RANCON REALTY FUND IV - FORM 10-Q

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EXCEL - IDEA: XBRL DOCUMENT - RANCON REALTY FUND IV	Financial_Report.xls
EX-32 - CERTIFICATION OF CEO AND CFO PURSUANT TO RULE 13A-14(B) - RANCON REALTY FUND IV	d413913dex32.htm
EX-31 - CERTIFICATION OF CEO AND CFO PURSUANT TO RULE 13A-14(A) - RANCON REALTY FUND IV	d413913dex31.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

For the quarterly period ended September 30, 2012

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 x 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 September 30, 2012 and December 31, 2011		3

	Consolidated Statements of Operations for the three and nine months ended September 30, 2012 and 2011		4

	Consolidated Statement of Partners’ Equity for the nine months ended September 30, 2012		5

	Consolidated Statements of Cash Flows for the nine months ended September 30, 2012 and 2011		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.	Mine Safety Disclosures		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)


	September 30,			December 31,
	2012			2011
Assets
Investments in real estate:
Rental properties	$	64,086		$	65,714
Accumulated depreciation		(22,965	)		(22,757	)

Rental properties, net		41,121			42,957

Cash and cash equivalents		2,800			2,624
Accounts receivable, net		250			130
Deferred costs, net of accumulated amortization of $1,751 and $1,918 as of September 30, 2012 and December 31, 2011, respectively		2,183			2,075
Prepaid expenses and other assets		2,361			1,784

Total assets	$	48,715		$	49,570

Liabilities and Partners’ Equity (Deficit)
Liabilities:
Note payable and line of credit	$	29,253		$	29,591
Accounts payable and other liabilities		677			418
Tenant and building improvements payable		—			213
Prepaid rent		227			234

Total liabilities		30,157			30,456

Commitments and contingent liabilities (Note 6)

Partners’ Equity (Deficit):
General Partner		(862	)		(864	)
Limited partners, 65,819 limited partnership units outstanding as of September 30, 2012 and December 31, 2011		19,420			19,978

Total partners’ equity		18,558			19,114

Total liabilities and partners’ equity	$	48,715		$	49,570

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 September 30,						Nine Months Ended September 30,
	2012			2011			2012			2011
Operating revenue
Rental revenue and other	$	1,988		$	2,035		$	6,053		$	5,989
Tenant reimbursements		341			297			828			799

Total operating revenue		2,329			2,332			6,881			6,788

Operating expenses
Property operating expenses		1,225			1,206			3,130			3,150
Depreciation and amortization		847			902			2,657			2,671
General and administrative		196			216			648			674

Total operating expenses		2,268			2,324			6,435			6,495

Operating income		61			8			446			293
Interest and other income		12			—			12			1
Interest expense (including amortization of loan fees)		(404	)		(415	)		(1,216	)		(1,188	)

Loss before gain on sale of property		(331	)		(407	)		(758	)		(894	)

Gain on sale of property		202			—			202			—

Net Loss	$	(129	)	$	(407	)	$	(556	)	$	(894	)

Basic and diluted net loss per limited partnership unit	$	(2.07	)	$	(6.12	)	$	(8.48	)	$	(13.45	)

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 nine months ended September 30, 2012

(in thousands)

(Unaudited)


	General Partner			Limited Partners			Total
Balance (deficit) at December 31, 2011	$	(864	)	$	19,978		$	19,114
Net income (loss)		2			(558	)		(556	)

Balance (deficit) at September 30, 2012	$	(862	)	$	19,420		$	18,558

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)


	Nine Months Ended September 30,
	2012			2011
Cash flows from operating activities:
Net loss	$	(556	)	$	(894	)
Adjustments to reconcile net loss to net cash provided by operating activities:
Gain on sale of property		(202	)		—
Depreciation and amortization		2,657			2,671
Amortization of loan fees, included in interest expense		123			86
Changes in certain assets and liabilities:
Accounts receivable		(120	)		8
Deferred costs		(591	)		(342	)
Prepaid expenses and other assets		(577	)		(333	)
Accounts payable and other liabilities		259			199
Prepaid rent		(7	)		(86	)

Net cash provided by operating activities		986			1,309

Cash flows from investing activities:
Additions to real estate investments		(714	)		(617	)
Proceeds from sale of land		242			—

Net cash used in investing activities		(472	)		(617	)

Cash flows from financing activities:
Note payable principal payments		(338	)		(320	)
Draws on line of credit		—			170
Payment of deferred loan fees		—			(342	)

Net cash used in financing activities		(338	)		(492	)

Net increase in cash and cash equivalents		176			200
Cash and cash equivalents at beginning of period		2,624			2,025

Cash and cash equivalents at end of period	$	2,800		$	2,225

Supplemental disclosure of cash flow information:
Cash paid for interest	$	1,098		$	1,097

Supplemental disclosure of non-cash operating activities:
Write-off of fully depreciated rental property assets	$	2,089		$	826

Write-off of fully amortized deferred costs	$	649		$	295

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 September 30, 2012, 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% to the limited partners and 10% to the General Partner.

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% to the General Partner and 99% 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% to the General Partner and 99% 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% annual cumulative non-compounded return on the Adjusted Invested Capital (as defined in the Partnership Agreement) of their Units

RANCON REALTY FUND IV,

A California Limited Partnership

Notes to Consolidated Financial Statements

(Unaudited)

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%, 6%, or 3% depending on purchase date, through October 31, 1985); (iii) third, 99% to the General Partner and 1% to the limited partners, until the General Partner has received an amount equal to 20% of all distributions of cash from sales or refinancing; and (iv) the balance, 80% to the limited partners, pro rata in proportion to the number of Units held by each, and 20% 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 September 30, 2012 and December 31, 2011, and the consolidated results of operations of the Partnership and its subsidiaries for the three and nine months ended September 30, 2012 and 2011, the consolidated statement of partners’ equity for the nine months ended September 30, 2012, and cash flows of the Partnership for the nine months ended September 30, 2012 and 2011. All significant intercompany transactions, receivables and payables have been eliminated in consolidation.

The accompanying interim financial statements are unaudited; however, the financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and in conjunction with the rules and regulations of the Securities and Exchange Commission. Accordingly, they do not include all of the disclosures required by accounting principles generally accepted in the United States of America for complete financial statements.

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 September 30, 2012 and December 31, 2011, and the related consolidated statements of operations for the three and nine months ended September 30, 2012 and 2011, the consolidated statement of partners’ equity for the nine months ended September 30, 2012 and the consolidated statement of cash flows for the nine months ended September 30, 2012 and 2011.

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 to the extent the carrying value is greater than the undiscounted future cash flows excluding interest. 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

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.

RANCON REALTY FUND IV,

A California Limited Partnership

Notes to Consolidated Financial Statements

(Unaudited)

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										For the nine months ended
	September 30, 2012					September 30, 2011					September 30, 2012					September 30, 2011
	General Partner		Limited Partners			General Partner		Limited Partners			General Partner		Limited Partners			General Partner		Limited Partners
Loss allocation:	General Partner		Limited Partners			General Partner		Limited Partners			General Partner		Limited Partners			General Partner		Limited Partners
Net income (loss)	$	7	$	(136	)	$	(4)	$	(403	)	$	2	$	(558	)	$	(9)	$	(885	)
Weighted average number of limited partnership units outstanding during each period				65,819					65,819					65,819					65,819
Basic and diluted loss per limited partnership unit			$	(2.07	)			$	(6.12	)			$	(8.48	)			$	(13.45	)

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.

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.

Concentration Risk

Two tenants (both educational institutions) represented a combined 23% and 32% of rental revenue for the nine months ended September 30, 2012 and 2011 respectively.

Reference to 2011 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, 2011 annual report on Form 10-K.

NOTE 3.

INVESTMENTS IN REAL ESTATE

Rental properties consist of the following (in thousands):


	September 30, 2012			December 31, 2011
Land	$	4,650		$	4,690
Buildings		49,704			49,704
Building and tenant improvements		9,732			11,320

		64,086			65,714
Less: accumulated depreciation		(22,965	)		(22,757	)

Total rental properties, net	$	41,121		$	42,957

As of September 30, 2012, the Partnership’s rental properties included five office properties and seven retail properties (see detailed listing of properties in Item 2. Properties).

RANCON REALTY FUND IV,

A California Limited Partnership

Notes to Consolidated Financial Statements

(Unaudited)

$202,000 was allocated to the affected properties on a prorata basis. In conjunction with the purchase of the land, SANBAG also received a temporary easement for approximately 13,000 square feet of land for six months starting in August 2012 to be used for construction staging with consideration of $2,000 per month.

NOTE 4.

NOTE PAYABLE AND LINE OF CREDIT

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


	September 30,		December 31,
	2012		2011
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.	$	21,504	$	21,842
Line of credit		7,749		7,749

Total note payable and line of credit	$	29,253	$	29,591

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 note payable contains a debt service coverage ratio covenant.

The line of credit is collateralized by Carnegie Business Center, Vanderbilt Plaza, North River Place and Northcourt Plaza and has a total availability of $15,000,000 and an interest rate of 30-day LIBOR plus 3.00%, 3.25% at September 30, 2012. The line of credit contains a minimum net worth covenant and a debt to total assets covenant. The line of credit has a maturity date of December 19, 2013 with two one-year extension options. 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 Partnership is in compliance with the debt covenants.

The required principal payments on the Partnership’s note payable for the next five years and thereafter, as of September 30, 2012, are as follows (in thousands).


2012	$	77
2013		477
2014		503
2015		532
2016		19,915

Total	$	21,504

RANCON REALTY FUND IV,

A California Limited Partnership

Notes to Consolidated Financial Statements

(Unaudited)

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. The terms and conditions of the Agreement are to perform services for the following fees:


	Nine Months Ended
	September 30, 2012		September 30, 2011
(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	$	159,000	$	169,000
(ii) construction services fees which were capitalized and included in rental properties on the accompanying consolidated balance sheets		29,000		14,000
(iii) an asset and Partnership management fee which was included in general and administrative expenses in the accompanying consolidated statements of operations		187,000		187,000
(iv) leasing services fees which were included in deferred costs on the accompanying consolidated balance sheets		195,000		131,000
(v) a sales fee of 1% for all properties, which were included in net gain on sale of property		3,000		—
(vi) a financing services fee of 1% of the gross loan amount which is included in deferred costs on the accompanying consolidated balance sheets		—		150,000
(viii) a development fee equal to 5% of the hard costs of the development project, excluding the cost of the land, which would be included in construction in progress and/or rental properties on the accompanying consolidated balance sheets, 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		73,000		70,000
(ix) engineering fees which were included in property operating expenses in the accompanying consolidated statements of operations		21,000		21,000

On October 1, 2010, Glenborough Holdings, LLC (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 September 30, 2012, 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

RANCON REALTY FUND IV,

A California Limited Partnership

Notes to Consolidated Financial Statements

(Unaudited)

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 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 September 30, 2012, 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 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.

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, 2011 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 September 30, 2012, 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		73,729
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

			554,764

As of September 30, 2012, the weighted average occupancy of the twelve properties was 71%.

Land

As of September 30, 2012, we owned approximately 14.7 acres of unimproved land.

Results of Operations

Comparison of the three and nine months ended September 30, 2012 to the three and nine months ended September 30, 2011.

Revenue

Rental revenue and other decreased $47,000, or 2%, and increased $64,000, or 1%, for the three and nine months ended September 30, 2012 compared to the three and nine months ended September 30, 2011, respectively. The decrease in rental revenue for the three months ended September 30, 2012 compared to the three months ended September 30, 2011 is related to slightly reduced renewal rental rates. The slight increase in rental revenue for the nine months ended September 30, 2012 compared to the nine months ended September 30, 2011 is related to increased occupancy. Occupancy increased from 69% for the first nine months of 2011 to 71% for the first nine months of 2012.

Tenant reimbursements increased $44,000, or 15%, and $29,000, or 4%, for the three and nine months ended September 30, 2012 compared to the three and nine months ended September 30, 2011, respectively. These increases are due primarily to increased after-hours HVAC requests from tenants.

In September 2012, the Partnership sold, in an all cash transaction, approximately 11,000 square feet of land adjacent to Hospitality Lane to the San Bernardino County Transportation Commission (SANBAG) for construction of an express bus service (SBX). The bus service will run along Hospitality Lane thru the Tri-city project. Total consideration for the land was $246,000. Costs related to the sale included $4,000 in sale fees. A gain on the sale of property of $202,000 was allocated to the affected properties on a prorata basis. In conjunction with the purchase of the land, SANBAG also received a temporary easement for approximately 13,000 square feet of land for six months for $2,000 per month starting in August 2012 to be used for construction staging.

Other income was $12,000 in the three and nine months ended September 30, 2012 compared to no other income for the same periods ended September, 30 2011. This other income was comprised of $12,000 cost reimbursements to offset some of the fund’s expenses associated with the SBX transaction.

Expenses

Property operating expenses increased $19,000, or 2%, for the three months ended September 30, 2012 and decreased $20,000 or 1% for the nine months ended September 30, 2012, compared to the three and nine months ended September 30, 2011, respectively. The relatively small current quarter increase was primarily the result of increased earthquake insurance premiums and utility expense. The year-to-date decrease was primarily the result of prior year tax refunds which were received in the second quarter of 2012.

Depreciation and amortization decreased $55,000, or 6%, and $14,000, or 1% for the three and nine months ended September 30, 2012, compared to the three and nine months ended September 30, 2011, respectively. These relatively small decreases were primarily due to the disposal of fully depreciated assets.

General and administrative expenses decreased $20,000, or 9%, and $26,000 or 4% for the three and nine months ended September 30, 2012, compared to the three and nine months ended September 30, 2011, respectively. The decrease is primarily due to lower legal expenses associated with the SBX bus project.

Interest expense decreased $11,000 or 3%, and increased $28,000 or 2% for the three and nine months ended September 30, 2012, compared to the three and nine months ended September 30, 2011, respectively. The decrease in interest expense for the three months ended September 30, 2012 compared to the three months ended September 30, 2011 was due to a lower principle balance on the note payable. The increase in interest expense was due to a higher balance on the line of credit as the average balance outstanding on the line of credit for the nine months ended September 30, 2012 was $7,749,000, compared to $7,673,000 for the nine months ended September 30, 2011.

Liquidity and Capital Resources

As of September 30, 2012, we have cash and cash equivalents of $2,800,000.

As of September 30, 2012, our primary liability is a note payable of approximately $21,504,000, collateralized by properties with an aggregate net carrying value of approximately $13,461,000. 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, 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 September 30, 2012 is collateralized by Carnegie Business Center, Vanderbilt Plaza, North River Place and Northcourt Plaza and had a total availability of $15,000,000. The line of credit requires monthly interest only payments and bears variable interest at the 30-day LIBOR plus 3.00% (3.25% at September 30, 2012). As of September 30, 2012, $7,749,000 was outstanding under the line of credit. 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 September 30, 2012, 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 nine months ended September 30, 2012, cash provided by operating activities was $986,000, as compared to cash provided by operating activities of $1,309,000 for the same period in 2011. This change was due to changes in cash flows related to certain assets and liabilities, primarily deferred costs, and prepaid expenses, and was partially offset by changes in accounts payable and prepaid rents. For the nine months ended September 30, 2012, cash used in investing activities was $472,000, as compared to cash used in investing activities of $617,000 for the same period in 2011. The change was due to proceeds from the sale of land to SANBAG for the SBX bus line. For the nine months ended September 30, 2012, cash used in financing activities was $338,000, as compared to cash used in financing activities of $492,000 for the same period in 2011 due to the payment of loan fees, net of a draw on the line of credit in 2011.

Our expectation is that cash and cash equivalents as of September 30, 2012, 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. In September 2012, the Partnership sold approximately 11,000 square feet of land adjacent to Hospitality Lane to the San Bernardino County Transportation Commission (SANBAG) for construction of an express bus service (SBX). The bus service will run along Hospitality Lane thru the Tri-city project. Net cash provided to the Partnership from this transaction was $242,000, including a gain on the sale of the land of $202,000. 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 September 30, 2012, 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	$	472	$	1,026	$	20,006	$	21,504
Interest on indebtedness		1,162		2,244		273		3,679
Line of credit		—		7,749		—		7,749

Total	$	1,634	$	11,019	$	20,279	$	32,932

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, 2011.

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, 2011. 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 December 19, 2013 and variable interest rate of 3.25% as of September 30, 2012.


	Expected Maturity Date
	2012		2013		2014		2015		2016		Total
	(in thousands)
Collateralized fixed rate debt	$	77	$	477	$	503	$	532	$	19,915	$	21,504
Line of credit	$	—	$	7,749	$	—	$	—	$	—	$	7,749

As of September 30, 2012, we had cash and cash equivalents of $2,800,000.

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 September 30, 2012 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, 2011.

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

None.

Item 3.

Defaults Upon Senior Securities

None.

Item 4.

Mine Safety Disclosures

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.

101.INS		XBRL Instance Document.

101.SCH		XBRL Taxonomy Extension Schema Document.

101.CAL		XBRL Taxonomy Extension Calculation Linkbase Document.

101.DEF		XBRL Taxonomy Extension Definition Linkbase Document.

101.LAB		XBRL Taxonomy Extension Labels Linkbase Document.

101.PRE		XBRL Taxonomy Extension Presentation Linkbase Document.

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: November 14, 2012	By:	/s/ Daniel L. Stephenson
		Daniel L. Stephenson, President

Date: November 14, 2012	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.

101.INS		XBRL Instance Document.

101.SCH		XBRL Taxonomy Extension Schema Document.

101.CAL		XBRL Taxonomy Extension Calculation Linkbase Document.

101.DEF		XBRL Taxonomy Extension Definition Linkbase Document.

101.LAB		XBRL Taxonomy Extension Labels Linkbase Document.

101.PRE		XBRL Taxonomy Extension Presentation Linkbase Document.

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