UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1997
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)
(650) 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, 1997: 18,346
Page 1 of 13
<PAGE>
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements.
RANCON REALTY FUND I,
A CALIFORNIA LIMITED PARTNERSHIP
Balance Sheets
(in thousands, except units outstanding)
(Unaudited)
<TABLE>
<CAPTION>
September 30, December 31,
1997 1996
<S> <C> <C>
Assets
Investments in real estate:
Rental property held for sale $ 1,507 $ 2,563
Land held for sale 1,427 1,794
-------------- --------------
Net real estate investments 2,934 4,357
Cash and cash equivalents 1,394 467
Deferred financing costs and other fees,
net of accumulated amortization of
$49 and $109 at September 30, 1997
and December 31, 1996, respectively 28 37
Other assets 20 16
-------------- --------------
Total assets $ 4,376 $ 4,877
============== ==============
Liabilities and Partners' Equity (Deficit)
Liabilities:
Note payable $ 1,799 $ 1,821
Accounts payable and other liabilities 61 66
-------------- --------------
Total liabilities 1,860 1,887
-------------- --------------
Partners' Equity (Deficit):
General partners (28) (19)
Limited partners, 18,346 limited partnership
units outstanding at September 30, 1997 and
December 31, 1996 2,554 3,009
-------------- --------------
Total partners' equity 2,516 2,990
-------------- --------------
Total liabilities and partners' equity $ 4,376 $ 4,877
============== ==============
</TABLE>
See accompanying notes to financial statements.
Page 2 of 13
<PAGE>
RANCON REALTY FUND I,
A CALIFORNIA LIMITED PARTNERSHIP
Statements of Operations
(in thousands, except units outstanding and per unit amounts)
(Unaudited)
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30, September 30,
1997 1996 1997 1996
---------- --------- --------- ----------
<S> <C> <C> <C> <C>
Revenue:
Rental income $ 106 $ 110 $ 373 $ 384
Interest and other income 5 --- 28 11
Gain on sale of rental property and land 116 --- 116 ---
---------- ---------- --------- ----------
Total revenue 227 110 517 395
---------- ---------- --------- ----------
Expenses:
Operating 49 68 163 211
Interest 45 49 134 140
Depreciation (1996 only) and amortization --- 50 7 149
Provision for impairment of investments
in real estate 262 -- 477 --
General and administrative 48 56 164 192
Expenses associated with undeveloped land 13 11 46 38
---------- ---------- --------- ----------
Total expenses 417 234 991 730
---------- ---------- --------- ----------
Net loss $ (190) $ (124) $ (474) $ (335)
========== ========== ========= ===========
Net loss per limited partnership unit $ (10.14) $ (6.65) $ (25.35) $ (17.88)
========= ========== ========= ==========
Weighted average number of limited partnership
units outstanding during the period used to
compute net loss per limited partnership unit 18,346 18,346 18,346 18,348
========== ========== ========= ==========
</TABLE>
See accompanying notes to financial statements.
Page 3 of 13
<PAGE>
RANCON REALTY FUND I,
A CALIFORNIA LIMITED PARTNERSHIP
Statements of Partners' Equity (Deficit)
For the nine months ended September 30, 1997 and 1996
(in thousands)
(Unaudited)
<TABLE>
<CAPTION>
General Limited
Partners Partners Total
<S> <C> <C> <C>
Balance at December 31, 1996 $ (19) $ 3,009 $ 2,990
Net loss (9) (465) (474)
------------- ------------ -------------
Balance at September 30, 1997 $ (28) $ 2,544 $ 2,516
============= ============ =============
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
============= ============ =============
</TABLE>
See accompanying notes to financial statements.
Page 4 of 13
<PAGE>
RANCON REALTY FUND I,
A CALIFORNIA LIMITED PARTNERSHIP
Statements of Cash Flows
(in thousands)
(Unaudited)
<TABLE>
<CAPTION>
Nine months ended
September 30,
1997 1996
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (474) $ (335)
Adjustments to reconcile net loss to net cash
used for operating activities:
Depreciation and amortization 7 149
Amortization of loan fees, included in
interest expense 3 3
Gain on sale of property (116) ---
Provision for impairment of investments in
real estate 477 ---
Changes in certain assets and liabilities:
Deferred financing costs and other fees (8) (8)
Other assets (4) 17
Accounts payable and other liabilities (5) 41
----------- ----------
Net cash used for operating activities (120) (133)
---------- ----------
Cash flows from investing activities:
Additions to real estate (24) (22)
Proceeds from sale of rental property and land 1,093 ---
---------- ----------
Net cash provided by (used for) investing activities 1,069 (22)
---------- ----------
Cash flows from financing activities:
Note payable principal payments (22) (18)
Proceeds from note payable --- 90
---------- ----------
Net cash provided by (used for) financing activities (22) 72
---------- ----------
Net increase (decrease) in cash and cash equivalents 927 (83)
Cash and cash equivalents at beginning of period 467 83
---------- ----------
Cash and cash equivalents at end of period $ 1,394 $ ---
========== ==========
Supplemental disclosure of cash flow information:
Cash paid for interest $ 138 $ 134
========== ==========
</TABLE>
See accompanying notes to financial statements.
Page 5 of 13
<PAGE>
RANCON REALTY FUND I,
A CALIFORNIA LIMITED PARTNERSHIP
Notes to Financial Statements
September 30, 1997
(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 Corporation (successor by merger with 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, 1997 and December 31,
1996, and the related statements of operations for the three and nine months
ended September 30, 1997 and 1996, and changes in partners' equity (deficit) and
cash flows for the nine months ended September 30, 1997 and 1996.
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.
On February 12, 1997, the general partners adopted a plan of orderly liquidation
of the Partnership's assets. Accordingly, all investments in real estate are
currently being marketed for sale. These investments are classified as rental
property and land held for sale on the Partnership's September 30, 1997 and
December 31, 1996 balance sheets and are recorded at the estimated fair value of
the respective asset. The carrying value of the investments in real estate at
September 30, 1997 does not purport to represent the ultimate sales price the
Partnership will realize from the disposition of these assets nor are the
amounts reflected in the accompanying financial statements intended to represent
the ultimate amount to be distributed to partners.
In December, 1994, RFC entered into an agreement with Glenborough 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, which is fixed for five years subject to
reduction in the year following the sale of assets, currently $151,000 per year;
(ii) sales fees of 2% for improved properties and 4% for land; (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
or the Partnership.
Page 6 of 13
<PAGE>
Basis of Accounting - The accompanying financial statements have been prepared
on the accrual basis of accounting in accordance with generally accepted
accounting principles under the presumption that the Partnership will continue
as a going concern. As discussed above, on February 12, 1997, the general
partners adopted a plan of orderly liquidation of the Partnership's assets.
However, the liquidation proceeds and the timing thereof are not currently
estimable. Once such liquidation proceeds and the cost and timing of the
liquidation become determinable, the Partnership will commence reporting on the
liquidation basis of accounting whereby remaining assets will be presented at
the estimated realizable value and remaining liabilities, including a provision
for the estimated costs of the plan, will be presented at the estimated
settlement value. Accordingly, the accompanying financial statements do not
provide for any adjustments relating to the aforementioned plan of orderly
liquidation. Effective January 1, 1997, the Partnership ceased depreciation of
the rental properties held for sale.
Reclassification - Certain 1996 balances have been reclassified to conform with
the current period presentation.
Note 2. REFERENCE TO 1996 AUDITED FINANCIAL STATEMENTS
----------------------------------------------
These unaudited financial statements should be read in conjunction with the
Notes to Financial Statements included in the 1996 audited financial statements.
Note 3. INVESTMENTS IN REAL ESTATE
As of September 30, 1997, the Partnership owned the following properties:
Mountain View Plaza Shopping Center (a 57,456 square foot shopping center and
approximately 8.9 acres of undeveloped land) and the Rancon Commerce Center lots
(six undeveloped lots totaling approximately 14.45 acres).
On March 11, 1997, the Partnership entered into a Purchase and Sale Agreement
with an unaffiliated third party for the sale of Mountain View Plaza Shopping
Center and the adjacent land. The sale was expected to be completed by April 15,
1997 for a purchase price of approximately $2,150,000. On April 15, 1997, the
Purchase and Sale Agreement expired; however, on June 3, 1997, the Partnership
entered into a Reinstatement of Agreement of Purchase and Sale with the
potential buyer at a reduced purchase price of $1,920,000. At September 30,
1997, the sale is pending until the potential buyer obtains lender's approval to
assume the outstanding note on the property. The sale is expected to be
completed by November 30, 1997. The Partnership intends to pay-off the related
debt on the Mountain View Plaza Shopping Center property with the proceeds from
the sale.
Page 7 of 13
<PAGE>
At June 30, 1997, due to the current potential sales price, management concluded
that the carrying value of the Partnership's investments in Mountain View Plaza
Shopping Center and adjacent lot were in excess of their estimated fair value
and a provision for impairment of the investment in the amount of $215,000 was
recorded.
On August 1, 1997, the Partnership sold the Rancon Commerce Center Auto Service
Center and a Rancon Commerce Center lot to an unaffiliated third party for a
purchase price of $1,174,000 less commissions and other closing costs of
$81,000. The sale was an all cash sale and the Partnership has no continuing
obligations or involvement in the property. The Partnership recognized a
$116,000 gain on the sale of the property.
In the third quarter of 1997, the Partnership entered into three separate
Purchase and Sale Agreements with unaffiliated third parties for the sale of the
six Rancon Commerce Center lots for a combined sales price of approximately
$980,000. The sales are expected to be completed by the end of 1997.
At September 30, 1997, due to the current potential sales price of the Rancon
Commerce Center lots, management concluded that the carrying value of the
Partnership's investments were in excess of their estimated fair value and as
such a provision for impairment of the investments in the amount of $262,000 was
recorded.
Page 8 of 13
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
INTRODUCTION
The following discussion addresses the Partnership's financial condition at
September 30, 1997 and its results of operations for the nine months ended
September 30, 1997 and 1996. This information should be read in conjunction with
the Partnership's audited December 31, 1996 Financial Statements, notes thereto
and other information contained elsewhere in this report.
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, 1997, the Partnership had cash and cash equivalents of
$1,394,000. The remainder of the Partnership's assets consist primarily of its
investments in real estate, all held for sale, which totaled approximately
$2,934,000 at September 30, 1997.
On February 12, 1997, the general partners adopted a plan of orderly liquidation
of the Partnership's assets. Accordingly, all investments in real estate are
currently being marketed for sale. These investments are classified as rental
property and land held for sale on the accompanying September 30, 1997 and
December 31, 1996 balance sheets and are recorded at the estimated fair value of
the respective assets. The carrying value of the investments in real estate at
September 30, 1997 does not purport to represent the ultimate sales price the
Partnership will realize from the disposition of these assets nor are the
amounts reflected in the accompanying financial statements intended to represent
the ultimate amount to be distributed to partners.
The Partnership's source of funds have included mortgage indebtedness, property
operations, and property sales. 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 have been
used to pay expenses related to the Partnership's administrative operations.
All of the Partnership's assets are located within the Inland Empire, a
submarket of Southern California, and have been directly affected by the
economic weakness of the region. Management believes, however, that while prices
have not increased significantly, the Southern California real estate market
appears to be improving.
As of September 30, 1997, the Partnership owned the following properties:
Mountain View Plaza Shopping Center (a 57,456 square foot shopping center and
approximately 8.9 acres of undeveloped land) and the Rancon Commerce Center lots
(six undeveloped lots totaling approximately 14.45 acres).
Page 9 of 13
<PAGE>
On March 11, 1997, the Partnership entered into a Purchase and Sale Agreement
with an unaffiliated third party for the sale of Mountain View Plaza Shopping
Center and the adjacent land. The sale was expected to be completed by April 15,
1997 for a purchase price of approximately $2,150,000. On April 15, 1997, the
Purchase and Sale Agreement expired; however, on June 3, 1997, the Partnership
entered into a Reinstatement of Agreement of Purchase and Sale with the
potential buyer at a reduced purchase price of $1,920,000. At September 30,
1997, the sale is pending until the potential buyer obtains lender's approval to
assume the outstanding note on the property. The sale is expected to be
completed by November 30, 1997. The Partnership intends to pay-off the related
debt on the Mountain View Plaza Shopping Center property with the proceeds from
the sale.
On August 1, 1997, the Partnership sold the Rancon Commerce Center Auto Service
Center and a Rancon Commerce Center lot to an unaffiliated third party for a
purchase price of $1,174,000 less commissions and other closing costs of
$81,000. The sale was an all cash sale and the Partnership has no continuing
obligations or involvement in the property. The Partnership recognized a
$116,000 gain on the sale of the property.
In the third quarter of 1997, the Partnership entered into three separate
Purchase and Sale Agreements with unaffiliated third parties for the sale of the
six Rancon Commerce Center lots for a combined sales price of approximately
$980,000. The sales are expected to be completed by the end of 1997.
Management believes that the Partnership's available cash together with the cash
generated by the operations prior to sales of the real estate and net proceeds
upon the sales of the assets will be sufficient to finance the cash requirements
of the Partnership until an orderly liquidation is completed.
RESULTS OF OPERATIONS
Rental income for the nine months ended September 30, 1997 decreased slightly
(approximately 3%) compared to the nine months ended September 30, 1996.
Occupancy rates as of September 30, 1997 and September 30, 1996 were 92% and
89%, respectively, at the Mountain View Plaza Shopping Center. The rental income
at the Auto Service Center increased slightly with the addition of a new tenant
in late 1996. This increase is offset by the decrease in rental income at the
Mountain View Plaza Shopping Center as a result of a new tenant paying a lower
rental rate per square foot than the previous tenant that occupied the space in
1996 as well as the sale of the Auto Service Center on August 1, 1997.
The $17,000 increase in interest and other income for the nine months ended
September 30, 1997 compared to the nine months ended September 30, 1996 is
primarily due to a $10,000 increase in interest income as a result of higher
invested cash balances in 1997. In 1997, the Partnership received a $15,000
legal settlement from a former tenant of the Mountain View Plaza Shopping
Center, and in 1996 the Partnership received a one-time settlement fee of
$10,000 from once potential buyer of the Bowling Center property which sold in
December 1996.
Page 10 of 13
<PAGE>
As discussed in Note 3 of the Notes to Financial Statements, the sale of the
Auto Service Center resulted in a gain of $116,000 and is included on the
Partnership's 1997 statement of operations.
The decrease in operating expenses of $48,000 or 23% is partially due to $17,000
of costs incurred in 1996 when the Partnership obtained appraisals of the rental
properties. The remaining decrease is a result of the reduction in operating
expenses upon the sale of the Bowling Center property in December 1996 and the
Auto Service Center in August 1997.
Interest expense continues to decline due to the decreasing balance of the
Partnership's outstanding debt on the Mountain View Plaza Shopping Center.
Depreciation and amortization expense decreased $142,000 or 95% in 1997 compared
to 1996 as a result of ceasing depreciation on January 1, 1997, of assets
classified as held for sale, and the sale of the Bowling Center property.
During 1997, due to pending sales contracts, management concluded that the
carrying value of the Partnership's investments in Mountain View Plaza Shopping
Center and the adjacent lot and the six Rancon Commerce Center lots were in
excess of their estimated fair value and a provision for impairment of the
investment in the amount of $477,000 was recorded.
General and administrative costs decreased $28,000 or 15% for the nine months
ended September 30, 1997 compared to the same period in 1996. The decrease is
primarily due to the one-time payment of $7,000 for professional services in
1996 rendered in connection with the valuation of the limited partner interests
combined with the decrease in tax preparation fees of $14,000 as a result of
additional services incurred in 1996. In addition, administrative overhead costs
decreased $6,000 in 1997 upon the sale of the Bowling Center property in
December 1996.
The increase in expenses associated with undeveloped land from 1996 to 1997 of
$8,000 or 21% is primarily due to an $11,000 increase in association dues as a
result of a change in the accounting of such fees from 1996 to 1997. This
increase is partially offset by costs incurred in 1996 when the Partnership
obtained appraisals of the undeveloped land.
Page 11 of 13
<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:
On August 18, 1997, the Partnership filed a Form 8-K
announcing the August 1, 1997 sale of the Rancon Commerce
Center Auto Care Center and adjacent lot to an unaffiliated
third party for a purchase price of $1,174,000.
Page 12 of 13
<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, 1997 By: /S/ Daniel L. Stephenson
-------------------------
Daniel L. Stephenson,
General Partner and Director,
President, Chief Executive Officer
and Chief Financial Officer of
Rancon Financial CorporationS
General Partner of
Rancon Realty Fund I,
a California Limited Partnership
Page 13 of 13
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
(Replace this text with the legend)
</LEGEND>
<CIK> 0000701637
<NAME> Rancon Realty Fund I
<MULTIPLIER> 1,000
<CURRENCY> U.S. dollars
<S> <C>
<PERIOD-TYPE> 9-mos
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<EXCHANGE-RATE> 1.000
<CASH> 1,394
<SECURITIES> 0
<RECEIVABLES> 7
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1,414
<PP&E> 4,292
<DEPRECIATION> (1,358)
<TOTAL-ASSETS> 4,376
<CURRENT-LIABILITIES> 61
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 2,516
<TOTAL-LIABILITY-AND-EQUITY> 4,376
<SALES> 0
<TOTAL-REVENUES> 517
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 380
<LOSS-PROVISION> 477
<INTEREST-EXPENSE> 134
<INCOME-PRETAX> (474)
<INCOME-TAX> 0
<INCOME-CONTINUING> (474)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (474)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
