RANCON REALTY FUND IV - FORM 10-Q

RANCON REALTY FUND IV - FORM 10-Q - May 13, 2011

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RANCON REALTY FUND IV Reports

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RANCON REALTY FUND IV Reports

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EX-32 - CERTIFICATION OF CEO AND CFO OF THE GP PURSUANT TO RULE 13A-14(B) - RANCON REALTY FUND IV	dex32.htm
EX-31 - CERTIFICATION OF CEO AND CFO OF THE GP PURSUANT TO RULE 13A-14(A) - RANCON REALTY FUND IV	dex31.htm

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 March 31, 2011

¨	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission file number: 0-14207

RANCON REALTY FUND IV,

A CALIFORNIA LIMITED PARTNERSHIP

(Exact name of registrant as specified in its charter)

California

33-0016355

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

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, 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 ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ¨ No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definition of “accelerated filer, large accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ¨ No x

INDEX

RANCON REALTY FUND IV,

A CALIFORNIA LIMITED PARTNERSHIP


		Page No.
PART I	FINANCIAL INFORMATION

Item 1.	Consolidated Financial Statements of Rancon Realty Fund IV (Unaudited):

	Consolidated Balance Sheets as of March 31, 2011 and December 31, 2010		3

	Consolidated Statements of Operations for the three months ended March 31, 2011 and 2010		4

	Consolidated Statement of Partners’ Equity for the three months ended March 31, 2011		5

	Consolidated Statements of Cash Flows for the three months ended March 31, 2011 and 2010		6

	Notes to Consolidated Financial Statements		7-13

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		14-17

Item 3.	Qualitative and Quantitative Disclosures About Market Risk		18

Item 4.	Controls and Procedures		18

PART II	OTHER INFORMATION

Item 1.	Legal Proceedings		19

Item 1A.	Risk Factors		19

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds		19

Item 3.	Defaults Upon Senior Securities		19

Item 4.	[Removed and Reserved]		19

Item 5.	Other Information		19

Item 6.	Exhibits		19

SIGNATURES			20

PART I. FINANCIAL INFORMATION

Item 1.

Financial Statements

RANCON REALTY FUND IV,

A CALIFORNIA LIMITED PARTNERSHIP

Consolidated Balance Sheets

(in thousands, except units outstanding)

(Unaudited)


	March 31, 2011			December 31, 2010
Assets
Investments in real estate:
Rental properties	$	65,108		$	65,456
Accumulated depreciation		(20,948	)		(20,509	)

Rental properties, net		44,160			44,947

Cash and cash equivalents		2,189			2,025
Accounts receivable, net		56			206
Deferred costs, net of accumulated amortization of $1,645 and $1,629 as of March 31, 2011 and December 31, 2010, respectively		1,917			1,842
Prepaid expenses and other assets		1,891			1,620

Total assets	$	50,213		$	50,640


Liabilities and Partners’ Equity (Deficit)
Liabilities:
Note payable and line of credit	$	29,745		$	29,850
Accounts payable and other liabilities		295			396
Prepaid rent		185			177

Total liabilities		30,225			30,423

Commitments and contingent liabilities (Note 6)

Partners’ Equity (Deficit):
General Partner		(855	)		(853	)
Limited partners, 65,819 limited partnership units outstanding as of March 31, 2011 and December 31, 2010		20,843			21,070

Total partners’ equity		19,988			20,217

Total liabilities and partners’ equity	$	50,213		$	50,640

The accompanying notes are an integral part of these consolidated financial statements.

RANCON REALTY FUND IV,

A CALIFORNIA LIMITED PARTNERSHIP

Consolidated Statements of Operations

(in thousands, except per unit amounts and units outstanding)

(Unaudited)


	Three Months Ended March 31,
	2011			2010
Operating revenue
Rental revenue and other	$	1,975		$	1,959
Tenant reimbursements		236			258

Total operating revenue		2,211			2,217


Operating expenses
Property operating expenses		958			1,003
Depreciation and amortization		887			852
General and administrative		222			234

Total operating expenses		2,067			2,089

Operating income		144			128

Interest expense (including amortization of loan fees)		(373	)		(369	)

Net loss	$	(229	)	$	(241	)

Basic and diluted net loss per limited partnership unit	$	(3.45	)	$	(3.63	)

Weighted average number of limited partnership units outstanding		65,819			65,819

The accompanying notes are an integral part of these consolidated financial statements.

RANCON REALTY FUND IV,

A CALIFORNIA LIMITED PARTNERSHIP

Consolidated Statement of Partners’ Equity

For the three months ended March 31, 2011

(in thousands)

(Unaudited)


	General Partner			Limited Partners			Total
Balance (deficit) at December 31, 2010	$	(853	)	$	21,070		$	20,217
Net loss		(2	)		(227	)		(229	)

Balance (deficit) at March 31, 2011	$	(855	)	$	20,843		$	19,988

The accompanying notes are an integral part of these consolidated financial statements.

RANCON REALTY FUND IV,

A CALIFORNIA LIMITED PARTNERSHIP

Consolidated Statements of Cash Flows

(in thousands)

(Unaudited)


	Three Months Ended March 31,
	2011			2010
Cash flows from operating activities:
Net loss	$	(229	)	$	(241	)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Depreciation and amortization		887			852
Amortization of loan fees, included in interest expense		9			16
Changes in certain assets and liabilities:
Accounts receivable		150			(115	)
Deferred costs		(194	)		(238	)
Prepaid expenses and other assets		(271	)		(363	)
Accounts payable and other liabilities		(86	)		7
Prepaid rent		8			32

Net cash provided by (used in) operating activities		274			(50	)


Cash flows from investing activities:
Additions to real estate investments		(5	)		(273	)

Net cash used in investing activities		(5	)		(273	)


Cash flows from financing activities:
Note payable principal payments		(105	)		(99	)

Net cash used in financing activities		(105	)		(99	)

Net increase (decrease) in cash and cash equivalents		164			(422	)

Cash and cash equivalents at beginning of period		2,025			1,916

Cash and cash equivalents at end of period	$	2,189		$	1,494

Supplemental disclosure of cash flow information:
Cash paid for interest	$	365		$	355


Supplemental disclosure of non-cash operating activities:
Write-off of fully depreciated rental property assets	$	338		$	—

Write-off of fully amortized deferred costs	$	103		$	—

The accompanying notes are an integral part of these consolidated financial statements.

RANCON REALTY FUND IV,

A California Limited Partnership

Notes to Consolidated Financial Statements

(Unaudited)

NOTE 1.

ORGANIZATION

Rancon Realty Fund IV, a California Limited Partnership, (“the Partnership”), was organized in accordance with the provisions of the California Uniform Limited Partnership Act for the purpose of acquiring, developing, operating and disposing of real property. The Partnership was organized in 1984 and reached final funding in July 1987. The general partners of the Partnership are Daniel L. Stephenson and Rancon Financial Corporation (“RFC”), hereinafter collectively referred to as the General Partner. RFC is wholly-owned by Daniel L. Stephenson. The Partnership has no employees.

As of March 31, 2011, there were 65,819 Units (“Units”) outstanding.

The Partnership commenced on April 3, 1984 and shall continue until December 31, 2015, unless previously terminated in accordance with the provisions of the Partnership Agreement.

Allocation of Net Income and Net Loss

Allocation of net income and net loss is made pursuant to the terms of the Partnership Agreement. Generally, net income from operations is allocated 90% to the limited partners and 10% to the General Partner. Net losses from operations are allocated 99% to the limited partners and 1% to the General Partner; however, if the limited partners or the General Partner would have, as a result of an allocation of cumulative net losses, a deficit balance in their capital accounts, then net losses shall not be allocated to the limited partners or General Partner, as the case may be, so as to create a capital account deficit, but such losses shall be allocated to the limited partners or General Partner with positive capital account balances until the positive capital account balances of such other partners are reduced to zero. However, if deficits are the result of cumulative distributions in excess of earnings, losses will continue to be allocated to the General Partner. Capital accounts shall be determined after taking into account all other allocations and distributions for the fiscal year.

Net income other than net income from operations shall be allocated as follows: (i) first, to the partners who have a deficit balance in their capital account, provided that, in no event, shall the General Partner be allocated more than 5% 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 Unitholder’s original invested capital; (ii) second, to the limited partners in proportion to and to the extent of the amounts required to increase their capital accounts to an amount equal to the sum of the adjusted invested capital of their units plus an additional cumulative non-compounded 6% return per annum (plus additional amounts depending on the date Units were purchased); (iii) third, to the partners in the minimum amount required to first equalize their capital accounts in proportion to the number of units owned, and then, to bring the sum of the balances of the capital accounts of the limited partners and the General Partner into the ratio of 4 to 1; and (iv) the balance, if any, 80% to the limited partners and 20% to the General Partner. 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.

Net losses other than net losses from operations are allocated 99% to the limited partners and 1% to the General Partner. Such net losses will be allocated among limited partners as necessary to equalize their capital accounts in proportion to their Units, and thereafter will be allocated in proportion to their Units.

The terms of the Partnership Agreement call for the General Partner to restore any deficits that may exist in its capital account after allocation of gains and losses from the sale of the final property owned by the Partnership, but prior to any liquidating distributions being made to the partners.

Distribution of Cash

The Partnership shall make annual or more frequent distributions of substantially all cash available to be distributed to partners as determined by the General Partner, subject to the following: (i) distributions may be restricted or suspended for limited periods when the General Partner determines in their absolute discretion that it is in the best interests of the Partnership; and (ii) all distributions are subject to the payment of Partnership expenses and maintenance of reasonable reserves for debt service, alterations and improvements, maintenance, replacement of furniture and fixtures, working capital and contingent liabilities.

All excess cash from operations shall be distributed 90 percent to the limited partners and 10 percent to the General Partner.

RANCON REALTY FUND IV,

A California Limited Partnership

Notes to Consolidated Financial Statements

(Unaudited)

All cash from sales or refinancing and any other cash determined by the General Partner to be available for distribution other than cash from operations shall be distributed in the following order of priority: (i) first, 1 percent to the General Partner and 99 percent to the limited partners in proportion to the outstanding positive amounts of Adjusted Invested Capital (as defined in the Partnership Agreement) for each of their Units until Adjusted Invested Capital (as defined in the Partnership Agreement) for each Unit is reduced to zero; (ii) second, 1 percent to the General Partner and 99 percent to the limited partners until each of the limited partners has received an amount which, including cash from operations previously distributed to the limited partners equals a 12 percent annual cumulative non-compounded return on the Adjusted Invested Capital (as defined in the Partnership Agreement) of their Units plus such limited partners’ Limited Incremental Preferential Return (as defined in the Partnership Agreement), if any, with respect to each such Unit, on the Adjusted Investment Capital (as defined in the Partnership Agreement) of such Units for the twelve month period following the date upon which such Unit was purchased from the Partnership and following the admission of such limited partner; (for limited partners admitted to the Partnership before March 31, 1985, there are additional cumulative non-compounded returns of 9 percent, 6 percent, or 3 percent depending on purchase date, through October 31, 1985); (iii) third, 99 percent to the General Partner and 1 percent to the limited partners, until the General Partner has received an amount equal to 20 percent of all distributions of cash from sales or refinancing; and (iv) the balance, 80 percent to the limited partners, pro rata in proportion to the number of Units held by each, and 20 percent to the General Partner.

NOTE 2.

SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

The accompanying financial statements present the consolidated financial position of the Partnership and its subsidiaries as of March 31, 2011 and December 31, 2010, and the consolidated results of operations of the Partnership and its subsidiaries for the three months ended March 31, 2011 and 2010 and cash flows of the Partnership for the three months ended March 31, 2011 and 2010. All significant intercompany transactions, receivables and payables have been eliminated in consolidation.

In the opinion of the General Partner, the accompanying unaudited consolidated financial statements contain all adjustments (consisting of only normal accruals) necessary to present fairly the consolidated financial position of the Partnership as of March 31, 2011 and December 31, 2010, and the related consolidated statements of operations for the three months ended March 31, 2011 and 2010, the consolidated statement of partners’ equity for the three months ended March 31, 2011 and the consolidated statement of cash flows for the three months ended March 31, 2011 and 2010.

Use of Estimates

The preparation of financial statements in conformity with generally accepted accounting principles in the United States of America (“GAAP”) requires management to make estimates and assumptions that affect 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.

Rental Properties

Rental properties, including the related land, are stated at depreciated cost unless events or circumstances indicate that such amounts cannot be recovered, in which case, the carrying value of the property is reduced to its estimated fair value. Estimated fair value is computed using estimated sales price, as determined by prevailing market values for comparable properties and/or the use of capitalization rates applied to annualized net operating income based upon the age, construction and use of the building. 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. Rental properties are reviewed for impairment whenever there is a triggering event and at least annually.

Depreciation is provided using the straight-line method over the useful lives of the respective assets. The useful lives are as follows:


Building and improvements		5 to 40 years
Tenant improvements		Lesser of the initial term of the related lease, or
		the estimated useful life of the improvements
Furniture and equipment		5 to 7 years

RANCON REALTY FUND IV,

A California Limited Partnership

Notes to Consolidated Financial Statements

(Unaudited)

Fair Value of Investments

The guidance related to accounting for fair value measurements defines fair value and establishes a framework for measuring fair value in order to meet disclosure requirements for fair value measurements. Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. This guidance also establishes a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. This hierarchy describes three levels of inputs that may be used to measure fair value.

Financial assets and liabilities recorded at fair value on the consolidated balance sheets are categorized based on the inputs to the valuation techniques as follows:

Level 1. Quoted prices in active markets for identical assets or liabilities. Level 1 assets and liabilities include debt and equity securities and derivative contracts that are traded in an active exchange market.

Level 2. Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities. Level 2 assets and liabilities include debt securities with quoted prices that are traded less frequently than exchange-traded instruments and derivative contracts whose value is determined using a pricing model with inputs that are observable in the market or can be derived principally from or corroborated by observable market data.

Level 3. Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. Level 3 assets and liabilities include financial instruments whose value is determined using pricing models, discounted cash flow methodologies, or similar techniques, as well as instruments for which the determination of fair value requires significant management judgment or estimation using unobservable inputs. This category generally includes long-term derivative contracts, real estate and unconsolidated joint ventures.

Cash and Cash Equivalents

The Partnership considers short-term investments with an original maturity of three months or less at the time of investment to be cash and cash equivalents.

Deferred Costs

Deferred loan fees are capitalized and amortized on a straight-line basis, which approximates the effective interest method, over the life of the related loan. Deferred lease commissions are capitalized and amortized on a straight-line basis over the initial fixed term of the related lease agreements.

Revenues

The Partnership recognizes rental revenue on a straight-line basis over the term of the leases. Actual amounts collected could be lower than the amounts recognized on a straight-line basis if specific tenants are unable to pay rent that the Partnership has previously recognized as revenue. For tenants with percentage rent, the Partnership recognizes revenue when the tenants’ specified sales targets have been met. The reimbursements from tenants for real estate taxes and other recoverable operating expenses are recognized as revenue on an estimated basis during the current year. The Partnership develops a revised estimate of the amount recoverable from tenants based on updated expenses for the year and amounts to be recovered and records adjustments to income in the current year financial statement accounts. Any final changes in estimate based on lease-by-lease reconciliations and tenant negotiations and collection are recorded in the period those negotiations are settled.

Net (Loss) Income Per Limited Partnership Unit

Net (loss) income per Unit is calculated using the weighted average number of Units outstanding during the period and the limited partners’ allocable share of the net (loss) income.

RANCON REALTY FUND IV,

A California Limited Partnership

Notes to Consolidated Financial Statements

(Unaudited)

Net (loss) income per Unit is as follows (in thousands, except for weighted average units and per unit amounts):


	For the three months ended
	March 31, 2011						March 31, 2010
	General Partner			Limited Partners			General Partner			Limited Partners
Loss allocation:
Net loss	$	(2	)	$	(227	)	$	(2	)	$	(239	)
Weighted average number of limited partnership units outstanding during each period					65,819						65,819
Basic and diluted loss per limited partnership unit				$	(3.45	)				$	(3.63	)

The calculation of net (loss) income per Unit assumes that the income (loss) otherwise allocable to the limited partners is first used to fund distributions to the General Partner. As discussed in Note 1, because distributions of available cash have exceeded cumulative earnings and the General Partner has a deficit, the General Partner would restore that deficit in liquidation. The calculation of net (loss) income per unit does not assume a liquidation in the periods presented and therefore the net (loss) income per limited partner Unit may be less than what would be realized in a liquidation due to the requirement for the General Partner to restore deficits.

Income Taxes

No provision for income taxes is included in the accompanying consolidated financial statements as the Partnership’s results of operations are allocated to the partners for inclusion in their respective income tax returns. Net (loss) income and partners’ equity (deficit) for financial reporting purposes will differ from the Partnership’s income tax return because of different accounting methods used for certain items, including depreciation expense, provisions for impairment of investments in real estate, capitalization of development period interest and rental income and loss recognition.

Reclassifications

Certain prior period amounts have been reclassified to conform with the current year presentation, with no material effect to on consolidated results of operations.

Concentration Risk

Two tenants (both educational institutions) represented a combined 38% and 29% of rental revenue for the three months ended March 31, 2011 and 2010 respectively.

Reference to 2010 audited consolidated financial statements

These unaudited consolidated financial statements should be read in conjunction with the notes to audited consolidated financial statements included in the Partnership’s December 31, 2010 audited consolidated financial statements on Form 10-K.

NOTE 3.

INVESTMENTS IN REAL ESTATE

Rental properties consist of the following (in thousands):


	March 31, 2011			December 31, 2010
Land	$	4,690		$	4,690
Buildings		49,707			49,707
Building and tenant improvements		10,711			11,059

		65,108			65,456
Less: accumulated depreciation		(20,948	)		(20,509	)

Total rental properties, net	$	44,160		$	44,947

RANCON REALTY FUND IV,

A California Limited Partnership

Notes to Consolidated Financial Statements

(Unaudited)

As of March 31, 2011, the Partnership’s rental properties included five office properties and seven retail properties (see detailed listing of properties in Item 2. Properties).

NOTE 4.

NOTE PAYABLE AND LINE OF CREDIT

Note payable and line of credit consist of the following (in thousands):


	March 31, 2011		December 31, 2010
Note payable collateralized by first deeds of trust on eight properties (discussed below). The note has a fixed interest rate of 5.46%, a maturity date of January 1, 2016, with a 30-year amortization requiring monthly payments of principal and interest totaling $136.	$	22,166	$	22,271
Line of credit		7,579		7,579

Total note payable and line of credit	$	29,745	$	29,850

The note payable is collateralized by Promotional Retail II, Mimi’s Cafe, Palm Court Retail I and II, Promotional Retail Center, Service Retail Center, TGI Friday’s and One Vanderbilt. This note provides for a one-time loan assumption and release provisions for individual assets.

The line of credit is collateralized by Carnegie Business Center and Vanderbilt Plaza and has a total availability of $10,000,000. The line of credit requires monthly interest-only payments and bears variable interest at the 30-day LIBOR plus 2.75% (2.99% at March 31, 2011). As of March 31, 2011, $7,579,000 was outstanding under the line of credit. Prior to the line of credit maturity on December 19, 2010, the Partnership was granted an extension of the maturity date until April 19, 2011 in order to finalize a loan extension and modification. Subsequent to the end of the reporting period, on April 14, 2011, the Partnership modified the line of credit agreement to extend the maturity date to December 19, 2013 with two one year extension options. Under the terms of the modification, the total availability was increased to $15,000,000, the interest rate increased to 30-day LIBOR plus 3.00% and two additional properties were added as collateral such that the line is now collateralized by Carnegie Business Center, Vanderbilt Plaza, North River Place and Northcourt Plaza. The line of credit contains a minimum net worth covenant and a debt to total assets covenant. In order to extend the maturity date of the line of credit in the future, the Partnership must meet several conditions precedent, including a specified loan to value ratio.

The required principal payments on the Partnership’s note payable for the next five years and thereafter, as of March 31, 2011, are as follows (in thousands).


2011	$	324
2012		453
2013		479
2014		506
2015		20,404

Total	$	22,166

NOTE 5.

RELATED PARTY TRANSACTIONS

Glenborough LLC earns fees from the Partnership as prescribed by the Property Management and Services Agreement (the “Agreement”). The Agreement is in effect until the earlier of December 31, 2015 or the completion of sale of all real property assets of the Partnership. On October 1, 2010, Glenborough Holdings, LLC (“Glenborough Holdings”), the parent company of Glenborough LLC,

RANCON REALTY FUND IV,

A California Limited Partnership

Notes to Consolidated Financial Statements

(Unaudited)

sold its ownership in Glenborough LLC to Glenborough Service, LP, together with its ownership interest in the Partnership, as described below. The terms and conditions of the Agreement remain unchanged. The Partnership continues to engage Glenborough LLC to perform services for the following fees:


	Three Months Ended
	March 31, 2011		March 31, 2010
(i) property management fees of 2.5% of gross rental revenue which were included in property operating expenses in the accompanying consolidated statements of operations	$	58,000	$	48,000
(ii) a construction services fee which was capitalized and included in rental properties on the accompanying consolidated balance sheets		14,000		9,000
(iii) an asset and Partnership management fee which was included in general and administrative expenses in the accompanying consolidated statements of operations		63,000		62,000
(iv) a leasing services fee which was included in the deferred costs on the accompanying consolidated balance sheets		69,000		18,000
(v) a sales fee of 1% for all properties		—		—
(vi) a financing services fee of 1% of the gross loan amount which would be included in the deferred costs on the accompanying consolidated balance sheets		—		—
(vii) a development fee equal to 5% of the hard costs of the development project which was included in the construction in progress and /or rental properties on the accompanying consolidated balance sheets, excluding the cost of the land, the development fee and the general contractor’s fee shall not exceed 11.5%, in the aggregate, of the hard costs of the development fee project		—		—
(viii) data processing fees which were included in property operating expenses in the accompanying consolidated statements of operations		23,000		20,000
(ix) engineering fees which were included in property operating expenses in the accompanying consolidated statements of operations		7,000		6,000

As noted above, on October 1, 2010, Glenborough Holdings transferred all of its interest in the Partnership to Glenborough Investors, LLC, which currently holds those units in its subsidiary, Glenborough Property Partners, LLC (“Glenborough Property Partners”). As part of the same transaction Glenborough Holdings transferred its ownership of Glenborough LLC to Glenborough Investors, LLC, which currently holds the ownership interests in that entity in its subsidiary, Glenborough Service, LP, the parent of Glenborough Property Partners. As of March 31, 2011, Glenborough Property Partners LLC, an affiliate of Glenborough LLC, held 7,386 or 11.22% of the Units.

NOTE 6.

COMMITMENTS AND CONTINGENT LIABILITIES

Environmental Matters

The Partnership follows a policy of monitoring its properties for the presence of hazardous or toxic substances. The Partnership is not aware of any environmental liability with respect to the properties that would have a material adverse effect on the Partnership’s business, assets or results of operations. There can be no assurance that such a material environmental liability does not exist. The existence of any such material environmental liability could have an adverse effect on the Partnership’s consolidated results of operations and cash flows.

Approximately 14.7 acres of the Tri-City land owned by the Partnership was part of a 27-acre landfill operated by the City of San Bernardino (“the City”) from approximately 1950 to 1960. This landfill incorporates two land parcels and part of a third parcel. In 1996, the Santa Ana Regional Water Quality Control Board (“SARWQCB”), with regulatory jurisdiction over the closure and monitoring of landfills, determined that the City was primarily responsible for the landfill. Therefore, the City and the Partnership entered into a Limited Access Easement Agreement, giving the City access to the site for development, implementation and financial responsibility for a plan for the remediation of the landfill. It was determined that the City was to improve the landfill cover system (The Waterman Landfill Cover Improvement Plans, April 2002), perform groundwater monitoring and install a permanent gas extraction system (Landfill Gas Collection System). Under the Limited Access Easement Agreement with the Partnership, methane monitoring is handled directly by the City. The City’s installation of the cover improvement system was completed in the first quarter of 2007 along with the gas extraction system. The system is now operational and working properly to eliminate methane from the

RANCON REALTY FUND IV,

A California Limited Partnership

Notes to Consolidated Financial Statements

(Unaudited)

landfill. All controlled wells are in compliance with County standards. Presently, the Partnership does not have any plans to develop or sell this site. No assurance can be made that circumstances will not arise which could impact the Partnership’s responsibility related to the land.

General Uninsured Losses

The Partnership carries property and liability insurance with respect to the properties. This coverage has policy specification and insured limits customarily carried for similar properties. However, certain types of losses (such as from earthquakes and floods) may be either uninsurable or not economically insurable. Should the properties sustain damage as a result of an earthquake or flood, the Partnership may incur losses due to insurance deductibles, co-payments on insured losses or uninsured losses. Additionally, the Partnership has elected to obtain insurance coverage for “certified acts of terrorism” as defined in the Terrorism Risk Insurance Act of 2002, as amended and reauthorized to date; however, our policies of insurance may not provide coverage for other acts of terrorism. Any losses from such other acts of terrorism might be uninsured. Should an uninsured loss occur, the Partnership could lose some or all of its capital investment, cash flow and anticipated profits related to the properties.

Other Matters

The Partnership is contingently liable for subordinated real estate commissions payable to the General Partner in the aggregate amount of $643,000 at March 31, 2011, for sales that were completed in previous years. The subordinated real estate commissions are payable only after the Limited Partners have received distributions equal to their original invested capital plus a cumulative non-compounded return of 12% per annum on their adjusted invested capital. Since the circumstances under which these commissions would be payable are not met currently, the liability has not been recognized in the accompanying consolidated financial statements; however, the amount will be recorded when and if it becomes payable.

NOTE 7.

SUBSEQUENT EVENTS

On April 14, 2011, the Partnership modified the line of credit agreement to extend the maturity date to December 19, 2013 with two one year extension options. Under the terms of the modification, the total availability was increased to $15,000,000, the interest rate increased to 30-day LIBOR plus 3.00% and two additional properties were added as collateral such that the line is now collateralized by Carnegie Business Center, Vanderbilt Plaza, North River Place and Northcourt Plaza. The line of credit contains a minimum net worth covenant and a debt to total assets covenant. In order to extend the maturity date of the line of credit in the future, the Partnership must meet several conditions precedent, including a specified loan to value ratio.

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion should be read in conjunction with our December 31, 2010 audited consolidated financial statements and the notes thereto included in our latest Annual Report on Form 10-K.

Background

During 1984 and 1985, our initial acquisition of property consisted of approximately 76.56 acres of partially developed and unimproved land located in San Bernardino, California. The property is part of a master-planned development of 153 acres known as Tri-City Corporate Centre (“Tri-City”) and is zoned for mixed commercial, office, hotel, transportation-related, and light industrial uses and all of the parcels thereof are separately owned by us and Rancon Realty Fund V (“Fund V”), a partnership sponsored by the General Partner.

Overview

Tri-City Properties

As of March 31, 2011, our rental properties consist of five office and seven retail properties, aggregating approximately 555,000 rentable square feet, of which 400,000 square feet are office space, and 155,000 square feet are retail space.


Property	Type	Square Footage
One Vanderbilt	Four-story office building		73,730
Carnegie Business Center I	Two office buildings		62,538
Service Retail Center	Two retail buildings		20,780
Promotional Retail Center	Four retail buildings		66,244
Northcourt Plaza	Two-story office building		77,589
TGI Friday’s	Restaurant		9,956
Promotional Retail Center II	Retail building		39,123
Mimi’s Café	Restaurant		6,455
Palm Court Retail I	Retail building		5,053
Palm Court Retail II	Retail building		7,433
Vanderbilt Plaza	Four-story office building		114,707
North River Place	Three-story office building		71,157

			554,765

As of March 31, 2011, the weighted average occupancy of the twelve properties was 67%.

Promotional Retail Center II (formerly known as Circuit City) is currently unoccupied. The former tenant, Circuit City, which occupied 100% of the Partnership’s 39,123 square foot Promotional Retail Center II, filed for bankruptcy in November 2008 and vacated the building in March 2009. Northcourt Plaza, which was unoccupied as a result of Inland Regional Center vacating the building at the end of its lease in September 2009, is now 49% occupied due to two new leases signed with a tenant during the first quarter of 2010. North River Place, which was placed into service in January 2009, is 44% occupied as of March 31, 2011. Management is actively marketing the vacant space in all of the buildings for lease.

Land

As of March 31, 2011, we owned approximately 14.7 acres of unimproved land.

Results of Operations

Comparison of the three months ended March 31, 2011 to the three months ended March 31, 2010.

Revenue

Rental revenue and other decreased $16,000, or 1%, for the three months ended March 31, 2011 compared to the three months ended March 31, 2010, due to a slight decrease in the overall average occupancy, with the largest changes at Vanderbilt Plaza and One Vanderbilt. Revenues from Vanderbilt Plaza declined by $101,000 due to a decline in occupancy from 90% to 72%, while revenues from Northcourt Plaza increased by $91,000 due to an increase in occupancy from 31% to 49%.

Tenant reimbursements decreased $22,000, or 9%, for the three months ended March 31, 2011 compared to the three months ended March 31, 2010. This decrease is primarily due to lower reimbursements for taxes at Promotional Retail and TGI Fridays, which were partially offset by higher reimbursements related to HVAC at One Vanderbilt, compared to the three months ended March 31, 2010.

Expenses

Property operating expenses decreased $45,000, or 4%, for the three months ended March 31, 2011, compared to the three months ended March 31, 2010. This decrease was due to decreases in repairs and maintenance and insurance expense, which contributed $40,000 and $22,000 to the variance, respectively. Repairs and maintenance expense decreased due to lower maintenance association dues, while the decrease in insurance was due to lower earthquake insurance premiums.

Depreciation and amortization increased $35,000, or 4%, for the three months ended March 31, 2011, compared to the three months ended March 31, 2010. The increase was primarily due to the depreciation associated with assets placed into service during 2010, most notably at Northcourt Plaza and One Vanderbilt.

General and administrative expenses decreased by $12,000, or 5%, for the three months ended March 31, 2011, compared to the three months ended March 31, 2010. The decrease is due to a decrease in investor relations expenses of $15,000.

Liquidity and Capital Resources

As of March 31, 2011, we have cash and cash equivalents of $2,189,000.

As of March 31, 2011, our primary liability is a note payable of approximately $22,166,000, collateralized by properties with an aggregate net carrying value of approximately $14,160,000. The note has a 10-year term requiring monthly principal and interest payments based on a 30-year amortization of approximately $136,000, bears a fixed interest rate of 5.46%, and has a maturity date of January 1, 2016. The note is collateralized by Promotional Retail Center II (formerly known as Circuit City), Mimi’s Cafe, Palm Court Retail I and II, Promotional Retail Center, Service Retail Center, TGI Friday’s and One Vanderbilt. This note also provides for a one-time loan assumption and release provisions for individual assets.

We have a line of credit, which as of March 31, 2011 was collateralized by Carnegie Business Center and Vanderbilt Plaza and had a total availability of $10,000,000. The line of credit required monthly interest-only payments and bore variable interest at the 30-day LIBOR plus 2.75% (2.99% at March 31, 2011). As of March 31, 2011, $7,579,000 was outstanding under the line of credit. Prior to the line of credit maturity on December 19, 2010 we were granted an extension of the maturity date until April 19, 2011 in order to finalize a loan extension and modification. Subsequent to the end of the reporting period, on April 14, 2011, the Partnership modified the line of credit agreement to extend the maturity date to December 19, 2013 with two one year extension options. Under the terms of the modification, the total availability was increased to $15,000,000, the interest rate increased to 30-day LIBOR plus 3.00% and two additional properties were added as collateral such that the line is now collateralized by Carnegie Business Center, Vanderbilt Plaza, North River Place and Northcourt Plaza. The line of credit contains a minimum net worth covenant and a debt to total assets covenant. In order to extend the maturity date of the line of credit in the future, we must meet several conditions precedent, including a specified loan to value ratio.

We are contingently liable for subordinated real estate commissions payable to the General Partner in the aggregate amount of $643,000 at March 31, 2011, for sales that transpired in previous years. The subordinated real estate commissions are payable only after the limited partners have received distributions equal to their original invested capital plus a cumulative non-compounded return of 12% per annum on their adjusted invested capital. Since the conditions under which these commissions would be payable are not currently met, the liability has not been recognized in the accompanying consolidated financial statements; however, the amount will be recorded when and if it becomes payable.

Cash Flows

For the three months ended March 31, 2011, cash provided by operating activities was $274,000, as compared to cash used in operating activities of $50,000 for the same period in 2010. The change was due to changes in cash flows related to certain assets and liabilities, primarily accounts receivable. For the three months ended March 31, 2011, cash used in investing activities was $5,000, as compared to cash used in investing activities of $273,000 for the same period in 2010. The change was due to lower capital expenditures in the first quarter of 2011 compared to the first quarter of 2010. For the three months ended March 31, 2011, cash used in financing activities was $105,000, as compared to cash used in financing activities of $99,000 for the same period in 2010, representing principal payments on the note payable.

Our expectation is that cash and cash equivalents as of March 31, 2011, together with cash from operations, sales and financing, and the line of credit, will be adequate to meet our operating requirements on a short-term basis and for the reasonably foreseeable future. There can be no assurance that our results of operations will not fluctuate in the future and at times affect our ability to meet operating requirements.

Operationally, our primary source of funds consists of cash provided by rental activities. Other sources of funds may include permanent financing, draws on the line of credit and property sales. Cash generated from property sales is generally added to our cash reserves, pending use in leasing costs at the properties or distribution to the partners.

Contractual Obligations

As of March 31, 2011, our contractual obligations consist of the following (in thousands):


	Less than 1 year		1 to 3 years		3 to 5 years		Total
Collateralized mortgage loans	$	324	$	932	$	20,910	$	22,166
Interest on indebtedness		902		2,337		2,230		5,469
Line of credit		7,579		—		—		7,579

Total	$	8,805	$	3,269	$	23,140	$	35,214

We are unaware of any demands, commitments, events or uncertainties, which might affect capital resources in any material respect. In addition, we are not subject to any covenants pursuant to our collateralized debt that would constrain our ability to obtain additional capital.

Critical Accounting Policies

In the preparation of financial statements, we utilize certain critical accounting policies. There has been no change to our significant accounting policies included in the notes to our audited financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2010.

Inflation

Leases at the office properties typically provide for rent adjustment and pass-through of certain operating expenses during the term of the lease. Substantially all of the leases at the office and retail properties provide for pass-through to tenants of certain operating costs, including real estate taxes, common area maintenance expenses, and insurance. We anticipate that these provisions may permit us to increase rental rates or other charges to tenants in response to rising prices and, therefore, serve to reduce our exposure to the adverse effects of inflation.

Forward Looking Statements; Factors That May Affect Operating Results

This Report on Form 10-Q contains forward looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, including statements regarding our expectations, hopes, intentions, beliefs and strategies regarding the future. These forward looking statements include statements relating to:

•

Our belief that cash and cash generated by operations, sales and financing will be sufficient to meet our operating requirements in both the short and the long-term;

•

Our expectation that changes in market interest rates will not have a material impact on the performance or the fair value of our portfolio;

•

Our belief that certain claims and lawsuits which have arisen against us in the normal course of business will not have a material adverse effect on our financial position, cash flow or results of operations;

•

Our belief that properties are competitive within our market;

•

Our expectation to achieve certain occupancy levels;

•

Our estimation of market strength;

•

Our knowledge of any material environmental matters or issues relating to the landfill property; and

•

Our expectation that lease provisions may permit us to increase rental rates or other charges to tenants in response to rising prices, and therefore serve to reduce exposure to the adverse effects of inflation.

All forward-looking statements included in this document are based on information available to us on the date hereof. Because these forward looking statements involve risk and uncertainty, there are important factors that could cause our actual results to differ materially from those stated or implied in the forward-looking statements. Those important factors include:

•

market fluctuations in rental rates and occupancy;

•

reduced demand for rental space;

•

availability and creditworthiness of prospective tenants;

•

defaults or non-renewal of leases by customers;

•

differing interpretations of lease provisions regarding recovery of expenses;

•

increased operating costs;

•

changes in interest rates and availability of financing that may render the sale or financing of a property difficult or unattractive;

•

our failure to obtain necessary outside financing;

•

risks and uncertainties affecting property development and construction (including construction delays, cost overruns, our inability to obtain necessary permits and public opposition to these activities);

•

the unpredictability of both the frequency and final outcome of litigation; and

•

the inability to develop all or any portion of the former landfill site, due to environmental, legal or economic impediments.

The forward-looking statements in this Quarterly Report on Form 10-Q are subject to additional risks and uncertainties further discussed under “Item 1A. Risk Factors” of our Annual Report on Form 10-K for the year ended December 31, 2010. We assume no obligation to update or supplement any forward looking-statement.

Risks of Litigation

Certain claims and lawsuits have arisen against us in our normal course of business. We believe that such claims and lawsuits will not have a material adverse effect on our financial position, cash flow or results of operations.

Item 3.

Qualitative and Quantitative Disclosures About Market Risk

Interest Rates

We are exposed to changes in interest rates obtainable on our borrowings. Our expectation is that changes in market interest rates will not have a material impact on the performance or fair value of our portfolio.

For debt obligations, the table below presents principal cash flows by expected maturity dates of a note payable with a fixed interest rate of 5.46% and the line of credit with a maturity date of April 19, 2011 and variable interest rate of 2.99% as of March 31, 2011. Subsequent to the end of the reporting period, on April 14, 2011, the Partnership modified the line of credit agreement to extend the maturity date to December 19, 2013 with two one year extension options. Under the terms of the modification, the total availability was increased to $15,000,000, the interest rate increased to 30-day LIBOR plus 3.00% and two additional properties were added as collateral such that the line is now collateralized by Carnegie Business Center, Vanderbilt Plaza, North River Place and Northcourt Plaza. The line of credit contains a minimum net worth covenant and a debt to total assets covenant. In order to extend the maturity date of the line of credit in the future, the Partnership must meet several conditions precedent, including a specified loan to value ratio.


	Expected Maturity Date
	2011		2012		2013		2014		2015		Total
	(in thousands)
Collateralized fixed rate debt	$	324	$	453	$	479	$	506	$	20,404	$	22,166
Line of credit	$	7,579	$	—	$	—	$	—	$	—	$	7,579

As of March 31, 2011, we had cash and cash equivalents of $2,189,000.

Item 4.

Controls and Procedures

The principal executive officer and principal financial officer of the General Partner have evaluated the disclosure controls and procedures of the Partnership as of the end of the period covered by this quarterly report. As used herein, the term “disclosure controls and procedures” has the meaning given to the term by Rule 13a-15 under the Securities Exchange Act of 1934, as amended (“Exchange Act”), and includes the controls and other procedures of the Partnership that are designed to ensure that information required to be disclosed by the Partnership in the reports that it files with the SEC under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Based upon his evaluation, the principal executive officer and principal financial officer of the General Partner has concluded that the Partnership’s disclosure controls and procedures were effective such that the information required to be disclosed by the Partnership in this quarterly report is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms applicable to the preparation of this report and is accumulated and communicated to the General Partner’s management, including the General Partner’s principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosures.

There have not been any changes in the Partnership’s internal control over financial reporting that occurred during the Partnership’s fiscal quarter ended March 31, 2011 that have materially affected, or are reasonably likely to materially affect, the Partnership’s internal control over financial reporting.

PART II. OTHER INFORMATION

Item 1.

Legal Proceedings

Certain claims and lawsuits have arisen against the Partnership in its normal course of business. The Partnership believes that such claims and lawsuits will not have a material adverse effect on the Partnership’s financial position, cash flow or results of operations.

Item 1A.

Risk Factors

There are no material changes to any of the risk factors as previously disclosed in Item 1A. to Part I of the Partnership’s Annual Report on Form 10-K for the fiscal year ended December 31, 2010.

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

None.

Item 3.

Defaults Upon Senior Securities

None.

Item 4.

[Removed and Reserved]

None.

Item 5.

Other Information

None.

Item 6.

Exhibits


		31		Certification of Daniel L. Stephenson, Chief Executive Officer and Chief Financial Officer of the General Partner Pursuant to Rule 13a-14(a) of the Exchange Act.

		32		Certification of Daniel L. Stephenson, Chief Executive Officer and Chief Financial Officer of the General Partner Pursuant to Rule 13a-14(b) of the Exchange Act and 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. This certification, required by Section 906 of the Sarbanes-Oxley Act of 2002, other than as required by Section 906, is not to be deemed “filed” with the Commission or subject to the rules and regulations promulgated by the Commission under the Securities Exchange Act of 1934, as amended, or to the liabilities of Section 18 of said Act.

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 REALTY FUND IV,
	a California limited partnership

	By:	Rancon Financial Corporation a California corporation, its General Partner

Date: May 13, 2011	By:	/s/ Daniel L. Stephenson
		Daniel L. Stephenson, President

Date: May 13, 2011	By:	/s/ Daniel L. Stephenson
		Daniel L. Stephenson, General Partner

EXHIBIT INDEX

RANCON REALTY FUND IV,

A CALIFORNIA LIMITED PARTNERSHIP


Exhibit 31		Certification of Chief Executive Officer and Chief Financial Officer of the General Partner Pursuant to Rule 13a-14(a) of the Exchange Act.

Exhibit 32		Certification of Daniel L. Stephenson, Chief Executive Officer and Chief Financial Officer of the General Partner Pursuant to 18 U.S.C Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. This certification, required by Section 906 of the Sarbanes-Oxley Act of 2002, other than as required by Section 906, is not to be deemed “filed” with the Commission or subject to the rules and regulations promulgated by the Commission under the Securities Exchange Act of 1934, as amended, or to the liabilities of Section 18 of said Act.

Large Accelerated Filer

Accelerated Filer

Non-accelerated filer

Smaller reporting company