FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended June 30, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
for the transition period from ____________ to ____________
Commission File number: 0-10363
RANCON REALTY FUND I,
A CALIFORNIA LIMITED PARTNERSHIP
(Exact name of Registrant as specified in its charter)
California 95-3523265
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification)
400 South El Camino Real, Suite 1100
San Mateo, California 94402- 1708
(Address of principal executive offices) (Zip Code)
(415) 343-9300
(Registrant's telephone number)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
Total number of units outstanding as of June 30, 1996: 18,355
NO EXHIBIT INDEX REQUIRED
Page 1 of 11
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
RANCON REALTY FUND I,
A CALIFORNIA LIMITED PARTNERSHIP
Balance Sheets
(in thousands, except units outstanding)
(Unaudited)
June 30, December 31,
Assets 1996 1995
Real estate investments:
Land $ 421 $ 421
Buildings and improvements, net
of accumulated depreciation of
$2,367 and $2,270 at June 30, 1996
and December 31, 1995,
respectively 3,188 3,283
Land held for development 1,854 1,835
------ ------
Net real estate investments 5,463 5,539
Cash 1 83
Receivables 13 25
Other assets, net of accumulated
amortization of $171 and $167
at June 30, 1996 and December
31, 1995 47 44
------ ------
Total assets $ 5,524 $ 5,691
====== ======
Liabilities and Partners' Equity (Deficit)
Accounts payable and accrued
expenses $ 86 $ 35
Trust deed note payable 1,834 1,846
Other liabilities 22 17
------ ------
Total liabilities 1,942 1,898
------ ------
Partners' Equity (Deficit):
General partners (7) (3)
Limited partners (18,355 limited
partnership units outstanding
in 1996 and 1995, respectively) 3,589 3,796
------ ------
Total partners' equity 3,582 3,793
------ ------
Total liabilities and partners'
equity $ 5,524 $ 5,691
====== ======
See accompanying notes to financial statements.
Page 2 of 11
RANCON REALTY FUND I,
A CALIFORNIA LIMITED PARTNERSHIP
Statements of Operations
(in thousands, except per unit amounts)
(Unaudited)
Three Months Six Months
Ended Ended
June 30, June 30,
1996 1995 1996 1995
Revenues:
Rental income $ 146 $ 127 $ 274 $ 322
Interest and other income 1 --- 11 1
------- ------- ------- -------
Total revenues 147 127 285 323
------- ------- ------- -------
Costs and Expenses:
Operating 77 90 170 173
General and administrative 79 59 136 117
Depreciation and amortization 51 55 99 109
Interest expense 45 44 91 89
------- ------- ------- -------
Total costs and expenses 252 248 496 488
------- ------- ------- -------
Net loss $ (105) $ (121)$ (211)$ (165)
======= ======= ======= =======
Net loss per limited
partnership unit $ (5.61) $ (6.48)$(11.27)$ (8.82)
======= ======= ======= =======
Weighted average number of
limited partnership units
outstanding during the
period used to compute
income (loss) per limited
partnership unit 18,357 18,359 18,357 18,359
====== ====== ====== ======
See accompanying notes to financial statements.
Page 3 of 11
RANCON REALTY FUND I,
A CALIFORNIA LIMITED PARTNERSHIP
Statements of Partners' Equity (Deficit)
(in thousands)
(Unaudited)
General Limited
Partners Partners Total
-------- -------- ------
Balance at December 31, 1994 $ 4 $ 4,154 $ 4,158
Net loss (3) (162) (165)
------ ------ ------
Balance at June 30, 1995 $ 1 $ 3,992 $ 3,993
====== ====== ======
Balance at December 31, 1995 $ (3)$ 3,796 $ 3,793
Net loss (4) (207) (211)
------ ------ ------
Balance at June 30, 1996 $ (7)$ 3,589 $ 3,582
====== ====== ======
See accompanying notes to financial statements.
Page 4 of 11
RANCON REALTY FUND I,
A CALIFORNIA LIMITED PARTNERSHIP
Statements of Cash Flows (in thousands)
(Unaudited)
Six Months Ended
June 30,
1996 1995
Cash flows from operating activities:
Net loss $ (211) $ (165)
Adjustments to reconcile net loss to
net cash used for operating activities:
Depreciation and amortization 99 109
Loan fees amortized to interest
expense 2 ---
Changes in certain assets and
liabilities:
Accounts receivable 12 (8)
Other assets (7) 9
Payable to Sponsor --- (109)
Accounts payable and accrued
expenses 51 37
Other liabilities 5 ---
------ ------
Net cash used for operating
activities (49) (127)
------ ------
Cash flows used for investing
activities:
Additions to real estate (21) ---
------ ------
Cash flows used for financing
activities:
Note payable principal payments (12) (11)
------ ------
Net decrease in cash (82) (138)
Cash at beginning of period 83 385
------ ------
Cash at end of period $ 1 $ 247
====== ======
Supplemental disclosure of cash flow
information:
Cash paid for interest $ 89 $ 74
====== ======
See accompanying notes to financial statements.
Page 5 of 11
RANCON REALTY FUND I,
A CALIFORNIA LIMITED PARTNERSHIP
Notes to Financial Statements
June 30, 1996
(Unaudited)
Note 1. THE PARTNERSHIP AND ITS SIGNIFICANT ACCOUNTING POLICIES
In the opinion of Rancon Financial Corporation and Daniel Lee
Stephenson (the Sponsors) and Glenborough Inland Realty
Corporation, the accompanying unaudited financial statements
contain all adjustments (consisting of only normal accruals)
necessary to present fairly the financial position of Rancon
Realty Fund I, A California Limited Partnership (the Partnership)
as of June 30, 1996 and December 31, 1995, and the related
statements of operations for the three and six months ended June
30, 1996 and 1995, and changes in partners' equity, and cash
flows for the six months ended June 30, 1996 and 1995.
Allocation of profits, losses, cash distributions from operations
and cash distributions from sale or financing are made pursuant
to the terms of the Partnership Agreement which generally
allocates such items 98% to the limited partners and 2% to the
general partners.
In December, 1994, RFC entered into an agreement with Glenborough
Inland Realty Corporation (Glenborough) whereby RFC sold to
Glenborough the contract to perform the rights and
responsibilities under RFC's agreement with the Partnership and
other related Partnerships (collectively, the Rancon
Partnerships) to perform or contract on the Partnership's behalf
for financial, accounting, data processing, marketing, legal,
investor relations, asset and development management and
consulting services for the Partnership for a period of ten years
or to the liquidation of the Partnership, whichever comes first.
According to the contract, the Partnership will pay Glenborough
for its services as follows: (i) a specified asset administration
fee of $159,000 per year, which is fixed for five years and
subject to reduction in the year following the sale of assets;
(ii) sales fees of 2% for improved properties; (iii) a
refinancing fee of 2% and (iv) a management fee of 5% of gross
rental receipts. As part of this agreement, Glenborough will
perform certain responsibilities for the general partner of the
Rancon Partnerships and RFC agreed to cooperate with Glenborough,
should Glenborough attempt to obtain a majority vote of the
limited partners to substitute itself as the Sponsor for the
Rancon Partnerships. This agreement was effective January 1,
1995. Glenborough is not an affiliate of RFC.
As a result of this agreement, RFC terminated several of its
employees between December 31, 1994 and February 28, 1995. Also
as a result of this agreement, certain of the officers of RFC
resigned from their positions effective February 28, 1995, March
31, 1995 and July 1, 1995.
Page 6 of 11
RANCON REALTY FUND I,
A CALIFORNIA LIMITED PARTNERSHIP
Notes to Financial Statements
June 30, 1996
(Unaudited)
During the quarter ended June 30, 1996, 4 units were abandoned as
a result of partners desiring to no longer receive Partnership K-
1's and to give them the ability to write-off investments for
income tax purposes. The equity (deficit) balance of the
abandoned units was allocated to the remaining outstanding units.
As of June 30, 1996, limited partnership units issued and
outstanding were 18,355.
Reclassification - Certain 1995 balances have been reclassified
to conform with the current period presentation.
Note 2. REFERENCE TO 1995 AUDITED FINANCIAL STATEMENTS
These unaudited financial statements should be read in
conjunction with the Notes to Financial Statements included in
the 1995 audited financial statements.
Page 7 of 11
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.
LIQUIDITY AND CAPITAL RESOURCES
Rancon Realty Fund I, a California Limited Partnership (the
Partnership) completed its public offerings of limited
partnership units (Units) in the amount of $15,981,000 (net of
selling and organization expenses) in July, 1983. As of June 30,
1996, the Partnership had cash of $1,000. The remainder of the
Partnership's assets consist primarily of its investments in
properties, which totaled approximately $5,463,000 at June 30,
1996.
The Partnership's primary source of funds has consisted of the
proceeds of its public offerings of Units. Other sources of
funds have included mortgage indebtedness, property operations,
property sales and interest income on deposits of funds invested
temporarily, pending their use in the development of properties.
Funds from property operations consist of cash generated from
rental activities reduced by related rental expenses and costs
associated with obtaining tenants. Net cash generated by
property operations as well as the Partnership's cash reserves
and interest income thereon has been used to pay expenses related
to the Partnership's administrative operations.
The Southern California regional economy in general, and the real
estate industry in particular, are considered to be in a
recessionary cycle. A majority of the Partnership's assets are
located within the Inland Empire submarket of the Southern
California region. Consequently, the operations of the
Partnership continue to be affected by the economic weakness of
the real estate industry in Southern California.
The Partnership currently owns the following properties:
Mountain View Plaza Shopping Center (57,456 leasable square feet
and 8.9 acres of undeveloped land), the Bowling Center (24,402
leasable square feet), the Auto Center (25,760 leasable square
feet), and the Rancon Commerce Center lots (7 undeveloped lots
totaling approximately 13.9 acres).
In 1994, the company that owned and operated the business at the
Bowling Center, one of the Partnership's three operating
properties, attempted to sell the business without success. The
lien holder on the equipment within the Bowling Center
repossessed and removed the equipment from the building. The
Partnership has determined that the property will probably not be
leased as a bowling center and has marketed the property for any
rental use or sale. The Partnership continues to attempt to
lease and is also currently soliciting interest in the Bowling
Center. The proceeds from a sale of the property would be used
to either paydown the Partnership's debt or replenish reserves,
which may eventually be used to fund future development costs of
the Partnership's undeveloped land. The Rancon Commerce Center
lots which are adjacent to Murrieta Creek, cannot be developed
until either a) the final location of the creek realignment has
Page 8 of 11
been determined by the Flood Control District or b) until an
alternative economic method of eliminating the flood hazard which
affects these lots has been developed. Either alternative may
take as long as a couple of years.
The Partnership has a single note payable, in the amount of
$1,834,000 as of June 30, 1996, which is secured by Mountain View
Plaza Shopping Center. The note does not mature until 2002.
Cash generated by rental activities during 1996 when combined
with cash on hand has not been adequate to cover the
Partnership's current and projected expenditures for 1996 (see
below). The GPs are currently considering the best action to
take to satisfy this possible shortfall. Options being
considered include; (i) selling a portion of the unimproved land;
(ii) obtaining a working capital line of credit; (iii) obtaining
a new loan secured by the Auto Center, and (iv) sale of the
Mountain View Shopping Plaza, in order to generate sufficient
cash proceeds to place the Partnership in a position to cover its
projected expenditures. The Partnership will continue to monitor
market conditions in order to sell its remaining properties for
the best obtainable price during fiscal years 1996 through 1999
as conditions allow.
Accounts payable and accrued expenses increased $51,000 or 145%
from December 31, 1995 to June 30, 1996 primarily as a result of
a $46,000 short-term cash advance from Glenborough Inland Realty
Corporation to supplement the Partnership's cash flow for the
period.
The increase in other liabilities of $5,000 or 29% is related to
an increase in security deposits for the six months ended June
30, 1996.
RESULTS OF OPERATIONS
Rental income for the six months ended June 30, 1996 decreased
$48,000 or 15% compared to the six months ended June 30, 1995.
This decrease is the result of a slight decrease in occupancy at
Mountain View Plaza combined with a $17,000 decrease in the
billing of prior year recoveries from 1995 to 1996. Expenses
were higher than budgeted in 1994 resulting in reconciliation of
recoveries of $33,000 in 1995 where as in 1996 the recoveries
relating to 1995 expenses were calculated to be $16,000.
Occupancy rates as of June 30, 1996 were 89%, 91% and 0% for the
Mountain View Plaza, Auto Center and Bowling Center,
respectively, compared to 93%, 78% and 0%, respectively, for the
same periods in 1995.
Interest and other income increased $10,000 when comparing 1996
and 1995 due to a one-time settlement fee of $10,000 from once
potential buyers of the Bowling Center as a result of breaking
their contract.
General and administrative costs increased by $19,000 or 16% for
the six months ended June 30, 1996 compared to 1995. The
Page 9 of 11
increase is due to an increase in general legal fees of $5,000,
investor relations expenses of $4,000 and $7,000 in fees incurred
in connectionwith valuations of thelimited partnership interests.
Part II. OTHER INFORMATION
Item 1. Legal Proceedings
None.
Item 2. Changes in Securities
Not applicable.
Item 3. Defaults Upon Senior Securities
Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders
None.
Item 5. Other Information
None.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
None.
(b) Reports on Form 8-K:
None.
Page 10 of 11
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
Date: August 13, 1996 RANCON REALTY FUND I,
a California Limited Partnership
(Registrant)
Date: August 13, 1996 By:
Daniel L. Stephenson, General Partner
and Director, President, Chief
Executive Officer and
Chief Financial Officer of
Rancon Financial Corporation,
General Partner of
Rancon Realty Fund I,
a California Limited Partnership
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
Date: August 13, 1996 RANCON REALTY FUND I,
a California Limited Partnership
(Registrant)
Date: August 13, 1996 By: /s/ Daniel L. Stephenson
Daniel L. Stephenson, General Partner
and Director, President, Chief
Executive Officer and
Chief Financial Officer of
Rancon Financial Corporation,
General Partner of
Rancon Realty Fund I,
a California Limited Partnership
Page 11 of 11
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