UNITED STATES 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, 1998
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)
(650) 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, 1998: 14,555
Page 1 of 12
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
RANCON INCOME FUND I,
A CALIFORNIA LIMITED PARTNERSHIP
Balance Sheets
(in thousands, except units outstanding)
(Unaudited)
<TABLE>
<CAPTION>
September 30, December 31,
1998 1997
(Unaudited) (Audited)
--------------- ---------------
Assets
- ------
<S> <C> <C>
Investments in real estate:
Rental property, net of accumulated
depreciation of $1,585 and $1,463 at
September 30, 1998 and December 31,
1997 , respectively $ 4,742 $ 4,803
Rental property held for sale 675 675
-------------- --------------
Net real estate investments 5,417 5,478
Cash and cash equivalents 966 749
Accounts receivable 13 70
Deferred costs, net of accumulated amortization
of $36 and $30 at September 30, 1998 and
December 31, 1997, respectively 50 15
Other assets 24 11
-------------- --------------
Total assets $ 6,470 $ 6,323
============== ==============
Liabilities and Partners' Equity (Deficit)
- -----------------------------------------
Liabilities:
Accounts payable and other liabilities $ 163 $ 85
-------------- --------------
Partners' equity (deficit):
General Partner (179) (180)
Limited Partners, 14,555 limited partnership
units outstanding at September 30, 1998
and December 31, 1997 6,486 6,418
-------------- --------------
Total partners' equity 6,307 6,238
-------------- --------------
Total liabilities and partners' equity $ 6,470 $ 6,323
============== ==============
</TABLE>
See accompanying notes to financial statements.
Page 2 of 12
<PAGE>
RANCON INCOME FUND I,
A CALIFORNIA LIMITED PARTNERSHIP
Statements of Income
(in thousands, except units outstanding and per unit amounts)
(Unaudited)
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30, September 30,
------------------------- ------------------------
1998 1997 1998 1997
---------- ---------- ---------- ----------
Revenue:
<S> <C> <C> <C> <C>
Rental income $ 246 $ 283 $ 790 $ 842
Interest and other income 5 4 19 11
---------- ---------- --------- ----------
Total revenue 251 287 809 853
---------- ---------- --------- ----------
Expenses:
Operating 116 102 341 327
Depreciation and amortization 43 44 128 135
General and administrative 73 62 216 196
---------- ---------- --------- ----------
Total expenses 232 208 685 658
---------- ---------- --------- ----------
Net income $ 19 $ 79 $ 124 $ 195
========== ========== ========= ==========
Net income per limited partnership unit $ 1.31 $ 5.36 $ 8.45 $ 13.26
========== =========== ========= ==========
Distributions per limited partnership unit:
From net income $ 1.86 $ 1.92 $ 3.78 $ 2.88
Representing return of capital -- -- -- --
---------- ---------- --------- ----------
Total distributions per limited
partnership unit $ 1.86 $ 1.92 $ 3.78 $ 2.88
========== ========== ========= ==========
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 3 of 12
<PAGE>
RANCON INCOME FUND I,
A CALIFORNIA LIMITED PARTNERSHIP
Statements of Partners' Equity (Deficit)
For the nine months ended September 30, 1998
(in thousands)
(Unaudited)
General Limited
Partner Partners Total
------------- ------------ -------------
Balance at December 31, 1997 $ (180) $ 6,418 $ 6,238
Net income 1 123 124
Distributions -- (55) (55)
------------- ------------ -------------
Balance at September 30, 1998 $ (179) $ 6,486 $ 6,307
============= ============ =============
See accompanying notes to financial statements.
Page 4 of 12
<PAGE>
RANCON INCOME FUND I,
A CALIFORNIA LIMITED PARTNERSHIP
Statements of Cash Flows
(in thousands)
(Unaudited)
Nine months ended
September 30,
-------------------------
1998 1997
----------- -----------
Cash flows from operating activities:
Net income $ 124 $ 195
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 128 135
Changes in certain assets and liabilities:
Accounts receivable 57 (16)
Deferred costs (41) (1)
Other assets (13) (6)
Accounts payable and other liabilities 78 26
---------- ---------
Net cash provided by operating activities 333 333
---------- ---------
Cash flows from investing activities:
Additions to real estate (61) (31)
---------- ---------
Cash flows from financing activities:
Distributions to partners (55) (42)
---------- ----------
Net increase in cash and cash equivalents 217 260
Cash and cash equivalents at beginning of period 749 426
---------- ---------
Cash and cash equivalents at end of period $ 966 $ 686
========== =========
See accompanying notes to financial statements.
Page 5 of 12
<PAGE>
RANCON INCOME FUND I,
A CALIFORNIA LIMITED PARTNERSHIP
Notes to Financial Statements
September 30, 1998
(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 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 Income Fund I, a California
Limited Partnership, (the Partnership) as of September 30, 1998 and December 31,
1997, and the related statements of income for the three and nine months ended
September 30, 1998 and 1997, and changes in partners' equity (deficit) and cash
flows for the nine months ended September 30, 1998 and 1997.
Allocation of the profits and losses from operations are made pursuant to the
terms of the Partnership Agreement. Generally, net income from operations is
allocated to the general partner and limited partners in proportion to the
amounts of cash from operations distributed to the partners for each fiscal
year. In no event shall the General Partner be allocated less than one percent
of such income. If there are no distributions of cash from operations during
such fiscal year, net income shall be 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
income or net loss for any period. Distributions of cash from operations are
generally allocated as follows: (i) first to the limited partners until they
receive a noncumulative 6% return per annum on their unreturned capital
contributions and (ii) the remainder, if any in a given year, shall be divided
in the ratio of 90% to the limited partners and 10% to the general partner.
Effective January 1, 1995, RFC entered into an agreement with 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. Effective January 1, 1998 the
agreement was amended to eliminate Glenborough's responsibility for providing
investor relation services and Preferred Partnership Services, Inc. ("PPS"), a
California Corporation unaffiliated with the Partnership, contracted to assume
these services. According to the contract, the Partnership will pay Glenborough
for its services as follows: (i) a specified annual asset administration fee
($187,000 in 1998); (ii) sales fees of 2% for improved properties and 4% for
land; (iii) a refinancing fee of 1% and (iv) management fees of 5% of gross
rental receipts. As
Page 6 of 12
<PAGE>
RANCON INCOME FUND I,
A CALIFORNIA LIMITED PARTNERSHIP
Notes to Financial Statements
September 30, 1998
(Unaudited)
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.
Glenborough is not an affiliate of the Partnership or RFC.
Note 2. REFERENCE TO 1997 AUDITED FINANCIAL STATEMENTS
----------------------------------------------
These unaudited financial statements should be read in conjunction with the
Notes to Financial Statements included in the December 31, 1997 audited
financial statements.
Page 7 of 12
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
INTRODUCTION
- ------------
The following discussion addresses the Partnership's financial condition at
September 30, 1998 and its results of operations for the nine months ended
September 30, 1998 and 1997. This information should be read in conjunction with
the Partnership's audited December 31, 1997 Financial Statements, notes thereto
and other information contained elsewhere in this report.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
As of April 21, 1989, Rancon Income Fund I (the Partnership) was funded from the
sale of 14,559 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, 1998. As of September 30, 1998 the Partnership had cash and cash equivalents
of $966,000. The remainder of the Partnership's assets consist primarily of its
investments in real estate, which totaled approximately $5,417,000 at September
30, 1998.
The Partnership's primary source of funds consisted of the proceeds of its
public offering of Units. Cash generated from operating the three rental
properties has also been a significant source of funds for the Partnership. 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
distributions to the limited partners. Another source of funds has been the
interest earned on invested cash balances.
The Partnership owns three properties: Wakefield Industrial Center (a 44,200
square foot light industrial building in Temecula, California), Bristol Medical
Center (two office buildings totaling 52,311 square feet in Santa Ana,
California) and Aztec Village Shopping Center (a 23,789 square foot retail
center in San Diego, California).
Management believes that the Partnership's available cash together with the cash
generated by the operations of the Partnership's properties will be sufficient
to finance the Partnership's continued operations. The Partnership is currently
soliciting offers for the sale of Aztec Village Shopping Center. This property
is classified as rental property held for sale on the Partnership's September
30, 1998 and December 31, 1997 balance sheets.
The decrease in accounts receivable from December 31, 1997 to September 30, 1998
was primarily due to the collection of tenant rent receivables from all the
properties.
The increase in accounts payable and other liabilities from December 31, 1997 to
September 30, 1998 was due to the increase in the accrual for property operating
expenses and property taxes.
RESULTS OF OPERATIONS
- ---------------------
Comparison of the nine months ended September 31, 1998 to the nine months ended
September 31, 1997:
Page 8 of 12
<PAGE>
Rental income decreased by $52,000 (or 6%) for the nine months ended
September 30, 1998 compared to the same period in 1997. The decrease was due to
two of the tenants moved out and one of the tenants - St. Jude Hospital
downsizing leased office space in September 1998 at Bristol Medical Center.
Occupancy rates as of September 30, 1998 were 58%, 46%, 100% at Bristol Medical
Center, Aztec Village Shopping Center and The Wakefield Building, respectively,
compared to 82%, 46% and 100%, respectively, as of September 30, 1997.
Interest and other income, which consists primarily of interest on cash
investments, increased for the nine months ended September 30, 1998 compared to
the same period in 1997. The increase was due to the interest earned on a higher
invested cash balance.
Operating expenses increased $14,000, or 4%, for the nine months ended September
30, 1998 compared to the same period in 1997. The increase primarily resulted
from $17,000 of bad debt expense at Bristol Medical Center due to two tenants
defaulting on their leases.
Depreciation and amortization expense decreased by $7,000, or 5%, for the nine
months ended September 30, 1998 compared to the same period in 1997. The
decrease was a result of certain tenant improvements at Bristol Medical Center
becoming fully depreciated.
General and administrative expenses increased $20,000, or 10%, for the nine
months ended September 30, 1998 compared to the same period in 1997. The
increase consisted of the aggregate of a number of relatively small increases in
various general and administrative costs.
Comparison of the three months ended September 30, 1998 to the three months
ended September 30, 1997:
Rental income decreased $37,000 or 13% for the three months ended September 30,
1998 compared to the same period in 1997 due to two of the tenants moved out and
one of the tenants - St. Jude Hospital downsizing their office space in
September 1998 at Bristol Medical Center.
Interest and other income for the three months ended September 30, 1998 was
consistent with the same period in 1997.
Operating expenses increased $14,000, or 14%, for the three months ended
September 30, 1998 compared to the same period in 1997. The increase resulted
from an $8,000 increase in electricity expenses at Bristol Medical Center and a
$6,000 increase in other miscellaneous operating expenses.
General and administrative expenses increased $11,000, or 18%, for the three
months ended September 30, 1998 compared to the same period in 1997. The
increase consisted of the aggregate of a number of relatively small increases in
various general and administrative costs.
Page 9 of 12
<PAGE>
YEAR 2000 COMPLIANCE
- --------------------
The Partnership utilizes a number of computer software programs and operating
systems across its entire organization, including applications used in financial
business systems and various administrative functions. To the extent that the
Partnership's software applications contain a source code that is unable to
appropriately interpret the upcoming calendar year "2000" and beyond, some level
of modification, or replacement of such applications will be necessary. The
Partnership has completed its identification of applications that are not yet
"Year 2000" compliant and has commenced modification or replacement of such
applications, as necessary. Given information known at this time about the
Partnership's systems that are non-compliant, coupled with the Partnership's
ongoing, normal course-of-business efforts to upgrade or replace critical
systems, as necessary, management does not expect "Year 2000" compliance costs
to have any material adverse impact on the Partnership's liquidity or ongoing
results of operations. No assurance can be given, however, that all of the
Partnership's systems will be "Year 2000" compliant or that compliance costs or
the impact of the Partnership's failure to achieve substantial "Year 2000"
compliance will not have a material adverse effect on the Partnership's future
liquidity or results of operations.
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 14, 1998 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> 1,000
<CURRENCY> u.s.Dollars
<S> <C>
<PERIOD-TYPE> 9-Mos
<FISCAL-YEAR-END> Dec-31-1998
<PERIOD-START> Jan-1-1998
<PERIOD-END> Sep-30-1998
<EXCHANGE-RATE> 1.000
<CASH> 966
<SECURITIES> 0
<RECEIVABLES> 13
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 990
<PP&E> 7,002
<DEPRECIATION> 1,585
<TOTAL-ASSETS> 6,470
<CURRENT-LIABILITIES> 163
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 6,307
<TOTAL-LIABILITY-AND-EQUITY> 6,470
<SALES> 0
<TOTAL-REVENUES> 809
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 685
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 124
<INCOME-TAX> 0
<INCOME-CONTINUING> 124
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 124
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
