers of directors. Information on Mr. Stephenson, one of the general partners of the Partnership and Director, President, Chief Executive Officer and Chief Financial Officer of the other general partner of the Partnership, is provided in the first paragraph of this Item 10. Mr. Stephenson is not “independent” within the meaning of relevant SEC and securities exchange definitions of the term.
Item 11.
Item 11. Executive Compensation
The Partnership has no executive officers. For information relating to fees, compensation, reimbursement and distributions paid to related parties, reference is made to Item 13 below.
Item 12.
Item 12. Security Ownership of Certain Beneficial Owners and Management
Security Ownership of Certain Beneficial Owners
* Less than 1 percent
Changes in Control
The limited partners have no right, power or authority to act for or bind the Partnership. However, the limited partners generally have the power to vote upon the following matters affecting the basic structure of the Partnership, passage of each of which requires the approval of limited partners holding a majority of the outstanding Units: (i) amendment of the Partnership Agreement; (ii) termination and dissolution of the Partnership; (iii) sale, exchange or pledge of all or substantially all of the assets of the Partnership; (iv) removal of the General Partner or any successor General Partner; (v) election of a new General Partner or General Partner upon the removal, redemption, death, insanity, insolvency, bankruptcy or dissolution of the General Partner or any successor General Partner; (vi) modification of the terms of any agreement between the Partnership and the General Partner or an affiliate of the General Partner; and (vii) extension of the term of the Partnership.
Item 13.
Item 13. Certain Relationships, Related Transactions, and Director Independence
During the year ended December 31, 2008, the Partnership distributed $313,000 to the General Partner pursuant to the Partnership Agreement and paid fees, as described in more detail in Note 6 to the consolidated financial statements attached hereto as an exhibit, to Glenborough LLC, an affiliate of Glenborough Fund XV LLC, which holds 13.78% of the Units Other than such distributions to the General Partner and fees to Glenborough LLC, the Partnership did not incur any expenses or costs reimbursable to any related person of the Partnership during the fiscal year ended December 31, 2008.
Item 14.
Item 14. Principal Accountant Fees and Services
Audit Fees
The Partnership was billed $110,000 and $102,500 for audit services rendered by its current principal accountant during the fiscal years ended December 31, 2008 and 2007, respectively.
Audit-Related Fees
The Partnership did not incur audit-related fees for services provided by its current or former principal accountant during the fiscal years ended December 31, 2008 and 2007.
Tax Fees
The Partnership did not incur tax fees for services provided by its current or former principal accountant during the fiscal years ended December 31, 2008 and 2007.
All Other Fees
The Partnership did not incur any other fees for services provided by its current or former principal accountant during the fiscal years ended December 31, 2008 and 2007.
Part IV
Item 15.
Item 15. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(a) The following documents are filed as part of the report:
Management’s Annual Report on Internal Control over Financial Reporting
(1) Financial Statements:
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets as of December 31, 2008 and 2007
Consolidated Statements of Operations for the years ended December 31, 2008, 2007 and 2006
Consolidated Statements of Partners’ Equity for the years ended December 31, 2008, 2007 and 2006
Consolidated Statements of Cash Flows for the years ended December 31, 2008, 2007 and 2006
Notes to Consolidated Financial Statements
(2) Financial Statement Schedule:
Schedule III - Real Estate and Accumulated Depreciation as of December 31, 2008 and Notes thereto
All other schedules are omitted because they are not applicable or the required information is shown in the financial statements or notes thereto.
(3) Exhibits:
* 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 SEC or subject to the rules and regulations promulgated by the SEC under the Securities Exchange Act of 1934, as amended, or to the liabilities of Section 18 of said Act.
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.
INDEX TO FINANCIAL STATEMENTS
AND SCHEDULE
All other schedules are omitted because they are not applicable or the required information is shown in the consolidated financial statements or notes thereto.
Management’s Annual Report on Internal Control over Financial Reporting
The Partnership, as such, has no officers or directors, but is managed by the General Partner. The General Partner’s principal officer is responsible for establishing and maintaining adequate internal control over financial reporting for the Partnership. The Partnership’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with U.S. generally accepted accounting principles. The Partnership’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Partnership; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the Partnership are being made only in accordance with authorizations of the management and directors of the General Partner; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of assets of the Partnership that could have a material effect on the financial statements of the Partnership.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements and even when determined to be effective, can only provide reasonable assurance with respect to financial statement preparation and presentation. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Management assessed the effectiveness of the Partnership’s internal control over financial reporting as of December 31, 2008. In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control-Integrated Framework. Based on its assessment, management determined that the Partnership maintained effective internal control over financial reporting as of December 31, 2008.
This annual report does not include an attestation report of the Partnership’s registered public accounting firm regarding internal control over financial reporting. Management’s report is not subject to attestation by the Partnership’s registered public accounting firm pursuant to temporary rules of the Securities and Exchange Commission that permit the Partnership to provide only management’s report in this annual report.
This report of management on internal control over financial reporting shall not be deemed to be filed for purposes of Section 18 of the Securities Exchange Act of 1934 or otherwise subject to the liabilities of that section.
March 27, 2009
Report of Independent Registered Public Accounting Firm
To The General Partner
Rancon Realty Fund V, a California Limited Partnership
In our opinion, the consolidated financial statements listed in the index appearing under Item 15(a)(1) present fairly, in all material respects, the financial position of Rancon Realty Fund V, a California Limited Partnership (the “Partnership”) and its subsidiaries at December 31, 2008 and 2007 and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2008 in conformity with accounting principles generally accepted in the United States of America. In addition, in our opinion, the financial statement schedule, listed in the index appearing under Item 15(a)(2), presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. These financial statements and financial statement schedule are the responsibility of the Partnership’s management. Our responsibility is to express an opinion on these financial statements and financial statement schedule based on our audits. We conducted our audits of these statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
/s/ PricewaterhouseCoopers LLP
San Francisco, CA
March 27, 2009
RANCON REALTY FUND V
A California Limited Partnership, and Subsidiaries
Consolidated Balance Sheets
December 31, 2008 and 2007
(in thousands, except Unit amounts)
The accompanying notes are an integral part of these consolidated financial statements
RANCON REALTY FUND V
A California Limited Partnership, and Subsidiaries
Consolidated Statements of Operations
For the years ended December 31, 2008, 2007 and 2006
(in thousands, except per unit amounts and units outstanding)
The accompanying notes are an integral part of these consolidated financial statements
RANCON REALTY FUND V
A California Limited Partnership, and Subsidiaries
Consolidated Statements of Partners’ Equity
For the years ended December 31, 2008, 2007 and 2006
(in thousands)
The accompanying notes are an integral part of these consolidated financial statements
RANCON REALTY FUND V
A California Limited Partnership, and Subsidiaries
Consolidated Statements of Cash Flows
For the years ended December 31, 2008, 2007 and 2006
(in thousands)
The accompanying notes are an integral part of these consolidated financial statements
RANCON REALTY FUND V
A California Limited Partnership, and Subsidiaries
Consolidated Statements of Cash Flows
For the years ended December 31, 2008, 2007 and 2006
(in thousands)
The accompanying notes are an integral part of these consolidated financial statements
RANCON REALTY FUND V,
A California Limited Partnership and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2008, 2007 and 2006
Note 1. ORGANIZATION
Rancon Realty Fund V, a California Limited Partnership, (“the Partnership”), was organized in accordance with the provisions of the California Revised Limited Partnership Act for the purpose of acquiring, developing, operating and selling real property. The Partnership was organized in 1985 and reached final funding in February 1989. The general partners of the Partnership are Daniel L. Stephenson (“DLS”) and Rancon Financial Corporation (“RFC”), hereinafter collectively referred to as the “General Partner”. RFC is wholly-owned by DLS. The Partnership has no employees.
The Partnership’s initial acquisition of property in 1985 consisted of 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 approximately 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 limited partnership sponsored by the General Partner of the Partnership. As of December 31, 2008, the Partnership has twelve properties consisting of eight office properties, a 25,000 square foot health club, two restaurants and a retail space.
In November 2005, in connection with a refinancing, the Partnership formed Rancon Realty Fund V Subsidiary LLC (“RRF V SUB”), a Delaware limited liability company which is wholly owned by the Partnership. The new entity was formed to satisfy certain lender requirements for a note obtained in the fourth quarter of 2005. The note is collateralized by seven properties (see Note 5) which have been contributed to RRF V SUB by the Partnership. Since RRF V SUB is wholly owned by the Partnership, the financial statements of RRF V SUB have been consolidated with those of the Partnership.
In April 2006, the Partnership formed Rancon Realty Fund V Subsidiary Two LLC (“RRF V SUB2”), a Delaware limited liability company which is wholly owned by the Partnership. The new entity was formed to satisfy certain lender requirements for a note obtained in the second quarter of 2006. The note is collateralized by four properties (see Note 5) which have been contributed to RRF V SUB2 by the Partnership. Since RRF V SUB2 is wholly owned by the Partnership, the financial statements of RRF V SUB2 have been consolidated with those of the Partnership.
In 2008 no units of limited partnership interest (“Units”) were redeemed. In 2007 and 2006, a total of four and 1,304, Units were redeemed at average prices of $680 and $629, respectively. As of December 31, 2008, there were 83,898 Units outstanding.
Allocation of Net Income and Net Loss
Allocations of net income and net losses are made pursuant to the terms of the Partnership Agreement. Generally, net income and net losses from operations are allocated 90% to the limited partners and 10% to the General Partner; however, if the limited partners and the General Partner have, as a result of an allocation of net loss, a deficit balance in their capital accounts, net loss shall not be allocated to the limited partners and General Partner in excess of the positive balance until the balances of the limited partners’ and General Partner’s capital accounts are reduced to zero. Capital accounts shall be determined after taking into account the 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 Unit holder’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 12% return per annum (plus additional amounts depending on the date Units were purchased); (iii) third, to the partners in the minimum amount required to first equalize their capital 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.
RANCON REALTY FUND V,
A California Limited Partnership and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2008, 2007 and 2006
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 percent to the limited partners and 10 percent 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 percent to the General Partner and 99 percent 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 percent to the General Partner and 99 percent 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 percent 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 (iii) third, 99 percent to the General Partner and 1 percent to the limited partners, until the General Partner has received an amount equal to 20 percent of all distributions of cash from sales or refinancing: (iv) the balance, 80 percent to the limited partners, pro rata in proportion to the number of Units held by each, and 20 percent to the General Partner.
Note 2. SIGNIFICANT ACCOUNTING POLICIES
Basis of presentation and consolidation
The accompanying consolidated financial statements present the consolidated financial position of the Partnership and its wholly-owned subsidiaries as of December 31, 2008 and 2007, the consolidated statements of operations, of partners’ equity and of cash flows of the Partnership and its wholly-owned subsidiaries for the years ended December 31, 2008, 2007 and 2006. All significant intercompany transactions and balances have been eliminated in consolidation.
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.
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. Estimated fair value: (i) is based upon the Partnership’s plans for the continued operations of each property; and (ii) is computed using estimated sales price, as determined by prevailing market values for comparable properties and/or the use of capitalization rates applied to annualized net operating income based upon the age, construction and use of the building. The fulfillment of the Partnership’s plans related to each of its properties is dependent upon, among other things, the presence of economic conditions which will enable the Partnership to continue to hold and operate the properties prior to their eventual sale. Due to uncertainties inherent in the valuation process and in the economy, it is reasonably possible that the actual results of operating and disposing of the Partnership’s properties could be materially different than current expectations. Rental properties are reviewed for impairment whenever there is a triggering event and at least annually. At December 31, 2008, none of the Partnership’s properties were impaired.
RANCON REALTY FUND V,
A California Limited Partnership and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2008, 2007 and 2006
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 improvement
Furniture and equipment
5 to 7 years
Construction In Progress and Land Held for Development
Construction in progress and land held for development are 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; and (ii) considers the cost to complete and the estimated fair value of the completed project. The fulfillment of the Partnership’s plans related to each of its properties is dependent upon, among other things, the presence of economic conditions which will enable the Partnership to either hold the properties for eventual sale or obtain financing to further develop the properties. Construction in progress and land held for development are reviewed for impairment whenever there is a triggering event and at least annually. At December 31, 2008, there was no impairment of the Partnership’s construction in progress or land held for development.
The pre-development costs for a new project include survey fees and consulting fees. Interest, property taxes and insurance related to the new project are capitalized during periods that activities which are necessary to get the project ready for its intended use are in progress. The capitalization ends when the construction is substantially completed and the project is ready for its intended use.
Cash and Cash Equivalents
The Partnership considers certificates of deposit and money market funds with original maturities of less than ninety days when purchased to be 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 or higher 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 and the differences between estimated and actual amounts are recognized as revenue in the subsequent year when the amounts are collected. However, where actual expenses are significantly different from estimates, the Partnership will accrue the estimated differences in the same period. The partnership periodically evaluates the collectability of amounts due from tenants and maintains an allowance for doubtful accounts for estimated losses resulting from the inability of tenants to make required payments under the lease agreements.
Net Income (loss) Per Limited Partnership Unit
Net income (loss) per Unit is calculated using the weighted average number of Units outstanding during the period and the limited partners’ allocable share of the net income (loss).
RANCON REALTY FUND V,
A California Limited Partnership and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2008, 2007 and 2006
Net income (loss) per Unit is as follows (in thousands, except for weighted average shares and per share amounts):
Income Taxes
No provision for income taxes is included in the accompanying consolidated financial statements, as the Partnership’s results of operations are allocated to the partners for inclusion in their respective income tax returns. Net (loss) income and partners’ equity (deficit) for financial reporting purposes will differ from the Partnership’s income tax return because of different accounting methods used for certain items, including depreciation expense, capitalization of development period interest and property taxes, income recognition and provisions for impairment of investments in real estate.
Concentration risk
One tenant (Northrop Grumman Corporation) represented 15% of operating revenue for the years ended December 31, 2008 and 2007, respectively.
Reclassifications
Certain prior year balances have been reclassified to conform to the current year presentation, with no effect on consolidated results of operations.
Recently Issued Accounting Pronouncements
In September 2006, the Financial Accounting Standards Board (“FASB”) issued Statement No. 157, Fair Value Measurements (“SFAS No. 157”), which defines fair value, establishes a framework for measuring fair value and enhances disclosure requirements for fair value measurements. SFAS No. 157 defines fair value 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. SFAS No. 157 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. The standard describes three levels of inputs that may be used to measure fair value.
Financial assets and liabilities recorded on the 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.
RANCON REALTY FUND V,
A California Limited Partnership and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2008, 2007 and 2006
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. This category generally includes certain corporate debt securities and derivative contracts.
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. This category generally includes long-term derivative contracts and real estate.
The Partnership adopted SFAS No. 157 with respect to its financial assets and liabilities but not with respect to its nonfinancial assets (such as real estate, which is not subject to annual fair value measurements) as those provisions of SFAS No. 157 have been deferred. There was no material impact on the Partnership’s financial position, results of operations and cash flows as a result of such adoption.
In October 2008, the FASB issued FASB Staff Position FAS 157-3, Determining the Fair Value of a Financial Asset When the Market for That Asset Is Not Active (“FSP 157-3”). FSP 157-3 clarified the application of FAS 157. FSP 157-3 clarified how the fair value of a financial asset is determined when the market for that financial asset is inactive. FSP 157-3 was effective upon issuance, including prior periods for which financial statements had not been issued. The implementation of this standard did not have an impact on the Partnership’s financial position, results of operations and cash flows.
In February 2007, the FASB issued Statement No. 159, The Fair Value Option for Financial Assets and Financial Liabilities - Including an Amendment of FASB Statement No. 115 (“SFAS No. 159”). SFAS No. 159 expands opportunities to use fair value measurement in financial reporting and permits entities to choose to measure many financial instruments and certain other items at fair value. It also establishes presentation and disclosure requirements designed to facilitate comparisons between entities that choose different measurement attributes for similar types of assets and liabilities. This Statement is effective for fiscal years beginning on or after November 15, 2007. The Partnership does not believe that the adoption of SFAS No. 159 did not have a material impact on its financial position, results of operations and cash flows.
In December 2007, the FASB issued SFAS No. 141(R), Business Combinations, (“SFAS No. 141(R)”) which improves the relevance, representational faithfulness, and comparability of the information that a reporting entity provides in its financials reports about a business combination and its effects. This Statement is effective for fiscal years beginning after December 15, 2008. The Partnership does not believe that the adoption of SFAS No. 141(R) will have a material impact on its financial position, results of operations and cash flows, except that transaction costs will be expensed as incurred.
In December 2007, the FASB issued SFAS No. 160, Noncontrolling Interests in Consolidated Financial Statements an Amendment of ARB No. 51, (“SFAS No. 160”) which clarifies that a noncontrolling interest in a subsidiary is an ownership interest in the consolidated entity that should be reported as equity in the consolidated financial statements. This Statement is effective for fiscal years beginning after December 15, 2008. The Partnership does not believe that the adoption of SFAS No. 160 will have a material impact on its financial position, results of operations and cash flows.
In March 2008, the FASB issued SFAS No. 161, Disclosures about Derivative Instruments and Hedging Activities-an amendment of FASB Statement No. 133 (“SFAS No. 161”), which requires companies to provide additional disclosures about their objectives and strategies for using derivative instruments, how the derivative instruments and related hedged items are accounted for under SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities, and related interpretations, and how the derivative instruments and related hedged items affect the their financial statements. SFAS No. 161 also requires companies to disclose information about credit risk-related contingent features in their hedged positions. SFAS No. 161 is effective for fiscal years and interim periods beginning after November 15, 2008. The Partnership does not believe that the adoption of SFAS No. 161 will have a material impact on its financial condition or operating results.
RANCON REALTY FUND V,
A California Limited Partnership and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2008, 2007 and 2006
Note 3. INVESTMENTS IN REAL ESTATE
Rental properties consisted of the following at December 31, 2008 and 2007 (in thousands):
As of December 31, 2008, the Partnership’s rental properties included eight office properties and four retail properties.
In 2008 and 2007, fully depreciated building and tenant improvements of $920,000 and $1,665,000, respectively, were removed from the balances of such accounts.
Note 4. CONSTRUCTION IN PROGRESS AND LAND HELD FOR DEVELOPMENT
Construction in progress consisted of the following at December 31, 2008 and 2007 (in thousands):
During the second quarter of 2007, the land, pre-development costs and construction costs of Three Parkside were reclassified from land held for development to construction in progress. The Partnership began developing Three Parkside, a two-story multi-tenant 30,322 square-foot office building on an approximate 0.6 acre land parcel. The total cost of the project is approximately $5,432,000, not including tenant improvements and commissions for leasing the project. The project was placed into service in the first quarter of 2009.
The increase in cost was primarily due to continuing construction at Three Parkside. The 0.9 acres represents the 0.6 acres associated with Three Parkside and 0.3 acre parcel that is currently a construction pad ready for development, and has a cost of $451,000.
Land held for development consisted of the following at December 31, 2008 and 2007 (in thousands):
The book basis at December 31, 2008 and 2007 includes the original cost of the land and improvements totaling $1,863,000 less an impairment provision of $820,000.
RANCON REALTY FUND V,
A California Limited Partnership and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2008, 2007 and 2006
Note 5. NOTES PAYABLE
Notes payable as of December 31, 2008 and 2007, were as follows (in thousands):
Note payable #1 is collateralized by Bally’s Health Club, Carnegie Business Center II, Lakeside Tower, Outback Steakhouse, Pat & Oscars, Palm Court Retail #3 and One Carnegie Plaza and Note payable #2 is collateralized by Brier Corporate Center, One Parkside, Two Parkside and Two Carnegie Plaza.
The annual maturities on the Partnership’s notes payable as of December 31, 2008, are as follows (in thousands):
RANCON REALTY FUND V,
A California Limited Partnership and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2008, 2007 and 2006
Note 6. RELATED PARTY TRANSACTIONS
In May 2006, the Partnership extended the then current Property Management and Services Agreement with Glenborough Properties L.P. (“Glenborough”) through December 31, 2009. On November 29, 2006, due to the merger of Glenborough and a third party, a new entity, Glenborough LLC, was formed and the Partnership Property Management and Service Agreement was transferred from Glenborough to Glenborough LLC. All other terms and conditions remained unchanged. The Partnership engaged Glenborough LLC to perform services for the following fees:
Subsequent to year end, on March 1, 2009, the Partnership and Glenborough amended the Agreement, effective March 1, 2009 to reduce certain fees charged by Glenborough, and extend the term of the agreement through December 31, 2015 or, if earlier, until the completion of sale of all the real property assets of the Partnership.
As of December 31, 2008, Glenborough Fund XV LLC, an affiliate of Glenborough LLC, held 11,565 or 13.78% of the Units all of which were purchased from unaffiliated third parties.
RANCON REALTY FUND V,
A California Limited Partnership and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2008, 2007 and 2006
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.
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.
Other Matters
The Partnership is contingently liable for subordinated real estate commissions payable to the General Partner in the amount of $102,000 at December 31, 2008, for sales that occurred 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 not met currently, the liability has not been recognized in the accompanying consolidated financial statements; however, the amount will be recorded when and if it becomes payable.
Note 8. LEASES
The Partnership’s rental properties are leased under non-cancelable operating leases that expire at various dates through December 2019.
In addition to monthly base rents, several of the leases provide for additional contingent rents based upon a percentage of sales levels attained by the tenants. Future minimum rents under non-cancelable operating leases as of December 31, 2008 are as follows (in thousands):
In addition to minimum rental payments, certain tenants pay reimbursements for their pro rata share of specified operating expenses, which were included in operating revenue in the consolidated statements of operations and amounted to $1,065,000, $1,617,000 and $731,000, for the years ended December 31, 2008, 2007, and 2006, respectively.
RANCON REALTY FUND V,
A California Limited Partnership and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2008, 2007 and 2006
Note 9. TAXABLE INCOME
The Partnership’s tax returns, the qualification of the Partnership as a partnership for federal income tax purposes, and the amount of reported income or loss are subject to examination by federal and state taxing authorities. If such examinations result in changes to the Partnership’s taxable income or loss, the tax liability of the partners could change accordingly. The following is a reconciliation for the years ended December 31, 2008, 2007, and 2006, of the net income (loss) for financial reporting purposes to the estimated taxable income determined in accordance with accounting practices used in preparation of federal income tax returns (in thousands):
The following is a reconciliation of partners’ equity for financial reporting purposes to estimated partners’ equity for federal income tax purposes as of December 31, 2008 and 2007 (in thousands):
* Unaudited
RANCON REALTY FUND V,
A California Limited Partnership and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2008, 2007 and 2006
Note 10. UNAUDITED QUARTERLY RESULTS OF OPERATIONS
The following represents an unaudited summary of quarterly results of operations for the years ended December 31, 2008 and 2007 (in thousands, except for per unit amounts and units outstanding):
RANCON REALTY FUND V,
A California Limited Partnership and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2008, 2007 and 2006
* The sum of the quarterly per unit amounts may not total to the year to date unit amounts due to changes in outstanding partnership units and rounding.
RANCON REALTY FUND V
A California Limited Partnership, and Subsidiaries
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
December 31, 2008
(In Thousands)
(A) The aggregate cost of land and buildings for federal income tax purposes is $107,782 (unaudited).
(B) One Carnegie, Carnegie Business Center II, Lakeside Tower, Bally’s Health Club, Outback Steakhouse, Palm Court Retail #3 and Pat & Oscars are collateral for debt in the aggregate amount of $18,094.
(C) Brier Corporate Center, One Parkside, Two Parkside and Two Carnegie Plaza collateral for debt in the aggregate amount of $27,674.
(continued)
RANCON REALTY FUND V,
A California Limited Partnership, and Subsidiaries
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
(in thousands)
Reconciliation of gross amount at which real estate was carried for the years ended December 31, 2008, 2007 and 2006:
See accompanying independent registered public accounting firm’s report.
EXHIBIT INDEX
(31)
Section 302 Certification of Daniel L. Stephenson, Chief Executive Officer and Chief Financial Officer of the General Partner of the Partnership.
(32)
Section 906 Certification of Daniel L. Stephenson, Chief Executive Officer and Chief Financial Officer of the General Partner of the Partnership.*
* 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 SEC or subject to the rules and regulations promulgated by the SEC under the Securities Exchange Act of 1934, as amended, or to the liabilities of Section 18 of said Act.