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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
For the year ended December 31, 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 (I.R.S. Employer
of incorporation or organization) Identification No.)
400 South El Camino Real, Suite 1100 94402-1708
----------
San Mateo, California (Zip Code)
---------------------
(Address of principal executive offices)
Partnership's telephone number, including area code (650) 343-9300
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of
the Act:
Units of Limited Partnership Interest
(Title of class)
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
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
--- ---
No market for the Limited Partnership Units exists and therefore a market value
for such Units cannot be determined.
DOCUMENTS INCORPORATED BY REFERENCE: None.
Page 1 of 29
Part I
Item 1. Business
Rancon Income Fund I, a California Limited Partnership, ("the Partnership") was
organized in accordance with the provisions of the California Revised Limited
Partnership Act for the purpose of acquiring, operating and disposing of
existing income producing commercial, industrial and residential real estate
properties. The general partner of the Partnership is Rancon Income Partners I
("General Partner"). The Partnership was organized in 1986, completed its public
offering of partnership units ("Units") in April 1989 and has 14,555 Units
issued and outstanding. The Partnership has no employees.
At December 31, 1998, the Partnership owned three properties, which are more
fully described in Item 2.
Competition Within the Market
- -----------------------------
Management believes that characteristics influencing the competitiveness of a
real estate project are the geographic location of the property, the
professionalism of the property manager and the maintenance and appearance of
the property, in addition to external factors such as general economic
circumstances, trends, and the existence of new, competing properties in the
vicinity. Additional competitive factors with respect to commercial and
industrial properties are the ease of access to the property, the adequacy of
related facilities, such as parking, and the ability to provide rent concessions
and additional tenant improvements commensurate with local market conditions.
Such competition may lead to rent concessions that could adversely affect the
Partnership's cash flow. Although management believes the Partnership properties
are competitive with comparable properties as to those factors within the
Partnership's control, over-building and other external factors could adversely
affect the ability of the Partnership to attract and retain tenants. The
marketability of the properties may also be affected (either positively or
negatively) by these factors as well as by changes in general or local economic
conditions, including prevailing interest rates. Depending on market and
economic conditions, the Partnership may be required to retain ownership of its
properties for periods longer than anticipated at acquisition, or may need to
sell earlier than anticipated, at a time or under terms and conditions that are
less advantageous than would be the case if unfavorable economic or market
conditions did not exist.
Working Capital
- ---------------
The Partnership's practice is to maintain cash reserves for normal repairs,
replacements, working capital and other contingencies. The Partnership knows of
no statistical information which allows comparison of its cash reserves to those
of its competitors.
Item 2. Properties
The Partnership currently owns the properties listed below:
Encumbrances at
Name Location Type Size December 31, 1998
---- -------- ---- ---- -----------------
Wakefield Industrial Temecula, California Light 44,200 sq. ft. None
Center Industrial
Bristol Medical Center Santa Ana, California Office 52,311 sq. ft. None
Aztec Village
Shopping Center San Diego, California Retail 23,789 sq. ft. None
Page 2 of 29
Wakefield Industrial Center
In April 1987, the Partnership acquired the Wakefield facility, at a cost of
approximately $1,899,000 plus acquisition fees of $87,000. Wakefield consists of
two buildings on approximately 3.99 acres of land. The property is located in
Temecula, California, on the west side of Jefferson Avenue, approximately 500
feet west of the Interstate 15 highway in an area that is zoned for "medium
manufacturing".
Both buildings are composed of concrete tilt-up construction and have central
heating and air conditioning systems in the office areas. One building contains
approximately 25,000 square feet of leasable space, of which approximately 5,900
square feet is office space with the balance used for manufacturing and related
purposes. The other building contains approximately 19,200 square feet of
leasable space of which approximately 4,800 square feet is office space with the
balance used for warehousing and related purposes. The Wakefield facility
provides uncovered parking for approximately 54 cars and includes partially
improved land which is used for car parking and truck access.
According to research conducted by the Partnership's property manager, the
market has approximately 7,549,000 square feet of existing industrial space,
with an overall vacancy rate of 4%. The area offers a wide range of high
quality, attractive industrial projects ranging from multi-tenant incubator
space to large, single-user distribution facilities located in master-planned
business parks. There is approximately 325,000 square feet of multi-tenant and
free standing industrial space that competes directly with Wakefield Industrial
Center. The asking rent for industrial space in this area ranges between $4.32
industrial gross to $6.60 per foot NNN (tenant pays all operating expenses,
including taxes, insurance, and capital).
The occupancy level at December 31, 1998, 1997 and 1996 and November 30, 1995
and 1994, expressed as a percentage of the total net rentable square feet, and
the average annual effective rent per square foot for the last five years were
as follows:
Occupancy Level Average Annual Effective
Percentage Rent Per Square Foot
---------- --------------------
1998 100% $ 4.31
1997 100% $ 4.14
1996 100% $ 4.04
1995 100% $ 3.96
1994 100% $ 5.48
One tenant occupies 100% of the net rentable square footage of the two
buildings. The principal terms of the lease and the nature of the tenant's
business are as follows:
Wakefield Engineering, Inc.
---------------------------
Nature of Business: Manufacturer
Lease Term: 10 years
Expiration Date: November 30, 2004
Square Feet: 44,200
(% of rentable total): 100%
Annual Rent: $191,000
Rent Increase: Annual - CPI
Renewal Options: None
In 1996, management determined that the carrying value of Wakefield Industrial
Center was in excess of the estimated fair value. As a result, the Partnership
recorded a provision for impairment of its investment in Wakefield Industrial
Center of $175,000. No such provision was recorded in 1997 or 1998.
Page 3 of 29
In the opinion of management, the property is adequately covered by insurance.
At December 31, 1998, the Wakefield Industrial Center property is unencumbered.
During 1998, the property was assessed property taxes of approximately $22,500
based on a tax rate of 1.15%.
Bristol Medical Center
- ----------------------
In October 1987, the Partnership entered into an agreement with Rancon Financial
Corporation ("RFC") to acquire Bristol Medical Center for a purchase price of
$5,105,000, plus all costs incurred by RFC in ownership and management of the
property from December 1986. The purchase price was paid in installments through
May 1988, for a total cost of $5,370,000. Bristol Medical Center is located in
Santa Ana, California, on the west side of Bristol Street, approximately 1.5
miles from a major east-west freeway and approximately 2 miles from a major
north-south freeway. The John Wayne Orange County airport is located 2.5 miles
northwest of the property.
Bristol Medical Center consists of two two-story medical office buildings and
related parking spaces on approximately 3.42 acres. The two office buildings
contain an aggregate of approximately 52,311 net rentable square feet of office
space. Each of the buildings has one elevator and three stairways, and each
suite is served by its own roof-mounted heating and air conditioning unit. The
property contains uncovered parking for approximately 299 cars.
According to research conducted by the Partnership's property manager, the
direct market area consists of five medical buildings totaling approximately
189,847 rentable square feet, all of which are older Class "B" Buildings. The
sub-market, consisting of smaller dental/medical offices and retail sites is
being condemned or purchased by the City of Santa Ana to widen Bristol Street.
The renovation project underway by the City of Santa Ana will include new retail
buildings and a landscaped median, which should enhance the area considerably.
Net absorption in this area has been on a downward trend since 1992 when changes
in the health care industry began. Total vacancy in this market increased to
approximately 20% in 1998 an increase of approximately 4% from 1997. The annual
rental rates for the area range from $12.00 per square foot to $16.80 per
square foot modified gross (tenant pays interior janitorial costs).
The occupancy level at December 31, 1998, 1997 and 1996 and November 30, 1995
and 1994, expressed as a percentage of the total net rentable square feet, and
the average annual effective rent per square foot for the last five years were
as follows:
Occupancy Level Average Annual Effective
Percentage Rent Per Square Foot
---------- --------------------
1998 60% $ 18.40
1997 83% $ 19.00
1996 85% $ 18.89
1995 91% $ 18.76
1994 93% $ 18.91
The current annual rental rates range from $16.20 to $26.31 per square foot.
The current annual rental rates at Bristol Medical Center are higher than the
market average as the leases in effect are old and were signed at a time when
such rates were market rates. The occupancy at Bristol Medical Center decreased
from 83% at December 31, 1997 to 60% at December 31, 1998 due to
Page 4 of 29
the reduction in leased space by St. Jude Heritage Health (St. Jude). The
lease with St. Jude expired on September 30, 1998, at which time the tenant
signed a new lease for 11,283 square feet (compared to the 24,957 square feet
the tenant previously leased). Leasing space at Bristol Medical Center is
difficult as changes in the healthcare industry have reduced the number of
independent physicians opening second offices. Additionally, physicians appear
to be leasing space at retail locations, which tend to offer more exposure than
the traditional medical buildings.
There is one tenant that occupies more than ten percent of the net rentable
square footage of the Bristol Medical Center. The principal terms of the lease
and the nature of the tenant's business are as follows:
St. Jude
Heritage Health
---------------
Nature of Business: Medical clinic
Lease Term: 5 year
Expiration Date: August 31, 2003
Square Feet: 11,283
(% of rentable total): 22%
Annual Rent: $198,300
Rent Increase: Annual - CPI
Renewal Options: None
Due to an increase in vacancy, the difficulty in leasing vacant space and
projected cash flow analyses, management determined that the carrying value of
the Bristol Medical Center was in excess of the estimated fair value. As a
result, in 1998 and 1996, the Partnership recorded a provision for impairment of
its investment in Bristol Medical Center of $451,000 and $1,470,000,
respectively.
In the opinion of management, the property is adequately covered by insurance.
At December 31, 1998, the Bristol Medical Center property is unencumbered.
During 1998, the property was assessed property taxes of approximately $51,000
based on a tax rate of 1.01%.
Aztec Village Shopping Center
- -----------------------------
In May 1988, the Partnership entered into anagreement with RFC to acquire
the Aztec Village Shopping Center located in San Diego, California for
$3,350,000, plus all costs incurred by RFC in ownership and management of the
property from May 1988. The purchase price was paid in installments through
February 1989, for a total cost of $3,357,000. Aztec Village Shopping Center is
located in east San Diego situated approximately five miles east of downtown,
and is situated at the convergence of Route 8 Inland Freeway and Interstate 15.
All freeways are readily accessible within ten minutes of driving. The property
is on the south side of El Cajon Boulevard, which is a primary business street.
Management does not expect much appreciation in the value of the shopping center
and as such has been marketing the property for sale. In February 1999, the
Partnership entered into an agreement to sell Aztec Village Shopping Center to
an unaffiliated entity for $1,000,000 which would result in a gain of
approximately $260,000. The sale is expected to close during the second quarter
of 1999; however, the sale is subject to a number of contingencies including
satisfactory completion of due diligence and customary closing conditions. As a
result, there can be no assurance that this sale will be completed. This rental
property is classified as property held for sale on the Partnership's 1998 and
1997 balance sheets.
Aztec Village Shopping Center contains approximately 23,789 square feet of
leasable space on approximately 1.52 acres. The shopping center is a single
story structure constructed with a wood frame
Page 5 of 29
and concrete block walls with metal stud interior portioning and stucco and
wood siding on the exterior. The shopping center parking lot contains parking
for approximately 105 cars.
The trade area surrounding the Aztec Village Shopping Center is considered East
San Diego and the western portions of La Mesa. According to research conducted
by the Partnership's property manager, there is approximately 446,000 square
feet of retail space along El Cajon Boulevard from College Avenue to 70th Street
within the neighborhood area, with a combined vacancy rate of 20%, an increase
of 9% over 1997. There are nine strip retail shopping centers and three
supermarket anchored centers competing directly with Aztec Village Shopping
Center. Annual asking rental rates range from $6.00 to $12.00 per square foot
NNN (tenant pays all operating expenses, including taxes, insurance, and
capital) for the strip retail centers and $9.00 to $16.80 per square foot NNN
for the centers that have supermarket anchor tenants. The asking rent depends
upon size, location, condition, and amenities of the property.
The immediate area surrounding San Diego State University, commencing at College
Avenue and Montezuma has been slated for major redevelopment. The planned
redevelopment consists of 150,000 square feet of commercial space and over 1,000
residential units. This project will offer considerable competition to the Aztec
Village Shopping Center and, due to its proximity to the campus, will command
higher rents and strong national tenant interest. As of December 31, 1998, the
construction was not anticipated to commence for six to twelve months.
The occupancy level at December 31, 1998, 1997 and 1996 and November 30, 1995
and 1994, expressed as a percentage of the total net rentable square feet, and
the average annual effective rent per square foot for the last five years were
as follows:
Occupancy Level Average Annual Effective
Percentage Rent Per Square Foot
---------- --------------------
1998 70% $ 11.11
1997 46% $ 10.56
1996 38% $ 10.46
1995 69% $ 10.62
1994 70% $ 7.80
The current annual rental rates range from $6.52 to $15.95 per square foot. In
addition, one tenant rents storage space at an annual rental rate of $3.69 per
square foot.
One tenant occupies more than ten percent of the net rentable square footage of
the building. The principal terms of this lease and the nature of the tenant's
business are as follows:
Music Trader, Inc.
------------------
Nature of Business: Music retailer
Lease Term: 5 years
Expiration Date: May 31, 2001
Square Feet: 2,649
(% of rentable total): 11%
Annual Rent: $30,000
Rent Increase: Annual Fixed
Renewal Options: None
In 1997 due to a high vacancy rate, difficulty in leasing vacant space and
projected cash flow analyses, management determined that the carrying value of
the Aztec Village Shopping Center was in excess of the estimated fair value. As
a result, in 1997, the Partnership recorded a provision for impairment of its
investment in Aztec Village Shopping Center of $438,000. No such provision was
recorded in 1998.
Page 6 of 29
In the opinion of management, the property is adequately covered by insurance.
At December 31, 1998, the Aztec Village Shopping Center property is
unencumbered.
During 1998, the property was assessed property taxes of approximately $13,000
based on a tax rate of 1.11%.
Item 3. Legal Proceedings
None.
Item 4. Submission of Matters to a Vote of Security Holders
None.
Page 7 of 29
Part II
Item 5. Market for Partnership's Common Equity and Related Stockholder
Matters
Market Information
- ------------------
There is no established trading market for the Units.
Holders
- -------
As of December 31, 1998, a total of 1,390 persons (Limited Partners) held Units.
Distributions
- -------------
Distributions are paid from either Cash From Operations or Cash From Sales or
Financing.
Cash From Operations is defined in the Partnership Agreement as all cash
receipts from operations in the ordinary course of business (except for the
sale, refinancing, exchange or other disposition of real property in the
ordinary course of business) after deducting payments for operating expenses.
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.
Distributions equal to the amounts otherwise allocable to the General Partner
but reallocated to the Limited Partners pursuant to (i) above shall be paid to
the General Partner on the next occasion on which Cash From Operations is
available for distributions to Limited Partners in an amount in excess of the
amount required to provide the Limited Partners with a 6% per annum return on
their unreturned capital contributions, in which case the excess shall be paid
to the General Partner in an amount up to the aggregate amount previously
re-allocated pursuant to (i) above and not subsequently repaid in accordance
with the provisions of this paragraph.
Cash From Sales or Financing is defined in the Partnership Agreement as the net
cash realized by the Partnership from the sale, disposition or refinancing of
any property after retirement of applicable mortgage debt and all expenses
related to the transaction, together with interest on any notes taken back by
the Partnership upon the sale of a property. All distributions of Cash From
Sales or Financing are allocated generally 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 6% return on their unreturned capital contributions (less prior
distributions of Cash From Operations); (iii) third, to the General Partner 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 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: 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 Partner pursuant to subparagraph
(iv) and (v) (less prior distributions to the General Partner under subparagraph
(iv) and (v)); and (vii) seventh, 85% to the Limited Partners and 15% to the
General Partner. A more explicit statement of the distribution policies is set
forth in the Partnership Agreement.
Page 8 of 29
The following distributions of Cash From Operations were made by the Partnership
during the three most recent fiscal years. There were no distributions of Cash
From Sales or Financing made by the Partnership during the three most recent
fiscal years.
Amount Amount
Date of Amount Distributed Distributed Distributed to
Distribution to Limited Partners Per Unit General Partner
------------ ------------------- -------- ---------------
09/03/98 $ 27,656 $ 1.90 --
02/26/98 $ 27,656 $ 1.90 --
08/29/97 $ 28,000 $ 1.92 --
02/28/97 $ 14,000 $ 0.96 --
11/29/96 $ 14,000 $ 0.96 --
08/30/96 $ 14,000 $ 0.96 --
05/31/96 $ 14,000 $ 0.96 --
03/01/96 $ 60,000 $ 4.12 --
Of the total distributions noted above, $3.80, $2.88 and $7.00 per unit
represented a return of capital for the fiscal years ended December 31, 1998,
1997 and 1996, respectively.
Estimated distributions for 1999 are consistent with the 1998 level but there
can be no assurance that the distribution level will not be adjusted.
Item 6. Selected Financial Data
The following is selected financial data for the five years ended December
31, 1998, 1997 and 1996 and November 30, 1995 and 1994 (in thousands, except per
Unit data).
1998 1997 1996 1995 1994
------ -------- -------- -------- ------
Rental income $ 1,022 $ 1,142 $ 1,125 $ 1,397 $ 1,417
Provision for impairment
of investments in
real estate $ 451 $ 438 $ 1,645 $ -- $ 380
Net income (loss) $ (279) $ (165) $ (1,394) $ 300 $ (69)
Net income (loss)
allocable to limited
partners $ (276) $ (163) $ (1,380) $ 297 $ (62)
Net income (loss)
per limited
partnership unit $ (18.96) $ (11.20) $ (94.81) $ 20.40 $ (4.26)
Total assets $ 6,012 $ 6,323 $ 6,531 $ 8,159 $ 8,483
Cash distributions
per limited
partnership unit $ 3.80 $ 2.88 $ 7.00 $ 33.39 $ 37.50
Page 9 of 29
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
The following discussions should be read in conjunction with the financial
statements and notes thereto in Item 14 of Part IV:
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 December 31, 1998. As of December 31, 1998, the Partnership had cash of
$872,000. The remainder of the Partnership's assets consists primarily of its
real estate investments, which totaled approximately $4,975,000 at December 31,
1998.
Operationally, the Partnership's primary source of funds consist of cash
generated from operating the three 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. Another source of funds has been the interest earned on invested cash
balances.
In February 1999, the Partnership entered into an agreement to sell Aztec
Village Shopping Center to an unaffiliated entity for $1,000,000. The sale is
expected to close during the second quarter of 1999; however, the sale is
subject to a number of contingencies including satisfactory completion of due
diligence and customary closing conditions. As a result, there can be no
assurance that this sale will be completed. This rental property is classified
as property held for sale on the Partnership's 1998 and 1997 balance sheets.
Management believes that the Partnership's cash balance as of December 31, 1998
together with the cash from operations will be sufficient to finance the
Partnership's and the properties continued operations on both a short-term and
long term basis. Estimated distributions for 1999 will remain consistent with
the 1998 level but there can be no assurance that the distribution level will
not be adjusted.
RESULTS OF OPERATIONS
- ---------------------
1998 versus 1997
Rental income decreased $120,000, or 11%, for the year ended December 31, 1998
compared to the year ended December 31, 1997. The decrease was primarily due to
one of the tenants - St. Jude Hospital downsizing leased office space in
September 1998 at Bristol Medical Center.
Interest and other income increased $15,000, or 100%, in 1998 compared to
1997 due to the interest earned on a higher invested cash balance in 1998.
Operating, depreciation and amortization and general and administrative expenses
incurred in 1998 were consistent with the expenses incurred in 1997.
In 1998 and 1997, due to high vacancy levels, difficulty in leasing vacant space
and projected cash flow analyses, management determined that the carrying value
of two of the Partnership's rental properties were in excess of their estimated
fair values. As a result, in 1998, the Partnership recorded a provision for
impairment of its investment in Bristol Medical Center in the amount of
$451,000. In 1997, a provision for impairment of the investment in Aztec Village
Shopping Center was recorded in the amount of $438,000.
Page 10 of 29
1997 versus 1996
- ----------------
Rental income increased 2% during the year ended December 31, 1997 compared to
the year ended December 31, 1996.
Interest and other income decreased $107,000, or 88%, in 1997 compared to 1996
due to a one-time legal settlement of $111,000 in 1996 from a former tenant at
Bristol Medical Center. Additionally, interest income increased in 1997 compared
to the same period in 1996 due to higher average invested cash balances.
Operating expenses decreased $52,000, or 11% for the year ended December 31,
1997 compared to the same period in 1996 primarily due to $42,000 of legal fees
incurred in 1996 in connection with the settlement of a former tenant at Bristol
Medical Center. The remaining decrease relates to $9,000 of costs incurred in
1996 when the Partnership obtained appraisals of the rental properties.
The $46,000, or 20%, decrease in depreciation and amortization expense for the
year ended December 31, 1997 compared to the same period in 1996 is a result of
the decrease in depreciation of the Aztec Village Shopping Center as such
property was classified as held for sale at December 31, 1996 and accordingly,
depreciation of the asset was discontinued.
In 1996, due to an increase in vacancy, difficulty in leasing vacant space and
projected cash flow analyses, management determined that the carrying values of
the investments in two of the rental properties were in excess of their
estimated fair value and accordingly, provisions for impairment of the
investments in Bristol Medical Center and Wakefield Industrial Center were
recorded in the amounts of $1,470,000 and $175,000, respectively.
General and administrative expenses decreased $14,000, or 5%, for the year ended
December 31, 1997 compared to the year ended December 31, 1996, primarily due to
additional one-time tax preparation fees of $13,000 incurred in 1996 resulting
from the preparation of additional prior and current year tax returns.
Year 2000 Compliance
- --------------------
State of Readiness. The Partnership utilizes a number of computer software
programs and operating systems. These programs and systems primarily comprise
(i) information technology systems ("IT Systems") (i.e., software programs and
computer operating systems) that serve the management operations, and (ii)
embedded systems such as devices used to control, monitor or assist the
operation of equipment and machinery systems (e.g., HVAC, fire safety and
security) at its properties ("Property Systems"). To the extent that 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 these applications will be necessary.
IT Systems. Employing a team made up of internal personnel and third-party
consultants, Glenborough Corporation (Glenborough), the Partnership's asset and
property manager, has completed an identification of IT Systems, including
hardware components that are not yet Year 2000 compliant. To the best of
Glenborough's knowledge based on available information and a reasonable level of
inquiry and investigation, such upgrading as appears to be called for under the
circumstances has been completed in accordance with prevailing industry
practice. Glenborough has commenced a testing program which will be completed
during 1999. In addition, the Partnership is currently communicating with third
parties with whom it does significant business, such as financial institutions,
tenants and vendors, to determine their readiness for Year 2000 compliance.
Page 11 of 29
Property Systems. An identification of Property Systems, including hardware
components, that are not yet Year 2000 compliant, has also been completed.
Upgrading of such systems as appears to be called for under the circumstances
based on available information and a reasonable level of inquiry and
investigation, and in accordance with prevailing industry practice has
commenced. Upon completion of such upgrading, a testing program will be
initiated and completed during 1999. To the best of Glenborough's knowledge, the
Partnership has no Property Systems, the failure of which would have a material
effect on its operations.
Costs of Addressing Year 2000 issues. Given the information known at this time
about systems that are non-compliant, coupled with ongoing, normal course-of
business efforts to upgrade or replace critical systems, as necessary, the
Partnership does not expect Year 2000 compliance costs to have a material
adverse impact on its liquidity or ongoing results of operations. The costs of
such assessment and remediation will be paid as an operating expense.
Risks of Year 2000 issues. In light of the assessment and upgrading efforts to
date, and assuming completion of the planned, normal course-of-business upgrades
and subsequent testing, the Partnership believes that any residual Year 2000
risk will be limited to non-critical business applications and support hardware,
and to short-term interruptions affecting Property Systems which, if they occur
at all, will not be material to overall operations. The Partnership believes
that all systems will be Year 2000 compliant and that compliance will not
materially adversely affect its future liquidity or results of operations or its
ability to service debt.
However, the Partnership cannot give absolute assurance that this is the case.
Contingency Plans. The Partnership is currently developing a contingency plan
for all operations which will address the most reasonably likely worst case
scenario regarding Year 2000 compliance. Such a plan, however, will recognize
material limitations on the ability to respond to major regional or industrial
failures such as power outages or communications breakdowns. Management expects
such a contingency plan to be completed during 1999.
Item 8. Financial Statements and Supplementary Data
For information with respect to Item 8, see Financial Statements and Schedules
as listed in Item 14.
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure
None
Page 12 of 29
Part III
Item 10. Directors and Executive Officers of the Partnership
Rancon Income Partners I is the General Partner of the Partnership. Daniel Lee
Stephenson and Rancon Financial Corporation ("RFC") are the General Partners of
Rancon Income Partners I, L.P. The executive officer and director of RFC is:
Daniel L. Stephenson Director, President, Chief Executive Officer and
Chief Financial Officer
There is no fixed term of office for Mr. Stephenson.
Mr. Stephenson, age 55, founded RFC in 1971 for the purpose of establishing
itself as a commercial, industrial and residential property syndication,
development and brokerage concern. Mr. Stephenson has, from inception, held the
position of Director. In addition, Mr. Stephenson was President and Chief
Executive Officer of RFC from 1971 to 1986, from August 1991 to September 1992
and from March 31, 1995 to present. Mr. Stephenson is Chairman of the Board of
PacWest Group, Inc., a real estate firm which has acquired a portfolio of assets
from the Resolution Trust Corporation.
Item 11. Executive Compensation
The Partnership has no executive officers. For information relating to fees,
compensation, reimbursements and distributions paid to related parties,
reference is made to Item 13 below.
Item 12. Security Ownership of Certain Beneficial Owners and Management
Security Ownership of Certain Beneficial Owners
- -----------------------------------------------
No person is known by the Partnership to be the beneficial owner of more than 5%
of the Units.
Security Ownership of Management
- --------------------------------
Amount and Nature of
Title of Class Name of Beneficial Owner Beneficial Ownership Percent of Class
- -------------- ------------------------ -------------------- ----------------
Units Daniel L. Stephenson 3 Units (trust) Less than 1 percent
Changes in Control
- ------------------
The Limited Partners have no right, power or authority to act for or bind the
Partnership. However, the Limited Partners have the power to vote upon the
following matters affecting the basic structure of the Partnership, each of
which shall require the approval of Limited Partners holding a majority of the
outstanding Units: (i) amendment of the Partnership's Partnership Agreement;
(ii) termination and dissolution of the Partnership; (iii) sale, exchange or
pledge of all or substantially all of the assets of the Partnership; (iv)
removal of the General Partner or any successor General Partner; (v) election of
a new General Partner; (vi) the approval or disapproval of the terms of purchase
of the General Partner's interest; and (vii) the modification of the terms of
any agreement between the Partnership and the General Partner or an affiliate.
Page 13 of 29
Item 13. Certain Relationships and Related Transactions
For the year ended December 31, 1998, the Partnership did not incur any costs
reimbursable to RFC or any affiliate of the Partnership.
Page 14 of 29
Part IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(a) The following documents are filed as part of this report
(1) Financial Statements:
Report of Independent Public Accountants
Balance Sheets as of December 31, 1998 and 1997
Statements of Operations for the Years Ended December 31,
1998, 1997 and 1996
Statements of Partners' Equity (Deficit) for the Years Ended
December 31, 1998, 1997 and 1996
Statements of Cash Flows for the Years Ended December 31,
1998, 1997 and 1996
Notes to Financial Statements
(2) Financial Statement Schedule:
Schedule III -- Real Estate and Accumulated Depreciation as
of December 31, 1998 and Note thereto
All other schedules are omitted because they are not applicable or
the required information is shown in the financial statements or
notes thereto.
(3) Exhibits:
(27)Financial Data Schedule
(b) Reports on Form 8-K
None.
Page 15 of 29
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
(Partnership)
By: RANCON INCOME PARTNERS I, L.P.
General Partner
Date: March 30, 1999 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 Partner I, L.P.
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed by the following persons on behalf of the Partnership and in the
capacities and on the dates indicated.
By: RANCON INCOME PARTNERS I, L.P.
General Partner
Date: March 30, 1999 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 Partner I, L.P.
Page 16 of 29
RANCON INCOME FUND I,
A CALIFORNIA LIMITED PARTNERSHIP
INDEX TO FINANCIAL STATEMENTS
AND SCHEDULE
Page
----
Report of Independent Public Accountants 18
Financial Statements:
Balance Sheets as of December 31, 1998 and 1997 19
Statements of Operations for the years ended December 31, 1998,
1997 and 1996 20
Statements of Partners' Equity (Deficit) for the years ended
December 31, 1998, 1997 and 1996 21
Statements of Cash Flows for the years ended December 31, 1998,
1997 and 1996 22
Notes to Financial Statements 23
Schedule:
III - Real Estate and Accumulated Depreciation
as of December 31, 1998 and Note thereto 28
All other schedules are omitted because they are not applicable or the required
information is shown in the financial statements or notes thereto.
Page 17 of 29
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Partners of
RANCON INCOME FUND I, A CALIFORNIA LIMITED PARTNERSHIP:
We have audited the accompanying balance sheets of RANCON INCOME FUND I, A
CALIFORNIA LIMITED PARTNERSHIP, as of December 31, 1998 and 1997, and the
related statements of operations, partners' equity (deficit) and cash flows for
the years ended December 31, 1998, 1997 and 1996. These financial statements and
the schedule referred to below are the responsibility of the Partnership's
management. Our responsibility is to express an opinion on these financial
statements and schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of RANCON INCOME FUND I, A
CALIFORNIA LIMITED PARTNERSHIP, as of December 31, 1998 and 1997, and the
results of its operations and its cash flows for the years ended December 31,
1998, 1997 and 1996 in conformity with generally accepted accounting principles.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The accompanying schedule listed in the
index to financial statements and schedule is presented for purposes of
complying with the Securities and Exchange Commission's rules and is not a
required part of the basic financial statements. This information has been
subjected to the auditing procedures applied in our audits of the basic
financial statements and, in our opinion, is fairly stated in all material
respects in relation to the basic financial statements taken as a whole.
San Francisco, California
February 12, 1999
Page 18 of 29
RANCON INCOME FUND I,
A CALIFORNIA LIMITED PARTNERSHIP
Balance Sheets
December 31, 1998 and 1997
(in thousands, except units outstanding)
1998 1997
------------- ------------
Assets
- ------
Real estate investments:
Rental property, net of accumulated depreciation of
$1,626 and $1,463 at December 1998 and 1997,
respectively $ 4,290 $ 4,803
Rental property held for sale, net 685 675
------------- ------------
Total real estate investments 4,975 5,478
------------- ------------
Cash and cash equivalents 872 749
Deferred costs, net of accumulated amortization of
$42 and $30 at December 31, 1998 and 1997, respectively 55 15
Prepaid expenses and other assets 110 81
------------- ------------
Total assets $ 6,012 $ 6,323
============= ============
Liabilities and Partners' Equity (Deficit)
Liabilities:
Accounts payable and accrued expenses $ 36 $ 24
Security deposits 72 61
------------- ------------
Total liabilities 108 85
------------- ------------
Partners' equity (deficit):
General Partner (183) (180)
Limited Partners (14,555 limited partnership
units outstanding) 6,087 6,418
------------- ------------
Total partners' equity 5,904 6,238
------------- ------------
Total liabilities and partners' equity $ 6,012 $ 6,323
============= ============
The accompanying notes are an integral part of these financial statements.
Page 19 of 29
RANCON INCOME FUND I,
A CALIFORNIA LIMITED PARTNERSHIP
Statements of Operations
For the years ended December 31, 1998, 1997 and 1996
(in thousands, except per unit amounts)
1998 1997 1996
--------- ----------- ------
Revenue:
Rental income $ 1,022 $ 1,142 $ 1,125
Interest and other income 30 15 122
--------- ----------- ---------
Total revenue 1,052 1,157 1,247
--------- ----------- ---------
Expenses:
Operating 429 424 476
Depreciation and amortization 175 181 227
Provision for impairment of investments
in real estate 451 438 1,645
General and administrative 276 279 293
--------- ----------- ---------
Total expenses 1,331 1,322 2,641
--------- ----------- ---------
Net loss $ (279) $ (165) $ (1,394)
========= =========== ==========
Net loss per limited partnership unit $ (18.96) $ (11.20) $ (94.81)
========= =========== ==========
Distributions per limited partnership unit:
Representing return of capital $ 3.80 $ 2.88 $ 7.00
From net income -- -- --
-------- ----------- ---------
Total distributions per limited
partnership unit $ 3.80 $ 2.88 $ 7.00
======== =========== =========
Weighted average number of limited partnership
units outstanding during each
period used to compute net loss and
distributions per limited partnership unit 14,555 14,555 14,555
======= ========== ======
The accompanying notes are an integral part of these financial statements.
Page 20 of 29
RANCON INCOME FUND I,
A CALIFORNIA LIMITED PARTNERSHIP
Statements of Partners' Equity
(Deficit) For the years ended December
31, 1998, 1997 and 1996
(in thousands)
General Limited
Partner Partners Total
------- -------- -----
Balance at December 31, 1995 $ (164) $ 8,105 $ 7,941
Distributions -- (102) (102)
Net loss (14) (1,380) (1,394)
--------- -------- ---------
Balance at December 31, 1996 (178) 6,623 6,445
Distributions -- (42) (42)
Net loss (2) (163) (165)
---------- ---------- ----------
Balance at December 31, 1997 (180) 6,418 6,238
Distributions -- (55) (55)
Net loss (3) (276) (279)
---------- ---------- ----------
Balance at December 31, 1998 $ (183) $ 6,087 $ 5,904
========== ========== ==========
The accompanying notes are an integral part of these financial statements.
Page 21 of 29
RANCON INCOME FUND I,
A CALIFORNIA LIMITED PARTNERSHIP
Statements of Cash Flows
For the years ended December 31, 1998, 1997 and 1996
(in thousands)
1998 1997 1996
------------ ----------- ------------
Cash flows from operating activities:
Net loss $ (279) $ (165) $ (1,394)
Adjustments to reconcile net loss
to net cash provided by operating activities:
Depreciation and amortization 175 181 227
Provision for impairment of investments
in real estate 451 438 1,645
Changes in certain assets and liabilities:
Deferred costs (52) (3) (1)
Prepaid expenses and other assets (29) (53) (1)
Accounts payable and accrued expenses 12 1 (52)
Security deposits 11 (2) (6)
----------- ----------- -----------
Net cash provided by operating activities 289 397 418
----------- ----------- -----------
Cash flows used for investing activities:
Additions to real estate (111) (32) (164)
------------ ----------- -----------
Cash flows used for financing activities:
Cash distributions to limited partners (55) (42) (102)
------------ ----------- -----------
Net increase in cash and cash equivalents 123 323 152
Cash and cash equivalents at beginning of year 749 426 274
----------- ----------- -----------
Cash and cash equivalents at end of year $ 872 $ 749 $ 426
========== ========== ==========
The accompanying notes are an integral part of these financial statements.
Page 22 of 29
RANCON INCOME FUND I,
A CALIFORNIA LIMITED PARTNERSHIP
Notes to Financial Statements
December 31, 1998 and 1997
Note 1. ORGANIZATION
------------
Rancon Income Fund I ("the Partnership") was organized in accordance with the
provisions of the California Revised Limited Partnership Act for the purpose of
acquiring, operating and disposing of existing income producing commercial,
industrial and residential real estate properties. The Partnership reached final
funding in April, 1989. The Partnership was formed with initial capital
contributions from Rancon Income Partners I, L.P. (the General Partner) and
Daniel Lee Stephenson, the initial limited partner, who indirectly owns and
controls the General Partner. The General Partner and its affiliates are
hereinafter referred to as the Sponsor. At December 31, 1998 and 1997, 14,555
units were issued and outstanding.
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 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.
Effective January 1, 1995, Glenborough Corporation (successor by merger with
Glenborough Inland Realty Corporation) ("Glenborough") entered into an 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
responsibilities for providing investor relations 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 and $208,000 in
1997 and 1996); (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 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.
Note 2: SIGNIFICANT ACCOUNTING POLICIES
-------------------------------
Basis of Accounting - The accompanying 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.
Page 23 of 29
RANCON INCOME FUND I,
A CALIFORNIA LIMITED PARTNERSHIP
Notes to Financial Statements
December 31, 1998 and 1997
Use of Estimates - The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that effect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported results of operations during the reporting period.
Actual results could differ from those estimates.
New Accounting Pronouncements - In June 1997, the Financial Accounting Standards
Board issued Statement of Financial Accounting Standards No. 131 (SFAS 131),
"Disclosures about Segments of an Enterprise and Related Information." SFAS 131
is effective for fiscal years beginning after December 15, 1997. As the
Partnership operates in only one geographic location and one industry, and
allocates resources solely for the optimization of the Partnership's overall
return, management has determined that no additional disclosure in the
Partnership's financial statements is necessary.
Rental Property - Rental properties, including the related land, are stated at
cost unless events or circumstances indicate that cost cannot be recovered in
which case the carrying value is reduced to the estimated fair value. Estimated
fair value: (i) is based upon the Partnership's plans for the continued
operation of each property; and (ii) is computed using estimated sales price, as
determined by prevailing market values for comparable properties and/or the use
of capitalization rates multiplied by annualized rental income based upon the
age, construction and use of the building. The fulfillment of the Partnership's
plans related to each of its properties is dependent upon, among other things,
the presence of economic conditions which will enable the Partnership to
continue to hold and operate the properties prior to their eventual sale. Due to
uncertainties inherent in the valuation process and in the economy, it is
reasonably possible that the actual results of operating and disposing of the
Partnership's properties could be materially different than current
expectations.
Depreciation is provided using the straight-line method over the useful lives of
the respective assets.
Rental Property Held for Sale - Rental property held for sale is stated at the
lower of cost or estimated fair value less costs to sell. Estimated fair value
is based upon prevailing market values for comparable properties and/or the use
of capitalization rates multiplied by annualized rental income based upon the
age, construction and use of the building. The fulfillment of the Partnership's
plans to dispose of property is dependent upon, among other things, the presence
of economic conditions, which will enable the Partnership to hold the property
for eventual sale. The Partnership discontinues depreciating rental property
once it is classified as held for sale.
Cash and cash equivalents - The Partnership considers certificates of deposit
and money market funds with original maturities of less than ninety days to be
cash equivalents.
Fair Value of Financial Instruments - Statement of Financial Accounting
Standards No. 107 requires disclosure about fair value for all financial
instruments. Cash and cash equivalents consist of demand deposits, certificates
of deposit and short-term investments with financial institutions. The carrying
amount of cash and cash equivalents approximates fair value.
Page 24 of 29
RANCON INCOME FUND I,
A CALIFORNIA LIMITED PARTNERSHIP
Notes to Financial Statements
December 31, 1998 and 1997
Deferred Costs - Deferred lease commissions are amortized over the initial fixed
term of the related lease agreement on a straight-line basis. Amortization
expense was $12,000, $7,000 and $24,000 for the years ended December 31, 1998,
1997 and 1996, respectively.
Rental Income - Rental income is recognized as earned over the life of the
respective leases.
Net Loss Per Limited Partnership Unit - Net loss per limited partnership unit is
calculated using the weighted average number of limited partnership units
outstanding during the period and the limited partners' allocable share of the
net loss.
Income Taxes - No provision for income taxes is included in the accompanying
financial statements as the Partnership's results of operations are passed
through to the partners for inclusion in their respective income tax returns.
Net income (loss) and partners' equity for financial reporting purposes will
differ from the Partnership income tax return because of different accounting
methods used for certain items, principally depreciation expense and the
provision for impairment of investments in real estate.
Note 3. RENTAL PROPERTY, NET
--------------------
Rental property as of December 31, 1998 and 1997 is as follows:
- ---------------------------------------------------------------
1998 1997
---- ----
Land $ 1,928,000 $ 2,072,000
Buildings and improvements 3,504,000 3,788,000
Tenant improvements 484,000 406,000
------------- --------------
5,916,000 6,266,000
Less: accumulated depreciation (1,626,000) (1,463,000)
-------------- --------------
Total $ 4,290,000 $ 4,803,000
============= ==============
Rental property held for sale at December 31, 1998 and 1997 is as follows:
- -------------------------------------------------------------------------
1998 1997
---- ----
Land $ 312,000 $ 312,000
Buildings and improvements 642,000 632,000
Tenant improvements 70,000 70,000
-------------- ---------------
1,024,000 1,014,000
Less: accumulated depreciation (339,000) (339,000)
-------------- ---------------
Total $ 685,000 $ 675,000
============== ==============
At December 31, 1998 and 1997, the Aztec Village Shopping Center property is
classified as held for sale. In February 1999, the Partnership entered into an
agreement to sell Aztec Village Shopping Center to an unaffiliated entity for
$1,000,000. The sale is expected to close during the second quarter of 1999;
however, the sale is subject to a number of contingencies including satisfactory
completion of due diligence and customary closing conditions. As a result, there
can be no assurance that this sale will be completed.
None of the Partnership's properties are encumbered as of December 31, 1998.
Page 25 of 29
RANCON INCOME FUND I,
A CALIFORNIA LIMITED PARTNERSHIP
Notes to Financial Statements
December 31, 1998 and 1997
In 1998 and 1997, due to high vacancy levels, difficulty in leasing vacant space
and projected cash flow analyses, management determined that the carrying value
of two of the Partnership's rental properties were in excess of their estimated
fair values. As a result, in 1998, the Partnership recorded a provision for
impairment of its investment in Bristol Medical Center in the amount of $451,000
and in 1997 a provision for impairment of the investment in Aztec Village
Shopping Center was recorded in the amount of $438,000.
Note 4. LEASES
The Partnership's rental properties are leased under non-cancelable operating
leases that expire on various dates through November 2004. Minimum future rents
under non-cancelable operating leases as of December 31, 1998 are as follows:
1999 $ 726,000
2000 $ 651,000
2001 $ 605,000
2002 $ 587,000
2003 $ 484,000
Thereafter 175,000
------------
Total $ 3,228,000
============
Note 5. TAXABLE INCOME
--------------
The Partnership's tax returns, the qualification of the Partnership as a
partnership for federal income tax purposes, and the amount of income or loss
are subject to examination by federal and state taxing authorities. If such
examinations result in changes to the Partnership's taxable income or loss, the
tax liability of the partners could change accordingly.
The Partnership's tax returns are filed on a calendar year basis. As such, the
following is a reconciliation of the net income for financial reporting purposes
to the estimated taxable income, for the years ended December 31, 1998, 1997 and
1996, determined in accordance with accounting practices used in preparation of
federal income tax returns (in thousands).
Page 26 of 29
RANCON INCOME FUND I,
A CALIFORNIA LIMITED PARTNERSHIP
Notes to Financial Statements
December 31, 1998 and 1997
1998 1997 1996
---- ----- ----
Net loss per financial statements $ (279) $ (165) $ (1,394)
Provision for impairment of investments in
real estate 451 438 1,645
Financial reporting depreciation in excess
of tax depreciation (29) (19) (4)
Rental income reported in a different period
for tax than for financial reporting -- (40) 114
Operating revenues and expenses reported in a
different period for tax than for financial
reporting, net 21 48 (111)
-------- --------- ---------
Estimated net income for federal income tax purposes $ 164 $ 262 $ 250
======= ======== ========
The following is a reconciliation as of December 31, 1998 and 1997 of partner's
equity for financial reporting purposes to estimated partners' equity for
federal income tax purposes (in thousands).
1998 1997
---- ----
Partners' equity per financial statements $ 5,904 $ 6,238
Cumulative provision for impairment of
investments in real estate 5,014 4,563
Financial reporting depreciation in excess
of tax reporting depreciation (314) (285)
Operating expenses recognized in a different
period for financial reporting than for
tax reporting, net 26 49
Other, net -- (44)
------------ ------------
Estimated partners' equity for federal
income tax purposes $ 10,630 $ 10,521
============ ============
Page 27 of 29
RANCON INCOME FUND I,
A California Limited Partnership
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
December 31, 1998
(In Thousands)
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E COLUMN F
- ------------------------------------------------------------------------------------------------------------------------------------
Cost Capitalized
Initial Cost to Subsequent to Gross Amount Carried
Partnership Acquisition at December 31, 1998
---------------- --------------- --------------------
Buildings Buildings Building
and and Carrying and (1 , 2) Accumulated
Description Encumbrances Land Improvements Improvements Cost Land Improvements Total Depreciation
- ------------------------------------------------------------------------------------------------------------------------------------
Rental Properties:
Wakefield Facility $ -- $ 740 $ 1,159 $ 218 $ -- $ 740 $ 1,377 $ 2,117 $ 353
Less: Provisions for
impairment in real estate(2) -- (135) (116) (123) -- (135) (239) (374) --
Bristol Medical Center -- 1,937 3,327 830 -- 1,937 4,157 6,094 1,273
Less: Provision for
impairment in real estate(2) -- (614) (271) (1,036) -- (614) (1,307) (1,921) --
------- --------- ----------- ------------ --------- --------- -------- --------- --------
Subtotal -- 1,928 4,099 (111) -- 1,928 3,988 5,916 1,626
------- --------- ----------- ------------ --------- --------- -------- --------- --------
Rental property held for sale:
Aztec Village Shopping Center -- 1,205 2,152 385 -- 1,205 2,537 3,742 339
Less: Provision for
impairment in real estate(2) -- (893) (1,617) (208) -- (893) (1,825) (2,718) --
------- --------- ----------- ----------- --------- --------- -------- --------- --------
Subtotal -- 312 535 177 -- 312 712 1,024 339
------- --------- ----------- ----------- --------- --------- -------- --------- --------
Totals $ -- $ 2,240 $ 4,634 $ 66 $ -- $ 2,240 $ 4,700 $ 6,940 $ 1,965
======= ========= =========== =========== ========= ========= ======== ========= ========
COLUMN A COLUMN G COLUMN H COLUMN I
- --------------------------------------------------------------------
Date Life
Construction Date Depreciated
Description Began Acquired Over
- --------------------------------------------------------------------
Rental Properties:
Wakefield Facility N/A 4/20/87 5 - 40 years
Less: Provisions for
impairment in real estate(2)
Bristol Medical Center N/A 5/04/88 5 - 40 years
Less: Provision for
impairment in real estate(2)
Subtotal
Rental property held for sale:
Aztec Village Shopping Cent N/A 2/20/89 5- 40 years
Less: Provision for
impairment in real estate(2)
(1) The aggregate cost for Federal income tax purposes is $11,589
(2) See Note 3 to Financial Statements
Page 28 of 29
NOTE TO SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
Reconciliation of gross amount at which real estate was carried for the years
ended December 31, 1998, 1997 and 1996 (in thousands):
1998 1997 1996
------------ ------------ ---------
INVESTMENT IN REAL ESTATE
Balance at beginning of year $ 7,280 $ 7,844 $ 9,325
Additions during year:
Improvements, etc. 111 32 164
Deletions during year:
Disposals -- (158) --
Provision for impairment of
investments in real estate (451) (438) (1,645)
------------ ------------ ----------
Balance at end of year $ 6,940 $ 7,280 $ 7,844
============ ============ ==========
ACCUMULATED DEPRECIATION
Balance at beginning of year $ 1,802 $ 1,786 $ 1,583
Additions charged expenses 163 174 203
Disposals -- (158) --
----------- ------------ -----------
Balance at end of year $ 1,965 $ 1,802 $ 1,786
=========== ============ ===========
Page 29 of 29