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 September 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 No.)
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 September 30, 1996: 18,346
Page 1 of 12
<PAGE>
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements.
<TABLE>
RANCON REALTY FUND I,
A CALIFORNIA LIMITED PARTNERSHIP
Balance Sheets
(in thousands, except units outstanding)
(Unaudited)
<CAPTION>
September
30, December 31,
1996
1995
<S> <C>
<C>
Assets
Real estate investments:
Rental property, net of accumulated
depreciation of $2,415 and $2,270
at September 30, 1996 and
December 31, 1995, respectively $
3,562 $ 3,704
Land held for development
1,854 1,835
- - -------------- --------------
Total real estate investments
5,416 5,539
Cash
- - --- 83
Accounts receivable, net
1 25
Deferred financing costs and other fees,
net of accumulated amortization of $174
and $167 at September 30, 1996
and December 31, 1995, respectively
39 38
Other assets
13 6
- - -------------- --------------
Total assets $
5,469 $ 5,691
============== ==============
</TABLE>
- continued -
Page 2 of 12
<PAGE>
<TABLE>
RANCON REALTY FUND I,
A CALIFORNIA LIMITED PARTNERSHIP
Balance Sheets - continued
(in thousands, except units outstanding)
(Unaudited)
<CAPTION>
September
30, December 31,
1996
1995
<S> <C>
<C>
Liabilities and Partners' Equity (Deficit)
Liabilities:
Accounts payable and accrued expenses $
54 $ 20
Interest payable
17 15
Notes payable
1,918 1,846
Other liabilities
22 17
- - -------------- --------------
Total liabilities
2,011 1,898
- - -------------- --------------
Partners' Equity (Deficit):
General partners
(10) (3)
Limited partners, 18,346 and 18,350
limited partnership units outstanding
at September 30, 1996 and
December 31, 1995, respectively
3,468 3,796
- - -------------- --------------
Total partners' equity
3,458 3,793
- - -------------- --------------
Total liabilities and partners' equity $
5,469 $ 5,691
============== ==============
</TABLE>
See accompanying notes to financial statements.
Page 3 of 12
<PAGE>
<TABLE>
RANCON REALTY FUND I,
A CALIFORNIA LIMITED PARTNERSHIP
Statements of Operations
(in thousands, except per unit amounts)
(Unaudited)
<CAPTION>
Three
Months Ended Nine Months Ended
September 30, September 30,
- - --------------------------- ---------------------
1996
1995 1996 1995
----------
- - ---------- ---------- -------
<S> <C>
<C> <C> <C>
Revenues:
Rental income $ 110
$ 149 $ 384 $ 471
Interest and other income ---
--- 11 1
-----------
- - ----------- ----------- -----------
Total revenues 110
149 395 472
-----------
- - ----------- ----------- -----------
Expenses:
Operating 68
75 211 223
Interest 49
46 140 137
Depreciation and amortization 50
51 149 158
General and administative 56
53 192 170
Expenses associated with undeveloped
land 11
13 38 38
-----------
- - ----------- ----------- -----------
Total expenses 234
238 730 726
-----------
- - ----------- ----------- -----------
Net loss $ (124)
$ (89) $ (335) $ (254)
===========
=========== =========== ===========
Net loss per limited partnership unit $ (6.65)
$ (4.74) $ (17.88) $ (13.56)
===========
=========== =========== ===========
Weighted average number of limited partnership
units outstanding during the period used to
compute net loss and distributions per
limited partnership unit 18,346
18,359 18,348 18,359
===========
=========== =========== ===========
</TABLE>
See accompanying notes to financial statements.
Page 4 of 12
<PAGE>
<TABLE>
RANCON REALTY FUND I,
A CALIFORNIA LIMITED PARTNERSHIP
Statements of Partners' Equity (Deficit)
(in thousands)
For the nine months ended September 30, 1996 and 1995
(Unaudited)
<CAPTION>
General
Limited
Partners
Partners Total
<S> <C>
<C> <C>
Balance at December 31, 1995 $ (3)
$ 3,796 $ 3,793
Net loss (7)
(328) (335)
-------------
- - ------------ -------------
Balance at September 30, 1996 $ (10)
$ 3,468 $ 3,458
=============
============ =============
Balance at December 31, 1994 $ 4
$ 4,154 $ 4,158
Net loss (5)
(249) (254)
-------------
- - ------------ -------------
Balance at September 30, 1995 $ (1)
$ 3,905 $ (3,904)
=============
============ =============
</TABLE>
See accompanying notes to financial statements.
Page 5 of 12
<PAGE>
<TABLE>
RANCON REALTY FUND I,
A CALIFORNIA LIMITED PARTNERSHIP
Statements of Cash Flows (in thousands)
(Unaudited)
<CAPTION>
Nine months ended
September 30,
1996 1995
<S>
<C> <C>
Cash flows from operating activities:
Net loss $
(335) $ (254)
Adjustments to reconcile net loss to net cash
used for operating activities:
Depreciation and amortization
149 158
Amortization of loan fees, included in
interest expense
3 3
Changes in certain assets and liabilities:
Accounts receivable
24 5
Deferred financing costs and other fees
(8) (3)
Other assets
(7) 4
Accounts payable and accrued expenses
34 36
Payable to Sponsor
--- (109)
Interest payable
2 15
Other liabilities
5 (4)
- - ---------- ----------
Net cash used for operating activities
(133) (149)
- - ---------- ----------
Cash flows from investing activities:
Additions to real estate
(22) (6)
- - ---------- ----------
Net cash used for investing activities
(22) (6)
- - ---------- ----------
Cash flows from financing activities:
Proceeds from notes payable
90 ---
Note payable principal payments
(18) (16)
- - ---------- ----------
Net cash provided by (used for)
financing activities
72 (16)
- - ---------- ----------
Net decrease in cash
(83) (171)
- - ---------- ----------
Cash at beginning of period
83 385
- - ---------- ----------
Cash at end of period $
--- $ 214
========== ==========
Supplemental disclosure of cash flow information:
Cash paid for interest $
134 $ 119
========== ==========
</TABLE>
See accompanying notes to financial statements.
Page 6 of 12
<PAGE>
RANCON REALTY FUND I,
A CALIFORNIA LIMITED PARTNERSHIP
Notes to Financial Statements
September 30, 1996
(Unaudited)
Note 1. THE PARTNERSHIP AND ITS SIGNIFICANT ACCOUNTING POLICIES
In the opinion of Rancon Financial Corporation (RFC) 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
September 30, 1996 and December 31, 1995, and the related statements of
operations for the three and nine months ended September 30, 1996 and 1995, and
changes in partners' equity and cash flows for the nine months ended September
30, 1996 and 1995.
Allocation of profits, losses, cash distributions from operations and cash
distributions from sales 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 until 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.
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 September 30, 1996, limited partnership units issued and outstanding were
18,346.
Page 7 of 12
<PAGE>
RANCON REALTY FUND I,
A CALIFORNIA LIMITED PARTNERSHIP
Notes to Financial Statements
September 30, 1996
(Unaudited)
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.
Note 3. REAL ESTATE INVESTMENTS
On October 4, 1996, the Partnership entered into an agreement for the sale of
the Bowling Center property. The sales price is $773,000 and the sale is
expected to close escrow by December 31, 1996.
Note 4. NOTE PAYABLE
The Partnership entered into a short-term loan with Glenborough to finance
current operating costs in excess of revenues. The loan accrues interest monthly
at 10% and is due and payable in September, 1998. The Partnership expects to
pay-off the loan with proceeds from the sale of the Bowling Center property.
Page 8 of 12
<PAGE>
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 September 30, 1996, the Partnership's assets consist primarily of its
investments in properties, which totaled approximately $5,416,000.
The Partnership's primary source of funds has consisted of the proceeds of its
public offerings of Units. Other sources of funds have included new financing,
rental operations, property sales and interest income on deposits of funds
invested temporarily, pending their use in the development of properties. Net
cash generated by rental operations as well as the Partnership's cash reserves
and interest income thereon have 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
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. As of September 30, 1996, the Bowling Center is in escrow to be sold by
December 31, 1996 for a purchase price of $773,000. The proceeds from a sale of
the property would be used to paydown the Partnership's debt and replenish cash
reserves, which may eventually be used to fund operations of the Partnership's
undeveloped land.
The Rancon Commerce Center lots which are adjacent to a creek, cannot be
developed until the final location of the creek realignment has been determined
and released by the Flood Control District. This information is expected to be
final by the end of 1996.
The Partnership has two notes payable at September 30, 1996. One in the amount
of $1,828,000, secured by Mountain View Plaza Shopping Center, matures in 2002.
The other is an unsecured loan in the amount of $90,000, due to Glenborough
Inland Realty Corporation, and matures September, 1998.
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).
Page 9 of 12
<PAGE>
Management is 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 as conditions allow.
Accounts payable and accrued expenses increased $34,000 or 170% from December
31, 1995 to September 30, 1996 as a result of a $10,000 short-term cash advance
from Glenborough Inland Realty Corporation to supplement the Partnership's cash
flow for the period combined with a $24,000 increase in accrued property taxes.
The increase in other liabilities of $5,000 or 29% is primarily related to an
increase in security deposits for the nine months ended September 30, 1996.
RESULTS OF OPERATIONS
Rental income for the nine months ended September 30, 1996 decreased $87,000 or
18% compared to the nine months ended September 30, 1995. This decrease is the
result of a slight decrease in occupancy at Mountain View Plaza combined with a
$17,000 and $18,000 decrease in the billing of prior year recoveries and current
year common area maintenance (CAM), respectively, 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. Similarly, expenses related to CAM were billed at a
higher amount in 1995 than in 1996 and two major tenants have not yet been
billed in 1996. Occupancy rates as of September 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 $22,000 or 13% for the nine months
ended September 30, 1996 compared to 1995. The increase is due to an increase in
general legal fees of $9,000, investor relations expenses of $5,000 and $7,000
in fees incurred in connection with valuations of the limited partnership
interests.
Page 10 of 12
<PAGE>
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:
#27 - Financial data schedule.
(b) Reports on Form 8-K:
None.
Page 11 of 12
<PAGE>
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.
RANCON REALTY FUND I,
a California Limited Partnership
(Registrant)
Date: November 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 Partner
Page 12 of 12
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000701637
<NAME> Rancon Realty Fund I
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 9-mos
<FISCAL-YEAR-END> dec-31-1996
<PERIOD-START> jan-01-1996
<PERIOD-END> sep-30-1996
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 1
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 13
<PP&E> 7,831
<DEPRECIATION> (2,415)
<TOTAL-ASSETS> 5,469
<CURRENT-LIABILITIES> 76
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 3,458
<TOTAL-LIABILITY-AND-EQUITY> 5,469
<SALES> 0
<TOTAL-REVENUES> 395
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 590
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 140
<INCOME-PRETAX> (335)
<INCOME-TAX> 0
<INCOME-CONTINUING> (335)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (335)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
