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, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number: 0-13157
RANCON REALTY FUND III,
A CALIFORNIA LIMITED PARTNERSHIP
(Exact name of registrant as specified in its charter)
California 33-0023868
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
400 South El Camino Real, Suite 1100
San Mateo, California 94402-1708
(Address of principal executive offices) (Zip Code)
(415) 343-9300
(Registrant's telephone number)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No __
Total number of units outstanding as of June 30, 1997: 37,473
Page 1 of 11
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
<TABLE>
RANCON REALTY FUND III,
A CALIFORNIA LIMITED PARTNERSHIP
Balance Sheets
(in thousands, except units outstanding)
(Unaudited)
<CAPTION>
June 30, December 31,
1997 1996
<S> <C> <C>
Assets
Investments in real estate:
Rental property held for sale $ 800 $ 800
Land held for sale 3,124 3,367
-------------- --------------
Total real estate investments 3,924 4,167
Cash and cash equivalents 1,113 1,061
Deferred financing costs and other fees,
net of accumulated amortization of $20
and $83 at June 30, 1997 and
December 31, 1996, respectively 11 13
Other assets 15 3
--------------- --------------
Total assets $ 5,063 $ 5,244
============== ==============
Liabilities and Partners' Equity (Deficit)
Liabilities:
Accounts payable and accrued expenses $ 24 $ 43
Other liabilities 10 9
-------------- --------------
Total liabilities 34 52
-------------- --------------
Partners' equity (deficit):
General Partners (271) (268)
Limited Partners, 37,473 limited
partnership units outstanding 5,300 5,460
-------------- --------------
Total partners' equity 5,029 5,192
-------------- --------------
Total liabilities and partners' equity $ 5,063 $ 5,244
============== ==============
</TABLE>
See accompanying notes to financial statements.
Page 2 of 11
<PAGE>
RANCON REALTY FUND III,
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,
1997 1996 1997 1996
--------- --------- --------- ----------
<S> <C> <C> <C> <C>
Revenues:
Rental income $ 32 $ 34 $ 67 $ 84
Interest and other income 11 2 24 5
Gain (loss) on sales of land (17) 623 (17) 623
Gain on guarantee settlement --- --- --- 117
---------- ---------- --------- ----------
Total revenues 26 659 74 829
---------- ---------- --------- ----------
Expenses:
Operating 23 23 45 43
Expenses associated with undeveloped land 19 88 28 123
Interest expense --- 30 --- 51
Depreciation and amortization 1 13 3 29
General and administrative 82 107 161 217
---------- ---------- --------- ----------
Total expenses 125 261 237 463
---------- ---------- --------- ----------
Net income (loss) $ (99) $ 398 $ (163) $ 366
---------- ---------- --------- ----------
Net income (loss) per limited partnership unit $ (2.59) $ 10.41 $ (4.27) $ 9.57
======== =========== ========= ========
Weighted average number of limited partnership
units outstanding during each period used
to compute net income (loss) per limited
partnership unit 37,473 37,484 37,473 37,486
========== ========== ========= ==========
</TABLE>
See accompanying notes to financial statements.
Page 3 of 11
<PAGE>
RANCON REALTY FUND III,
A CALIFORNIA LIMITED PARTNERSHIP
Statements of Partners' Equity (Deficit)
For the six months ended June 30, 1997 and 1996
(in thousands)
(Unaudited)
<TABLE>
<CAPTION>
General Limited
Partners Partners Total
<S> <C> <C> <C>
Balance at December 31, 1996 $ (268) $ 5,460 $ 5,192
Net loss (3) (160) (163)
-------------- ------------- --------------
Balance at June 30, 1997 $ (271) $ 5,300 $ 5,029
============== ============ =============
Balance at December 31, 1995 $ (264) $ 5,632 $ 5,368
Net income 7 359 366
------------- ------------ -------------
Balance at June 30, 1996 $ (257) $ 5,991 $ 5,734
============= ============ =============
</TABLE>
See accompanying notes to financial statements.
Page 4 of 11
<PAGE>
RANCON REALTY FUND III,
A CALIFORNIA LIMITED PARTNERSHIP
Statements of Cash Flows
(in thousands)
(Unaudited)
<TABLE>
<CAPTION>
Six months ended
June 30,
1997 1996
------------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ (163) $ 366
Adjustments to reconcile net income (loss) to net cash
used for operating activities:
Gain on guarantee settlement --- (117)
(Gain) loss on sales of land 17 (623)
Depreciation and amortization 3 29
Amortization of loan fees, included in interest expense --- 23
Changes in certain assets and liabilities:
Deferred financing costs and other fees (1) (22)
Other assets (12) ---
Accounts payable and accrued expenses (19) (161)
Payment of guarantee settlement --- (183)
Other liabilities 1 (6)
------------ -----------
Net cash used for operating activities (174) (694)
------------ -----------
Cash flows from investing activities:
Net proceeds from sales of land 237 1,986
Additions to real estate investments (11) (1)
------------- -----------
Net cash provided by investing activities 226 1,985
------------ -----------
Cash flows from financing activities:
Borrowings on note payable --- 60
Note payable principal payments --- (560)
------------ -----------
Net cash used for financing activities --- (500)
------------ ------------
Net increase in cash and cash equivalents 52 791
Cash and cash equivalents at beginning of period 1,061 459
------------ -----------
Cash and cash equivalents at end of period $ 1,113 $ 1,250
============ ===========
Supplemental disclosure of cash flow information:
Cash paid for interest $ --- $ 28
============ ===========
</TABLE>
See accompanying notes to financial statements.
Page 5 of 11
<PAGE>
RANCON REALTY FUND III,
A CALIFORNIA LIMITED PARTNERSHIP
Notes to Financial Statements
June 30, 1997
(Unaudited)
Note 1. THE PARTNERSHIP AND ITS SIGNIFICANT ACCOUNTING POLICIES
In the opinion of Rancon Financial Corporation (RFC) and Daniel Lee Stephenson
(the Sponsors) and Glenborough Corporation (successor by merger with Glenborough
Inland Realty Corporation), the accompanying unaudited financial statements
contain all adjustments (consisting of only normal accruals) necessary to
present fairly the financial position of Rancon Realty Fund III, A California
Limited Partnership (the Partnership) as of June 30, 1997 and December 31, 1996,
and the related statements of operations for the three and six months ended June
30, 1997 and 1996, and the changes in partners' equity (deficit) and cash flows
for the six months ended June 30, 1997 and 1996.
Allocations of profits, losses and cash distributions from operations and cash
distributions from sales or refinancing are made pursuant to the terms of the
Partnership Agreement which generally allocates 98% to the limited partners and
2% to the general partners.
On February 12, 1997, the general partners adopted a plan of orderly liquidation
of the Partnership's assets. Accordingly, all investments in real estate are
currently being marketed for sale, are classified as property and land held for
sale on the accompanying balance sheets and are recorded at the estimated fair
value of the respective asset. The carrying value of the investments in real
estate does not purport to represent the ultimate sales price the Partnership
will realize from the disposition of these assets nor are the amounts reflected
in the accompanying financial statements intended to represent the ultimate
amount to be distributed to partners.
In December, 1994, RFC entered into an agreement with Glenborough Corporation
(Glenborough) whereby RFC sold to Glenborough the contract to perform the rights
and responsibilities under RFC's agreement with the Partnership and other
related Partnerships (collectively, the Rancon Partnerships) to perform or
contract on the Partnership's behalf financial, accounting, data processing,
marketing, legal, investor relations, asset and development management and
consulting services for the Partnership for a period of ten years or until the
liquidation of the Partnership, whichever comes first. According to the
contract, the Partnership will pay Glenborough for its services as follows: (i)
a specified asset administration fee, currently $239,000 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.
Page 6 of 11
<PAGE>
RANCON REALTY FUND III,
A CALIFORNIA LIMITED PARTNERSHIP
Notes to Financial Statements
June 30, 1997
(Unaudited)
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.
Reclassification - Certain 1996 balances have been reclassified to conform with
the current period presentation.
Note 2. REFERENCE TO 1996 AUDITED FINANCIAL STATEMENTS
----------------------------------------------
These unaudited financial statements should be read in conjunction with the
Notes to Financial Statements included in the December 31, 1996 audited
financial statements.
Note 3. DISPOSITION OF PROPERTY
On June 26, 1997, the Partnership sold one acre of the Rancho Cucamonga
unimproved land for $265,000. The loss on sale after closing costs was $17,000
and is included in the Partnership's 1997 statement of operations. The net cash
proceeds of $237,000 were added to the cash reserves of the Partnership.
Page 7 of 11
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Conditions
and Results of Operations.
LIQUIDITY AND CAPITAL RESOURCES
As of June 30, 1997, Rancon Realty Fund III (the Partnership) had cash of
$1,113,000. The remainder of the Partnership's assets consist primarily of its
investments in real estate, which totaled $3,924,000 as of June 30, 1997.
On February 12, 1997, the general partners adopted a plan of orderly liquidation
of the Partnership's assets. Accordingly, all investments in real estate are
currently being marketed for sale, are classified as property and land held for
sale on the accompanying balance sheets and are recorded at the estimated fair
value of the respective asset. The carrying value of the investments in real
estate 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.
One acre of Rancho Cucamonga land was sold on June 26, 1997, for a sales price
of $265,000. The loss on sale after closing costs of $28,000 was $17,000. The
net cash proceeds of $237,000 were added to the cash reserves of the
Partnership.
As of June 30, 1997, the Partnership owns a 17,750 square foot office building
(Civic Center II) and approximately 15.7 acres of land. The Partnership's assets
are located within the Inland Empire, a sub-market of Southern California, and
have been directly affected by the economic weakness of the region. Management
believes, however, that while prices have not increased significantly, the
Southern California real estate market appears to be improving.
The Partnership's primary source of funds include property sales, property
operations, and interest income earned on cash balances. Funds from property
operations consist of cash generated from rental activities reduced by related
rental expenses and costs associated with acquiring tenants. The 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.
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.
RESULTS OF OPERATIONS
Rental income decreased during the six months ended June 30, 1997 by $17,000, or
20%, compared to the same period in 1996, primarily due to the loss of income
generated by a tenant who vacated a 5,074 square foot space upon their lease
expiration in March 1996. Management is actively marketing the space for lease
and has begun preliminary negotiations with a prospective tenant to lease the
5,074 square foot vacant space.
Page 8 of 11
<PAGE>
Interest and other income increased by $9,000 and $19,000, respectively, during
the three and six months ended June 30, 1997 compared to the three and six
months ended June 30, 1996, as a result of a higher invested cash balance from
the June 1996 sale of 33 acres of unimproved land.
The $17,000 loss on the sale of land included in the Partnership's June 30, 1997
statement of operations resulted from the sale of one acre of the Rancho
Cucamonga unimproved land for $265,000.
The gain of $623,000 included in the Partnership's June 30, 1996 statement of
operations resulted from the sale of 33 acres of Rancho Cucamonga unimproved
land for $2,166,000.
The $117,000 gain on guarantee settlement reflected in the Partnership's June
30, 1996 statement of operations is the result of a $300,000 provision for
guarantee that was established in 1993 and settled in 1996 for $183,000.
During the three and six months ended June 30, 1997, expenses associated with
undeveloped land decreased by $69,000 and $95,000, respectively, when compared
to the three and six months ended June 30, 1996, as a result of lower property
tax expenses due to the sale of land in 1996, property tax refunds received and
recorded in 1997, and reduced property taxes resulting from successful property
tax appeals on certain land parcels, net of tax appeal fees.
Interest expense decreased by $30,000 and $51,000, respectively, during the
three and six months ended June 30, 1997 compared to the same periods in 1996,
due to the pay-off of a $560,000 note payable in June 1996.
Due to the cessation of depreciation on the rental property held for sale, Civic
Center II, depreciation decreased by $12,000 and $26,000, respectively, during
the three and six months ended June 30, 1997 compared to the same period in
1996. The $3,000 of expense during the six months ended June 30, 1997,
represents amortization of lease commissions and depreciation of furniture and
equipment.
General and administrative expense decreased during the three and six months
ended June 30, 1997 by $25,000 and $56,000, respectively, compared to the same
periods in 1996, as a result of lower legal fees due to the 1996 settlement, a
reduction in asset management fee attributable to the sale of land in 1996 and
one-time tax fees paid in 1996, associated with the Partnership's various state
tax filings status.
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 III,
A CALIFORNIA LIMITED PARTNERSHIP
(Registrant)
Date: August 14, 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 of
Rancon Realty Fund III, a California Limited
Partnership
Page 11 of 11
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
(Replace this text with the legend)
</LEGEND>
<CIK> 0000707853
<NAME> Rancon Realty Fund III
<MULTIPLIER> 1,000
<CURRENCY> U.S. Dollars
<S> <C>
<PERIOD-TYPE> 6-mos
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-31-1997
<PERIOD-END> JUN-30-1997
<EXCHANGE-RATE> 1.000
<CASH> 1,113
<SECURITIES> 0
<RECEIVABLES> 1
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1,128
<PP&E> 4,526
<DEPRECIATION> 602
<TOTAL-ASSETS> 5,063
<CURRENT-LIABILITIES> 34
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 5,029
<TOTAL-LIABILITY-AND-EQUITY> 5,063
<SALES> 0
<TOTAL-REVENUES> 74
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 237
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (163)
<INCOME-TAX> 0
<INCOME-CONTINUING> (163)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (163)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
