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 September 30, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to ______________
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 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 September 30, 1996: 14,555
Page 1 of 12
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
<TABLE>
RANCON INCOME FUND I,
A CALIFORNIA LIMITED PARTNERSHIP
Balance Sheets
(in thousands, except units outstanding)
(Unaudited)
<CAPTION>
September
30, December 31,
1996
1995
<S> <C>
<C>
Assets
Rental property:
Land $
3,065 $ 3,065
Buildings and improvements
6,403 6,260
- - -------------- --------------
9,468 9,325
Less accumulated depreciation
(1,736) (1,583)
- - -------------- --------------
Net rental property
7,732 7,742
Cash and cash equivalents
368 274
Accounts receivable, net
3 16
Deferred costs, net of accumulated
amortization of $193 and $172 at
September 30, 1996 and December 31,
1995, respectively
21 42
Other assets
19 11
- - -------------- --------------
Total assets $
8,143 $ 8,085
============== ==============
</TABLE>
- continued -
Page 2 of 12
<PAGE>
<TABLE>
RANCON INCOME FUND I,
A CALIFORNIA LIMITED PARTNERSHIP
Balance Sheets - continued
(in thousands, except units outstanding)
(Unaudited)
<CAPTION>
September
30, December 31,
1996
1995
<S> <C>
<C>
Liabilities and Partners' Equity (Deficit)
Liabilities:
Accounts payable and accrued expenses $
66 $ 75
Other liabilities
63 69
- - -------------- --------------
Total liabilities
129 144
- - -------------- --------------
Partners' equity (deficit):
General Partner
(162) (164)
Limited Partners, 14,555 limited partnership
units outstanding at September 30, 1996
and December 31, 1995
8,176 8,105
- - -------------- --------------
Total partners' equity
8,014 7,941
- - -------------- --------------
Total liabilities and partners'
equity $
8,143 $ 8,085
============== ==============
</TABLE>
See accompanying notes to financial statements.
Page 3 of 12
<PAGE>
<TABLE>
RANCON INCOME FUND I,
A CALIFORNIA LIMITED PARTNERSHIP
Statements of Operations
(in thousands, except per unit amounts)
(Unaudited)
<CAPTION>
Three Months
Ended Nine Months Ended
September 30,
August 31, September 30, August 31,
1996
1995 1996 1995
-------------
- - ----------- ------------- ----------
<S> <C>
<C> <C> <C>
Revenues:
Rental income $ 261
$ 316 $ 848 $ 1,063
Interest and other income 19
--- 118 2
----------
- - ---------- ---------- ----------
Total revenues 280
316 966 1,065
----------
- - ---------- ---------- ----------
Expenses:
Operating, including $6 paid to
affiliates in the nine months
ended August 31, 1995 126
150 413 406
Depreciation and amortization 57
75 174 206
General and administative,
including $7 paid to affiliates
in the nine months ended
August 31, 1995 69
61 218 189
----------
- - ---------- ---------- ----------
Total expenses 252
286 805 801
----------
- - ---------- ---------- ----------
Net income $ 28
$ 30 $ 161 $ 264
==========
========== ========== ==========
Net income per limited partnership unit $ 1.92
$ 2.06 $ 10.92 $ 17.93
==========
========== ========== ==========
Distributions per limited partnership unit:
From net income $ ---
$ --- $ --- $ ---
Representing return of capital 0.96
8.38 6.05 33.32
----------
- - ---------- ---------- ----------
Total distributions per limited
partnership unit $ 0.96
$ 8.38 $ 6.05 $ 33.32
==========
========== ========== ==========
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
==========
========== ========== ==========
</TABLE>
See accompanying notes to financial statements.
Page 4 of 12
<PAGE>
<TABLE>
RANCON INCOME FUND I,
A CALIFORNIA LIMITED PARTNERSHIP
Statements of Partners' Equity (Deficit)
(in thousands)
For the nine months ended September 30, 1996 and August 31, 1995
(Unaudited)
<CAPTION>
General
Limited
Partner
Partners Total
<S> <C>
<C> <C>
Balance at December 31, 1995 $ (164)
$ 8,105 $ 7,941
Net income 2
159 161
Distributions ---
(88) (88)
-------------
- - ------------ -------------
Balance at September 30, 1996 $ (162)
$ 8,176 $ 8,014
=============
============ =============
Balance at November 30, 1994 $ (167)
$ 8,382 $ 8,215
Net income 3
261 264
Distributions ---
(485) (485)
-------------
- - ------------ -------------
Balance at August 31, 1995 $ (164)
$ 8,158 $ 7,994
=============
============ =============
</TABLE>
See accompanying notes to financial statements.
Page 5 of 12
<PAGE>
<TABLE>
RANCON INCOME FUND I,
A CALIFORNIA LIMITED PARTNERSHIP
Statements of Cash Flows (in thousands)
(Unaudited)
<CAPTION>
Nine months ended
September 30, August 31,
1996 1995
- - --------------- ------------
<S>
<C> <C>
Cash flows from operating activities:
Net income
$ 161 $ 264
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization
174 206
Changes in certain assets and liabilities:
Accounts receivable
13 (3)
Deferred costs
--- (4)
Other assets
(8) 22
Accounts payable and accrued expenses
(9) (7)
Payable to Sponsor
--- (157)
Other liabilities
(6) (12)
- - ------------ -----------
Net cash provided by operating activities
325 309
- - ------------ -----------
Cash flows from investing activities:
Additions to real estate
(143) (54)
- - ------------ -----------
Net cash used for investing activities
(143) (54)
- - ------------ -----------
Cash flows from financing activities:
Distributions to partners
(88) (485)
- - ------------ -----------
Net cash used for financing activities
(88) (485)
- - ------------ -----------
Net increase (decrease) in cash
94 (230)
Cash and cash equivalents at beginning of period
274 372
- - ------------ -----------
Cash and cash equivalents at end of period
$ 368 $ 142
============ ===========
</TABLE>
See accompanying notes to financial statements.
Page 6 of 12
<PAGE>
RANCON INCOME FUND I,
A CALIFORNIA LIMITED PARTNERSHIP
Notes to Financial Statements
September 30, 1996
(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
Income Fund I, A California Limited Partnership (the Partnership) as of
September 30, 1996 and December 31, 1995, and the related statements of
operations for the three and nine months ended September 30, 1996 and August 31,
1995, and the changes in partners' equity and cash flows for the nine months
ended September 30, 1996 and August 31, 1995.
Effective with the year ended December 31, 1995, the Partnership's reporting
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 shall be allocated to
the partners in proportion to the amounts of cash from operations distributed to
each partner for such period. If there are no distributions of cash from
operations for such period, income from operations is allocated 90% to the
limited partners and 10% to the general partner. In no event shall the general
partner be allocated less than 1% of net income. 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 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 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 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
Page 7 of 12
<PAGE>
RANCON INCOME FUND I,
A CALIFORNIA LIMITED PARTNERSHIP
Notes to Financial Statements
September 30, 1996
(Unaudited)
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 November 30, 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 nine months ended
August 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 nine months ended August 31,
1995 and are included in general and administrative expense on the Partnership's
statement of income.
Page 8 of 12
<PAGE>
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 September 30,
1996. As of September 30, 1996 the Partnership had cash of $368,000. The
remainder of the Partnership's assets consist primarily of its investments in
properties, which totaled approximately $7,732,000 at September 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, has also been 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.
The increase in other assets of $8,000 or 73% is related to an increase in
prepaid insurance as of September 30, 1996.
RESULTS OF OPERATIONS
Rental income for the nine months ended September 30, 1996 as compared to 1995
decreased $215,000 or 20% primarily due to decreased occupancy at Aztec Village
Shopping Center and Bristol Medical Center combined with a decrease in billings
for common area maintenance (CAM). 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 September 30, 1996 were 85%, 38%, 100% for the Bristol Medical
Center, Aztec Village Shopping Center and Wakefield Building properties,
respectively, compared to 89%, 69% and 100%, respectively, as of August 31,
1995.
Interest and other income increased $116,000 in 1996 compared to 1995 due to a
one time legal settlement of $111,000 from a former tenant of Bristol Medical
Center.
Depreciation and amortization expense for the nine months ended September 30,
1996 decreased $32,000, or 16%, as compared to 1995 primarily as a result of
certain lease commissions
Page 9 of 12
<PAGE>
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 $29,000 or 15% for the
nine months ended September 30, 1996 compared to the nine months ended August
31, 1995 is due to a $10,000 increase in quarterly overhead expense, a one-time
payment of $6,000 for professional services in 1996 rendered in connection with
the valuation of the limited partner interests, an increase in data processing
costs of $5,000 and an increase in tax fees of $5,000 as a result of additional
services rendered in connection with prior year tax filings.
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:
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 INCOME FUND I,
A CALIFORNIA LIMITED PARTNERSHIP
By: RANCON INCOME PARTNERS I, L.P.
General Partner
Date: November 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 12 of 12
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000791996
<NAME> Rancon Income Fund I
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 9-mos
<FISCAL-YEAR-END> dec-31-1996
<PERIOD-START> jan-01-1996
<PERIOD-END> sep-30-1996
<CASH> 368
<SECURITIES> 0
<RECEIVABLES> 22
<ALLOWANCES> (19)
<INVENTORY> 0
<CURRENT-ASSETS> 387
<PP&E> 9,468
<DEPRECIATION> (1,736)
<TOTAL-ASSETS> 8,143
<CURRENT-LIABILITIES> 66
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 8,014
<TOTAL-LIABILITY-AND-EQUITY> 8,143
<SALES> 0
<TOTAL-REVENUES> 966
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 805
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 161
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 161
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
