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: 0-14207
RANCON REALTY FUND IV,
A CALIFORNIA LIMITED PARTNERSHIP
(Exact name of registrant as specified in its charter)
California 33-0061355
(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
(Address of principal (Zip Code)
executive offices)
(650) 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 September 30, 1997: 79,846
Page 1 of 18
<PAGE>
PART 1. FINANCIAL INFORMATION
Item 1. Financial Statements
<TABLE>
<CAPTION>
RANCON REALTY FUND IV,
A CALIFORNIA LIMITED PARTNERSHIP
Consolidated Balance Sheets
(in thousands, except units outstanding)
(Unaudited)
September 30, December 31,
1997 1996
------------ -----------
<S> <C> <C>
Assets
Investments in real estate:
Rental property, net of accumulated depreciation
of $14,226 and $13,077 at September 30, 1997
and December 31, 1996, respectively $ 43,214 $ 38,094
Construction in progress --- 2,184
Land held for development 4,915 4,911
Land held for sale 3,749 4,869
--------- ---------
Total real estate investments 51,878 50,058
Cash and cash equivalents 1,015 97
Restricted cash 371 102
Accounts and interest receivable 239 188
Note receivable --- 405
Deferred financing costs and other fees, net of
accumulated amortization of $969 and $775
at September 30, 1997 and December 31, 1996,
respectively 1,437 1,223
Prepaid expenses and other assets 958 622
--------- ---------
Total assets $ 55,898 $ 52,695
========= =========
</TABLE>
- continued -
Page 2 of 18
<PAGE>
RANCON REALTY FUND IV,
A CALIFORNIA LIMITED PARTNERSHIP
<TABLE>
<CAPTION>
Consolidated Balance Sheets - continued
(in thousands, except units outstanding)
(Unaudited)
September 30, December 31,
1997 1996
------------ -----------
<S> <C> <C>
Liabilities and Partners' Equity (Deficit)
Liabilities:
Notes payable $ 22,071 $ 17,256
Accounts payable and accrued expenses 860 713
Interest payable 85 67
--------- ---------
Total liabilities 23,016 18,036
--------- ---------
Commitments and contingent liabilities (see Note 5)
Partners' equity (deficit):
General partners (891) (891)
Limited partners, 79,846 limited partnership units
outstanding at September 30, 1997 and
December 31, 1996 33,773 35,550
--------- ---------
Total partners' equity 32,882 34,659
--------- ---------
Total liabilities and partners' equity $ 55,898 $ 52,695
========= =========
</TABLE>
See accompanying notes to financial statements.
Page 3 of 18
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RANCON REALTY FUND IV,
A CALIFORNIA LIMITED PARTNERSHIP
<TABLE>
<CAPTION>
Consolidated Statements of Operations
(in thousands, except per unit amounts and units outstanding)
(Unaudited)
Three months ended Nine months ended
September 30, September 30,
------------------- -------------------
1997 1996 1997 1996
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Revenue:
Rental income $ 1,767 $ 1,410 $ 5,054 $ 3,579
Interest and other income 6 56 17 110
-------- -------- -------- --------
Total revenue 1,773 1,466 5,071 3,689
-------- -------- -------- --------
Expenses:
Operating 853 583 2,323 1,671
Interest expense 515 390 1,376 968
Depreciation and amortization 447 280 1,267 1,008
Loss on sale of real estate 64 --- 64 ---
Provision for impairment of land
held for sale --- --- 378 ---
Expenses associated with
undeveloped land 154 290 479 692
General and administrative expenses 320 283 961 938
-------- -------- -------- --------
Total expenses 2,353 1,826 6,848 5,277
-------- -------- -------- --------
Net loss $ (580) $ (360) $ (1,777) $ (1,588)
======== ======== ======== ========
Net loss per limited partnership unit $ (7.26) $ (4.51) $ (22.25) $ (19.89)
======== ======== ======== ========
Weighted average number of limited
partnership units outstanding during
each period used to compute net loss
per limited partnership unit 79,846 79,846 79,846 79,846
======== ========== ======== ========
</TABLE>
See accompanying notes to financial statements.
Page 4 of 18
<PAGE>
RANCON REALTY FUND IV,
A CALIFORNIA LIMITED PARTNERSHIP
Consolidated Statements of Partners'
Equity (Deficit) For the nine months
ended September 30, 1997 and 1996
(in thousands)
(Unaudited)
General Limited
Partners Partners Total
-------- --------- ---------
Balance at December 31, 1996 $ (891) $ 35,550 $ 34,659
Net loss --- (1,777) (1,777)
-------- --------- ---------
Balance at September 30, 1997 $ (891) $ 33,773 $ 32,882
======== ========= =========
Balance at December 31, 1995 $ (891) $ 37,060 $ 36,169
Net loss --- (1,588) (1,588)
-------- --------- ---------
Balance at September 30, 1996 $ (891) $ 35,472 $ 34,581
======== ========= =========
See accompanying notes to financial statements.
Page 5 of 18
<PAGE>
RANCON REALTY FUND IV,
A CALIFORNIA LIMITED PARTNERSHIP
<TABLE>
<CAPTION>
Consolidated Statements of Cash Flows
(in thousands)
(Unaudited)
Nine months ended
September 30,
1997 1996
-------- --------
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (1,777) $ (1,588)
Adjustments to reconcile net loss to net cash
used for operating activities:
Depreciation and amortization 1,267 1,008
Amortization of loan fees, included in interest expense 76 53
Provision for impairment of land held for sale 378 ---
Loss on sale of real estate 64 ---
Changes in certain assets and liabilities:
Accounts and interest receivable (51) (52)
Deferred leasing commissions (286) (57)
Prepaid expenses and other assets (336) (133)
Accounts payable and accrued expenses 129 188
Interest payable 18 47
-------- --------
Net cash used for operating activities (518) (534)
-------- --------
Cash flows from investing activities:
Net proceeds from sale of real estate 699 248
Additions to real estate and property development costs (3,687) (6,823)
-------- --------
Net cash used for investing activities (2,988) (6,575)
-------- --------
Cash flows from financing activities:
Net loan proceeds 6,500 12,136
Decrease (increase) in restricted cash, net (269) 826
Payment of loan fees (122) (211)
Notes payable principal payments (1,685) (6,575)
-------- --------
Net cash provided by financing activities 4,424 6,176
-------- --------
Net increase (decrease) in cash and cash equivalents 918 (933)
Cash and cash equivalents at beginning of period 97 1,296
-------- --------
Cash and cash equivalents at end of period $ 1,015 $ 363
======== ========
</TABLE>
- continued -
Page 6 of 18
<PAGE>
RANCON REALTY FUND IV,
A CALIFORNIA LIMITED PARTNERSHIP
<TABLE>
<CAPTION>
Consolidated Statements of Cash Flows - continued
(in thousands)
(Unaudited)
Nine months ended
September 30,
1997 1996
-------- --------
<S> <C> <C>
Supplemental disclosure of cash flow information:
Cash paid for interest $ 1,282 $ 864
======== ========
Supplemental disclosure of net proceeds from sale
of real estate:
Sales price of real estate $ 936 $ ---
Less: Closing and other costs (237) ---
-------- --------
Net proceeds from sale of real estate $ 699 $ ---
======== ========
Supplemental disclosure of additions to real estate
and property development costs:
Purchase price of real estate $ (1,750) $ ---
Reduction of note receivable 405 ---
Additions to real estate and property development costs (2,342) (6,823)
-------- --------
Net additions to real estate and property development costs $ (3,687) $ (6,823)
======== ========
Supplemental disclosure of non-cash refinancing activity:
New financing $ 7,700 $ 12,136
Original financing paid off in escrow (1,200) ---
-------- --------
Net loan proceeds $ 6,500 $ 12,136
======== ========
</TABLE>
See accompanying notes to financial statements.
Page 7 of 18
<PAGE>
RANCON REALTY FUND IV,
A CALIFORNIA LIMITED PARTNERSHIP
Notes to Consolidated Financial Statements
September 30, 1997
(Unaudited)
Note 1. THE PARTNERSHIP AND 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 IV, 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.
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, 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. Pursuant 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 $989,000 per
year; (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 tasks 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 General Partner for the Rancon
Partnerships. This agreement became effective January 1, 1995. Glenborough is
not an affiliate of RFC or the Partnership.
Consolidation - In order to satisfy certain lender requirements for the
Partnership's 1996 loan secured by Service Retail Center, Promotional Retail
Center, and Carnegie Business Center I, Rancon Realty Fund IV Tri-City Limited
Partnership, a Delaware limited partnership ("RRF IV Tri-City") was formed in
April 1996. The three properties securing the loan were contributed to RRF IV
Tri-City by the Partnership. The limited partner of RRF IV Tri-City is the
Partnership and the general partner is RRF IV, Inc., a corporation wholly owned
by the Partnership. Since the Partnership indirectly owns 100% of RRF IV
Tri-City, the financial statements of RRF IV Tri-City have been consolidated
with those of the Partnership. All intercompany transactions and account
balances have been eliminated in consolidation.
Reclassification - Certain 1996 balances have been reclassified to conform to
the current period presentation.
Page 8 of 18
<PAGE>
RANCON REALTY FUND IV,
A CALIFORNIA LIMITED PARTNERSHIP
Notes to Consolidated Financial Statements
September 30, 1997
(Unaudited)
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. REAL ESTATE INVESTMENTS
On February 28, 1997, the Partnership purchased the property known as TGI
Friday's for $1,750,000. The Partnership paid $1,345,000 in cash and the
existing $405,000 note receivable secured by a deed of trust on the TGI Friday's
property was retired as part of this transaction.
In May 1997, construction of the Circuit City site in the Tri-City Corporate
Center was completed for a total cost of approximately $3,840,000 and was
classified as rental property.
In the second and third quarters of 1997, due to the sales price of pending land
sales, management concluded that the carrying value of the Partnership's
investment in the land held for sale in Temecula, California was in excess of
its fair value and provisions for impairment of the land held for sale in the
cumulative amount of $442,000 were recorded. Sales of four lots, with a carrying
value totaling $1,079,000, were completed in the third quarter of 1997 (see Note
7). As management had written the land down to its estimated fair value, no gain
or loss on the sales was recorded.
On September 30, 1997, the Partnership entered into a definitive agreement to
sell all of its real estate assets to Glenborough Realty Trust Incorporated
("GLB"), a publicly traded real estate investment trust and Glenborough
Properties, L.P. ("Properties"), the operating partnership of GLB, for an
aggregate price of $48,204,500. This sale is subject to approval by a majority
vote of the limited partners of the Partnership. Accordingly, there can be no
assurance that this transaction will be completed.
If the sale to GLB and Properties is completed, management intends to liquidate
the Partnership as soon as possible following the sale. A Consent Solicitation
Statement (the "Solicitation") sent to the Unitholders on October 17, 1997,
detailing these two transactions is hereby incorporated by reference to the
Definitive Schedule 14A - Proxy Statement filed with the Securities and Exchange
Commission on October 17, 1997. The General Partner estimates that the net
proceeds from the sale of the real estate assets to GLB and Properties together
with the net cash proceeds from the payment by the General Partner of its
negative capital account will equal approximately $316 per limited partnership
unit.
Page 9 of 18
<PAGE>
RANCON REALTY FUND IV,
A CALIFORNIA LIMITED PARTNERSHIP
Notes to Consolidated Financial Statements
September 30, 1997
(Unaudited)
On October 17, 1997, a Solicitation was sent to the limited partners of the
Partnership proposing to sell all of its real estate assets and then liquidate
the Partnership. See Note 3 for further detail of the proposed transactions. As
of November 13 1997, 47,420 Unitholders or 59% of the total outstanding Units
have responded with 40,698 Unitholders or 51% of the total outstanding Units in
favor, 5,789 Unitholders or 7% against, 492 Unitholders or 1% abstaining, and
441 Unitholders or less than 1% pending. Final tabulation of the results of the
Solicitation will be made on November 21, 1997 unless the Solicitation period is
extended.
Note 4. RESTRICTED CASH
On March 12, 1997, pursuant to the Inland Regional Center ("IRC") lease, a
$269,000 certificate of deposit ("CD") was opened. The $269,000 represents a
security deposit, that the Partnership will retain in the event of default by
IRC. Provisions in the lease allow for the security deposit plus accrued
interest to be converted to prepaid rent after the 60th month of the lease if
the tenant is not in default of the provisions of the lease.
Note 5. COMMITMENTS AND CONTINGENT LIABILITIES
The Partnership is contingently liable for subordinated real estate commissions
payable to the Sponsor in the amount of $643,000 for sales that transpired in
previous years. The subordinated real estate commissions are payable only after
the Limited Partners have received distributions equal to their original
invested capital plus a cumulative non-compounded return of six percent per
annum on their adjusted invested capital ("priority return"). If the Partnership
completes the sale as described in Note 3 and liquidates, the Limited Partners
will not have received their priority return and the subordinated real estate
commissions will not be paid.
Note 6. NOTES PAYABLE
On January 31, 1997, the Partnership obtained an unsecured promissory note for a
$1,500,000 revolving line of credit from Glenborough at a rate of eleven percent
(11%) per annum to fund capital expenditures and other partnership costs. By
April 1997, the Partnership had drawn the total $1,500,000 available on the line
of credit and the loan was paid off in May 1997, from new permanent financing
proceeds (see below).
On February 28, 1997, the Partnership obtained a $1,200,000 unsecured loan from
Wells Fargo Bank at an interest rate of one percent (1%) per annum in excess of
the bank "Prime Rate." The loan was used to finance the acquisition of the TGI
Friday's property. This loan was also paid off in May 1997, from the new
permanent financing proceeds (see below).
Page 10 of 18
<PAGE>
RANCON REALTY FUND IV,
A CALIFORNIA LIMITED PARTNERSHIP
Notes to Consolidated Financial Statements
September 30, 1997
(Unaudited)
On May 8, 1997, the Partnership obtained new permanent financing of $5,000,000
from Wells Fargo Bank, secured by real estate referred to as Circuit City and
TGI Friday's. The Partnership used the proceeds to pay off the $1,500,000
Glenborough line of credit and $1,221,000 to pay off the unsecured Wells Fargo
Bank loan (including accrued interest). In addition, the Partnership incurred
approximately $193,000 in loan fees and closing costs and $1,956,000 for the
Circuit City tenant improvement allowance, of which $34,000 was paid on October
22, 1997, following final and satisfactory completion of all tenant
improvements. The remaining net proceeds of approximately $130,000 were added to
the Partnership's cash reserves.
The new loan bears interest at one percent (1%) per annum in excess of the
lender's "Prime Rate," requires monthly interest-only payments, and matures on
May 31, 1999 with an option for a one-year extension.
Note 7. SALE OF REAL ESTATE
On July 1, 1997 and August 7, 1997, the Partnership sold a total of four of the
eleven Rancon Towne Village lots to unaffiliated entities for an aggregate sales
price of $936,000. Since provisions for impairment of the land held for sale had
previously been recorded, there is no reportable gain or loss on the sales. The
gross sales proceeds were used to partially pay down previously subordinated
real estate commissions, with the balance added to the Partnership's cash
reserves.
Page 11 of 18
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
LIQUIDITY AND CAPITAL RESOURCES
At September 30, 1997, the Partnership had cash of $1,015,000 (exclusive of
restricted cash). The remainder of the Partnership's assets consist primarily of
its real estate investments, totaling approximately $51,878,000.
The Partnership's primary source of funds consist of cash provided by rental
activities, permanent financing, 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.
The Partnership's improved cash position at September 30, 1997 compared to
December 31, 1996 is largely due to the placement of the Inland Regional Center
into service in June 1996, the acquisition of TGI Friday's in February 1997, the
net proceeds from the sale of four lots in Rancon Towne Village in July and
August 1997, and the net proceeds from financing obtained in 1997 (see below).
On May 8, 1997, the Partnership obtained permanent financing of $5,000,000 from
Wells Fargo Bank, secured by real estate referred to as Circuit City and TGI
Friday's. The Partnership used the proceeds to pay off a $1,500,000 line of
credit and a $1,221,000 unsecured Wells Fargo Bank loan. In addition, the
Partnership incurred approximately $193,000 in loan fees and closing costs and
$1,956,000 for the Circuit City tenant improvement allowance. The remaining net
proceeds of approximately $130,000 were added to the Partnership's cash
reserves.
On July 1, 1997 and August 7, 1997, the Partnership sold four of the eleven
remaining available lots of Rancon Towne Village to unaffiliated entities for an
aggregate sales price of $936,000. The gross sales proceeds were used to pay
down previously subordinated real estate commissions, with the balance of
$738,000 added to the Partnership's cash reserves.
On September 30, 1997, the Partnership entered into a definitive agreement to
sell all of its real estate assets to Glenborough Realty Trust Incorporated
("GLB"), a real estate investment trust publicly traded on the New York Stock
Exchange and Glenborough Properties, L.P., the operating partnership of GLB, for
an aggregate price of $48,204,500. This sale is subject to approval by a
majority vote of the limited partners of the Partnership. Accordingly, there can
be no assurance that this transaction will be completed.
On October 17, 1997, the Partnership sent a proxy to its Unitholders
(incorporated by reference to the Definitive Schedule 14A - Proxy Statement
filed on October 17, 1997), requesting the Unitholders' consent to the proposed
bulk sale of its real estate assets and a subsequent liquidation of the
Partnership. The General Partner estimates that the net proceeds from the sale
together with the net cash proceeds from the payment by the General Partner of
its negative capital account will net to approximately $316 per limited
partnership unit. As of November 13, 1997, 47,420
Page 12 of 18
<PAGE>
Unitholders or 59% of the total outstanding Units have responded with 40,698
Unitholders or 51% of the total outstanding Units in favor, 5,789 Unitholders or
7% against, 492 Unitholders or 1% abstaining, and 441 Unitholders or less than
1% pending. However, there is no assurance that the contemplated transactions
will be completed.
Tri-City
The Partnership currently owns the following properties in the Tri-City
Corporate Center area within the Inland Empire submarket of the Southern
California region:
Property Type Square Feet
---------------------------- ---------------------------------- -----------
One Vanderbilt Four story office building 73,809
Two Vanderbilt Four story office building 69,094
Carnegie Business Center I Two light industrial buildings 62,605
Service Retail Center Two retail buildings 20,780
Promotional Retail Center Four strip center retail buildings 104,865
Inland Regional Center Two story office building 81,079
TGI Friday's Restaurant 9,386
Circuit City Build-to-suit retail building 39,123
The Partnership also owns approximately 26 acres of unimproved land in the
Tri-City area.
Additionally, the Partnership owns the Shadowridge Woodbend Apartments (a
240-unit apartment complex) in Vista, California plus unimproved land in
Riverside County, California as described below.
Lake Elsinore
Lake Elsinore is 24.8 acres of undeveloped land, commercially zoned in Lake
Elsinore, Riverside County, California. Offsite improvements remain on hold at
the Lake Elsinore property and there is no development activity planned for the
near future.
Perris
Perris is 17.14 acres of unimproved land near Perris Lake in Perris, Riverside
County, California. There has been no development of the Perris property to
date.
Temecula
The subdivision of the 12.4 gross acre property in Temecula, California, also
known as Rancon Towne Village, into 12 lots was approved January 2, 1996. From
February 1996 through August 1997, the Partnership sold five lots totaling
approximately 3.7 acres for a cumulative sales price of $1,211,000. The
Partnership has executed a sales contract on one lot consisting of approximately
1.06 acres for a sales price of $270,000 while the remaining lots continue to be
marketed for sale.
Page 13 of 18
<PAGE>
The Partnership has a $100,000 certificate of deposit ("CD") held as collateral
for subdivision improvements and monument bonds related to the land for sale in
Temecula, California. It is anticipated that this CD will be released during
1997.
General
Rental property increased by $5,120,000 to $43,214,000 as of September 30, 1997
from $38,094,000 as of December 31, 1996 primarily due to the acquisition of the
TGI Friday's property, the reclassification of Circuit City from construction in
progress to rental property, and the tenant improvement allowance paid for the
completion of the Circuit City property.
RESULTS OF OPERATIONS
Revenues
Rental income for the nine and three months ended September 30, 1997 increased
$1,475,000 or 41% and $357,000 or 25% compared to the nine and three months
ended September 30, 1996, respectively, primarily as a result of: (i) the
commencement of operations of the Inland Regional Center in June 1996; (ii)
ground lease revenue earned from Circuit City as the project was under
construction from September 1996 through May 1997; (iii) the commencement of the
Circuit City operating lease in May 1997; (iv) the acquisition of the TGI
Friday's property in February 1997; and (v) the increased occupancy at One
Vanderbilt, Two Vanderbilt, and Shadowridge Woodbend Apartments during the nine
and three months ended September 30, 1997 over the nine and three months ended
September 30, 1996. These sources of increased revenue were slightly offset with
a decrease in rental income associated with a decrease in occupancy at Carnegie
Business Center I.
Occupancy rates at the Partnership's Tri-City properties as of September 30,
1997 and 1996 were as follows:
September 30,
1997 1996
------ ------
One Vanderbilt 75% 64%
Two Vanderbilt 93% 25%
Service Retail Center 100% 100%
Carnegie Business Center I 69% 87%
Promotional Retail Center-Phase I 97% 97%
Inland Regional Center (commenced operations
June, 1996) 100% 100%
TGI Friday's (acquired February 28, 1997) 100% n/a
Circuit City (commenced operations May, 1997) 100% n/a
As of September 30, 1997, tenants at Tri-City occupying substantial portions of
leased rental space included: (i) Arrowhead Central Credit Union with a lease
which expires in September 2001; (ii) Inland Empire Health Plan with a lease
through March 2002; (iii) ITT Educational Services with a lease which expires in
December 2004; (iv) Inland Regional Center with a lease through July 2009;
Page 14 of 18
<PAGE>
(v)CompUSA with a lease through August 2003; (vi) PetsMart with a lease through
January 2009; (vii) Circuit City with a lease through January 2018; and (viii)
Fidelity National Title with a lease through August 2003. These eight tenants,
in the aggregate, occupied approximately 272,000 square feet of the 461,000
total leasable square feet at Tri-City as of September 30, 1997 and account for
62% of the rental income generated at Tri-City and 45% of the total rental
income for the Partnership during the nine months ended September 30, 1997.
Interest income decreased $93,000 or 85% and $50,000 or 89% during the nine and
three months ended September 30, 1997 compared to the nine and three months
ended September 30, 1996, respectively, due to a lower average cash balance in
1997 as a result of additions to real estate and property development costs in
the second half of calendar year 1996 and the elimination of the interest income
on the $405,000 note receivable that was retired as part of the acquisition of
TGI Friday's on February 28, 1997.
Expenses:
Operating expenses increased $652,000 or 39% and $270,000 or 46% during the nine
and three months ended September 30, 1997 compared to the nine and three months
ended September 30, 1996, respectively, due to: (i) the addition of Inland
Regional Center as an operating property in June 1996; (ii) the addition of TGI
Friday's as an operating property in February 1997; (iii) the addition of
Circuit City as an operating property in May 1997; (iv) increased utility and
operational expenses related to increased occupancy at selected properties; and
(v) property tax refunds received in 1996.
Interest expense increased $408,000 or 42% and $125,000 or 32% during the nine
and three months ended September 30, 1997 compared to the same periods in 1996,
respectively, due to the Partnership's increased debt to finance the acquisition
and construction of properties over the past year.
Depreciation and amortization for the nine and three months ended September 30,
1997 increased $259,000 or 26% and $167,000 or 60% from the nine and three
months ended September 30, 1996, respectively, primarily as a result of the
acquisition/operations of the Inland Regional Center, TGI Friday's and Circuit
City properties, as well as additions to buildings and tenant improvements over
the past year.
Expenses associated with undeveloped land decreased $213,000 or 31% and $136,000
or 47% during the nine and three months ended September 30, 1997 compared to the
nine and three months ended September 30, 1996, respectively, due to the
reduction of property taxes resulting from a reduction by the Assessor's office
of assessed values of selected parcels of land.
In the second and third quarters of 1997, due to the sales price of pending land
sales, management concluded that the carrying value of the Partnership's
investment in the land held for sale in Temecula, California was in excess of
its fair value and provisions for impairment of the land held for sale in the
cumulative amount of $442,000 were recorded.
Page 15 of 18
<PAGE>
General and administrative expenses increased $37,000 or 13% during the three
months ended September 30, 1997 compared to the three months ended September 30,
1996 due to the costs incurred in 1997 related to the proposed sale and
liquidation of the Partnership discussed earlier.
Page 16 of 18
<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
Incorporated by reference to Note 3 of the Notes to Consolidated
Financial Statements.
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 17 of 18
<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 IV,
a California Limited Partnership
(Registrant)
Date: November 13, 1997 By:/s/ Daniel L. Stephenson
------------------------
Daniel L. Stephenson
Chief Executive Officer and
Chief Financial Officer of
Rancon Financial Corporation,
General Partner of
Rancon Realty Fund IV,
a California Limited Partnership
Page 18 of 18
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