UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
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)
(650) 343-9300
(Registrant's telephone number)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No __
Total number of units outstanding as of September 30, 1997: 37,473
Page 1 of 12
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
RANCON REALTY FUND III,
A CALIFORNIA LIMITED PARTNERSHIP
Balance Sheets
(in thousands, except units outstanding)
(Unaudited)
<TABLE>
<CAPTION>
September 30, December 31,
1997 1996
<S> <C> <C>
Assets
Investments in real estate:
Rental property held for sale $ 691 $ 800
Land held for sale 1,818 3,367
-------------- --------------
Total real estate investments 2,509 4,167
Cash and cash equivalents 1,268 1,061
Deferred financing costs and other fees,
net of accumulated amortization of $22
and $83 at September 30, 1997 and
December 31, 1996, respectively 9 13
Other assets 26 3
-------------- ---------------
Total assets $ 3,812 $ 5,244
============== ==============
Liabilities and Partners' Equity (Deficit)
Liabilities:
Accounts payable and accrued expenses $ 40 $ 43
Other liabilities 9 9
-------------- --------------
Total liabilities 49 52
-------------- --------------
Partners' equity (deficit):
General Partners (297) (268)
Limited Partners, 37,473 limited
partnership units outstanding 4,060 5,460
-------------- --------------
Total partners' equity 3,763 5,192
-------------- --------------
Total liabilities and partners' equity $ 3,812 $ 5,244
============== ==============
</TABLE>
See accompanying notes to financial statements.
Page 2 of 12
<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 Nine months ended
September 30, September 30,
1997 1996 1997 1996
---------- ---------- ---------- --------
Revenue:
<S> <C> <C> <C> <C>
Rental income $ 35 $ 35 $ 102 $ 119
Interest and other income 10 14 34 19
Gain on sales of land 60 --- 43 623
Gain on guarantee settlement --- --- --- 117
---------- ---------- --------- ----------
Total revenue 105 49 179 878
---------- ---------- --------- ----------
Expenses:
Operating 18 23 63 66
Expenses associated with undeveloped land 17 47 45 170
Interest expense --- --- --- 51
Depreciation and amortization 1 12 4 41
Provision for impairment of investments
in real estate 1,261 --- 1,261 ---
General and administrative 74 74 235 291
---------- ---------- --------- ----------
Total expenses 1,371 156 1,608 619
---------- ---------- --------- ----------
Net income (loss) $ (1,266) $ (107) $ (1,429) $ 259
----------- ---------- ---------- ----------
Net income (loss) per limited partnership unit $ (33.11) $ (2.80) $ (37.36) $ 6.77
========== ========= ========== ==========
Weighted average number of limited partnership
units outstanding during each period used
to compute net income (loss) per limited
partnership unit 37,473 37,482 37,473 37,485
========== ========== ========= ==========
</TABLE>
See accompanying notes to financial statements.
Page 3 of 12
<PAGE>
RANCON REALTY FUND III,
A CALIFORNIA LIMITED PARTNERSHIP
Statements of Partners' Equity (Deficit)
For the nine months ended September 30, 1997 and 1996
(in thousands)
(Unaudited)
<TABLE>
<CAPTION>
General Limited
Partners Partners Total
<S> <C> <C> <C>
Balance at December 31, 1996 $ (268) $ 5,460 $ 5,192
Net loss (29) (1,400) (1,429)
-------------- ------------- --------------
Balance at September 30, 1997 $ (297) $ 4,060 $ 3,763
============== ============ =============
Balance at December 31, 1995 $ (264) $ 5,632 $ 5,368
Net income 5 254 259
-------------- ------------ ------------
Balance at September 30, 1996 $ (259) $ 5,886 $ 5,627
============= ============ =============
</TABLE>
See accompanying notes to financial statements.
Page 4 of 12
<PAGE>
RANCON REALTY FUND III,
A CALIFORNIA LIMITED PARTNERSHIP
Statements of Cash Flows
(in thousands)
(Unaudited)
<TABLE>
<CAPTION>
Nine months ended
September 30,
1997 1996
Cash flows from operating activities:
<S> <C> <C>
Net income (loss) $ (1,429) $ 259
Adjustments to reconcile net income (loss) to net cash
used for operating activities:
Gain on guarantee settlement --- (117)
Gain on sales of land (43) (623)
Depreciation and amortization 4 41
Amortization of loan fees, included in interest expense --- 23
Provision for impairment of investments in real estate 1,261 ---
Changes in certain assets and liabilities:
Other assets (23) 3
Accounts payable and accrued expenses (3) (157)
Payment of guarantee settlement --- (183)
------------ ------------
Net cash used for operating activities (233) (754)
------------- -----------
Cash flows from investing activities:
Net proceeds from sales of land 451 1,986
Additions to real estate investments (11) (26)
------------- -----------
Net cash provided by investing activities 440 1,960
------------ -----------
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 207 706
Cash and cash equivalents at beginning of period 1,061 459
------------ -----------
Cash and cash equivalents at end of period $ 1,268 $ 1,165
============ ===========
Supplemental disclosure of cash flow information:
Cash paid for interest $ --- $ 28
============ ===========
</TABLE>
See accompanying notes to financial statements.
Page 5 of 12
<PAGE>
RANCON REALTY FUND III,
A CALIFORNIA LIMITED PARTNERSHIP
Notes to Financial Statements
September 30, 1997
(Unaudited)
Note 1. THE PARTNERSHIP AND ITS SIGNIFICANT ACCOUNTING POLICIES
In the opinion of Rancon Financial Corporation (RFC) and Daniel Lee Stephenson
(the Sponsors) and Glenborough Corporation (successor by merger with Glenborough
Inland Realty Corporation), the accompanying unaudited financial statements
contain all adjustments (consisting of only normal accruals) necessary to
present fairly the financial position of Rancon Realty Fund III, A California
Limited Partnership (the Partnership) as of September 30, 1997 and December 31,
1996, and the related statements of operations for the three and nine months
ended September 30, 1997 and 1996, and the changes in partners' equity (deficit)
and cash flows for the nine months ended September 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 or the Partnership.
Page 6 of 12
<PAGE>
RANCON REALTY FUND III,
A CALIFORNIA LIMITED PARTNERSHIP
Notes to Financial Statements
September 30, 1997
(Unaudited)
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. INVESTMENTS IN REAL ESTATE
As of September 30, 1997, the Partnership owns a 17,750 square foot office
building (Civic Center II) and approximately 13.75 acres of unimproved land.
One acre of the Rancho Cucamonga unimproved land was sold on June 26, 1997, for
$265,000. The loss on sale after closing costs was $17,000 and is included in
the accompanying 1997 statement of operations. The net cash proceeds of $237,000
were added to the cash reserves of the Partnership.
On September 12, 1997, the Partnership sold 1.8 acres of Rancho Cucamonga
unimproved land for $241,000. The gain on sale after closing costs was $60,000
and is included in the accompanying 1997 statement of operations. The net cash
proceeds of $214,000 were added to the cash reserves of the Partnership.
On August 21, 1997, the Partnership entered into a purchase and sale agreement
with an unaffiliated third party for the sale of 8.79 acres of land for
$1,060,000. The sale is expected to close escrow by November 20, 1997.
The cash proceeds will be added to the cash reserves of the Partnership.
During September 1997, the Partnership entered into two separate purchase and
sales agreements with unaffiliated third parties for the sales of Civic Center
II for $750,000 and 4.96 acres of unimproved land for $759,500, respectively.
These sales were completed on October 23, 1997 and November 4, 1997,
respectively.
As of September 30, 1997, due to the potential sales price for the rental
property and land under various sales contracts, management concluded that the
carrying value of the Partnership's investments in Civic Center II and the 13.75
acres of unimproved land were in excess of their estimated fair value and a
provision for impairment of the investment in the amount of $1,261,000 was
recorded.
Page 7 of 12
<PAGE>
RANCON REALTY FUND III,
A CALIFORNIA LIMITED PARTNERSHIP
Notes to Financial Statements
September 30, 1997
(Unaudited)
Note 4. SUBSEQUENT EVENTS
On October 23, 1997, the Partnership sold Civic Center II, a 17,750 square foot
office building located at 8280 Utica Avenue in Rancho Cucamonga, California to
an unrelated party for $750,000. The sale proceeds were used to pay settlement
and other closing costs. Approximately, $683,000 of the net proceeds were added
to the Partnership's reserves.
On November 4, 1997, the Partnership sold approximately 4.96 acres of Rancho
Cucamonga land to an unrelated party for $759,500. The sale proceeds were used
to pay settlement and other closing costs with the balance of approximately
$770,000 added to the Partnership's cash reserves.
As of the date of filing this Form 10-Q, it is impracticable for the Partnership
to provide financial statements required by Item 7(b) (1) of Form 8-K. In
accordance with Item 7(a) (4) of Form 8-K, the Partnership will file such
financial statements through a Current Report Form 8-K no later than 60 days
after November 14, 1997
Page 8 of 12
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Conditions and Results
of Operations.
LIQUIDITY AND CAPITAL RESOURCES
As of September 30, 1997, Rancon Realty Fund III (the Partnership) had cash of
$1,268,000. The remainder of the Partnership's assets consist primarily of its
investments in real estate, which totaled $2,509,000 as of September 30, 1997.
On February 12, 1997, the general partners adopted a plan of orderly liquidation
of the Partnership's assets. Accordingly, all investments in real estate are
currently being marketed for sale, 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.
On September 12, 1997, the Partnership sold 1.8 acres of the Rancho Cucamonga
land for $241,000. The gain on sale after closing costs was $60,000. The net
cash proceeds of $214,000 were added to the Partnership's cash reserves.
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 September 30, 1997, the Partnership owns a 17,750 square foot office
building (Civic Center II) and approximately 13.75 acres of land. On October 23,
1997, Civic Center II sold for $750,000, to an unrelated third party.
Approximately, 4.96 acres of Rancho Cucamonga land sold on November 4, 1997, to
an unrelated third party, for $759,500. On August 21, 1997, the Partnership
entered into a purchase and sale agreement with an unaffiliated third party for
the sale of 8.79 acres of land for $1,060,000. The land sale is expected to
close escrow by November 20, 1997; however, the sale is subject to a number of
contingencies and accordingly, there can be no assurance that the sale will be
completed.
Until the liquidation of the Partnership is completed, the primary source of
funds will come from property sales and interest income earned on cash balances.
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 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 nine months ended September 30, 1997 by
$17,000, or 14%, 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.
Page 9 of 12
<PAGE>
Interest and other income increased by $15,000, or 79%, during the nine months
ended September 30, 1997 compared to nine months ended September 30, 1996, as a
result of a higher invested cash balance from the June 1996 sale of 33 acres of
unimproved land.
On September 12, 1997, the Partnership sold 1.8 acres of land for a net gain of
$60,000 and on June 26, 1997, the Partnership sold 1.0 acres of land for a net
loss of $17,000 resulting in the $43,000 net gain on sales of land for the nine
months ended September 30, 1997.
The gain of $623,000 included in the Partnership's September 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
September 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 nine months ended September 30, 1997, expenses associated
with undeveloped land decreased by $30,000 and $125,000, respectively, when
compared to the three and nine months ended September 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 $51,000, or 100%, during the nine months ended
September 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 $11,000 and $37,000, respectively, during
the three and nine months ended September 30, 1997 compared to the same period
in 1996. The $4,000 of expense during the nine months ended September 30, 1997,
represents amortization of lease commissions and depreciation of furniture and
equipment.
General and administrative expense decreased during the nine months ended
September 30, 1997 by $56,000, 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 10 of 12
<PAGE>
Part II. OTHER INFORMATION
Item 1. Legal Proceedings
None
Item 2. Changes in Securities
Not applicable.
Item 3. Defaults Upon Senior Securities
Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders
None.
Item 5. Other Information
None.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
#27 - Financial Data Schedule
(b) Reports on Form 8-K:
On November 6, 1997, the Partnership filed a Current Report on
Form 8-K with respect to the sale of Civic Center II, a 17,750
square foot office building located at 8280 Utica Avenue in
Rancho Cucamonga, California.
Page 11 of 12
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
RANCON REALTY FUND III,
A CALIFORNIA LIMITED PARTNERSHIP
(Registrant)
Date: November 13, 1997 By:/s/ Daniel L.Stephenson
Daniel L. Stephenson
General Partner and Director, President, Chief
Executive Officer and Chief Financial Officer of
Rancon Financial Corporation, General Partner of
Rancon Realty Fund III, a California Limited
Partnership
Page 12 of 12
<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> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<EXCHANGE-RATE> 1.000
<CASH> 1,268
<SECURITIES> 0
<RECEIVABLES> 1
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1,269
<PP&E> 3,111
<DEPRECIATION> 602
<TOTAL-ASSETS> 3,812
<CURRENT-LIABILITIES> 40
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 3,763
<TOTAL-LIABILITY-AND-EQUITY> 3,812
<SALES> 0
<TOTAL-REVENUES> 179
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 1,608
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (1,429)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,429)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,429)
<EPS-PRIMARY> (37.36)
<EPS-DILUTED> (37.36)
</TABLE>
