UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934. For the year ended December 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934. For the transition period from to
Commission file number: 0-10363
RANCON REALTY FUND I,
A CALIFORNIA LIMITED PARTNERSHIP
(Exact name of registrant as specified in its charter)
California 95-3523265
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
400 South El Camino Real, Suite 1100 94402-1708
------------
San Mateo, California (Zip Code)
---------------------
(Address of principal executive offices)
Registrant's telephone number, including area code (415) 343-9300
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Units of Limited Partnership Interest
(Title of class)
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
State the aggregate market value of the voting stock held by non-affiliates of
the Registrant. Inapplicable
DOCUMENTS INCORPORATED BY REFERENCE:
Prospectus dated November 10, 1982, filed pursuant to Rule 424(b), File no.
2-68265, is incorporated by reference in Part IV hereof.
Page 1 of 33
<PAGE>
PART I
Item 1. Business
Rancon Realty Fund I, a California Limited Partnership, (the Partnership) was
organized in accordance with the provisions of the California Uniform Limited
Partnership Act for the purpose of acquiring, developing, operating and
ultimately selling real property. The general partners of the Partnership are
Daniel L. Stephenson and Rancon Financial Corporation (RFC) (General Partners).
The Partnership was organized in 1980, and completed its public offerings of
limited partnership units (Units) in July, 1983. In 1996, four Units were
abandoned as a result of limited partners desiring to longer receive a K-1 from
the Partnership. The equity (deficit) balance of the abandoned Units has been
allocated to the remaining limited partners. As of December 31, 1996, 18,346
Units were issued and outstanding. The Partnership has no employees.
At December 31, 1996, the Partnership owned two operating properties and two
lots, which are more fully described in Item 2.
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 December 31, 1996 balance
sheet and are recorded at the estimated fair value of the respective assets. The
carrying value of the investments in real estate at December 31, 1996 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.
Competition Within the Market
Management believes that characteristics influencing the competitiveness of a
real estate project are the geographic location of the property, the
professionalism of the property manager and the maintenance and appearance of
the property, in addition to external factors such as general economic
circumstances, trends, and the existence of new, competing properties in the
vicinity. Additional competitive factors with respect to commercial and
industrial properties are the ease of access to the property, the adequacy of
related facilities, such as parking, and the ability to provide rent concessions
and additional tenant improvements commensurate with local market conditions.
Such competition may lead to rent concessions that could adversely affect the
Partnership's cash flow. Although Management believes the Partnership properties
are competitive with comparable properties as to those factors within the
Partnership's control, continued 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.
Working Capital
The Partnership's practice is to maintain cash reserves, when possible, for
normal repairs, replacements, working capital and other contingencies. The
Partnership knows of no statistical information which allows comparison of its
cash reserves to those of its competitors.
Page 2 of 33
<PAGE>
Item 2. Properties
<TABLE>
<CAPTION>
The Partnership currently owns the properties listed below:
Encumbrances at
Name Location Type Size December 31, 1996
---- -------- ---- ---- ------------------
<S> <C> <C> <C> <C>
Rancon Commerce
Center Auto Service Commercial/
Center Temecula, CA Industrial 25,761 sq. ft. None
Rancon Commerce
Center lots Temecula, CA Unimproved lots 13.9 acres None
Mountain View Plaza
Shopping Center Mojave, CA Commercial 57,456 sq. ft. $1,821,000
Mountain View
Plaza lots Mojave, CA Unimproved lots 8.9 acres None
</TABLE>
Rancon Commerce Center
In May, 1981, the Partnership acquired approximately 91.5 gross acres of
undeveloped land known as Winchester Commerce Center (WCC) in Temecula,
Riverside County, California. In 1985, WCC was renamed Rancon Commerce Center
(RCC). The Partnership subdivided RCC into 72 lots, many of which were further
developed, and a substantial number of which were sold from 1986 to 1991. In
December, 1996, the Partnership sold the Bowling Center, one of the rental
properties developed on the RCC land. The Partnership currently owns a total of
approximately 18 acres at RCC which consists of the Auto Service Center and
seven undeveloped lots.
The Auto Service Center consists of a one story building with a tiltwall
exterior with steel frame. The building is approximately 25,761 square feet of
leasable space, of which approximately 5% is office space, on approximately 3.96
acres. The property is located in the Temecula/Murrieta trade area region at the
intersection of Commerce Center Drive and Via Montezuma, an area characterized
by mixed commercial uses including retail centers, restaurants, convenience
retail and hotels.
The automotive sector of the commercial real estate market for Temecula has been
strengthening primarily due to the addition of several regional and automotive
users such as Pep Boys, Midas Mufflers, and AAMCO along with the addition of a
Rancho Ford Dealership to the area. The area now has a wide range of automotive
dealerships including Honda, Chrysler, Cadillac and Chevrolet that specialize in
sales and service.
According to research conducted by the Partnership's property manager, there are
only two competitive retail automotive centers within the trade market area of
the Partnership's property. The combined Gross Leasable Area of these centers is
approximately 55,702 square feet of which approximately 13.28% is vacant. This
vacancy rate represents a 40% decrease from 1995. Effective lease rates in these
centers vary from $.65 per square foot to $1.00 per square foot gross with
Landlords continuing to provide rental incentives of at least one month free
rent for each year of the term. The competition in the smaller user market
(ranging in size from 900 square feet to 3,000 square feet) is in centers
designed strictly for automotive users at significantly less rent in exchange
for less parking, inferior location and flawed design. These owners are still
offering some rental incentives along with reduced or scaled-down rental rates.
The Auto Service Center is in a unique position in that it competes with two
like auto service centers and also multiple converted industrial projects that
can offer much lower rates. The high end of the competition is Ynez Car Care
Center whose asking rates are $1.00 per square foot modified gross (tenant pays
utilities and interior janitorial costs), a change from the previous asking
price of $.80 NNN (tenant pays all operating expenses, including taxes,
insurance, and non-structural capital improvements), and CO-OP Auto Service
Center at $.65 to $.70 per square foot modified gross. Both buildings are newer
Page 3 of 33
<PAGE>
and management believes are in better locations. The industrial buildings have
leased automotive space from $.45 per square foot to $.55 per square foot
modified gross. These areas are zoned for general and light-industrial business
and are currently only partially built-out.
Other industrial areas include several proposed business parks to be located on
the east side of I-15 at Winchester Road. The industrial use buildings are
primarily situated within planned business parks located in areas away from
residential or other sensitive areas. These business parks provide a controlled
climate for industrial and office uses to conduct business in an area favorable
to commercial/industrial activity.
The RCC Auto Service Center occupancy level at December 31, expressed as a
percentage of the total net rentable square feet, and the average annual
effective rent per square foot for the last four years were:
Occupancy Level Average Annual Effective
Percentage Rent per Square Foot
---------- --------------------
1996 91% $ 7.37
1995 78% $ 8.31
1994 100% $ 7.50
1993 90% $ 7.50
The current annual effective rental rates range from $4.26 to $9.03 per square
foot.
Average annual effective rent decreased in 1996, despite the increase in
occupancy, due to four months of free rent given to a new tenant of the Auto
Service Center which tenant's lease began May 1, 1996.
Five tenants occupy ten percent or more of the net rentable square footage of
the building. The principal terms of the leases and the nature of the tenants'
businesses are as follows:
Rancho Smog & Repair Thrifty Transmission
Nature of Business: Smog testing & repair Automotive repair
Lease Term: 7 years 4 years
Expiration Date: March 31, 2000 April 30, 2001
Square Feet: 4,920 5,724
(% of rentable total): 19% 22%
Annual Rent: $42,000 $49,000
Rent Increase: Annual-CPI Annual-CPI
Renewal Options: None None
Durango, Inc. Enterprise Automotive
Nature of Business: Automotive repair Automotive repair
Lease Term: 4 years 6 years
Expiration Date: September 30, 1998 November 30, 1999
Square Feet: 2,673 2,640
(% of rentable total): 10% 10%
Annual Rent: $22,500 $21,000
Rent Increase: Annual-CPI Annual-CPI
Renewal Options: None None
Page 4 of 33
<PAGE>
Mufflers West
Nature of Business: Muffler installation & repair
Lease Term: 5 years
Expiration Date: July 14, 1998
Square Feet: 2,640
(% of rentable total): 10%
Annual Rent: $24,000
Rent Increase: Annual-CPI
Renewal Options: None
In the opinion of management, the property is adequately covered by insurance.
At December 31, 1996, the RCC Auto Service Center is unencumbered.
During 1996, the RCC Auto Service Center property was assessed property taxes of
approximately $15,000 based on a tax rate of 1.35%.
The undeveloped lots have entitlements in place for commercial or industrial use
within the Rancon Commerce Center. The lots are located in Temecula, California
on the west side of Commerce Center Drive and east of the Murrietta Creek in a
light industrial and commercial area adjacent to the California Highway Patrol
area headquarters. In November 1996, a new 100 year flood plan map was completed
and released as part of the Murrieta Creek Flood Control Project. The
Partnership's undeveloped lots are shown to be outside the flood plan although
at this time the city of Temecula is not issuing building permits in this area.
The proposed channel design that benefits the Partnership's lots must still be
approved and this may take as long as three years. The property is held in fee
by the Partnership, and is subject to covenants, conditions and restrictions
recorded in 1982.
During 1996, the RCC unimproved lots were assessed property taxes of
approximately $17,000 based on a tax rate of 2.12%
Mountain View Plaza Shopping Center
In July, 1981, the Partnership acquired approximately 21.7 gross acres of
undeveloped land located in Mojave, Kern County, California. The purchase price
was approximately $1,625,000. Of the 21.7 acres acquired, the Partnership
developed approximately 12.8 acres as a neighborhood shopping center consisting
of a detached 30,000-square foot retail building, two single-story multi-tenant
retail buildings (9,534 square feet and 12,000 square feet, respectively), a
1,872-square foot fast food building and a 4,050-square foot family restaurant.
A sixth free-standing building, consisting of approximately 1,584 square feet,
was built and later sold to an unaffiliated purchaser on September 30, 1987. The
Partnership operates the neighborhood shopping center as rental property and
holds the balance of the land (approximately 8.9 acres) for sale.
Mountain View Plaza Shopping Center is constructed with masonry/concrete block
with stucco store fronts and Mexican tile overhangs, and is the only large
retail strip center in Mojave. The property is located in a very unpopulated
area of Kern County. The population of Mojave is estimated at 4,000 (based on
Census information) with 1,500 households. Statistics project this number to
increase at approximately 4% per year.
Due to the remote location of Mojave, the size of the trade area and the fact
that this is the only traditional retail center in Mojave, it is difficult to
identify a retail property which directly competes with Mountain View Plaza.
According to research conducted by the Partnership's property manager, the trade
market has approximately 325,000 square feet of leasable space, of which
approximately 12% is vacant. This vacancy rate is 2% higher than the average
vacancy rate of approximately 10% for grocery/drug anchored centers in Kern
County. The average asking rent of competitive centers is approximately $1.00
Page 5 of 33
<PAGE>
per square foot per month with landlords achieving $.80-$.95 effective rental
rates plus operating expenses. The average effective rental rate at Mountain
View Plaza Shopping Center at December 31, 1996 was approximately $0.80.
The occupancy level at December 31, (including tenants with ground leases)
expressed as a percentage of the total net rentable square feet, and the average
annual effective rent per square foot for the last four years were:
Occupancy Level Average Annual Effective
Percentage Rent per Square Foot
1996 89% $ 6.61
1995 91% $ 7.39
1994 85% $ 7.56
1993 93% $ 7.56
Mountain View Plaza Shopping Center property has two ground leases totaling
49,701 square feet. These tenants are only obligated to pay their pro-rata share
of the common area expenses of the property.
In February 1996, the property lost a tenant due to financial instability. The
tenant occupied 1,872 square feet of space and had an average annual effective
rental rate of $25.31. Management continues to market the space for rent but has
been unsuccessful.
The current annual rental rates range from $4.53 to $12.94 per square foot.
One tenant occupies more than ten percent of the net rentable square footage of
the building. The principal terms of the lease and the nature of the tenant's
business is as follows:
K-Mart
Nature of Business: Retail
Lease Term: 25 years
Expiration Date: October 31, 2007
Square Feet: 30,000
(% of rentable total): 28%
Annual Rent: $136,000
Rent Increase: Annual-CPI
Renewal Options: None
In 1993, K-Mart Corporation vacated the space at Mountain View Plaza Shopping
Center but has continued to meet its monthly rental obligations as set forth in
the lease agreement.
In the opinion of management, the property is adequately covered by insurance.
At December 31, 1996, the Partnership has a single note payable secured by the
Mountain View Plaza Shopping Center in the amount of $1,821,000. The note
matures June 1, 2002.
During 1996, the Mountain View Plaza Shopping Center property was assessed
property taxes of approximately $23,000 based on a tax rate of 1.11%.
The unimproved lots include 7.7 acres located behind the Mountain View Shopping
Center, and 1.2 acres on two retail pads in front of the Center. The 1.2 acres
are suitable for fast food restaurants. There are no entitlements in place for
the 7.7 unimproved acres, and the Partnership has no plans to obtain them, since
current demand for office or industrial property in this market is minimal. The
property was acquired in 1982, and is zoned commercial. It suffers from poor
access and a significant drainage problem which limits current usage.
Page 6 of 33
<PAGE>
During 1996, the Mountain View Plaza unimproved lots were assessed property
taxes approximately $5,000 based on a tax rate of 1.11%.
Item 3. Legal Proceedings
None.
Item 4. Submission of Matters to a Vote of Security Holders
None.
Page 7 of 33
<PAGE>
PART II
Item 5. Market for Partnership's Common Equity and Related Stock Holder Matters
Market Information
There is no established trading market for the Units.
Holders
As of December 31, 1996, a total of 2,507 persons (Limited Partners) held Units.
Distributions
Distributions are paid from either Sale or Refinancing Proceeds or Cash
Available for Distribution.
Cash Available for Distribution is defined in the Partnership Agreement as all
cash flow of the Partnership, after deducting such funds used to pay debt
service, capital improvements and operating expenses, less adequate cash
reserves for obligations of the Partnership for which there is no provision. All
distributions of Cash Available for Distribution are divided in the ratio of 98%
to the Limited Partners and 2% to the General Partners.
Sale or Refinancing Proceeds is defined in the Partnership Agreement as the net
cash realized by the Partnership from the sale, disposition or refinancing of
any property after retirement of applicable mortgage debt and all expenses
related to the transaction. All distributions of Sale or Refinancing Proceeds
are allocated generally as follows (a more explicit statement of these
distribution policies is set forth in the Partnership Agreement):
(i) 100% to Limited Partners until they have received distributions
from Sale or Refinancing Proceeds totaling 100% of their capital
contributions, plus distributions from all sources equal to a 15%
per annum cumulative noncompounded return on their unreturned
capital contributions and (ii) thereafter 80% to the Limited
Partners and 20% to the General Partners.
There were no distributions during the three most recent fiscal years.
Item 6. Selected Financial Data
The financial data should be read in conjunction with the financial statements
and related notes contained elsewhere in this report. This financial data is not
covered by the reports of the independent public accountants.
Page 8 of 33
<PAGE>
<TABLE>
<CAPTION>
The following is selected financial data for the five years ended December 31,
(in thousands, except per Unit data).
1996 1995 1994 1993 1992
------ ------ ------ ------ -----
<S> <C> <C> <C> <C> <C>
Rental income $ 515 $ 598 $ 632 $ 755 $ 831
Gain on sale of property $ 138 $ -- $ -- $ -- $ --
Provision for impairment of
investments in real estate $ (513) $ -- $ -- $ (115) $ (161)
Net loss $ (803) $ (365) $ (395) $ (200) $ (277)
Net loss allocable to
limited partners $ (787) $ (358) $ (387) $ (196) $ (271)
Net loss per limited
partnership unit $ (42.90) $ (19.51) $ (21.07) $ (10.67) $ (14.75)
Total assets $ 4,877 $ 5,691 $ 6,155 $ 6,498 $ 6,716
Long-term obligations $ 1,821 $ 1,846 $ 1,868 $ 1,891 $ 1,911
Cash distribution per
limited partnership unit $ -- $ -- $ -- $ -- $ --
</TABLE>
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations
LIQUIDITY AND CAPITAL COMMITMENTS:
As of December 31, 1996, the Partnership had cash of $467,000. The remainder of
the Partnership's assets consists primarily of it's investments in real
properties, all held for sale, which totaled approximately $4,357,000 at
December 31, 1996.
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 December 31, 1996 balance
sheet and are recorded at the estimated fair value of the respective assets. The
carrying value of the investments in real estate at December 31, 1996 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 sources 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 the market
has flattened and is no longer falling in terms of sales prices. While prices
have not increased significantly, the Southern California real estate market
appears to be improving.
Page 9 of 33
<PAGE>
On December 11, 1996, the Partnership sold the Bowling Center to an unaffiliated
third party for $700,000. The sale resulted in a gain of $138,000 and cash
proceeds of $636,000. The Partnership used the proceeds to payoff an unsecured
note payable of $144,000 and replenish cash reserves. The sale was an all cash
sale and the Partnership has no continuing obligations or involvement with the
property. Accordingly, the Partnership recognized the sale of the Bowling Center
property under the full accrual method of accounting.
On February 3, 1997, the Partnership entered into a letter of intent with an
unaffiliated third party for the sale of Mountain View Plaza Shopping Center and
the adjacent land. The sale is expected to be completed by April 15, 1997 for a
purchase price of approximately $2,150,000. The Partnership would pay-off the
related debt on the Mountain View Shopping Center property with the proceeds
from the sale.
The Partnership has a single note payable, in the amount of $1,821,000 as of
December 31, 1996, which is secured by Mountain View Plaza Shopping Center. The
note does not mature until 2002.
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 revenue decreased $83,000, or 14% in 1996 compared to 1995. The decrease
is a result of the slight decrease in occupancy at the Mountain View Plaza
resulting in vacancy loss of $17,000, combined with a $17,000 decrease in the
billing of prior year recoveries from 1995 to 1996. Recoverable 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. In addition, there was $12,000 of bad debt at Mountain
View Plaza recorded as a reduction to rental revenue in 1996. The $34,000, or
5%, decrease in rental revenue in 1995 compared to 1994 is a result of the
vacancy at the Bowling Center in late 1994.
As discussed in Note 3 of the Notes to Financial Statements, the sale of the
Bowling Center resulted in a gain of $138,000 and is included on the
Partnership's 1996 statement of operations.
Operating expenses decreased $49,000, or 16%, for the year ended December 31,
1996 compared to 1995 primarily due to a $16,000 reduction in real estate taxes
and a $7,000 refund of prior years real estate taxes combined with a reduction
in parking repairs and maintenance at Mountain View Plaza. In addition, the
management fee at Mountain View Plaza, which is based on collections, decreased
$5,000 due to the reduction in rental revenue, as previously discussed. The
increase of 5% for the year ended December 31, 1995 compared to 1994 occurred
when the Partnership incurred expenses related to the vacant Bowling Center that
had been paid by the tenant in the prior year.
Depreciation and amortization expense remained consistent from 1995 to 1996. The
8% decrease for the year ended December 31, 1995 compared to 1994 was due to
certain assets becoming fully depreciated.
During 1996, management concluded that the carrying value of the Partnership's
investment in Mountain View Plaza Shopping Center and adjacent lots were in
excess of their estimated fair value and a provision for impairment of the
investment in the amount of $513,000 was recorded.
General and administrative expense increased $31,000, or 14%, for the year ended
December 31, 1996 compared to 1995 primarily due to a one-time payment of $7,000
for fees rendered in connection with valuations of the limited partnership
interests and an increase in data processing charges of $7,000. In addition,
there was a $14,000 increase in general legal fees associated with administering
the Partnership's and properties' day-to-day affairs. The 25% decrease for the
year ended December 31,
Page 10 of 33
<PAGE>
1995 compared to 1994 is a result of the one-time payment of severance and legal
fees that occurred in 1994, offset by the payment and expense of 1994 audit and
tax return fees in 1995. Since January 1, 1995, audit and tax fees have been
accrued in the year to which they relate.
In December, 1994, RFC entered into an agreement with Glenborough Inland Realty
Corporation (Glenborough) whereby RFC sold to Glenborough, for approximately
$4,466,000 and the assumption of $1,715,000 of RFC's debt, the contract to
perform the rights and responsibilities under RFC's agreement with the
Partnership, eight other related partnerships and third parties (collectively,
the Rancon Partnerships) to perform or contract on the Partnership's behalf
financial, accounting, data processing, marketing, legal, investor relations,
asset and development management and consulting services for the Partnership. As
part of this agreement, Glenborough will perform certain responsibilities for
the General Partner(s) of the Rancon Partnerships and RFC agreed to cooperate
with Glenborough, should Glenborough attempt to obtain a majority vote of the
limited partners to substitute itself as the Sponsor for the Rancon
Partnerships. Glenborough is not an affiliate of RFC. This agreement was
effective January 1, 1995.
RFC entered into the transaction with Glenborough described above, when it
determined to sell that portion of its business relating to investor services,
property management services and asset management services, and those services
are now rendered to the Rancon Partnerships by Glenborough. The Partnership
required those services to be rendered to it until such time as all of its
properties were sold, whether performed by the General Partner or Glenborough.
RFC, as General Partner for the Partnership, has the responsibility and
obligation to manage the Partnership business, including the sale of its
properties, notwithstanding that certain property management and other
administrative activities regarding the Partnership are now performed by
Glenborough.
As a result of the agreement between RFC and Glenborough, RFC terminated certain
employees who were previously responsible for performing the administrative,
legal and development services to the Partnership. Upon termination, certain
employee costs including severance benefits were allocated to the various Rancon
Partnerships. Such costs allocated to the Partnership aggregated $51,000 and
were included in administrative expenses for the year ended December 31, 1994.
Item 8. Financial Statements and Supplementary Data
For information with respect to Item 8, see Financial Statements and Schedules
as listed in Item 14.
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure
On June 6, 1995, Price Waterhouse LLP was dismissed as the principal independent
accountant for the Partnership. The decision to dismiss Price Waterhouse LLP was
made by the Partnership's General Partners.
The reports of Price Waterhouse LLP on the Partnership's financial statements
for the period ending December 31, 1994, do not contain an adverse opinion or a
disclaimer of an opinion, nor were such opinions modified as to uncertainty,
audit scope, or accounting principles.
During the fiscal year ended December 31, 1994 and the subsequent interim period
from January 1, 1995 to June 6, 1995, there were no disagreements between the
Partnership and Price Waterhouse LLP on any matter of accounting principles or
practices, financial statement disclosure, or auditing scope or procedure,
which, if not resolved to the satisfaction of Price Waterhouse LLP, would have
caused it to make a reference to the subject matter of the disagreement in
connection with its reports. For this purpose the term disagreement does not
include initial differences of opinion based on incomplete facts or preliminary
information that were later resolved to the satisfaction of Price Waterhouse LLP
by obtaining additional relevant facts or information.
Page 11 of 33
<PAGE>
During the fiscal year ended December 31, 1994 and the subsequent interim period
from January 1, 1995 to June 6, 1995, there were no "reportable events" of the
type described in Rule 304(a)(1)(v)(A) through (D) of Regulation S-K.
On June 6, 1995, the Partnership engaged Arthur Andersen LLP as its new
principal independent accountant. During the fiscal year ended December 31, 1994
and the subsequent interim period from January 1, 1995 through June 6, 1995, the
Partnership did not consult with Arthur Andersen LLP as to the application of
accounting principles to a specified transaction or the type of audit opinion
that might be rendered on the Partnership's financial statements.
Page 12 of 33
<PAGE>
Part III
Item 10. Directors and Executive Officers of the Partnership
Daniel Lee Stephenson and RFC are the General Partners of the Partnership. The
executive officer and director of Rancon is:
Daniel L. Stephenson Director, President, Chief Executive Officer and
Chief Financial Officer
There is no fixed term of office for Mr. Stephenson.
Mr. Stephenson, age 53, founded RFC (formerly known as Rancon Corporation) in
1971 for the purpose of establishing itself as a commercial, industrial and
residential property syndication, development and brokerage concern. Mr.
Stephenson has, from inception, held the position of Director. In addition, Mr.
Stephenson was President and Chief Executive Officer of RFC from 1971 to 1986,
from August 1991 to September 1992 and from March 31, 1995 to present. Mr.
Stephenson is Chairman of the Board of PacWest Group, Inc., a real estate firm
which has acquired a portfolio of assets from the Resolution Trust Corporation.
Effective January 1, 1994, RFC acquired all the outstanding shares of
Partnership Asset Management Company, a California corporation, which previously
performed or contracted on the Partnership's behalf for financial, accounting,
data processing, marketing, legal, investor relations, asset and development
management and consulting services for the Partnership. These services were
provided to the Partnership by RFC subject to the provisions of the Partnership
Agreement during calendar 1994.
Rancon Development Fund VII (RDFVII), a partnership sponsored by the General
Partners, filed for protection under Chapter 11 of Federal Bankruptcy Law on May
6, 1994 in order to put an automatic stay on RDFVII's property and to forestall
the pending foreclosure. In March, 1994, the General Partners were approached by
a non-affiliated party interested in acquiring the interests of RDFVII's general
partners and attempting to restructure the partnership and its secured debt.
Although the necessary majority-in-interest of RDFVII's limited partners was
received, an agreement regarding the terms of the transfer and the plan of
reorganization could not be reached. The holder of the note secured by RDFVII's
property filed for and was granted a relief from the stay thereby allowing the
foreclosure sale to proceed. Such sale took place on September 15, 1994 and the
bankruptcy was subsequently dismissed, as the property was RDFVII's only asset.
Six Stoneridge L.P. (SSRLP), a partnership formed by Rancon Development Fund VI
(RDFVI), a partnership sponsored by the General Partners filed for protection
under Chapter 11 of Federal Bankruptcy Law in December, 1992. Efforts to
negotiate a modification of the purchase agreement of StoneRidge I, to obtain
loans, joint venture partners or other vehicles to meet or modify the cash
payment requirements were unsuccessful. In February, 1993, an adversary
complaint was filed against SSRLP in the bankruptcy court to determine the
nature and extent of SSRLP's interest in StoneRidge I and the debt associated
with the property. A tentative agreement has been reached and the bankruptcy was
dismissed effective November 8, 1995. As of December 31, 1996, SSRLP and RDFVI
have been dissolved.
Item 11. Executive Compensation
The Partnership has no executive officers. For information relating to fees,
compensation, reimbursements and distributions paid to related parties,
reference is made to Item 13 below.
Page 13 of 33
<PAGE>
Item 12. Security Ownership of Certain Beneficial Owners and Management
Security Ownership of Certain Beneficial Owners
No person is known by the Partnership to be the beneficial owner of more than 5%
of the Units.
Security Ownership of Management
Amount and
Nature of
Title Beneficial Percent
of Class Name of Beneficial Owner Ownership of Class
Units Rancon Financial Corporation 95 Units (direct) *
* Less than 1 percent
Changes in Control
The Limited Partners have no right, power or authority to act for or bind the
Partnership. However, the Limited Partners have the power to vote upon the
following matters affecting the basic structure of the Partnership, each of
which shall require the approval of Limited Partners holding a majority of the
outstanding Units: (i) amendment of the Partnership Agreement; (ii) termination
and dissolution of the Partnership; (iii) sale, exchange or pledge of all or
substantially all of the assets of the Partnership; (iv) removal of the General
Partners or any successor General Partner; and (v) election of a new General
Partner or General Partners upon the removal, retirement, death, insanity,
insolvency, bankruptcy or dissolution of the General Partners or any successor
General Partner.
Item 13. Certain Relationships and Related Transactions
For the year ended December 31, 1996, the Partnership did not incur any costs
reimbursable to RFC.
Page 14 of 33
<PAGE>
Part IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(a) The following documents are filed as part of the report
(1) Financial Statements:
Reports of Independent Public Accountants
Balance Sheets as of December 31, 1996 and 1995
Statements of Operations for the Years Ended December 31,
1996, 1995 and 1994
Statements of Partners' Equity (Deficit) for the Years Ended
December 31, 1996, 1995 and 1994
Statements of Cash Flows for the Years Ended December 31,
1996, 1995 and 1994
Notes to Financial Statements
(2) Financial Statement Schedule:
Schedule III -- Real Estate and Accumulated Depreciation as
of December 31, 1996 and Note thereto
All other schedules are omitted because they are not applicable or
the required information is shown in the financial statements or
notes thereto.
(3) Exhibits:
(3.1) Certificate and Agreement of Limited Partnership of
the Partnership, included as Exhibit A to the
Prospectus dated November 10, 1982, filed pursuant to
Rule 424(b), File Number 2-68265, is incorporated as
an Exhibit herein by reference. *
(27) Financial data schedule
* Included as an Exhibit in the Partnership's annual report on
Form 10-K for fiscal year ended December 31, 1992.
(b) Reports on Form 8-K
None
Page 15 of 33
<PAGE>
SIGNATURES
Pursuant to the requirements 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.
Date: March 27,1997 RANCON REALTY FUND I,
a California Limited Partnership
(Registrant)
Date: March 27, 1997 By:/s/ DANIEL L. STEPHENSON
------------------------
Daniel L. Stephenson, General Partner and
Director, President, Chief Executive Officer and
Chief Financial Officer of
Rancon Financial Corporation,
General Partner
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed by the following persons on behalf of the Partnership and in the
capacities and on the dates indicated.
Date: March 27, 1997 By:/s/ DANIEL L. STEPHENSON
-------------------------
Daniel L. Stephenson, General Partner and
Director, President, Chief Executive Officer and
Chief Financial Officer of
Rancon Financial Corporation,
General Partner
Page 16 of 33
<PAGE>
INDEX TO FINANCIAL STATEMENTS
AND FINANCIAL STATEMENT SCHEDULE
Page
Reports of Independent Public Accountants 18, 19
Financial Statements:
Balance Sheets as of December 31, 1996 and 1995 20
Statements of Operations for the years ended
December 31, 1996, 1995 and 1994 21
Statements of Partners' Equity (Deficit)
for the years ended December 31, 1996, 1995 and 1994 22
Statements of Cash Flows for the years ended
December 31, 1996, 1995 and 1994 23
Notes to Financial Statements 24
Schedule:
III -Real Estate and Accumulated Depreciation
as of December 31, 1996 and Note thereto 31
All other schedules are omitted because they are not applicable or the
required information is shown in the financial statements or notes
thereto.
Page 17 of 33
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Partners of
RANCON REALTY FUND I, A CALIFORNIA LIMITED PARTNERSHIP:
We have audited the accompanying balance sheets of RANCON REALTY FUND I, A
CALIFORNIA LIMITED PARTNERSHIP as of December 31, 1996 and 1995, and the related
statement of operations, partners' equity (deficit) and cash flows for the years
then ended. These financial statements and the schedule referred to below are
the responsibility of the Partnership's management. Our responsibility is to
express an opinion on these financial statements and schedule based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of RANCON REALTY FUND I, A
CALIFORNIA LIMITED PARTNERSHIP, as of December 31, 1996 and 1995, and the
results of its operations and its cash flows for the years then ended, in
conformity with generally accepted accounting principles.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The accompanying schedule listed in the
index to financial statements and schedule is presented for the purpose of
complying with the Securities and Exchange Commission's rules and is not a
required part of the basic financial statements. This information has been
subjected to the auditing procedures applied in our audits of the basic
financial statements and, in our opinion, is fairly stated in all material
respects in relation to the basic financial statements taken as a whole.
San Francisco, California
February 12, 1997
Page 18 of 33
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the General and Limited Partners of
Rancon Realty Fund I
In our opinion, the accompanying statements of operations, of partners' equity
and of cash flows present fairly, in all material respects, the results of
operations and cash flows of Rancon Realty Fund I for the year ended December
31, 1994, in conformity with generally accepted accounting principles. These
financial statements are the responsibility of the Partnership's management; our
responsibility is to express an opinion on these financial statements based on
our audit. We conducted our audit of these statements in accordance with
generally accepted auditing standards which require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audit provides a reasonable basis for the opinion expressed
above. We have not audited the financial statements of Rancon Realty Fund I for
any period subsequent to December 31, 1994.
Our audit for the year ended December 31, 1994 was made for the purpose for
forming an opinion on the basic financial statements taken as a whole. Our audit
also included an audit of the Financial Statement Schedule listed in Item 14 (a)
of this Form 10-K. In our opinion, the Financial Statement Schedule presents
fairly, in all material respects, the information set forth therein when read in
conjunction with the related financial statements.
PRICE WATERHOUSE LLP
San Diego, California
February 3, 1995
Page 19 of 33
<PAGE>
<TABLE>
<CAPTION>
RANCON REALTY FUND I,
A CALIFORNIA LIMITED PARTNERSHIP
Balance Sheets
December 31, 1996 and 1995
(in thousands, except units outstanding)
Assets 1996 1995
- ------ -------- ------
<S> <C> <C>
Investments in real estate:
Rental property held for sale $ 2,563 $ --
Land held for sale 1,794 --
Rental property, net of accumulated
depreciation of $2,270 -- 3,704
Land held for development -- 1,835
Net real estate investments 4,357 5,539
Cash 467 83
Accounts receivable, net 10 25
Deferred financing costs and other fees, net
of accumulated amortization of $109 and
$167 in 1996 and 1995, respectively 37 38
Other assets 6 6
------------ -------------
Total assets $ 4,877 $ 5,691
============= ============
Liabilities and Partners' Equity (Deficit)
Liabilities:
Notes payable $ 1,821 $ 1,846
Accounts payable and accrued expenses 23 20
Interest payable 21 15
Other liabilities 22 17
------------ -------------
Total liabilities 1,887 1,898
------------ -------------
Partners' Equity (Deficit):
General partners (19) (3)
Limited partners (18,346 and 18,350 limited partnership
units outstanding in 1996 and 1995, respectively) 3,009 3,796
------------ -------------
Total partners' equity 2,990 3,793
------------ -------------
Total liabilities and partners' equity $ 4,877 $ 5,691
============= ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
Page 20 of 33
<PAGE>
<TABLE>
<CAPTION>
RANCON REALTY FUND I,
A CALIFORNIA LIMITED PARTNERSHIP
Statements of Operations
For the years ended December 31, 1996, 1995 and 1994
(in thousands, except per unit amounts)
1996 1995 1994
---- ------ -----
<S> <C> <C> <C>
Revenue:
Rental income $ 515 $ 598 $ 632
Interest and other income 10 3 12
Gain on sale of property 138 -- --
----------- ----------- ------------
Total revenue 663 601 644
----------- ----------- ------------
Expenses:
Operating, including $27 paid to Sponsor
in 1994 264 313 298
Interest 188 183 183
Depreciation and amortization 199 205 223
Provision for impairment of investment in
real estate 513 -- --
General and administrative, including $263
paid to Sponsor in 1994 251 220 292
Expenses associated with undeveloped land 51 45 43
----------- ----------- ------------
Total expenses 1,466 966 1,039
----------- ----------- ------------
Net loss $ (803) $ (365) $ (395)
============ ============ ===========
Net loss per limited partnership unit $ (42.90) $ (19.51) $ (21.07)
=========== =========== ===========
Weighted average number of limited partnership
units outstanding during the period used to compute
net loss per limited partnership unit 18,347 18,350 18,364
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
Page 21 of 33
<PAGE>
RANCON REALTY FUND I,
A CALIFORNIA LIMITED PARTNERSHIP
Statements of Partners' Equity(Deficit)
For the years ended December 31, 1996, 1995 and 1994
(in thousands)
General Limited
Partners Partners Total
Balance at December 31, 1993 $ 12 $ 4,541 $ 4,553
Net loss (8) (387) (395)
------------ ------------ ----------
Balance at December 31, 1994 4 4,154 4,158
Net loss (7) (358) (365)
------------ ------------ ----------
Balance at December 31, 1995 (3) 3,796 3,793
Net loss (16) (787) (803)
------------- ------------- -----------
Balance at December 31, 1996 $ (19) $ 3,009 $ 2,990
============= ============ ==========
The accompanying notes are an integral part of these financial statements.
Page 22 of 33
<PAGE>
<TABLE>
<CAPTION>
RANCON REALTY FUND I,
A CALIFORNIA LIMITED PARTNERSHIP
Statements of Cash Flows
For the years ended December 31, 1996, 1995 and 1994
(in thousands)
1996 1995 1994
---- ------- ------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss $ (803) $ (365) $ (395)
Adjustments to reconcile net loss to net cash
used for operating activities:
Depreciation and amortization 199 205 223
Amortization of loan fees, included in interest expense 4 4 4
Gain on sale of property (138) -- --
Provision for impairment of investment in real estate 513 -- --
Changes in certain assets and liabilities:
Accounts receivable 15 (8) 35
Deferred financing costs and other fees (7) (1) --
Other assets -- 9 (10)
Accounts payable and accrued expenses 3 20 (26)
Payable to sponsor -- (109) 101
Interest payable 6 15 --
Other liabilities 5 (3) (4)
----------- ------------ ------------
Net cash used for operating activities (203) (233) (72)
------------ ----------- -----------
Cash flows from investing activities:
Additions to investments in real estate (24) (47) (12)
Proceeds from sale of property 636 -- --
----------- ----------- -----------
Net cash provided by (used for) investing activities 612 (47) (12)
----------- ------------ ------------
Cash flows from financing activities:
Notes payable principal payments (25) (22) (23)
Borrowings on unsecured note payable 144 -- --
Repayment of unsecured note payable (144) -- --
------------ ----------- -----------
Net cash used for financing activities (25) (22) (23)
------------ ----------- ------------
Net increase (decrease) in cash 384 (302) (107)
Cash at beginning of year 83 385 492
----------- ----------- -----------
Cash at end of year $ 467 $ 83 $ 385
=========== =========== ===========
Supplemental disclosure of cash flow information:
Cash paid for interest $ 178 $ 164 $ 179
=========== ============ ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
Page 23 of 33
<PAGE>
RANCON REALTY FUND I,
A CALIFORNIA LIMITED PARTNERSHIP
Notes to Financial Statements
December 31, 1996, 1995 and 1994
Note 1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Organization
Rancon Realty Fund I, a California Limited Partnership (the Partnership), was
organized in accordance with the provisions of the California Uniform Limited
Partnership Act for the purpose of acquiring, developing, operating and
ultimately selling real property. The General Partners of the Partnership are
Daniel L. Stephenson and Rancon Financial Corporation (RFC), herein referred to
as the Sponsor. RFC is wholly-owned by Daniel L. Stephenson. The Partnership
reached final funding in July, 1983. In 1996, four limited partnership units
(Units) were abandoned and the equity (deficit) balance of the abandoned Units
were allocated to the remaining outstanding Units. At December 31, 1996 and
1995, 18,346 and 18,350 Units were issued and outstanding, respectively.
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.
Plan of Orderly Liquidation
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 property
and land held for sale on the Partnership's 1996 balance sheet and are recorded
at the estimated fair value of the respective asset. The carrying value of the
investments in real estate at December 31, 1996 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.
Management believes that the Partnership's available cash together with cash
generated from operations prior to sale of the real estate assets and net
proceeds upon sales will be sufficient to finance the cash requirements of the
Partnership until an orderly liquidation is completed.
General Partners and Management Matters
Effective January 1, 1994, RFC performed or contracted on the Partnership's
behalf financial, accounting, data processing, marketing, legal, investor
relations, asset and development management and consulting services. These
services were provided by RFC subject to the provisions of the Partnership
Agreement. Prior to January 1, 1994, the Partnership had contracted with
Partnership Asset Management Company (PAMCO), a California corporation, to
perform the same services. Effective January 1, 1994, RFC entered into an
agreement with the owner of PAMCO to purchase all of its outstanding shares of
stock. PAMCO was not an affiliate of the Partnership or RFC at the time of
purchase.
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 financial,
accounting, data processing, marketing, legal, investor relations, asset and
development management and consulting services for the
Page 24 of 33
<PAGE>
RANCON REALTY FUND I,
A CALIFORNIA LIMITED PARTNERSHIP
Notes to Financial Statements
December 31, 1996, 1995 and 1994
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 subject to reduction in
the year following the sale of assets; (ii) sales fees of 2% for improved
properties and 4% for land; (iii) a refinancing fee of 1% and (iv) a management
fee of 5% of gross rental receipts. As part of this agreement, Glenborough will
perform certain responsibilities for the General Partners of the Rancon
Partnerships. RFC has 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.
As a result of this agreement, RFC terminated several of its employees between
December 31, 1994 and February 28, 1995. Also as a result of this agreement,
certain of the officers of RFC resigned from their positions effective February
28, 1995, March 31, 1995 and July 1, 1995.
Significant Accounting Policies
Basis of Accounting - The accompanying financial statements have been prepared
on the accrual basis of accounting in accordance with generally accepted
accounting principles under the presumption that the Partnership will continue
as a going concern. 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.
Use of Estimates - The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that effect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported results of operations during the reporting period.
Actual results could differ from those estimates.
Risks and Uncertainties - The Partnership's ability to (i) achieve positive cash
flow from operations, (ii) meet its debt obligations, (iii) provide
distributions either from operations or the ultimate disposition of the
Partnership's properties or (iv) continue as a going concern, may be impacted by
changes in interest rates, property values, geographic economic conditions, or
the entry of other competitors into the market. The accompanying financial
statements do not provide for adjustments with regard to these uncertainties.
Investments in Real Estate - In March, 1995, the Financial Accounting Standards
Board issued Statement of Financial Accounting Standards No. 121 (SFAS 121),
"Accounting for Impairment of Long-Lived Assets and Long-Lived Assets to be
Disposed Of." The Partnership adopted SFAS 121 in the fourth quarter of 1995.
SFAS 121 requires that long-lived assets be carried at the lower of carrying
amount or fair value and that an evaluation of an individual property for
possible impairment must be performed whenever events or changes in
circumstances indicate that an impairment may have occurred. On February 12,
1997 the Partnership elected to list all properties for sale and as such has
classified them as
Page 25 of 33
<PAGE>
RANCON REALTY FUND I,
A CALIFORNIA LIMITED PARTNERSHIP
Notes to Financial Statements
December 31, 1996, 1995 and 1994
held for sale in the accompanying financial statements. Commencing with the
first quarter of 1997, the Partnership will cease depreciating these assets. The
specific accounting policies for assets to be held and used and those to be
developed are described in more detail below.
Rental Property Held for Sale - Rental property held for sale is stated at the
lower of cost or estimated fair value. Estimated fair value is computed using
estimated sales price or appraised value of the property less selling costs and
does not purport, for a specific property, to represent the sales price that the
Partnership could obtain from third parties for such property. Once the property
is classified as held for sale, the Partnership will cease depreciation of the
asset.
Land Held for Sale - Land held for sale is stated at the lower of cost or
estimated fair value. Estimated fair value is computed using estimated sales
price or appraised value of the land and does not purport, for a specific
property, to represent the current sales price that the Partnership could obtain
from third parties for such property.
Rental Property - Rental properties are stated at cost, and include the related
land, unless events or circumstances indicate that cost cannot be recovered in
which case carrying value is reduced to estimated fair value. Estimated fair
value for financial reporting purposes: (i) is based upon the Partnership's
plans for the continued operation of each property; (ii) is computed using
estimated sales price, as determined by prevailing market values for comparable
properties and/or the use of capitalization rates multiplied by annualized
rental income based upon the age, construction and use of the building, and
(iii) does not purport, for a specific property, to represent the current sales
price that the Partnership could obtain from third parties for such property.
The fulfillment of the Partnership's plans related to each of its properties is
dependent upon, among other things, the presence of economic conditions which
will enable the Partnership to continue to hold and operate the properties prior
to their eventual sale. Due to uncertainties inherent in the valuation process
and in the economy, it is reasonably possible that the actual results of
operating and disposing of the Partnership's properties could be materially
different than current expectations.
Depreciation is provided using the straight line method over the useful lives of
the respective assets.
Land Held for Development - Land held for development is stated at cost unless
events or circumstances indicate that cost cannot be recovered in which case
carrying value is reduced to estimated fair value. Estimated fair value for
financial reporting purposes: (i) is based on the Partnership's plans for the
development and/or sale of each property; (ii) is computed using estimated sales
price, based upon market values for comparable properties, less estimated costs
to complete and/or sell the property; and (iii) does not purport, for a specific
property, to represent the current sales price that the Partnership could obtain
from third parties for such property. The 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 prior to their sale.
Common costs are allocated among the various projects based upon the relative
sales value. Interest and property taxes related to property constructed by the
Partnership are capitalized during periods of construction. There were no
interest or property taxes capitalized during the years ended December 31, 1996,
1995 or 1994.
Page 26 of 33
<PAGE>
RANCON REALTY FUND I,
A CALIFORNIA LIMITED PARTNERSHIP
Notes to Financial Statements
December 31, 1996, 1995 and 1994
Deferred Costs - Deferred loan fees are being amortized over the life of the
related loans on a straight-line basis. Amortization expense, which is included
in interest expense, was $4,000 for the years ended December 31, 1996, 1995 and
1994, respectively. Deferred lease commissions are amortized over the initial
fixed term of the related lease agreement. Amortization expense was $6,000,
$11,000 and $23,000 for the years ended December 31, 1996, 1995 and 1994,
respectively.
Rental Income - Rental income is recognized as earned over the life of the
respective leases.
Net Loss Per Limited Partnership Unit - Net loss per limited partnership unit is
calculated using the weighted average number of limited partnership units
outstanding during the period and the Limited Partners' share of the net loss.
Gain on Sale of Property - Revenue from the sale of property is recognized at
the close of escrow, when title has passed, minimum down payment requirements
are met, the terms of any notes received by the Partnership satisfy continuing
payment requirements and the Partnership is relieved of any requirements for
continued involvement with the property.
Income Taxes - No provision for income taxes is included in the accompanying
financial statements, as the Partnership's results of operations are passed
through to the partners for inclusion in their respective income tax returns.
Net income (loss) and Partners' equity (deficit) for financial reporting
purposes differs from the Partnership's income tax return because of different
accounting methods used for certain items, principally depreciation expense and
the provision for impairment of investments in real estate.
Reclassification - Certain 1995 and 1994 balances have been reclassified to
conform with the current year presentation.
Note 2. RELATED PARTY TRANSACTIONS
Reimbursable Expenses and Management Fee to Sponsor
In 1994, the Partnership had an agreement with RFC for property management
services. The agreement provided for a management fee equal to 5% of gross rents
collected in addition to reimbursement of certain administrative expenses
incurred while managing properties. Fees and costs incurred under this agreement
totaled $27,000 for the year ended December 31, 1994.
The Partnership Agreement also provided for the reimbursement of actual costs
incurred by RFC in providing certain administrative, legal and development
services necessary for the prudent operation of the Partnership. Reimbursable
costs incurred by the Partnership totaled $263,000 for the year ended December
31, 1994. Effective January 1, 1995, these services are provided by Glenborough
as described in Note 1.
Page 27 of 33
<PAGE>
RANCON REALTY FUND I,
A CALIFORNIA LIMITED PARTNERSHIP
Notes to Financial Statements
December 31, 1996, 1995 and 1994
Note 3. INVESTMENTS IN REAL ESTATE
Rental property held for sale as of December 31, 1996 and held for investment at
December 31, 1995 is as follows:
1996 1995
-------- ------
Land $ 351,000 $ 421,000
Buildings 4,048,000 5,389,000
Leasehold and other improvements 116,000 164,000
-------------- --------------
4,515,000 5,974,000
Accumulated depreciation (1,952,000) (2,270,000)
-------------- --------------
Total $ 2,563,000 $ 3,704,000
============== ===============
As of December 31, 1996, one of the Partnership's properties held for sale,
Mountain View Plaza, has been pledged as security for a trust deed note payable
(see Note 4).
Land held for sale as of December 31, 1996 and held for development at December
31, 1995 is as follows:
1996 1995
8.9 acres in Mojave, California $ 411,000 $ 471,000
13.9 acres in Temecula, California 1,383,000 1,364,000
-------------- --------------
Total $ 1,794,000 $ 1,835,000
============== ===============
The above unimproved land remains unencumbered at December 31, 1996.
At December 31, 1996, management concluded that the carrying value of the
Partnership's investment in Mountain View Plaza Shopping Center and adjacent
lots were in excess of its estimated fair value and a provision for impairment
of the investment in the amount of $513,000 was recorded.
On December 11, 1996, the Partnership sold the Bowling Center to an unaffiliated
third party for $700,000. The sale resulted in a gain of $138,000 and cash
proceeds of $636,000. The Partnership used the proceeds to payoff an unsecured
note payable of $144,000 and replenish cash reserves. The sale was an all cash
sale and the Partnership has no continuing obligations or involvement with the
property. Accordingly, the Partnership recognized the sale of the Bowling Center
property under the full accrual method of accounting.
On February 3, 1997, the Partnership entered into a letter of intent with an
unaffiliated third party for the sale of the Mountain View Plaza Shopping Center
and adjacent land. The sale is expected to be completed by April 15, 1997 for a
purchase price of approximately $2,150,000. The Partnership's management can
provide no guarantee that this sale will close under the terms specified or
under any other terms.
Note 4. NOTE PAYABLE
The note payable with a balance of $1,821,000 and $1,846,000 at December 31,
1996 and 1995, respectively, collateralized by a first deed of trust on the
Mountain View Plaza property, bears interest at
Page 28 of 33
<PAGE>
RANCON REALTY FUND I,
A CALIFORNIA LIMITED PARTNERSHIP
Notes to Financial Statements
December 31, 1996, 1995 and 1994
the weighted average cost of savings, borrowings and advances for eleventh
district members of the Federal Home Loan Bank System (9.5% per annum at
December 31, 1996 and 1995). Principal and interest payments are due in monthly
installments of approximately $17,000 and the remaining principal balance is due
on June 1, 2002.
During 1996, the Partnership entered into an unsecured note payable with
Glenborough in the amount of $144,000 to finance operating costs in excess of
revenues. The loan accrued interest at 10% and was due and payable September,
1998. In December, 1996, the Partnership paid off the loan with the proceeds
from the sale of the Bowling Center.
The aggregate annual maturities of the remaining note payable for the years
subsequent to December 31, 1996 are as follows:
1997 $ 30,000
1998 33,000
1999 36,000
2000 39,000
2001 44,000
Thereafter 1,639,000
--------------
Total $ 1,821,000
==============
Note 5. LEASES
The Partnership's rental properties are leased under operating leases that
expire at various dates through October 2007. In addition to basic monthly
rentals, some of the leases provide for additional rents based upon a percentage
of sales levels attained by the retail tenants. Minimum future rental income on
non-cancelable operating leases as of December 31, 1996 is as follows:
1997 $ 483,000
1998 405,000
1999 322,000
2000 247,000
2001 196,000
Thereafter 1,263,000
--------------
Total $ 2,916,000
==============
Included in the future rental income stated above is $929,000 of rents from
K-Mart who although vacated its space in 1993, continues to meet its monthly
rental obligations pursuant to its lease.
Note 6. TAXABLE INCOME
The Partnership's tax returns, the qualification of the Partnership as a
partnership for federal income tax purposes, and the amount of income or loss
are subject to examination by federal and state taxing authorities. If such
examinations result in changes to the Partnership's taxable income or loss, the
tax liability of the partners could change accordingly.
Page 29 of 33
<PAGE>
RANCON REALTY FUND I,
A CALIFORNIA LIMITED PARTNERSHIP
Notes to Financial Statements
December 31, 1996, 1995 and 1994
<TABLE>
<CAPTION>
The Partnership's tax returns are filed on a calendar year basis. As such, the
following is a reconciliation of the net income for financial reporting purposes
to the estimated taxable income, for the years ended December 31, 1996, 1995 and
1994, determined in accordance with accounting practices used in preparation of
federal income tax returns (in thousands).
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Net loss per financial statements $ (803) $ (365) $ (395)
Tax reporting depreciation in excess
of financial reporting depreciation (110) (114) (157)
Provision for impairment of investments
in real estate 513 -- --
Tax reporting gain on sale in excess
of financial reporting 136 -- --
Financial reporting property tax expense
in excess of tax reporting 16 -- --
Operating expenses recognized in a
different period for financial
reporting than for income tax reporting, net 6 (116) 234
----------- ------- ---------
Estimated net loss for federal
income tax purposes $ (242) $ (595) $ (318)
=========== ======= ========
</TABLE>
<TABLE>
<CAPTION>
The following is a reconciliation, as of December 31, 1996 and 1995, of
partner's equity for financial reporting purposes to estimated partners' equity
for federal income tax purposes (in thousands).
1996 1995
---- ----
<S> <C> <C>
Partners' equity per financial statements $ 2,990 $ 3,793
Cumulative provision for impairment of
investment in real estate 513 276
Tax reporting depreciation in excess of
financial reporting depreciation (1,432) (1,567)
Financial reporting property tax expense
in excess of tax reporting 16 --
Operating expenses recognized in a
different period for financial reporting
than for income tax reporting, net 6 (116)
Other, net (54) (105)
------------ ----------
Estimated partners' equity for
federal income tax purposes $ 2,039 $ 2,281
=========== ==========
</TABLE>
Page 30 of 33
<PAGE>
<TABLE>
<CAPTION>
RANCON REALTY FUND I,
A CALIFORNIA LIMITED PARTNERSHIP
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
December 31, 1996
(in thousands)
- ------------------------------------------------------------------------------------------------------
COLUMN A COLUMN B COLUMN C COLUMN D
- ------------------------------------------------------------------------------------------------------
Cost Capitalized
Initial Cost to Subsequent to
Partnership Acquisition
Buildings
and Carrying
Description Encumbrances Land Improvements Improvements Cost
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Rental property held for sale:
Kern County, California
Retail Shopping Center
Mountain View Plaza $ 1,821 $ 271 $ -- $ 3,274 $ --
Less: Write-down to net
realizable value (4) -- (35) -- (418) --
Riverside County, California
Auto Service Center -- 115 -- 1,308 --
-------- ------- -------- --------- -------
1,821 351 -- 4,164 --
-------- ------- -------- --------- -------
Land Held for sale:
Kern County, California
Unimproved lots -- (3) 40 -- 431 --
Less: Write-down to net
realizable value (4) -- -- -- (60) --
Riverside County, California
Commerce Center lots -- 186 -- 1,197 --
-------- ------- -------- --------- -------
-- 226 -- 1,568 --
-------- ------- -------- --------- -------
$ 1,821 $ 577 $ -- $ 5,732 $ --
======== ======= ======== ========= =======
<FN>
(1) The aggregate cost for Federal income tax purposes is $ 4,619.
(2) Buildings depreciated over 30-40 years, tenant improvements depreciated over
5-10 years.
(3) Encumbered by same deed of trust as appears under Mountain View Plaza.
(4) See Note 3 to Financial Statements
</FN>
</TABLE>
Page 31 of 33
<PAGE>
<TABLE>
<CAPTION>
RANCON REALTY FUND I,
A CALIFORNIA LIMITED PARTNERSHIP
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
December 31, 1996
(in thousands)
- -------------------------------------------------------------------------------------------------------------------
COLUMN A COLUMN E COLUMN F COLUMN G COLUMN H COLUMN I
- -------------------------------------------------------------------------------------------------------------------
Gross Amount Carried
at December 31, 1996
Building Date Life
and (1) AccumulatedConstruction Date Depreciated
Description Land Improvements Total Depreciation Began Acquired Over (2)
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Rental property held for sale:
Kern County, California
Retail Shopping Center
Mountain View Plaza $ 271 $ 3,274 $ 3,545 $ 1,353 9/82 7/81 Various
Less: Write-down to net
realizable value (4) (35) (418) (453) --
Riverside County, California
Auto Service Center 115 1,308 1,423 599 5/83 5/81 Various
-------- ------- --------- --------
351 4,164 4,515 1,952
-------- ------- --------- --------
Land Held for sale:
Kern County, California
Unimproved lots 40 431 471 N/A N/A N/A N/A
Less: Write-down to net
realizable value (4) -- (60) (60) --
Riverside County, California
Commerce Center lots 186 1,197 1,383 N/A N/A N/A N/A
-------- ------- --------- --------
226 1,568 1,794
-------- ------- ---------
$ 577 $ 5,732 $ 6,309 $ 1,952
======== ======= ========= ========
<FN>
(1) The aggregate cost for Federal income tax purposes is $ 4,619.
(2) Buildings depreciated over 30-40 years, tenant improvements depreciated over
5-10 years.
(3) Encumbered by same deed of trust as appears under Mountain View Plaza.
(4) See Note 3 to Financial Statements
</FN>
</TABLE>
Page 31 of 33
<PAGE>
<TABLE>
<CAPTION>
RANCON REALTY FUND I,
A California Limited Partnership
NOTE TO 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,
1996 1995 1994
------- ------- ------
INVESTMENT IN REAL ESTATE
<S> <C> <C> <C>
Balance at beginning of period $ 7,809 $ 7,762 $ 7,751
Additions (deletions) during period:
Improvements 24 47 11
Property dispositions (1,011) -- --
Provision for impairment of
investments in real estate (513) -- --
----------- ---------- ----------
Balance at end of period $ 6,309 $ 7,809 $ 7,762
========== ========== ==========
ACCUMULATED DEPRECIATION
Balance at beginning of period $ 2,270 $ 2,076 $ 1,876
Additions charged to expense 193 194 200
Property dispositions (511) -- --
---------- ---------- ----------
Balance at end of period $ 1,952 $ 2,270 $ 2,076
========== ========== ==========
</TABLE>
Page 32 of 33
<PAGE>
RANCON REALTY FUND I,
A California Limited Partnership
INDEX TO EXHIBITS
Exhibit Number Exhibit
27 Financial Data Schedule
Page 33 of 33
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000701637
<NAME> Rancon Realty Fund I
<MULTIPLIER> 1,000
<CURRENCY> u.s. dollars
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<EXCHANGE-RATE> 1.000
<CASH> 467
<SECURITIES> 0
<RECEIVABLES> 10
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 477
<PP&E> 6,627
<DEPRECIATION> 2,270
<TOTAL-ASSETS> 4,877
<CURRENT-LIABILITIES> 23
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 2,990
<TOTAL-LIABILITY-AND-EQUITY> 4,877
<SALES> 0
<TOTAL-REVENUES> 663
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 765
<LOSS-PROVISION> 513
<INTEREST-EXPENSE> 188
<INCOME-PRETAX> (803)
<INCOME-TAX> 0
<INCOME-CONTINUING> (803)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (803)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
