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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, 2000
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 No.)
400 South El Camino Real, Suite 1100
San Mateo, California 94402-1708
--------------------------- -------------
(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 November 14, 2000: 13,838
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
RANCON INCOME FUND I,
A CALIFORNIA LIMITED PARTNERSHIP
Balance Sheets
(in thousands, except unit amounts)
<TABLE>
<CAPTION>
<S> <C> <C>
September 30, December 31,
2000 1999
(Unaudited) (Audited)
------------------ -------------
Assets Real estate investments:
Rental property, net of accumulated
depreciation of $1,953 and $1,805 at
September 30, 2000 and December 31, 1999
respectively $ 4,174 $ 4,220
Cash and cash equivalents 881 1,208
Deferred costs, net of accumulated
amortization of $51 and $40 at September 30,
2000 and December 31, 1999, respectively 39 45
Prepaid expenses and other assets 23 15
------------- -------------
Total assets $ 5,117 $ 5,488
============= =============
Liabilities and Partners' Equity (Deficit)
Liabilities:
Accounts payable and accrued expenses $ 49 $ 48
Security deposits 61 60
------------- -------------
Total liabilities 110 108
------------- -------------
Commitments and contingent liabilities (see Note 5) -- --
Partners' Equity (Deficit):
General partner (192) (193)
Limited partners,13,840 and 14,555 limited
partnership units outstanding at September 30,
2000 and December 31, 1999,
respectively 5,199 5,573
-------------- -------------
Total partners' equity 5,007 5,380
------------- -------------
Total liabilities and partners' equity $ 5,117 $ 5,488
============= =============
</TABLE>
See accompanying notes to financial statements.
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<PAGE>
RANCON INCOME FUND I,
A CALIFORNIA LIMITED PARTNERSHIP
Statements of Operations
(in thousands, except per unit amounts and units outstanding)
(Unaudited)
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Three months ended Nine months ended
September 30 September 30
------------------------------ ------------------------------
2000 1999 2000 1999
------------- -------------- -------------- -------------
Revenues
Rental income $ 208 $ 195 $ 649 $ 670
Gain on sale of real estate -- -- -- 252
Interest and other income 11 12 36 26
---------- ---------- ----------- -----------
Total revenues 219 207 685 948
---------- ---------- ----------- -----------
Expenses
Operating 88 78 247 261
Depreciation and amortization 55 47 159 144
General and administrative 48 48 146 188
---------- ---------- ----------- -----------
Total expenses 191 173 552 593
---------- ---------- ----------- -----------
Net income $ 28 $ 34 $ 133 $ 355
========== ========== =========== ===========
Net income per limited partnership unit $ 2.11 $ 2.27 $ 9.12 $ 21.37
========== ========== ========== ===========
Distributions per limited partnership unit:
From net income $ 2.11 $ 9.96 $ 9.12 $ 11.88
Representing return of capital 7.96 -- 10.98 50.00
---------- ----------- ---------- -----------
Total distributions per limited
partnership unit $ 10.07 $ 9.96 $ 20.10 $ 61.88
========== ========== ========== ===========
Weighted average number of limited
partnership units outstanding during
each period used to compute net
income per limited partnershi unit 14,317 14,555 14,476 14,555
========== ========== ========== ===========
</TABLE>
See accompanying notes to financial statements.
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<PAGE>
RANCON INCOME FUND I,
A CALIFORNIA LIMITED PARTNERSHIP
Statement of Partners' Equity (Deficit)
For the nine months ended September 30, 2000
(in thousands)
(Unaudited)
<TABLE>
<CAPTION>
<S> <C> <C> <C>
General Limited
Partners Partners Total
---------------- --------------- -------------
Balance at December 31, 1999 $ (193) $ 5,573 $ 5,380
Retirement of limited partnership units -- (215) (215)
Distributions -- (291) (291)
Net income 1 132 133
------------- ------------- -------------
Balance at September 30, 2000 $ (192) $ 5,199 $ 5,007
============== ============= =============
</TABLE>
See accompanying notes to financial statements.
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RANCON INCOME FUND I,
A CALIFORNIA LIMITED PARTNERSHIP
Statements of Cash Flows
(in thousands)
(Unaudited)
<TABLE>
<CAPTION>
<S> <C> <C>
Nine months ended
September 30,
-------------------------------------
2000 1999
---------------- -------------
Cash flows from operating activities:
Net income $ 133 $ 355
Adjustments to reconcile net income
to net cash provided by operating activities:
(Gain) on sale of real estate -- (252)
Depreciation and amortization 159 144
Changes in certain assets and liabilities:
Deferred costs (5) (5)
Prepaid expenses and other assets (8) 82
Accounts payable and other liabilities 2 1
------------- -------------
Net cash provided by operating activities 281 325
------------- -------------
Cash flows from investing activities:
Net proceeds from sales of real estate -- 937
Additions to real estate (102) (80)
-------------- --------------
Net cash (used for) provided by investing activities (102) 857
-------------- -------------
Cash flows from financing activities:
Distributions to partners (291) (915)
Retirement of limited partnership units (215) --
-------------- -------------
Net cash used for financing activities (506) (915)
-------------- --------------
Net (decrease) increase in cash and cash equivalents (327) 267
Cash and cash equivalents at beginning of period 1,208 872
------------- -------------
Cash and cash equivalents at end of period $ 881 $ 1,139
============= =============
</TABLE>
See accompanying notes to financial statements.
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<PAGE>
RANCON INCOME FUND I,
A CALIFORNIA LIMITED PARTNERSHIP
Notes to Financial Statements
September 30, 2000
(Unaudited)
Note 1. THE PARTNERSHIP AND ITS SIGNIFICANT ACCOUNTING POLICIES
-------------------------------------------------------
In the opinion of Rancon Financial Corporation ("RFC") and Daniel Lee Stephenson
(the "Sponsors"), Rancon Income Partners I (the "General Partner") and
Glenborough Corporation, the Partnership's asset and property manager
("Glenborough"), 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, 2000 and December 31, 1999, and the
related statements of income, changes in partners' equity (deficit) and cash
flows for the nine months ended September 30, 2000 and 1999.
Allocation of Net Income and Net Loss - 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
the 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 1% of the net income from any period. 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 loss for any period.
Net income other than net income from operations shall be allocated as follows:
(i) first, 1% to the general partner; (ii) second, to the partners who have a
deficit balance in their capital account in proportion to and to the extent of
such deficit balances, provided, that in no event shall the general partner be
allocated more than 10% of the net income other than net income from operations
until the earlier of sale or disposition of substantially all of the assets or
the distribution of cash (other than cash from operations) equal to the original
invested capital of the general partner and the limited partner; (iii) the
balance, if any, shall be allocated (a) first, to the general partner in an
amount equal to the lesser of (1) the amount of cash from sale or financing
anticipated to be distributed to the general partner or (2) an amount sufficient
to increase the general partner's account balance to an amount equal to such
distribution from sale or financing; (b) the balance, to the limited partners.
In no event shall the general partner be allocated less than 1% of the net
income other than net income from operations for any period.
Distributions - Distributions of cash from operations are generally allocated as
follows: (i) first, to the limited partners until they receive a non-cumulative
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.
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Distributions of cash from sales or financing are generally allocated as
follows: (i) first, 2% to the general partner and 98% to the limited partners
until the limited partners have received an amount equal to their capital
contributions; (ii) second, 2% to the general partner and 98% to the limited
partners until the limited partners have received a cumulative non-compounded
return of 6% per annum on their unreturned capital contributions (less prior
distributions of cash from operations); (ii) third, to the general partner for
the amount of subordinated real estate commissions payable per the Partnership
Agreement; (iv) fourth, 2% to the general partner and 98% to the limited
partners until the limited partners have received an additional 4% return on
their unreturned capital contributions (less prior distributions of cash from
operations); (v) fifth, 2% to the general partner and 98% to the limited
partners until the limited partners who purchased their partnership units
("Units") prior to June 1, 1988, receive an additional return (depending on the
date on which they purchased the Units) on their unreturned capital of either
8%, 5% or 2% (calculated through the first anniversary date of the purchase of
the Units); (vi) sixth, 98% to the general partner and 2% to the limited
partners until the general partner has received an amount equal to 15% of all
prior distributions made to the limited partners and the general partners
pursuant to subparagraph (iv) and (v), reduced by the aggregate of all prior
distributions to the general partner under subparagraph (iv) and (v); and (vii)
seventh, the balance, 85% to the limited partners and 15% to the general
partner.
Management Agreement - 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. On January 1, 1998, the
agreement was amended to eliminate Glenborough's responsibility for providing
investor relations services
Effective July 1, 1999, the agreement was further amended to: (i) reduce the
asset administration fee to $100,000 (ii) increase the sales fee for improved
properties from 2% to 3% and (iii) reduce the management fee applicable to
Wakefield Industrial Center from 5% to 3% of the gross rental receipts. The
Partnership will also pay Glenborough: (i) a sales fees of 4% for land; (ii) a
refinancing fee of 1% and (iii) a management fee of 5% of gross rental receipts
from Bristol Medical Center. As part of this agreement, Glenborough will perform
certain duties for the General Partner of the Rancon Partnerships. 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.
Basis of Accounting - The accompanying unaudited financial statements have been
prepared on the accrual basis of accounting in accordance with generally
accepted accounting principles under the presumption that the Partnership will
continue as a going concern.
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<PAGE>
Note 2. REFERENCE TO 1999 AUDITED FINANCIAL STATEMENTS
----------------------------------------------
These unaudited financial statements should be read in conjunction with the
Notes to Financial Statements included in the December 31, 1999 audited
financial statements.
Note 3. SALE OF REAL ESTATE
-------------------
On May 12, 1999, the Partnership sold Aztec Village Shopping Center ("Aztec"), a
23,879 square foot retail center located in San Diego, California, to an
unaffiliated third party for $1,000,000. The Partnership realized a $252,000
gain on the sale. The sale generated $937,000 in cash proceeds, of which
$742,000 was distributed to the partners and the remainder was added to the
Partnership's cash reserves.
Note 4. DISTRIBUTIONS
-------------
During the nine months ended September 30, 2000, the Partnership distributed
$291,000 of cash from operations to the limited partners.
During the nine months ended September 30, 1999, the Partnership distributed
$14,555 and $727,750 to the general partner and limited partners, respectively,
from proceeds from the sale of Aztec. This distribution of cash from sales
represents a return of capital. In addition, during the nine months ended
September 30, 1999, the Partnership distributed $173,000 of cash from operations
to the limited partners.
Note 5. COMMITMENTS AND CONTINGENT LIABILITIES
--------------------------------------
The Partnership is contingently liable for a subordinated real estate commission
payable to the General Partner in the amount of $30,000 at September 30, 2000
for the May 1999 sale of Aztec. Per the Partnership Agreement, upon the sale of
a Partnership property, the General Partner shall be entitled to a subordinated
real estate commission, provided that, in no event shall the subordinated real
estate commission payable to the General Partner exceed 3% of the gross sales
price of the property which is sold. The subordinated real estate commission is
payable only after the limited partners have received distributions equal to
their original invested capital plus a cumulative non-compounded return of 6%
per annum on their adjusted invested capital. Since the circumstances under
which this commission would be payable are limited, the liability has not been
recognized in the accompanying unaudited financial statements; however, the
amount will be recorded if and when it becomes payable.
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<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
INTRODUCTION
------------
The following discussion of the Partnership's financial condition and results of
operations should be read in conjunction with the Partnership's December 31,
1999 audited financial statements, and the notes to the audited financial
statements.
LIQUIDITY AND CAPITAL RESOURCES
-------------------------------
On 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.
A total of 4 Units were retired in 1990 and 715 units were repurchased in 2000.
There were 13,840 Units outstanding at September 30, 2000. As of September 30,
2000, the Partnership had cash of $881,000. The remainder of the Partnership's
assets consists primarily of its real estate investments, totaling approximately
$4,174,000 at September 30, 2000.
On May 12, 1999, the Partnership sold Aztec Village Shopping Center to an
unaffiliated third party for $1,000,000. The sale generated $937,000 cash
proceeds of which $742,000 was distributed to the partners and the remainder was
added to the cash reserves.
The Partnership is contingently liable for a subordinated real estate commission
payable to the General Partner in the amount of $30,000 at September 30, 2000
for the May 1999 sale of Aztec Village Shopping Center. Per the Partnership
Agreement, upon the sale of a Partnership property, the General Partner shall be
entitled to a subordinated real estate commission, provided that, in no event
shall the subordinated real estate commission payable to the General Partner
exceed 3% of the gross sales price of the property which is sold. The
subordinated real estate commission is payable only after the limited partners
have received distributions equal to their original invested capital plus a
cumulative non-compounded return of 6% per annum on their adjusted invested
capital. Since the circumstances under which this commission would be payable
are limited, the liability has not been recognized in the accompanying unaudited
financial statements; however, the amount will be recorded if and when it
becomes payable.
Operationally, the Partnership's primary source of funds consists of cash
provided by its rental properties. 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. Other
sources of funds include interest earned on invested cash balances and proceeds
from property sales.
Management believes that the Partnership's cash balance at September 30, 2000,
together with the cash from operations and sales, will be sufficient to finance
the Partnership's and the properties' continued operations on both a short-term
and long-term basis. There can be no assurance that the Partnership's results of
operations will not fluctuate in the future and at times affect its ability to
meet its operating requirements.
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Operating Activities
--------------------
During the nine months ended September 30, 2000, the Partnership's cash provided
by operating activities totaled $281,000.
The $5,000 increase in deferred costs from December 31, 1999 to September 30,
2000 was primarily due to the increase in lease commissions paid for new and
renewal leases.
The $8,000 increase in prepaid expenses and other assets from December 31, 1999
to September 30, 2000 was primarily due to the increase in rent receivable and
prepayment of insurance premiums.
Investing Activities
--------------------
During the nine months ended September 30, 2000, the Partnership's cash used for
investing activities totaled $102,000 of additions to real estate.
Financing Activities
--------------------
During the nine months ended September 30, 2000, the Partnership made a $291,000
distribution of cash from operations to the limited partners, and paid $215,000
to redeem 715 limited partnership units.
RESULTS OF OPERATIONS
---------------------
Revenues
--------
Rental income increased $13,000, or 7%, for the three months ended September 30,
2000, compared to the three months ended September 30, 1999, primarily due to
the increase in occupancy at Bristol Medical Center. Rental income decreased
$21,000, or 3%, for the nine months ended September 30, 2000, compared to the
nine months ended September 30, 1999, primarily due to the loss of rental income
from the May 1999 sale of Aztec Village Shopping Center
Occupancy rates at the Partnership's rental properties as of September 30, 2000
and 1999 were as follows:
September 30,
------------------------------------
2000 1999
--------------- ----------------
Bristol Medical Center 67% 63%
Wakefield Building 100% 100%
The 4% increase in occupancy from September 30, 1999 to September 30, 2000 at
Bristol Medical Center was a result of leasing 1,684 square feet of previously
vacant space to a new tenant, and a 797 square foot expansion for an existing
tenant.
The $252,000 gain on sale of real estate during the nine months ended September
30, 1999 resulted from the May 1999 sale of Aztec Village Shopping Center.
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<PAGE>
Interest and other income decreased $1,000, or 8%, for the three months ended
September 30, 2000, compared to the three months ended September 30, 1999,
respectively, primarily due to the decrease in interest income from a lower
average invested cash balance resulted from the redemption of 715 limited
partnership units in August 2000. Interest and other income increased $10,000,
or 38%, for the nine months ended September 30, 2000, compared to the nine
months ended September 30, 1999, respectively, primarily due to the increase in
interest income from a higher average invested cash balance as a result of the
sale of Aztec Village Shopping Center.
Expenses
--------
Operating expenses increased $10,000, or 13%, for the three months ended
September 30, 2000, compared to the three months ended September 30, 1999,
respectively, primarily due to the increase in occupancy at Bristol Medical
Center. Operating expenses decreased $14,000, or 5%, for the nine months ended
September 30, 2000, compared to the nine months ended September 30, 1999,
respectively, primarily due to the sale of Aztec Village Shopping Center in May
1999.
Depreciation and amortization expense increased $8,000, or 17%, and $15,000, or
10%, for the three and nine months ended September 30, 2000, compared to the
three and nine months ended September 30, 1999, respectively, due to the
depreciation of additions to rental properties.
General and administrative expenses decreased $42,000, or 22%, for the nine
months ended September 30, 2000, compared to the nine months ended September 30,
1999, respectively, due to the reduction in asset management fees resulting from
an amendment to the management agreement with Glenborough after the sale of
Aztec Village Shopping Center in May 1999.
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<PAGE>
Part II. OTHER INFORMATION
Item 1. Legal Proceedings
None.
Item 2. Changes in Securities and Use of Proceeds
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 (incorporated herein by reference):
None.
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SIGNATURES
Pursuant to the requirements of Section 13 or Section 15(d) of the Securities
Exchange Act of 1934, the Partnership 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.
its General Partner
Date: November 14, 2000 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.
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