FORM 10-Q
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, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
Commission file number: 0-14207
RANCON REALTY FUND IV,
A CALIFORNIA LIMITED PARTNERSHIP
(Exact name of registrant as specified in its charter)
California 33-0016355
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization Identification)
400 South El Camino Real, Suite 1100
San Mateo, California 94402
(Address of principal (Zip Code)
executive offices)
(415) 343-9300
(Registrant's telephone number, including area code)
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, 1996: 79,844
Page 1 of 16
PART 1. FINANCIAL INFORMATION
Item 1. Financial Statements
RANCON REALTY FUND IV,
A CALIFORNIA LIMITED PARTNERSHIP
Balance Sheets
(in thousands, except units outstanding)
(Unaudited)
March 31, December 31,
Assets 1996 1995
------ ------- -------
Investments in real estate:
Rental property (net of accumulated
depreciation of $12,080 and
$11,800 at March 31, 1996 and
December 31, 1995, respectively) $ 30,622 $ 30,766
Construction in progress 6,110 2,931
Land held for development 8,083 9,088
Land held for sale 1,428 1,632
-------- --------
Total investments in real
estate, net 46,243 44,417
Cash and cash equivalents 1,193 1,296
Cash restricted for construction 401 926
Tenant and interest receivable 45 8
Note receivable 405 405
Other assets (net of accumulated
amortization of $719 and $674 at
March 31, 1996 and December 31,
1995, respectively) 1,344 1,230
-------- --------
Total Assets $ 49,631 $ 48,282
======== ========
Liabilities and Partners' Equity
--------------------------------
Liabilities:
Accounts payable and other
liabilities $ 603 $ 356
Interest payable 38 ---
Notes payable 13,270 11,757
-------- --------
Total Liabilities 13,911 12,113
-------- --------
Partners' equity (deficit):
General partners' (891) (891)
Limited partners' (79,844
limited partnership units
outstanding) 36,611 37,060
-------- --------
Total Partners' Equity 35,720 36,169
-------- --------
Total Liabilities and
Partners' Equity $ 49,631 $ 48,282
======== ========
See accompanying notes to financial statements.
Page 2 of 16
RANCON REALTY FUND IV,
A CALIFORNIA LIMITED PARTNERSHIP
Statements of Operations
(in thousands, except per unit amounts)
(Unaudited)
Three Months
Ended
------------
March 31, January 31,
1996 1995
-------- --------
Rental income $ 1,120 $ 1,519
Interest and other income 28 12
-------- --------
Total revenues 1,148 1,531
Operating Costs and Expenses:
Operating (including $61 reimbursed to
Sponsor in 1995) 525 646
Depreciation and amortization 303 359
Interest expense 261 165
Expenses associated with undeveloped
land (including $4 reimbursed to
Sponsor in 1995) 183 233
Administrative expenses (including $304
to Sponsor in 1995) 325 471
------ ------
Total operating costs and expenses 1,597 1,874
------ ------
Net loss $ (449) $ (343)
====== ======
Net loss allocable to limited partners $ (449) $ (343)
====== ======
Net loss per limited partnership unit $ (5.62) $ (4.29)
====== ======
Weighted average number of limited
partnership units outstanding during
each period used to compute earnings
per limited partnership unit 79,844 79,864
======== ========
See accompanying notes to financial statements.
Page 3 of 16
RANCON REALTY FUND IV,
A CALIFORNIA LIMITED PARTNERSHIP
Statements of Partners' Equity (Deficit)
For the three months ended March 31, 1996 and January 31, 1995
(in thousands except units)
General Limited
Partners Partners Total
Balance at December 31, 1995 $ (891) $ 37,060 $ 36,169
Net loss --- (449) (449)
------- ------- -------
Balance at March 31, 1996 $ (891) $ 36,611 $ 35,720
======= ======= =======
Balance at October 31, 1994 $ (891) $ 50,797 $ 49,906
Net loss --- (343) (343)
------- ------- -------
Balance at January 31, 1995 $ (891) $ 50,454 $ 49,563
======= ======= =======
See accompany notes to financial statements.
Page 4 of 16
RANCON REALTY FUND IV,
A CALIFORNIA LIMITED PARTNERSHIP
Statements of Cash Flows (in thousands)
(Unaudited)
Three Months Ended
March 31, January 31,
1996 1995
------- -------
Cash Flows From Operating Activities:
Net loss $ (449) $ (343)
Adjustments to reconcile net loss to
net cash provided by (used for)
operating activities:
Depreciation and amortization 303 359
Amortization of loan fees 22 8
Changes in assets and liabilities:
Tenant and interest receivable (37) 7
Other assets 47 (196)
Accounts payable and other liabilities 247 (237)
Interest payable 38 ---
Payable to Sponsor --- (2)
Lease commissions paid (20) (15)
-------- --------
Net cash provided by (used for)
operating activities 151 (419)
-------- --------
Cash Flows From Investing Activities:
Funds released from restricted cash 525 ---
Proceeds from sale of real estate 84 ---
Collection on notes receivable --- 720
Property acquisition and development costs (2,354) (418)
-------- --------
Net cash provided by (used for)
investing activities (1,745) 302
Cash Flows From Financing Activities:
Net loan proceeds 1,547 ---
Payments on notes payable (34) (28)
Payment of loan fees (22) (12)
-------- --------
Net cash provided by (used for)
financing activities 1,491 (40)
-------- --------
Net increase (decrease) in cash (103) (157)
Cash at beginning of period 1,296 1,555
-------- --------
Cash at end of period $ 1,193 $ 1,398
======== ========
Supplemental disclosure of cash flow information:
Cash paid for interest $ 201 $ 162
======== ========
Interest capitalized $ --- $ 4
======== ========
See accompanying notes to financial statements.
Page 5 of 16
RANCON REALTY FUND IV,
A CALIFORNIA LIMITED PARTNERSHIP
Notes to Financial Statements
March 31, 1996
(Unaudited)
Note 1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
--------------------------------------------------
In the opinion of Rancon Financial Corporation 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 IV, A California Limited Partnership (the
Partnership) as of March 31, 1996 and December 31, 1995, and the
related statements of operations, partners' equity, and cash
flows for the three months ended March 31, 1996 and January 31,
1995.
Effective with the year ended December 31, 1996, the
Partnership's year end has been changed from October 31 to
December 31.
Since the Partnership's operations is not seasonal, the change in
year end resulted in first quarter comparison between years
comparing a different three month period.
Effective January 1, 1994 the Partnership had contracted with RFC
to perform on the Partnership's behalf for 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, a
California corporation, to perform the same services. Effective
January 1, 1994, RFC entered into an agreement with the owner of
Partnership Asset Management Company to purchase all of its
outstanding shares of stock. Partnership Asset Management
Company was not considered to be an affiliate of the Partnership
or RFC, at the time of the 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
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 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
Page 6 of 16
RANCON REALTY FUND IV,
A CALIFORNIA LIMITED PARTNERSHIP
Notes to Financial Statements
March 31, 1996
(Unaudited)
fee of $993,000 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 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. This agreement was effective January 1,
1995. Glenborough is not an affiliate of RFC.
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.
Reclassification - Certain 1995 balances have been reclassified
to conform with the current period presentation.
Note 2. REFERENCE TO 1995 AUDITED FINANCIAL STATEMENTS
----------------------------------------------
These unaudited financial statements should be read in
conjunction with the Notes to Financial Statements included in
the 1995 audited financial statements.
Note 3. RELATED PARTY TRANSACTIONS
--------------------------
The Partnership had an agreement with the Sponsor for property
management services through December 31, 1994. The agreement
provided for a management fee equal to 5% of gross rentals
collected while managing the properties. Fees incurred under
this agreement totaled $61,000 for the three months ended January
31, 1995. Effective January 1, 1995, the Partnership contracted
with Glenborough to provide these services to the Partnership
(see Note 1).
The Partnership incurred $4,000 in program management fees to the
Sponsor during the three months ended January 31, 1995. The
Sponsor received this fee for its management and administration
of unimproved or non-income producing properties. As a result of
the agreement with Glenborough (see Note 1), effective January 1,
1995, this fee is no longer payable to the Sponsor or to
Glenborough.
The Partnership Agreement also provides for the reimbursement of
actual costs incurred by the Sponsor in providing certain
Page 7 of 16
RANCON REALTY FUND IV,
A CALIFORNIA LIMITED PARTNERSHIP
Notes to Financial Statements
March 31, 1996
(Unaudited)
administrative, legal and development services necessary for the
prudent operation of the Partnership. Effective January 1, 1995,
such services are being provided by Glenborough as described in
Note 1.
As a result of the agreement between the Sponsor and Glenborough,
the Sponsor terminated approximately 82 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 $200,000 and are included
in administrative costs for the three months ended January 31,
1995.
The remainder of the reimbursable costs incurred by the
Partnership totaled $104,000 for the three months ended January
31, 1995. Of the costs incurred, $43,000 was capitalized.
Note 4. INVESTMENT IN REAL ESTATE
-------------------------
During the three months ended March 31, 1996, the Partnership
received letters of intent to sign leases on buildings to be
constructed on 3.19 acres of Tri-City Corporate Center in San
Bernardino, California. As such, the Partnership has
reclassified $990,000 from land held for development to
construction in progress.
On March 26, 1996, 1.3 acres of land in Temecula, California was
sold for $275,000. This parcel of land had previously been
classified as land held for sale. The Partnership's net sale
proceeds, after allocating $165,000 for future site improvements,
was approximately $84,000. The net proceeds were added to the
Partnership's cash reserves and will be used to complete
improvements on the remaining lots, which are expected to greatly
assist marketing efforts for the property. Since a provision for
impairment of investment in real estate was established in 1995,
this sale did not result in a gain or loss on the transaction.
Note. 5. SUBSEQUENT EVENT
----------------
On April 19, 1996, the Partnership borrowed $6,500,000 in
financing, secured by Carnegie Business Center I, Service Retail
and Promotional Retail Center. After disbursing $5,901,000 for
the payoff of the existing Far East National Bank, Chino Valley
Bank, and Imperial Bank loans, as well as the payment of loan
fees, the Partnership received approximately $599,000 in
refinancing proceeds which is net of $150,000 held in reserve for
Page 8 of 16
RANCON REALTY FUND IV,
A CALIFORNIA LIMITED PARTNERSHIP
Notes to Financial Statements
March 31, 1996
(Unaudited)
final tenant improvements on a portion of Promotional Retail
Center. The net proceeds have been added to the Partnership's
cash reserves for future site improvements, primarily at the
Inland Regional Center.
Page 9 of 16
RANCON REALTY FUND IV,
A CALIFORNIA LIMITED PARTNERSHIP
Notes to Financial Statements
March 31, 1996
(Unaudited)
In addition, the Partnership expects to close escrow mid May 1996
on a $2,500,000 loan from Citizens Business Bank, secured by the
Inland Regional Center. This loan will fund the balance of
construction costs on the Inland Regional Center Building.
Page 10 of 16
Item 2. Management's Discussion and Analysis of Financial
Conditions and Results of Operations.
LIQUIDITY AND CAPITAL RESOURCES
-------------------------------
As of July, 1987, Rancon Realty Fund IV (the Partnership) was
fully funded from the sale of all limited partnership units in
the amount of $72,556,000 (net of selling and organization
expenses). As of March 31, 1996, the Partnership had cash of
$1,193,000 (the Partnership Agreement requires the Partnership to
maintain initial working capital reserves of 1 percent of gross
proceeds from the sale of Units or $809,000). The remainder of
the Partnership's assets consist primarily of its investments in
properties, which totaled approximately $46,201,000 at March 31,
1996.
The Partnership's primary sources of funds consist of the
proceeds of its public offering of limited partnership units and
cash provided by its rental activities. Other sources of funds
include the financing of certain of the Partnership's operating
properties, construction financing, property sales and interest
income on certificates of deposit and other deposits of funds
invested temporarily, pending their use in the development of
properties.
A majority of the Partnership's assets are located within the
Inland Empire submarket of the Southern California region. The
Southern California regional economy in general, and the real
estate industry in particular, is considered to be in a
recessionary cycle. The Partnership may receive both positive
and negative effects from these current market conditions.
Potential negative effects include the delinquency of lease and
mortgage payments owed to the Partnership and a decrease in
competitive market lease rates and land prices. The Partnership
may benefit from the current economic and financing conditions
due to the general lack of new competitive product being
constructed, potentially causing greater absorption of existing
inventory.
Other assets increased 9% or $114,000 at March 31, 1996 from
December 31, 1995 largely as a result of the $165,000 held in
escrow for further site improvements from the 1.3 acre land sale
in Temecula, California.
Accounts payable and other liabilities increased 69% or $247,000
at March 31, 1996 from December 31, 1995 due primarily to three
months of property tax accruals on the Partnership's operating
properties and undeveloped land.
Five properties within the Tri-City Corporate Centre project in
San Bernardino, California (Tri-City) are operating with
approximately 292,000 total leasable square feet.
In 1994, the Partnership negotiated a 13-year lease with Inland
Regional Center (IRC) for an 81,000 square foot build-to-suit
office building. Construction has been financed through three
Page 11 of 16
separate lenders, as needed, in the following order: (i) a
$2,400,000 loan secured by Tri-City's existing One Vanderbilt
building. Proceeds from this loan were received in March, 1995
with $2,376,000 outstanding at March 31, 1996; (ii) a $2,800,000
construction loan secured by Tri-City's Service Retail Center and
Carnegie Business Center. The loan balance outstanding at March
31, 1996 was $1,470,000; and (iii) a $1,000,000 construction loan
secured by the IRC building. As of March 31, 1996, the
Partnership had not yet drawn on this construction loan.
Construction of the IRC building continues, and the lease is
scheduled to commence upon completion of construction in the
latter part of fiscal 1996.
On April 19, 1996, the Partnership borrowed $6,500,000 under new
permanent financing. This loan is a 10-year fixed rate loan with
a 25-year amortization, bearing interest at 8.744%. This loan
funded the payoff of three existing loans including two discussed
in the paragraph above in (i) and (ii) and a $741,000
construction loan which was originally due February 15, 1996, but
was extended pending the finalization of this new financing.
After considering refinancing and other fees, and the funds left
in escrow for tenant improvements at the Promotional Retail
Center, the Partnership will net approximately $664,000 in
proceeds. In addition to the financing proceeds, the Partnership
benefitted from the extension of the weighted average maturity of
the three existing loans from 1.75 years to 10 years on the new
loan, and the reduction of the weighted average interest rate
from 9.72% to 8.74%.
Offsite improvements remain on hold at Lake Elsinore Square in
Lake Elsinore, California pending recovery of the housing market.
The tentative parcel map has been approved and the final map was
being processed when further activity was put on hold and thus
the tentative parcel map has expired.
There has been no development of the Perris property to date.
The property continues to be marketed for sale by the Partnership
to retail users and interested developers.
The reacquired 12.4 acre property in Temecula, California has
been divided into 12 separate parcels via a parcel map approved
December, 1995. Final map approval was received January 2, 1996.
In March 1996, the Partnership executed a sale on a 1.3 acre
parcel. The Partnership's net sale proceeds, after allocating
$165,000 for future site improvements, was approximately $84,000.
The proceeds from this sale will be used to complete improvements
on the remaining lots, which will greatly assist marketing
efforts of such property.
Portions of the property at Tri-City sold during fiscal 1989,
1991 and 1993 included lots 8 and 9, the Chili's and TGI Friday's
restaurants and a 1.5 acre fire station site. The Partnership
continues to hold a note receivable in the amount of $405,000
related to the sale of the TGI Friday's restaurant. The
Partnership does not anticipate the sale of any significant
portion of the balance of the Tri-City property (except the Land
Page 12 of 16
fill) until after the completion of development of such property
or the liquidation of the Partnership. Any cash generated from
property sales may be utilized in the development of other
properties or distributed to the partners. The General Partners
continue to assess the real estate market in Southern California
in an effort to determine an appropriate time to liquidate the
Partnership.
Aside from the foregoing, the Partnership knows of no demands,
commitments, events, or uncertainties which might affect its
liquidity or capital resources in any material respect. The
effect of inflation on the Partnership's business should be no
greater than its effect on the economy as a whole.
Management believes that the Partnership's cash balance as of
March 31, 1996, together with cash from operations and
construction loan financing, will be sufficient to finance the
Partnership's and the properties' continued operations and
development plans. If construction loan financing is not
available, development plans will be postponed.
RESULTS OF OPERATIONS
---------------------
The Partnership's year end has been changed from October 31 to
December 31. Since the Partnership's operations are not
seasonal, first quarter comparisons will reflect the three months
ended March 31, 1996 versus the three months ended January 31,
1995.
Rental income for the three months ended March 31, 1996 decreased
$399,000 or 26% from the three months ended January 31, 1995
primarily as a result of a decrease in average occupancy at most
of the Tri-City properties, as further detailed in the table
below.
Occupancy rates at the Partnership's Tri-City properties as of
March 31, 1996 and January 31, 1995 were as follows:
March 31, January 31,
1996 1995
-------- --------
One Vanderbilt 59% 98%
Two Vanderbilt 13% 97%
Service Retail Center 97% 100%
Carnegie Business Center I 87% 97%
Promotional Retail Center-Phase I 97% 97%
One tenant at Tri-City occupies a substantial portion of leased
office space, ITT Educational Services, with two leases which
expire in November, 1997 and September, 2002. The three major
tenants at the Promotional Retail Center in Tri-City, Discovery
Zone, Comp USA and PetsMart, have lease expiration dates of
August, 2005, August, 2003, and January, 2009, respectively.
These four tenants, in the aggregate, occupy approximately 97,000
square feet or 33% of the 292,000 total leasable square feet at
Tri-City. Prior to November 1995, Aetna Health Management
Page 13 of 16
(Aetna) occupied 74,000 square feet of space at One Vanderbilt,
Two Vanderbilt and Carnegie Business Center I. Upon their lease
expiration, Aetna vacated. Management is currently in various
stages of negotiations on six new leases totaling 45,000 square
feet of space. Management is also negotiating a lease for 38,000
square feet of space which would require development of land in
Tri-City which is currently vacant.
Operating expenses (expenses applicable to rental income) for the
three months ended March 31, 1996 decreased $121,000 or 19% from
the three months ended January 31, 1995 due primarily to: (i)
lowered utility costs and management fees associated with
decreased occupancy from January 31, 1995 to March 31, 1996,
discussed above;
and (ii) a significant amount of property tax refunds as a result
of successful tax appeals.
Depreciation and amortization for the three months ended March
31, 1996 decreased $56,000 or 16% from the three months ended
January 31, 1995 primarily as a result of fully depreciating and
amortizing tenant improvements and leasing commissions upon the
expiration of tenant leases.
Interest expense for the three months ended March 31, 1996
increased $96,000 or 58% from the three months ended January 31,
1995, primarily as a result of the additional notes payable
obtained to facilitate construction in 1995 and 1996.
Expenses associated with undeveloped land for the three months
ended March 31, 1996 decreased $50,000 or 21% from the three
months ended January 31, 1995 primarily as a result of the
current capitalization (construction in progress) of property
taxes for the Inland Regional Center site.
Administrative expenses, prior to capitalization, during the
three months ended March 31, 1996 decreased $146,000 or 31% from
the three months ended January 31, 1995. This decrease is
primarily the result of: (i) the one-time payment of severance to
RFC's terminated employees in the three months ended January 31,
1995.
Interest income for the three months ended March 31, 1996
increased $16,000 or 133% from the three months ended January 31,
1995 primarily due to an increased level of funds being placed in
interest bearing accounts in 1996.
Page 14 of 16
Part 2. 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:
None.
(b) Reports on Form 8-K:
None.
Page 15 of 16
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 IV,
a California Limited Partnership
(Registrant)
Date:May 13, 1996 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 IV,
a California Limited Partnership
Page 16 of 16
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000743870
<NAME> RANCON REALTY FUND IV
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> MAR-31-1996
<CASH> 1594
<SECURITIES> 0
<RECEIVABLES> 450
<ALLOWANCES> 0
<INVENTORY> 1428
<CURRENT-ASSETS> 3472
<PP&E> 56895
<DEPRECIATION> (12080)
<TOTAL-ASSETS> 49631
<CURRENT-LIABILITIES> 641
<BONDS> 13270
0
0
<COMMON> 0
<OTHER-SE> 35720
<TOTAL-LIABILITY-AND-EQUITY> 49631
<SALES> 0
<TOTAL-REVENUES> 1148
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 1336
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 261
<INCOME-PRETAX> (449)
<INCOME-TAX> 0
<INCOME-CONTINUING> (449)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (449)
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</TABLE>
