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 June 30, 1998
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 June 30, 1998: 18,346
Page 1 of 11
<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>
June 30, December 31,
1998 1997
-------------- ---------------
<S> <C> <C>
Assets
- ------
Investments in real estate:
Rental property held for sale $ 1,439 $ 1,439
Land held for sale 366 366
-------------- -------------
Net real estate investments 1,805 1,805
Cash and cash equivalents 2,103 1,924
Note receivable, net -- 270
Accounts receivable 16 16
Deferred financing costs and other fees, net of
accumulated amortization of $52
and $50 at June 30, 1998 and
December 31, 1997, respectively 24 26
Other assets 11 6
-------------- --------------
Total assets $ 3,959 $ 4,047
============== ==============
Liabilities and Partners' Equity (Deficit)
- ------------------------------------------
Liabilities:
Note payable $ 1,772 $ 1,791
Accounts payable and other liabilities 41 66
-------------- ---------------
Total liabilities 1,813 1,857
-------------- --------------
Partners' Equity (Deficit):
General partners (36) (35)
Limited partners, 18,346 limited partnership
units outstanding at June 30, 1998 and
December 31, 1997 2,182 2,225
------------- ---------------
Total partners' equity 2,146 2,190
------------- ---------------
Total liabilities and partners' equity $ 3,959 $ 4,047
============= ===============
</TABLE>
See accompanying notes to financial statements.
Page 2 of 11
<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 Six months ended
June 30, June 30,
------------------ -----------------
1998 1997 1998 1997
---------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
Revenues:
Rental income $ 102 $ 137 $ 194 $ 267
Interest and other income 25 22 50 23
---------- ---------- --------- -----------
Total revenue 127 159 244 290
---------- ---------- --------- -----------
Expenses:
Operating 47 55 85 114
Interest 42 45 86 89
Amortization -- 6 -- 7
Provision for impairment of investments
in real estate -- 215 -- 215
General and administrative 66 57 108 116
Expenses associated with undeveloped land 2 21 9 33
---------- ---------- ---------- -----------
Total expenses 157 399 288 574
---------- ---------- ---------- -----------
Net loss $ (30) $ (240) $ (44) $ (284)
=========== =========== ========== ===========
Net loss per limited partnership unit $ (1.63) $ (12.81) $ (2.39) $ (15.15)
=========== =========== ========== ===========
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 18,346
=========== =========== =========== ===========
</TABLE>
See accompanying notes to financial statements.
Page 3 of 11
<PAGE>
RANCON REALTY FUND I,
A CALIFORNIA LIMITED PARTNERSHIP
Statements of Partners' Equity (Deficit)
For the six months ended June 30, 1998 and 1997
(in thousands)
(Unaudited)
General Limited
Partners Partners Total
Balance at December 31, 1997 $ (35) $ 2,225 $ 2,190
Net loss (1) (43) (44)
-------------- ------------- --------------
Balance at June 30, 1998 $ (36) $ 2,182 $ 2,146
============== ============= ===============
Balance at December 31, 1996 $ (19) $ 3,009 $ 2,990
Net loss (6) (278) (284)
-------------- ------------- ---------------
Balance at June 30, 1997 $ (25) $ 2,731 $ 2,706
============== ============= ===============
See accompanying notes to financial statements.
Page 4 of 11
<PAGE>
RANCON REALTY FUND I,
A CALIFORNIA LIMITED PARTNERSHIP
Statements of Cash Flows
(in thousands)
(Unaudited)
<TABLE>
<CAPTION>
Six months ended
June 30,
----------------
1998 1997
---------- --------
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (44) $ (284)
Adjustments to reconcile net loss to net cash
used for operating activities:
Amortization -- 7
Amortization of loan fees, included in
interest expense 2 2
Provision for impairment of investments in
real estate -- 215
Changes in certain assets and liabilities:
Deferred financing costs and other fees -- (7)
Other assets (5) 6
Accounts payable and other liabilities (25) (20)
-------- -------
Net cash used for operating activities (72) (81)
-------- -------
Cash flows from investing activities:
Additions to real estate -- (17)
Collection of note receivable 270 --
-------- -------
Net cash provided by (used for) investing activites 270 (17)
-------- -------
Cash flows from financing activities:
Note payable principal payments (19) (15)
-------- -------
Net increase (decrease) in cash and cash equivalents 179 (113)
Cash and cash equivalents at beginning of period 1,924 467
------- -------
Cash and cash equivalents at end of period $ 2,103 $ 354
======= ========
Supplemental disclosure of cash flow information:
Cash paid for interest $ 100 $ 94
======= ========
</TABLE>
See accompanying notes to financial statements.
Page 5 of 11
<PAGE>
RANCON REALTY FUND I,
A CALIFORNIA LIMITED PARTNERSHIP
Notes to Financial Statements
June 30, 1998
(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) ("Glenborough"), the accompanying unaudited financial
statements contain all adjustments (consisting of only normal accruals)
necessary to present fairly the financial position of Rancon Realty Fund I, a
California Limited Partnership, (the Partnership) as of June 30, 1998 and
December 31, 1997, and the related statements of operations, for the three and
six months ended June 30, 1998 and 1997, and the changes in partners' equity
(deficit) and cash flows for the six months ended June 30, 1998 and 1997.
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. During 1997, the Partnership sold one rental
property and approximately 13.9 acres of land. The remaining investments in real
estate consist of one rental property and the adjacent lots (comprising
approximately 8.9 acres). These investments are classified as property and land
held for sale on the Partnership's June 30, 1998 and December 31, 1997 balance
sheets and are recorded at the estimated fair value of the respective asset. The
carrying value of the investments in real estate at June 30, 1998 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.
Effective January 1, 1995, RFC entered into an agreement with 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. Effective January 1, 1998, the
agreement was amended to eliminate Glenborough's responsibility for providing
investor relation services and Preferred Partnership Services, Inc. ("PPS"), a
California Corporation unaffiliated with the Parnership, contracted to assume
these services. 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 $126,000 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
Page 6 of 11
<PAGE>
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 or
the Partnership.
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.
Note 2. REFERENCE TO 1997 AUDITED FINANCIAL STATEMENTS
----------------------------------------------
These unaudited financial statements should be read in conjunction with the
Notes to Financial Statements included in the 1997 audited financial statements.
Note 3. NOTE RECEIVABLE
---------------
At December 31, 1997, the Partnership held a $300,000 Promissory Note secured by
three Rancon Commerce Center lots totaling approximately 5.07 acres of land. On
January 16, 1998 the Partnership sold this note to an unaffiliated third party
for $270,000. Accordingly, the Partnership recorded a provision to impairment of
the note receivable of $30,000 as of December 31, 1997.
Note 4. INVESTMENTS IN REAL ESTATE
--------------------------
The Partnership has 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 is expected to be completed prior to December 31,
1998 at a sale price of $1,920,000, but there can be no assurance that the sale
will actually be completed. If the sale is completed, after accruing for all
unpaid liabilities, the Partnership will make a final distribution to the
partners and the Partnership will be liquidated.
Page 7 of 11
<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 June
30, 1998 and its results of operations for the six months ended June 30, 1998
and 1997. This information should be read in conjunction with the Partnership's
audited December 31, 1997 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 offering of limited partnership units (Units) in the amount
of $15,981,000 (net of selling and organization expenses) in July, 1983. As of
June 30, 1998, the Partnership had cash of $2,103,000. The remainder of the
Partnership's assets consist primarily of its investments in real estate, all
held for sale, which totaled approximately $1,805,000 at June 30, 1998.
On February 12, 1997, the general partners adopted a plan of orderly liquidation
of the Partnership's assets. During 1997, the Partnership sold one rental
property and approximately 13.9 acres of land. The remaining investments in real
estate consist of one rental property and the adjacent lots (comprising
approximately 8.9 acres. These investments are classified as rental property and
land held for sale on the accompanying June 30, 1998 and December 31, 1997
balance sheets and are recorded at the estimated fair value of the respective
assets. The carrying value of the investments in real estate at June 30, 1998
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.
The Partnership has entered into a purchase and sale agreement with an
unaffiliated third party for the sale of the Mountain View Plaza Shopping Center
and the adjacent land. The sale is expected to be completed prior to December
31, 1998 at a sales price of $1,920,000, but there can be no assurance that the
sale will actually be completed. If the sale is completed, after accruing for
all unpaid liabilities, the Partnership will make a final distribution to the
partners and the Partnership will be liquidated. If this asset cannot be sold by
year-end the Partnership will abandon this asset and terminate the Partnership.
At December 31, 1997, the Partnership held a $300,000 Promissory Note secured by
three Rancon Commerce Center lots totaling approximately 5.07 acres of land. On
January 16, 1998 the Partnership sold this note receivable to an unaffiliated
third party for $270,000. Accordingly, the Partnership recorded a provision to
impairment of the note receivable of $30,000 as of December 31, 1997.
Page 8 of 11
<PAGE>
Management believes that the Partnership's available cash will be sufficient to
finance the cash requirements of the Partnership until an orderly liquidation is
completed.
RESULTS OF OPERATIONS
- ---------------------
Rental income for the three and six months ended June 30, 1998 decreased $35,000
and $73,000, respectively, compared to the three and six months ended June 30,
1997, primarily due to the sale of the Rancon Commerce Center Auto Service
Center on August 1, 1997. Occupancy rates at Mountain View Plaza Shopping Center
as of June 30, 1998 and June 30, 1997 were 65% and 92%, respectively.
Interest and other income increased $27,000 during the six months ended June 30,
1998 compared to the same period in 1997 due to interest earned on invested cash
balances.
The decrease in operating expenses of $8,000 and $29,000 for the three and six
months ended June 30, 1998, respectively, compared to the same periods in 1997,
is primarily due to the sale of the Rancon Commerce Center Auto Service Center.
At June 30, 1997, management concluded that the carrying value of the
Partnership's investment in Mountain View Plaza Shopping Center and adjacent
lots was in excess of their estimated fair value and a provision for impairment
of the investment in the amount of $215,000 was recorded.
General and administrative expenses decreased $8,000 or 7% for the six months
ended June 30, 1998 compared to the six months ended June 30, 1997 due to a
reduction in data processing costs and miscellaneous expenses.
The decrease in expenses associated with undeveloped land of $19,000 and $24,000
for the three and six months ended June 30, 1998, respectively, compared to the
same periods in 1997, is primarily due to the 1997 sales of the Rancon Commerce
Center lots.
Page 9 of 11
<PAGE>
Part II. OTHER INFORMATION
Item 1. Legal Proceedings
None.
Item 2. Changes in Securities
Not applicable.
Item 3. Defaults Upon Senior Securities
Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders
None.
Item 5. Other Information
None.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
#27 - Financial data schedule.
(b) Reports on Form 8-K:
None.
Page 10 of 11
<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: August 14, 1998 By:_______________________________
Daniel L. Stephenson,
General Partner and Director,
President, Chief Executive Officer
and Chief Financial Officer of
Rancon Financial Corporation,
General Partner of
Rancon Realty Fund I,
a California Limited Partnership
Page 11 of 11
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000701637
<NAME> RANCON REALTY FUND I
<MULTIPLIER> 1000
<CURRENCY> U.S. Dollars
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<EXCHANGE-RATE> 1.000
<CASH> 2,103
<SECURITIES> 0
<RECEIVABLES> 16
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 2,114
<PP&E> 1,805
<DEPRECIATION> 0
<TOTAL-ASSETS> 3,959
<CURRENT-LIABILITIES> 41
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 2,146
<TOTAL-LIABILITY-AND-EQUITY> 3,959
<SALES> 0
<TOTAL-REVENUES> 127
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 115
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 42
<INCOME-PRETAX> (30)
<INCOME-TAX> 0
<INCOME-CONTINUING> (30)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (30)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
