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 June 30, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission file number 0-16645
RANCON INCOME FUND I,
A CALIFORNIA LIMITED PARTNERSHIP
(Exact name of registrant as specified in its charter)
California 33-0157561
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification)
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, 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 June 30, 1996: 14,555
NO EXHIBIT INDEX REQUIRED
Page 1 of 11
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
RANCON INCOME FUND I,
A CALIFORNIA LIMITED PARTNERSHIP
Balance Sheets
(in thousands, except units outstanding)
(Unaudited)
June 30, December 31,
Assets 1996 1995
Cash $ 253 $ 274
Accounts receivable, net 22 16
Rental property, net of accumulated
depreciation of $1,685 and $1,583
at June 30, 1996 and December 31,
1995, respectively 7,773 7,742
Other assets, net of accumulated
amortization of $187 and $172 at
June 30, 1996 and December 31,
1995, respectively 36 53
--------- ---------
Total Assets $ 8,084 $ 8,085
========= =========
Liabilities and Partners' Equity
Accounts payable and accrued
liabilities $ 22 $ 75
Other liabilities 63 69
--------- ---------
Total Liabilities 85 144
--------- ---------
Partners' equity (deficit):
General partner (163) (164)
Limited partners' (14,555 limited
partnership units outstanding in
1996 and 1995) 8,162 8,105
--------- ---------
Total Partners' Equity 7,999 7,941
--------- ---------
Total Liabilities and Partners'
Equity $ 8,084 $ 8,085
========= =========
See accompanying notes to financial statements.
Page 2 of 11
RANCON INCOME FUND I,
A CALIFORNIA LIMITED PARTNERSHIP
Statements of Income
(in thousands, except per unit amounts)
(Unaudited)
Three months Six months
ended ended
June 30, May 31, June 30, May 31,
1996 1995 1996 1995
Revenues:
Rental income $ 282 $ 373 $ 587 $ 747
Interest and other income 97 --- 99 1
------ ------ ------ ------
Total revenues 379 373 686 748
------ ------ ------ ------
Costs and Expenses:
Operating (including $6,000
paid to affiliates in the
six months ended May 31, 1995 156 107 287 256
Depreciation and amortization 59 67 117 131
General and administrative
(including $7,000 paid to
affiliates in the six
months ended May 31, 1995) 76 98 149 128
------ ------ ------ ------
Total costs and expenses 291 272 553 515
------ ------ ------ ------
Net Income $ 88 $ 101 $ 133 $ 233
====== ====== ====== ======
Net income per limited
partnership unit $ 5.98 $ 6.87 $ 9.07 $15.87
====== ====== ====== ======
Distributions per limited
partnership unit
From net income $ 0.96 $ 6.87 $ 5.15 $12.50
Representing return of
capital --- 5.63 --- ---
------ ------ ------ ------
Total distributions per
limited partnership unit $ 0.96 $12.50 $ 5.15 $12.50
====== ====== ====== ======
Weighted average number of
limited partnership units
outstanding during the period
used to compute net income
and distributions per limited
partnership unit 14,555 14,555 14,555 14,555
====== ====== ====== ======
See accompanying notes to financial statements.
Page 3 of 11
RANCON INCOME FUND I,
A CALIFORNIA LIMITED PARTNERSHIP
Statements of Partners' Equity (Deficit)
(in thousands)
(Unaudited)
General Limited
Partner Partners Total
-------- -------- ------
Balance at November 30, 1994 $ (167) $ 8,382 $ 8,215
Net income 2 231 233
Distributions --- (364) (364)
------ ------ ------
Balance at May 31, 1995 $ (165) $ 8,249 $ 8,084
====== ====== ======
Balance at December 31, 1995 $ (164) 8,105 7,941
Net income 1 132 133
Distributions --- (75) (75)
------ ------ ------
Balance at June 30, 1996 $ (163) $ 8,162 $ 7,999
====== ====== ======
See accompanying notes to financial statements.
Page 4 of 11
RANCON INCOME FUND I,
A CALIFORNIA LIMITED PARTNERSHIP
Statements of Cash Flows
(in thousands)
(Unaudited)
Six Months Ended
June 30, May 31,
1996 1995
-------- --------
Cash Flows Provided By Operating
Activities:
Net income $ 133 $ 233
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation and amortization 117 131
Changes in certain assets and
liabilities:
Accounts receivable (6)
(27)
Other assets 2
(4)
Payable to Sponsor ---
(157)
Accounts payable and accrued
liabilities (53)
(46)
Other liabilities (6) ---
------ ------
Net cash flow provided by
operating activities 187 130
------ ------
Cash Flows Used For Investing
Activities:
Additions to real estate (133)
(37)
------ ------
Cash Flows Used For Financing
Activities:
Cash distributions to limited
partners (75)
(364)
------ ------
Net decrease in cash (21)
(271)
Cash at beginning of period 274 372
------ ------
Cash at end of period $ 253 $ 101
====== ======
Page 5 of 11
See accompanying notes to financial statements.
Page 6 of 11
RANCON INCOME FUND I,
A CALIFORNIA LIMITED PARTNERSHIP
Notes To Financial Statements
June 30, 1996
(Unaudited)
Note 1. THE PARTNERSHIP AND ITS 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
Income Fund I, A California Limited Partnership (the Partnership)
as of June 30, 1996 and December 31, 1995, and the related
statements of operations for the six and three months ended June
30, 1996 and May 31, 1995, and the changes in partners' equity,
and cash flows for the six months ended June 30, 1996 and May 31,
1995.
Effective with the year ended December 31, 1996, the
Partnership's year end has been changed from November 30 to
December 31.
Allocation of the profits, losses and cash distributions from
operations and from sale or financing of any Partnership property
are made pursuant to the terms of the Partnership Agreement.
Generally, net income and distributions from operations are
allocated 90% to the limited partners and 10% to the general
partner. Net losses from operations are allocated 90% to the
limited partners and 10% to the general partner until such time
as a partner's account is reduced to zero. Additional losses
will be allocated entirely to those partners with positive
account balances until such balances are reduced to zero. In no
event will the general partner be allocated less than 1% of net
losses for any period.
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
fee of $208,000 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
Page 7 of 11
RANCON INCOME FUND I,
A CALIFORNIA LIMITED PARTNERSHIP
Notes To Financial Statements
June 30, 1996
(Unaudited)
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.
Reclassifications - Certain amounts in the 1995 financial
statements have been reclassified to conform to the current year
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 RFC for property management
services. The agreement provided for a management fee equal to
5% of gross rentals collected. Fees incurred under this
agreement totaled $6,000 for the six months ended May 31, 1995
and are included in operating expenses on the Partnership's
statement of income. Effective January 1, 1995, the Partnership
contracted with Glenborough to provide these services to the
Partnership (see Note 1).
The Partnership Agreement provides for the reimbursement of
actual costs incurred by RFC in providing certain administrative,
legal and development services necessary for the prudent
operation of the Partnership. Effective January 1, 1994 the
General Partner made the decision to bring administrative, legal
and development work in-house. These services had previously
been provided by Partnership Asset Management Company and,
effective January 1, 1995, are being provided by Glenborough as
described in Note 1. Reimbursable costs incurred by the
Partnership totaled $7,000 for the six months ended May 31, 1995
are included in general and administrative expense on the
Partnership's statement of income.
Page 8 of 11
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
LIQUIDITY AND CAPITAL RESOURCES
As of April 21, 1989, Rancon Income Fund I (the Partnership) was
funded from the sale of limited partnership units (Units) in the
amount of $14,559,000. Four Units were retired in 1990 and
14,555 Units remain outstanding at June 30, 1996. As of June 30,
1996 the Partnership had cash of $253,000. The remainder of the
Partnership's assets consist primarily of its investments in
properties, which totaled approximately $7,773,000 at June 30,
1996.
The Partnership's primary source of funds consisted of the
proceeds of its public offering of Units. As the Partnership was
organized for the purpose of acquiring income producing
properties, the cash generated from such properties, net of costs
incurred in operating the properties, is also a significant
source of funds for the Partnership. Such cash flows from
operating activities have been sufficient to provide funds to
reinvest in the properties by way of improvements, as well as to
fund quarterly distributions to the limited partners.
All of the Partnership's assets are located in the Southern
California region. The Southern California regional economy in
general, and the real estate industry in particular, are
considered to be in a recessionary cycle. Current and potential
negative effects from these current market conditions include the
delinquency of lease payments owed to the Partnership and a
decrease in competitive market lease rates and real estate
prices.
Management believes that the Partnership's available cash
together with the cash generated by the operations of the
Partnership's properties, as proven in recent years, will be
sufficient to fund the Partnership's continued operations. In
order to maintain adequate cash reserves, the Partnership may
forego or reduce future distributions.
Accounts payable and other liabilities decreased by $53,000 from
$75,000 at December 31, 1995 to $22,000 at June 30, 1996 due to
the accrual of the limited partner distribution at December 31,
1995 of $61,000 netted with the accrual of 1996 estimated
property taxes due December 31, 1996.
RESULTS OF OPERATIONS
Rental income for the six months ended June 30, 1996 as compared
to 1995 decreased $160,000 or 21% primarily due to decreased
occupancy at Aztec Village Shopping Center and Bristol Medical
Center. Aztec Village Shopping Center lost two major tenants at
the end of 1995 due to financial instability. Management is
actively pursuing tenants although there are no solid prospects
at this time. Occupancy rates as of June 30, 1996 were 85%, 38%,
100% for the Bristol Medical Center, Aztec Village Shopping
Center and Aham Tor Industrial Center properties, respectively,
Page 9 of 11
compared to 89%, 69% and 100%, respectively, for the same periods
in 1995.
Interest and other income increased $98,000 in 1996 compared to
1995 due to a one time legal settlement of $95,000 from a former
tenant of Bristol Medical Center.
Operating expenses for the six months ended June 30, 1996
increased $31,000, or 12%, as compared to the same period in 1995
primarily as a result of legal fees incurred in connection with
the settlement with a former tenant at Bristol Medical Center.
Depreciation and amortization expense for the six months ended
June 30, 1996 decreased $14,000, or 11%, as compared to 1995
primarily as a result of certain lease commissions becoming fully
amortized at Bristol Medical Center and Aztec Village Shopping
Center at the end of 1995.
The increase in general and administrative expenses of $21,000 or
16% for the six months ended June 30, 1996 compared to the same
period in 1995 is primarily due to the difference of $17,000 in
quarterly overhead expense from 1996 to 1995. The 1995 overhead
expenses were netted with a credit resulting from an overpayment
in 1994. The remaining difference is a one-time payment for
professional services in 1996 rendered in connection with the
valuation of the limited partner interests in the Partnership.
Page 10 of 11
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:
None.
(b) Reports on Form 8-K:
None.
Page 11 of 11
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.
Date: August 13, 1996 RANCON INCOME FUND I,
a California Limited Partnership
(Registrant)
By: RANCON INCOME PARTNERS I, L.P.
General Partner
Date: August 13, 1996 By: /s/ Daniel L. Stephenson
Daniel L. Stephenson,
Director, President, Chief
Executive Officer and
Chief Financial Officer of
Rancon Financial Corporation,
General Partner of
Rancon Income Partners I, L.P.
Page 11 of 11
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