FORM 10-Q
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 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 March 31, 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>
March 31, December 31,
<S> <C> <C>
1997 1996
Assets
Investments in real estate:
Rental property held for sale $ 800 $ 800
Land held for sale 3,369 3,367
-------------- --------------
Total real estate investments 4,169 4,167
Cash and cash equivalents 988 1,061
Deferred financing costs and other fees,
net of accumulated amortization of $19
and $83 at March 31, 1997 and
December 31, 1996, respectively 12 13
Other assets 3 3
-------------- -------------
Total assets $ 5,172 $ 5,244
============== ==============
Liabilities and Partners' Equity (Deficit)
Liabilities:
Accounts payable and accrued expenses $ 35 $ 43
Other liabilities 9 9
-------------- --------------
Total liabilities 44 52
-------------- --------------
Partners' equity (deficit):
General Partner (269) (268)
Limited Partners, 37,473 limited
partnership units outstanding at March
31, 1997 and December 31, 1996 5,397 5,460
-------------- --------------
Total partners' equity 5,128 5,192
-------------- --------------
Total liabilities and partners' equity $ 5,172 $ 5,244
============== ==============
See accompanying notes to financialstatements.
</TABLE>
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)
Three months ended
March 31,
1997 1996
-------------- --------
Revenues:
<TABLE>
<CAPTION>
<S> <C> <C>
Rental income $ 35 $ 50
Interest and other income 13 3
Gain on guarantee settlement --- 117
------------ -----------
Total revenues 48 170
------------ -----------
Expenses:
Operating 22 20
Expenses associated with undeveloped land 9 35
Interest --- 21
Depreciation and amortization 2 16
General and administrative 79 110
------------ -----------
Total expenses 112 202
------------ -----------
Net loss (64) (32)
----------- ------------
Net loss per limited partnership unit $ (1.68) $ (0.83)
============ ============
Weighted average number of limited
partnership units outstanding during
the period used to compute net loss
per limited partnership unit 37,473 37,489
========== ===========
</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 three months ended March 31, 1997 and 1996
(in thousands)
(Unaudited)
<TABLE>
<CAPTION>
General Limited
Partner Partners Total
<S> <C> <C> <C>
Balance at December 31, 1996 $ (268) $ 5,460 $ 5,192
Net loss (1) (63) (64)
-------------- ------------- --------------
Balance at March 31, 1997 $ (269) $ 5,397 $ 5,128
============= ============ =============
Balance at December 31, 1995 $ (264) $ 5,632 $ 5,368
Net loss (1) (31) (32)
------------- ------------ -------------
Balance at March 31, 1996 $ (265) $ 5,601 $ 5,336
============= ============ =============
</TABLE>
See accompanying notes to financialstatements.
Page 4 of 12
<PAGE>
RANCON REALTY FUND III,
A CALIFORNIA LIMITED PARTNERSHIP
Statements of Cash Flows (in thousands)
(Unaudited)
<TABLE>
<CAPTION>
Three months ended
March 31,
1997 1996
Cash flows from operating activities:
<S> <C> <C>
Net loss $ (64) $ (32)
Adjustments to reconcile net loss to net cash
used for operating activities:
Gain on guarantee settlement --- (117)
Depreciation and amortization 2 16
Amortization of loan fees, included in interest expense -- 5
Changes in certain assets and liabilities:
Accounts receivable --- (1)
Deferred financing costs and other fees (1) ---
Accounts payable and accrued expenses (8) 9
Payment of guarantee settlement --- (183)
------------ -----------
Net cash used for operating activities (71) (303)
------------ -----------
Cash flows from investing activities:
Additions to real estate investments (2) (5)
------------ -----------
Net cash used for investing activities (2) (5)
------------- ------------
Cash flows from financing activities:
Borrowings on notes payable --- 60
------------ -----------
Net cash provided by financing activities --- 60
------------ -----------
Net decrease in cash and cash equivalents (73) (248)
Cash and cash equivalents at beginning of period 1,061 459
------------ -----------
Cash and cash equivalents at end of period $ 988 $ 211
============ ===========
Supplemental disclosure of cash flow information:
Cash paid for interest $ --- $ 11
============ ===========
</TABLE>
See accompanying notes to financialstatements.
Page 5 of 12
<PAGE>
RANCON REALTY FUND III,
A CALIFORNIA LIMITED PARTNERSHIP
Notes to Financial Statements
March 31, 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 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 March
31, 1997 and December 31, 1996, and the related statements of operations,
changes in partners' equity and cash flows for the three months ended March 31,
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 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 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 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 Partner 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.
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
Page 6 of 12
<PAGE>
RANCON REALTY FUND III,
A CALIFORNIA LIMITED PARTNERSHIP
Notes to Financial Statements
March 31, 1997
(Unaudited)
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. LAND HELD FOR SALE
At March 31, 1997, there is approximately one acre of land under contract for
sale under an agreement of purchase and sale. The sale is expected to close in
May 1997. The cash proceeds will be added to the cash reserves of the
Partnership.
Note 4. ACCRUED GUARANTEE SETTLEMENT COSTS
The Partnership agreed to indemnify the Sponsors for any amounts paid under an
agreement executed by the Sponsors in 1992 guaranteeing the payment and
performance of a portion of a promissory note to Imperial Thrift and Loan
(Imperial) which was assumed by the buyer (Sumarco) when Sumarco purchased a
restaurant from the Partnership on April 30, 1992. The guarantee of up to a
maximum of $600,000 was a condition of such assumption. Sumarco defaulted under
the terms of the note. Imperial filed a foreclosure action against Sumarco and
named the Sponsors as defendants for purposes of enforcing the guarantee. The
Partnership felt there were strong points in its favor, but recorded an
estimated loss on such guarantee of $300,000 at September 30, 1993.
In order to avoid the uncertainties and expense of further litigation, Imperial
and the Sponsors entered into a Settlement Agreement and Release on January 2,
1996. The Agreeing Parties (Imperial and the Sponsors) acknowledge that the
settlement between them is a compromise resolution of disputed claims.
Accordingly, Imperial filed a Request for Dismissal of Case No. RCV 07394, and
the Sponsors complied with their payment of $182,500 on January 16, 1996. The
Partnership reimbursed the Sponsors under its indemnity agreement and recorded a
Page 7 of 12
<PAGE>
RANCON REALTY FUND III,
A CALIFORNIA LIMITED PARTNERSHIP
Notes to Financial Statements
March 31, 1997
(Unaudited)
$117,500 gain for the balance of the accrued liability that was not incurred by
the Partnership. Sumarco is not party to this full and final settlement, and is
in no way to be benefited or released by it.
Page 8 of 12
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Conditions and
Results of Operations.
LIQUIDITY AND CAPITAL RESOURCES
In December, 1986, Rancon Realty Fund III (the Partnership) completed final
funding with 37,500 limited partnership units (Units) issued. As of March 31,
1997, the Partnership had cash of $988,000. The remainder of the Partnership's
assets consist primarily of its investments in real estate, which totaled
$4,169,000 as of March 31, 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 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.
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.
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 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.
As of March 31, 1997, the Partnership owns a 17,750 square foot office building
(Civic Center II) and approximately 16.7 acres of land.
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 three months ended March 31, 1997 by $15,000,
or 30%, compared to the same period in 1996, due to a reduction in occupancy at
Civic Center II from 86% at March 31, 1996 to 58% at March 31, 1997. The
reduction in occupancy occurred when a tenant vacated a 5,074 square foot space
upon their lease expiration in 1996.
Page 9 of 12
<PAGE>
Interest and other income increased by $10,000, or 333%, in the three months
ended March 31, 1997 compared to the three months ended March 31, 1996,
primarily as a result of a higher invested cash balance from the June 1996 sale
of 33 acres of unimproved land.
During the three months ended March 31, 1997 expenses associated with
undeveloped land decreased by $26,000, or 74%, when compared to the three months
ended March 31, 1996, as a result of lower property tax expenses due to the sale
of land in 1996, prior year property tax refunds 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 $21,000, or 100%, during the three months ended
March 31, 1997 compared to the same period in 1996, due to a pay-off in June
1996 of the only note payable previously outstanding.
Due to the cessation of depreciation on the rental property held for sale, Civic
Center II, depreciation and amortization decreased by $14,000, or 88%, during
the three months ended March 31, 1997 compared to the same period in 1996. The
$2,000 of expense during the three months ended March 31, 1997, represents
amortization of lease commissions and depreciation of furniture and equipment.
General and administrative expense decreased in the three months ended March 31,
1997 by $31,000, or 28%, compared to the same period in 1996, as a result of
lower legal fees due to the 1996 settlement and a lower asset management fee
attributable to the sale of land in 1996.
Page 10 of 12
<PAGE>
Part II. OTHER INFORMATION
Item 1. Legal Proceedings
Incorporated by reference to Note 4 of the Notes to Financial
Statements included herein.
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 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: May 15, 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
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000707853
<NAME> RANCON REALTY FUND III
<MULTIPLIER> 1,000
<CURRENCY> U.S.DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-01-1997
<CASH> 988
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 988
<PP&E> 4,169
<DEPRECIATION> 0
<TOTAL-ASSETS> 5,172
<CURRENT-LIABILITIES> 35
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 5,128
<TOTAL-LIABILITY-AND-EQUITY> 5,172
<SALES> 0
<TOTAL-REVENUES> 48
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 112
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (64)
<INCOME-TAX> 0
<INCOME-CONTINUING> (64)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (64)
<EPS-PRIMARY> (1.68)
<EPS-DILUTED> (1.68)
</TABLE>
