SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Form 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1996 Commission file number : 0-11068
SIERRA PACIFIC DEVELOPMENT FUND
(A CALIFORNIA LIMITED PARTNERSHIP)
State of California 95-3643693
- ------------------------------------- ---------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification Number)
incorporation or organization)
5850 San Felipe, Suite 500
Houston, Texas 77057
- ----------------------------------------- -----------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number,
including area code: (713) 706-6271
----------------------------------
5850 San Felipe, Suite 120
Houston, Texas 77057
- --------------------------------------------------------------------------------
(Former name or former address, if changed since last report)
Securities registered pursuant to Section 12 (b) of the Act:
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED
- ------------------------- ------------------------------------------
None None
Securities registered pursuant to Section 12 (g) of the Act:
30,000 LIMITED PARTNERSHIP UNITS
Title of class
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[ ].
DOCUMENTS INCORPORATED BY REFERENCE
Annual Report to Limited Partners for the Year Ended December 31,
1996 is incorporated by reference into Parts II and III
1
<PAGE>
PART I
ITEM 1. BUSINESS
(a.) GENERAL DEVELOPMENT OF BUSINESS. Sierra Pacific Development Fund (the
"Partnership") is a California limited partnership that was formed in February
1981 for the purpose of acquiring, developing, and operating commercial real
estate.
The Partnership's first real estate investment was for the acquisition of land
and development of a 41,000 square foot office project in San Bernardino,
California known as Sierra Commercenter. On December 31, 1993, the Partnership
sold Sierra Commercenter for $3,722,362 and recorded a gain on the sale of
$766,068.
In 1983, the Partnership acquired land in San Ramon, California as the first
step in development of the Sierra Creekside office project (the "Property"), a
47,800 square foot building that was completed in October 1984.
In February 1994, the Partnership created a California general partnership
(Sierra Creekside Partners) with Sierra Mira Mesa Partners ("SMMP") to
facilitate cash contributions by SMMP for the continued development and
operation of the Sierra Creekside property. The Partnership contributed the
Property (at an agreed value of $2,825,000) and SMMP contributed cash ($656,958,
net, through December 31, 1995) in exchange for an 18.87% interest in Sierra
Creekside Partners. SMMP made additional contributions of $31,400, and received
distributions of $541,000 from Sierra Creekside Partners during 1996. The
percentage interests of the Partnership and Sierra Mira Mesa Partners are to be
adjusted every January 1st during the term of Sierra Creekside Partners,
beginning January 1, 1995. Accordingly, as of January 1, 1997, the Partnership's
interest in Sierra Creekside Partners will be increased to 95.04%, and SMMP's
interest will be reduced to 4.96%.
In June, 1995 Sierra Creekside Partners placed a loan on the Property in the
amount of $1,850,000 in order to establish operating reserves, fund tenant
improvements and leasing commissions, and make structural changes to the
Property mandated by the Americans with Disabilities Act ("ADA").
(b.) NARRATIVE DESCRIPTION OF BUSINESS. The Partnership owns and operates Sierra
Creekside, an office building in San Ramon, California. Success of the office
building is dependent upon the timely payment of rent by five tenants who
account for approximately 66% of the rental income of the Partnership for the
year ended December 31, 1996.
There is significant competition in the office building rental market in the
Partnership's trade area. A 1994 appraisal identified six buildings in the
immediate area that offered space and amenities comparable to Sierra Creekside.
In order to obtain building permits to complete newly leased tenant space, the
Partnership has been required to make capital improvements to the Property to
bring it into compliance with certain provisions of the ADA. The estimated cost
of the remaining work needed to comply with this Act is $35,000 which will be
capitalized and depreciated over the estimated useful life of the improvements.
The Property must be in full compliance by May 1997.
(c.) COMPARISON OF CURRENT ACTIVITIES TO THOSE PROPOSED AT THE INITIATION OF THE
PARTNERSHIP. In the Partnership's prospectus dated June 25, 1982, the investment
objectives were described as follows:
"The Partnership was formed to invest in properties which will: (i.) have the
potential for long-term capital gains through appreciation in value; (ii.) to
the extent consistent with (i.) above, preserve, protect and return the
Partnership's invested capital; (iii.) provide distributable Cash Flow from
operations; (iv.) provide Federal Income Tax deductions so that all or a portion
of any distributable cash from operations may be treated as a return of capital
for tax purposes and, therefore, may not represent taxable income to the Limited
Partners; and (v.) build up equity through the reduction of mortgage loans on
those of the Partnership's properties which have been leveraged. There can be no
assurance that such objectives will be achieved."
2
<PAGE>
The prospectus also states: "The Partnership expects to commence liquidation of
all its properties after approximately the fifth year of Partnership operations.
However, the Managing General Partners may exercise their discretion as to
whether and when to sell, finance or refinance a property, and the Partnership
will have no obligations to sell properties at any particular time."
Operations of the Partnership through 1996 have been consistent with the intent
of the original prospectus in that the Partnership has invested in real estate
projects that had the potential for capital gains, preservation of capital and
providing distributable cash flow partially sheltered from Federal Income Tax.
However, the Partnership and its real estate have been adversely affected by the
Tax Reform Act of 1986, aggressive lending by banks that resulted in commercial
real estate overbuilding, and subsequent severe recessions. The original
intention to begin liquidation of properties after the fifth year of operations
was delayed indefinitely. As of December 31, 1996, the Partnership had paid cash
distributions of $166.75 for each $500 unit investment and remaining partners'
equity is $62.49 per unit. Thus, if the Partnership were to be liquidated at the
end of 1996 at book value, each $500 investment would have returned a total of
$229.24.
The General Partner's goal is to continue operating the Property until such time
as rental rates return to the level necessary to support new office building
development. At that time, the Property may be sold at a price substantially
greater than current book value.
ITEM 2. PROPERTIES
During 1996, the Partnership owns (fee simple) a 81.13% interest in Sierra
Creekside, a commercial office building located in San Ramon, California. (See
Item 1. Business for discussion of changes in ownership percentages.) The
building consists of 47,800 rentable square feet and is 99% occupied at December
31, 1996. The average effective annual rent per square foot at December 31, 1996
is $16.45.
The Property is encumbered by a mortgage lien in favor of Home Federal Savings
of San Francisco with a principal balance of $1,802,820 at December 31, 1996.
The mortgage bears interest at 3.5% above the 11th District Cost of Funds Index
with a minimum of 9% and a maximum of 14% (9% at December 31, 1996). The loan
term is 120 months with a maturity date of July 1, 2005. Payments are amortized
over a 240 month period with a remaining principal balance of $1,325,058 due at
maturity assuming no payment has been made on principal in advance of its due
date. This note is subject to prepayment penalties of 1% to 3% if more than 20%
of the outstanding balance is prepaid during the first four calendar years of
the loan.
3
<PAGE>
SUMMARY OF SIGNIFICANT TENANTS/LEASES
Four of the Property's 16 tenants occupy ten percent or more of rentable space.
The principal businesses of these significant tenants are banking, mortgage
administration, insurance and billing/collections services. Details of the
leases follow:
<TABLE>
<CAPTION>
Percent Effective Percent
Square of Rent Per Effective of Gross
Feet Rentable Square Rent Per Annual Expiration of
Tenants Occupied Square Foot Annum Rent Lease
------- ------ --- ------ -------- --- --------------
<S> <C> <C> <C> <C> <C> <C>
American Savings Bank ................. 5,526 12% $18.89 $104,360 13% October 2001
California Bancshares, Inc. ........... 8,588 18% 15.04 129,141 17% February 2000
State Farm Mutual ..................... 5,071 11% 14.98 75,964 10% September 2000
Pen-Cal Administrators ................ 7,331 15% 16.69 122,355 16% January 2000
Tenants Occupying less than 10% sq ft . 20,735 43% 16.67 345,590 44% Various
------ --- ------ -------- ---
Total Rented Space .................... 47,251 99% $16.45 $777,410 100%
Vacancies ............................. 549 1%
------ ---
Total Rentable Space .................. 47,800 100%
</TABLE>
The California Bancshares, Inc. lease is renewable for an additional three year
period upon expiration in February 2000.
SUMMARY OF LEASES BY EXPIRATION
One of the 16 tenants is on a month to month lease; the other fifteen are on
leases scheduled to expire over the next five years as indicated in the table
below.
<TABLE>
<CAPTION>
Year of expiration 1997 1998 1999 2000 2001 Totals
<S> <C> <C> <C> <C> <C> <C>
Number of tenants ............... 3 4 3 3 2 15
Percent of total tenants ........ 19% 25% 19% 19% 12% 94%
Total area (square feet) ........ 3,644 5,737 4,616 20,990 10,006 44,993
Annual Rent ..................... $54,699 $85,452 $76,907 $327,460 $180,054 $724,572
Percent gross annual rent ....... 7% 11% 10% 42% 23% 93%
</TABLE>
DEPRECIABLE PROPERTY Reference is made to Schedule III of Form 10-K.
REAL ESTATE TAXES The real estate tax obligation for 1996 is approximately
1.2% of the assessed value or $47,529.
INSURANCE In the opinion of management, the property is adequately
covered by insurance.
ITEM 3. LEGAL PROCEEDINGS
The Partnership is not involved in any material legal proceedings.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
4
<PAGE>
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S PARTNERS' EQUITY AND RELATED MATTERS
As of December 31, 1996, the number of security holders is as follows:
NUMBER NUMBER OF
OF UNITS RECORD HOLDERS
------------- -----------
Limited Partners.............. 29,354 2,339
============= ===========
These securities are all of the same class, namely, limited partnership
interests (units) and were sold pursuant to a registration statement filed under
the Securities Act of 1933, as amended. The total offering was 30,000 units at
$500.00 per unit.
No broker or dealer currently makes a market in the units of the Partnership.
Accordingly, there are no published price or trading volume figures available
for the units. The units have been transferred on an extremely limited extent
from time-to-time since the inception of the Partnership; however, the market
for the units is highly restricted and sporadic, especially in view of the
investor suitability requirements imposed on new purchasers by the various state
blue sky laws and the restrictions on transfer contained in the Partnership
Agreement.
The Partnership has neither paid nor declared any cash or other distributions to
the General or Limited Partners during the two most recent years. There are no
contractual or other restrictions on the Partnership's ability to make such
distributions.
ITEM 6. SELECTED FINANCIAL DATA
The Selected Financial Data for the Partnership is filed by reference to the
Annual Report to the Limited Partners attached as an Exhibit.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Management's Discussion and Analysis of Finanacial Condition and Results of
Operations includes certain forward looking statements reflecting the
Partnership's expectations in the near future; however, many factors which may
affect the actual results, especially changing regulations, are difficult to
predict. Accordingly, there is no assurance that the Partnership's expectations
will be realized.
Overview:
The following discussion should be read in conjunction with the Selected
Financial Data and the Partnership's Consolidated Financial Statements and Notes
thereto incorporated by reference to the Annual Report to the Limited Partners
attached as an Exhibit. As of December 31, 1996, the Partnership owns a 81.13%
interest in the Sierra Creekside Partners, which operates one property, Sierra
Creekside (the "Property").
5
<PAGE>
Results of Operations:
COMPARISON OF YEAR ENDED DECEMBER 31, 1996 TO YEAR ENDED DECEMBER 31, 1995.
Revenues increased by $163,000, or 28%, due primarily to an increase in rental
rates and occupancy. The weighted-average effective annual rent per square foot,
on an accrual basis, at December 31, 1996 is $16.45 compared to $15.10 at
December 31, 1995. Occupancy increased during the year from 94% at December 31,
1995 to 99% at December 31, 1996 due to the addition of three new tenants and an
expansion by another tenant.
Management embarked on a program of leasing space in the prior year that has
resulted in a steady increase in occupancy over the past two years. The funds
necessary to build out new tenant space and pay leasing commissions were
provided by the proceeds of an $1,850,000 mortgage loan funded in 1995. One half
of this loan was funded June 30, 1995 with the balance funded August 31, 1995.
Interest expense increased in 1996 due to the funding of this loan.
Operating expenses increased by $32,000, or 3%, primarily due to increased
depreciation and amortization expenses due to the additional tenant improvements
and leasing commissions associated with the increased occupancy of the Property.
This increase was partially offset by reduced property taxes, due to the payment
of delinquent property taxes in 1995, and other operating expenses.
COMPARISON OF YEAR ENDED DECEMBER 31, 1995 TO YEAR ENDED DECEMBER 31, 1994.
Revenues increased by $143,000, or 32%, and operating expenses increased by
$109,000, or 13%, due primarily to an increase in occupancy from 62% at December
31, 1994 to 94% at December 31, 1995. Three new tenants accounted for an
increase in leased square footage of 13,008, or 27% of the rentable square
footage of the Property. The weighted-average annual rent per square foot, on an
accrual basis, increased from $14.90 at December 31, 1994 to $15.10 at December
31, 1995.
The funds necessary to build out new tenant space and pay leasing commissions
were provided by the proceeds of a mortgage loan funded in June 1995. Interest
expense increased by $68,000 due to the funding of this loan.
Liquidity and Capital Resources:
A loan in the amount of $1,850,000 was funded in June 1995. This loan is secured
by a trust deed on the Property. The proceeds of this loan were used to pay
delinquent property taxes, commissions, and other accrued liabilities. The
remainder was used to fund capital improvements and tenant build-out. A
secondary source of cash is available through advances from the minority owner
of the Property, Sierra Mira Mesa Partners ("SMMP").
The Partnership's primary capital requirements will be for construction of new
tenant space and compliance with the Americans with Disabilities Act or other
yet unknown changes in building codes. The estimated cost of the remaining work
needed to comply with this Act is $35,000 which will be funded from operations
of the Property. The Property must be in full compliance by May 1997.
During 1996, the Partnership generated cash flows from operations of $46,000.
The Partnership paid $298,000 for property additions and lease commissions and
distributed $541,000 to SMMP.
The Partnership is in an illiquid position at December 31, 1996 with cash and
billed rents of $79,000 and current liabilities of $176,000.
Inflation:
The Partnership's long-term leases contain provisions designed to mitigate the
adverse impact of inflation on its results from operations. Such provisions may
include escalation clauses related to Consumer Price Index increases.
6
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The following financial statements and independent auditors' report are
incorporated by reference to the Annual Report to the Limited Partners attached
as an Exhibit.
1. Independent Auditors' Report
2. Consolidated Balance Sheets - December 31, 1996 and 1995
3. Consolidated Statements of Operations - for the years ended
December 31, 1996, 1995 and 1994
4. Consolidated Statements of Changes in Partners' Equity - from
February 13, 1981 (Inception of Partnership) to December 31, 1993 and
for the years ended December 31, 1996, 1995 and 1994
5. Consolidated Statements of Cash Flows - for the years ended
December 31, 1996, 1995 and 1994
6. Notes to Consolidated Financial Statements
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURES
None
7
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF REGISTRANT
The Registrant is a California Limited Partnership and has no officers or
directors.
S-P Properties, Inc., a California corporation, is the General Partner of the
Registrant. In December 1994, Finance Factors, Inc., a subsidiary of CGS Real
Estate Company, Inc., purchased the common stock of TCP, Inc. TCP, Inc. owns all
of the common stock of S-P Properties, Inc. In July 1995, Finance Factors, Inc.
merged with Bancor Real Estate Company, Inc., a subsidiary of CGS Real Estate
Company, Inc. CGS Real Estate Company, Inc. and its affiliates are engaged in
real estate management, leasing, ownership, and sales. The companies own or
manage more than ten million square feet of commercial real estate in Texas,
Arizona, Colorado, California and the Carolinas.
The executive officers and directors of S-P Properties, Inc. are:
APPROXIMATE
NAME POSITION AGE TIME IN OFFICE
- ---- ---------------------- --- --------------
Thomas N. Thurber President and Director 46 2 years
Dawson L. Davenport Vice President 41 2 years
Steven M. Speier Secretary/Treasurer and 46 2 years
Director
William J. Carden Assistant Secretary/ 52 2 years
Treasurer and Director
Thomas N. Thurber - President and Director, S-P Properties, Inc. Mr. Thurber is
a Certified Public Accountant who began his career with Arthur Andersen & Co. in
1972. In 1979, he joined a major publicly traded real estate development firm
(Daon) where he became Controller for U.S. Operations. Subsequently, Mr. Thurber
served as Director of Real Estate for a developer of retail properties, and
Chief Financial Officer of a trust with significant investments in commercial
real estate. Mr. Thurber also serves as a director of Property Secured
Investments, Inc. Mr. Thurber holds a bachelors degree in accounting from
Florida State University.
Dawson L. Davenport - Vice President, S-P Properties, Inc. Mr. Davenport is the
founder of WD Real Estate Services, a full service property management firm that
became part of the Banc Commercial family of companies in 1992. Mr. Davenport
has been responsible for the management, development and rehabilitation of
substantial commercial, industrial, retail, and residential projects during the
past seventeen years. Mr. Davenport specializes in leasing and turning around
distressed properties.
Steven M. Speier - Secretary/Treasurer and Director, S-P Properties, Inc. Mr.
Speier is a Certified Public Accountant who, after spending two years in public
accounting, went into the banking industry in 1975. During his sixteen year
banking career, Mr. Speier managed a real estate loan portfolio of approximately
$1.5 billion secured by properties throughout the United States. Mr. Speier
brings to S-P Properties, Inc. a broad real estate background that includes
management, leasing, and disposition of all categories of commercial real
estate. Mr. Speier also serves as a director of IDM Corporation. Mr. Speier is a
licensed real estate broker and has a masters degree in business administration
from Grand Valley State University in Michigan.
William J. Carden - Assistant Secretary/Treasurer and Director, S-P Properties,
Inc. Mr. Carden is the founder and President of CGS Real Estate Company, Inc.,
which owns over one million square feet of commercial real estate. Mr. Carden
founded DVM Properties, Inc. in 1974 which concentrated on rehabilitation of
retail, office, industrial, and commercial real estate. Mr. Carden is a former
Director of Bay Financial, a New York Stock Exchange company, and currently
serves as a director of Property Secured Investments, Inc. and IDM Corporation.
There have been no events under any bankruptcy act, no criminal proceedings, and
no judgments or injunctions material to the evaluation of the ability and
integrity of any director or officer during the past five years.
8
<PAGE>
ITEM 11. MANAGEMENT REMUNERATION
The Registrant is a California Limited Partnership and has no officers or
directors. No options to purchase securities of the Registrant have been granted
to any person.
In accordance with the terms of the Partnership Agreement, certain affiliates of
the General Partner receive real estate brokerage commissions in connection with
the leasing of properties by the Partnership and receive from the Partnership
certain management and administrative services fees. These amounts are set forth
in the Annual Report to the Limited Partners attached as an Exhibit.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
None
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Partnership may pay a management fee of 6% of the gross rental income
collected from the property to Banc Commercial California (BCCA). These fees for
the year ended December 31, 1996 were $29,075. Bancor Real Estate Company, Inc.
(Bancor) provides services to the Partnership such as accounting, legal, data
processing and similar services and is entitled to reimbursement for expenses
incurred to provide such services. Amounts so reimbursed totaled $33,714 during
the year ended December 31, 1996. The Partnership also reimburses BCCA for
construction supervision costs. The Partnership paid $9,657 to BCCA for tenant
improvement supervisory costs in 1996. In consideration for services rendered
with respect to initial leasing of Partnership properties, BCCA is paid initial
leasing costs. For the year ended December 31, 1996, a total of $38,277 was paid
for initial leasing costs. Bancor and BCCA are both wholly owned subsidiaries of
CGS Real Estate Company, Inc. William J. Carden, an officer and director of S-P
Properties, Inc., the General Partner of the Partnership, owns 50% of CGS Real
Estate Company, Inc.
9
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
A. EXHIBITS
1. Annual Report to the Limited Partners
2. Exhibit Number 27 - Financial Data Schedule
B. FINANCIAL STATEMENT SCHEDULES
The following financial statement schedules and the report of the
independent auditors thereon are included herein:
1. Schedule II - Valuation and Qualifying Accounts and Reserves - for the
years ended December 31, 1996, 1995 and 1994
2. Schedule III - Real Estate and Accumulated Depreciation -
December 31, 1996
All other schedules are omitted as they either are not required or are not
applicable, or the required information is set forth in the financial
statements and notes thereto.
C. REPORTS ON FORM 8-K
None
10
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
SIERRA PACIFIC DEVELOPMENT FUND
a California Limited Partnership
S-P PROPERTIES, INC.
General Partner
Date: March 19, 1997 /S/ THOMAS N. THURBER
Thomas N. Thurber
President and Director
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.
Date: March 19, 1997 /S/ THOMAS N. THURBER
Thomas N. Thurber
President and Director
S-P Properties, Inc.
Date: March 19, 1997 /S/ WILLIAM J. CARDEN
William J. Carden
Assistant Secretary/Treasurer and
Director S-P Properties, Inc.
Date: March 19, 1997 /S/ MICHELE E. JOHNSON
Michele E. Johnson
Chief Accounting Officer
S-P Properties, Inc.
11
<PAGE>
INDEPENDENT AUDITORS' REPORT ON FINANCIAL STATEMENT SCHEDULES
To the Partners of
Sierra Pacific Development Fund
We have audited the consolidated financial statements of Sierra Pacific
Development Fund, a California limited partnership, (the "Partnership") as of
December 31, 1996 and 1995, and for each of the three years in the period ended
December 31, 1996 and have issued our report thereon dated February 24, 1997.
Such consolidated financial statements and report are included in your 1996
Annual Report to the Limited Partners and are incorporated herein by reference.
Our audits also included the financial statement schedules of Sierra Pacific
Development Fund, listed in Item 14. These financial statement schedules are the
responsibility of the Partnership's management. Our responsibility is to express
an opinion based on our audits. In our opinion, such financial statement
schedules, when considered in relation to the basic consolidated financial
statements taken as a whole, present fairly in all material respects the
information set forth therein.
DELOITTE & TOUCHE LLP
Houston, Texas
February 24, 1997
12
<PAGE>
SCHEDULE II - FORM 10-K
SIERRA PACIFIC DEVELOPMENT FUND
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
For the Years Ended December 31, 1996, 1995 and 1994
Income -
Producing
Properties
----------
Allowance for loss - January 1, 1994 ....................... $1,000,000
Provision charged to costs
and expenses (1) ....................................... 0
----------
Allowance for loss - December 31, 1994 ..................... 1,000,000
Provision charged to costs
and expenses (1) ....................................... 0
----------
Allowance for Loss - December 31, 1995 ..................... 1,000,000
Provision charged to costs
and expenses (1) ...................................... 0
----------
Allowance for loss - December 31, 1996 ..................... $1,000,000
==========
(1) See Notes 1 and 4 to the consolidated financial statements incorporated by
reference to the Annual Report to the Limited Partners attached as an
Exhibit.
13
<PAGE>
SCHEDULE III - FORM 10-K
SIERRA PACIFIC DEVELOPMENT FUND
REAL ESTATE AND ACCUMULATED DEPRECIATION
DECEMBER 31, 1996
<TABLE>
<CAPTION>
Initial Cost Gross Amount at
to Partnership (1) Improvements Which carried at close of period
-------------------- Capitalized ---------------------------------------
Encumb- Improve- After Acquis- Improve- Total
Description rances Land ments ition (2) Land ments (3)(4)(5)(6)
- ----------- ---------- ---------- -------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
OFFICE BUILDING-
INCOME -PRODUCING:
Sierra Creekside (4)
San Ramon, California $1,802,820 $1,555,033 -- $5,872,514 $1,555,033 $5,748,940 $7,303,973
Accum. Date Date Deprec.
Description Deprec.(6) Constructed Acquired Life
- ----------- ---------- ----------- ----------- -------
OFFICE BUILDING-
INCOME -PRODUCING:
Sierra Creekside (4)
San Ramon, California $3,080,645 10/84 03/83 1-30 yrs.
</TABLE>
(1) The initial cost represents the original purchase price of the property.
(2) The Partnership has capitalized property development costs.
(3) Also represents cost for Federal Income Tax purposes.
(4) On February 1, 1994, the property was transferred to a joint venture,
Sierra Creekside Partners. The Partnership has an equity interest of
81.13% and Sierra Mira Mesa Partners, an affiliate, has 18.87% equity
interest at December 31, 1996.
(5) A valuation allowance of $1,000,000 was established as the appraised value
of the property declined below book value. See Notes 1 and 4 to the
consolidated financial statements incorporated by reference to the Annual
Report to the Limited Partners attached as an Exhibit.
(6) Reconciliation of total real estate carrying value and accumulated
depreciation for the three years ended December 31, 1996 is as follows:
Total Real Estate Accumulated
Carrying Value Depreciation
----------- -----------
Balance - January 1, 1994 ........ $ 6,719,401 $ 2,107,082
Additions during the year ....... 218,325 328,281
----------- -----------
Balance - December 31, 1994 ....... 6,937,726 2,435,363
Additions during the year ....... 284,946 365,274
Deductions:
Write off fully depreciated assets (62,814) (62,814)
----------- -----------
Balance - December 31, 1995 ....... 7,159,858 2,737,823
Additions during the year ....... 204,875 403,582
Deductions:
Write off fully depreciated assets (60,760) (60,760)
----------- -----------
Balance - December 31, 1996 ....... $ 7,303,973 $ 3,080,645
=========== ===========
14
<PAGE>
SIERRA PACIFIC DEVELOPMENT FUND
(A California Limited Partnership)
SELECTED FINANCIAL DATA
For the Years Ended December 31, 1996, 1995, 1994, 1993, and 1992
<TABLE>
<CAPTION>
1996 1995 1994 1993 1992
----------- ----------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C>
REVENUES .......................................... $ 755,644 $ 592,529 $ 449,965 $ 811,333 $ 1,268,721
OPERATING EXPENSES:
Total ........................................... 964,074 932,506 823,239 1,609,572 2,028,684
Per dollar of revenues .......................... 1.28 1.57 1.83 1.98 1.60
INTEREST EXPENSE:
Total ........................................... 163,762 69,614 1,375 429,767 411,122
Per dollar of revenues .......................... 0.22 0.12 0.00 0.53 0.32
NET LOSS:
Total ........................................... (301,960) (312,723) (291,395) (461,938) (1,171,085)
General Partner ................................. 0 0 0 0 0
Limited Partners ................................ (301,960) (312,723) (291,395) (461,938) (1,171,085)
Per unit (1) .................................... (10.29) (10.65) (9.93) (15.73) (39.89)
CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES ............................ 45,678 (587,447) 25,782 (103,787) (40,978)
CASH USED IN
INVESTING ACTIVITIES ............................ (204,875) (284,946) (218,325) (133,547) (85,999)
CASH (USED IN) PROVIDED BY
FINANCING ACTIVITIES ............................ (572,443) 1,620,705 231,500 223,500 140,655
TOTAL ASSETS ...................................... 3,709,875 4,554,858 3,617,493 3,713,971 7,501,335
PARTNERS' EQUITY:
Total ........................................... 1,834,321 2,136,281 2,449,004 2,740,399 3,202,337
General Partner ................................. 0 0 0 0 0
Limited Partners ................................ 1,834,321 2,136,281 2,449,004 2,740,399 3,202,337
LIMITED PARTNERS' EQUITY - PER UNIT (1) ........... 62.49 72.78 83.43 93.36 109.09
INCOME-PRODUCING PROPERTIES:
Number .......................................... 1 1 1 1 2
Cost ............................................ 7,303,973 7,159,858 6,937,726 6,719,401 11,488,511
Less: Accumulated depreciation .................. (3,080,645) (2,737,823) (2,435,363) (2,107,082) (3,521,770)
Valuation allowance ....................... (1,000,000) (1,000,000) (1,000,000) (1,000,000) (1,000,000)
Net book value .................................. 3,223,328 3,422,035 3,502,363 3,612,319 6,966,741
NOTE PAYABLE - related to income-
producing property .............................. 1,802,820 1,838,747 N/A N/A 3,670,510
MINORITY INTEREST IN CONSOLIDATED
JOINT VENTURE ................................... (102,995) 476,836 791,746 N/A N/A
DISTRIBUTIONS PER UNIT (1) ........................ 0 0 0 0 0
</TABLE>
N/A = Not applicable nor available
(1) The net loss, limited partners' equity and distributions per unit are
based upon the limited partnership units outstanding at the end of the
year, 29,354 in all years. The cumulative cash distributions per limted
partnership unit from inception to December 31, 1996 equal $166.75.
15
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Partners of
Sierra Pacific Development Fund
We have audited the accompanying consolidated balance sheets of Sierra Pacific
Development Fund, a California limited partnership, (the "Partnership") as of
December 31, 1996 and 1995, and the related consolidated statements of
operations, changes in partners' equity and cash flows for each of the three
years in the period ended December 31, 1996. These financial statements are the
responsibility of the Partnership's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Sierra Pacific
Development Fund as of December 31, 1996 and 1995, and the results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1996 in conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Houston, Texas
February 24, 1997
16
<PAGE>
SIERRA PACIFIC DEVELOPMENT FUND
(A California Limited Partnership)
CONSOLIDATED BALANCE SHEETS
December 31, 1996 and 1995
December 31, December 31,
1996 1995
----------- ----------
ASSETS
Cash and cash equivalents ...................... $ 55,629 $ 787,269
Receivables:
Unbilled rent (Notes 1 and 4) ............... 81,086 63,362
Billed rent (Note 1) ........................ 23,078 10,564
Due from affiliates (Note 3) ................... 26,916 0
Income-producing property - net of
accumulated depreciation and
valuation allowance of $4,080,645
in 1996 and $3,737,823 in 1995 (Note 4) ..... 3,223,328 3,422,035
Other assets (Notes 1, 2 and 3) ............... 299,838 271,628
----------- ----------
Total Assets ................................... $ 3,709,875 $4,554,858
=========== ==========
LIABILITIES AND PARTNERS' EQUITY
Accrued and other liabilities (Note 2) ......... $ 175,729 $ 102,994
Note payable (Note 5) .......................... 1,802,820 1,838,747
----------- ----------
Total Liabilities .............................. 1,978,549 1,941,741
----------- ----------
Minority interest in consolidated
joint venture (Note 4) ...................... (102,995) 476,836
----------- ----------
Partners' equity (Notes 1 and 6):
General Partner .............................. 0 0
Limited Partners:
30,000 units authorized,
29,354 issued and
outstanding ............................. 1,834,321 2,136,281
----------- ----------
Total Partners' equity ......................... 1,834,321 2,136,281
----------- ----------
Total Liabilities and Partners' equity ......... $ 3,709,875 $4,554,858
=========== ==========
See Accompanying Notes
17
<PAGE>
SIERRA PACIFIC DEVELOPMENT FUND
(A California Limited Partnership)
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Years Ended December 31, 1996, 1995 and 1994
<TABLE>
<CAPTION>
1996 1995 1994
----------- ----------- ---------
<S> <C> <C> <C>
REVENUES:
Rental income (Note 1) ..................... $ 747,865 $ 585,614 $ 449,965
Interest income ............................ 7,779 6,915 0
----------- ----------- ---------
Total revenues ............................... 755,644 592,529 449,965
----------- ----------- ---------
EXPENSES:
Operating expenses:
Depreciation and amortization ............ 468,130 407,418 358,161
Maintenance and repairs .................. 112,480 109,301 102,228
Utilities ................................ 131,283 129,886 89,179
Property taxes and insurance ............. 76,667 91,681 72,021
Legal and accounting ..................... 43,160 34,432 51,974
Administrative fees (Note 3) ............. 33,714 40,679 31,074
General and administrative ............... 40,908 34,472 27,474
Management fees (Note 3) ................. 29,075 26,036 27,220
Salaries and payroll taxes ............... 14,400 20,663 20,875
Renting expenses ......................... 2,174 1,262 10,870
Other operating expenses ................. 12,083 36,676 32,163
----------- ----------- ---------
Total operating expenses ................ 964,074 932,506 823,239
Interest ..................................... 163,762 69,614 1,375
----------- ----------- ---------
Total expenses ............................... 1,127,836 1,002,120 824,614
----------- ----------- ---------
LOSS BEFORE MINORITY INTEREST'S SHARE
OF CONSOLIDATED JOINT VENTURE LOSS ......... (372,192) (409,591) (374,649)
----------- ----------- ---------
MINORITY INTEREST'S SHARE OF
CONSOLIDATED JOINT VENTURE LOSS ............ 70,232 96,868 83,254
----------- ----------- ---------
NET LOSS ..................................... $ (301,960) $ (312,723) $(291,395)
=========== =========== =========
Net loss per limited partnership unit (Note 1) $ (10.29) $ (10.65) $ (9.93)
=========== =========== =========
</TABLE>
See Accompanying Notes
18
<PAGE>
SIERRA PACIFIC DEVELOPMENT FUND
(A California Limited Partnership)
CONSOLIDATED STATEMENTS OF CHANGES IN PARTNERS' EQUITY
From February 13, 1981 (Inception of Partnership) to December 31, 1993
and for the Years Ended December 31, 1996, 1995 and 1994
<TABLE>
<CAPTION>
Limited Partners Total
----------------------- General Partners'
Per Unit Total Partner Equity
------- ------------ --------- ------------
<S> <C> <C> <C> <C>
Proceeds from sale of
partnership units ................. $500.00 $ 14,677,000 $ 14,677,000
Underwriting commissions
and other organization expenses ... (60.29) (1,769,862) (1,769,862)
Cumulative net income (loss)
(to December 31, 1993) ........... (179.60) (5,272,266) $ 14,600 (5,257,666)
Cumulative distributions
(to December 31, 1993) ........... (166.75) (4,894,473) (14,600) (4,909,073)
------- ------------ --------- ------------
Partners' equity - January 1, 1994 .. 93.36 2,740,399 0 2,740,399
Net loss ............................ (9.93) (291,395) (291,395)
------- ------------ --------- ------------
Partners' equity - December 31, 1994. 83.43 2,449,004 0 2,449,004
Net loss ............................ (10.65) (312,723) (312,723)
------- ------------ --------- ------------
Partners' equity - December 31, 1995. 72.78 2,136,281 0 2,136,281
Net loss ............................ (10.29) (301,960) (301,960)
------- ------------ --------- ------------
Partners' equity - December 31, 1996. $ 62.49 $ 1,834,321 $ 0 $ 1,834,321
======= ============ ========= ============
</TABLE>
See Accompanying Notes
19
<PAGE>
SIERRA PACIFIC DEVELOPMENT FUND
(A California Limited Partnership)
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended December 31, 1996, 1995 and 1994
<TABLE>
<CAPTION>
1996 1995 1994
--------- ----------- ---------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss .............................................................. $(301,960) $ (312,723) $(291,395)
Adjustments to reconcile net loss
to net cash provided by (used in) operating activities:
Depreciation and amortization ....................................... 468,130 407,418 358,161
Minority interest's share of consolidated
joint venture loss ................................................ (70,232) (96,868) (83,254)
(Increase) decrease in rent receivable ............................... (30,238) (59,478) 2,857
Decrease (increase) in other receivables ............................ 0 10,795 (7,335)
(Increase) decrease in other assets .................................. (92,757) (262,842) 77
Increase (decrease) in accrued and other liabilities ................ 72,735 (273,749) 46,671
--------- ----------- ---------
Net cash provided by (used in) operating activities ................. 45,678 (587,447) 25,782
--------- ----------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Payments for property additions ....................................... (204,875) (284,946) (218,325)
--------- ----------- ---------
Net cash used in investing activities ................................. (204,875) (284,946) (218,325)
--------- ----------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Contributions from minority investor ................................. 31,400 190,000 875,000
Distributions to minority investor ................................... (541,000) (408,042) 0
Funding of note payable secured by property .......................... 0 1,850,000 0
Principal payments on note payable ................................... (35,927) (11,253) 0
Payments to affiliates ............................................... (26,916) 0 (643,500)
--------- ----------- ---------
Net cash (used in) provided by financing activities ................... (572,443) 1,620,705 231,500
--------- ----------- ---------
NET (DECREASE) INCREASE IN CASH
AND CASH EQUIVALENTS ................................................. (731,640) 748,312 38,957
CASH AND CASH EQUIVALENTS - Beginning of year ........................... 787,269 38,957 0
--------- ----------- ---------
CASH AND CASH EQUIVALENTS - End of year ................................. $ 55,629 $ 787,269 $ 38,957
========= =========== =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash paid during the year for interest ................................ $ 164,031 $ 55,823 $ 1,375
========= =========== =========
</TABLE>
See Accompanying Notes
20
<PAGE>
SIERRA PACIFIC DEVELOPMENT FUND
(A CALIFORNIA LIMITED PARTNERSHIP)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION
Sierra Pacific Development Fund (the "Partnership") was organized on February
13, 1981 in accordance with the provisions of the California Uniform Limited
Partnership Act to acquire, develop and operate certain real properties. S-P
Properties, Inc. is the General Partner and manager of the Partnership. On
December 30, 1994, all of the outstanding stock of TCP, Inc. was sold to Finance
Factors, Inc. TCP, Inc. owns all of the common stock of S-P Properties, Inc.
Finance Factors, Inc. was a subsidiary of CGS Real Estate Company, Inc., a
national real estate company. In July 1995, Finance Factors, Inc. merged with
Bancor Real Estate Company, Inc., another subsidiary of CGS Real Estate Company,
Inc.
The Partnership's first real estate investment was for the acquisition of land
and development of a 41,000 square foot office project in San Bernardino,
California known as Sierra Commercenter. This property was subsequently sold by
the Partnership. In 1983, the Partnership acquired land in San Ramon, California
as the first step in development of the Sierra Creekside office project (the
"Property"), a 47,800 square foot building that was completed in October 1984.
In February 1994, the Partnership created a California general partnership
(Sierra Creekside Partners) with Sierra Mira Mesa Partners ("SMMP") to
facilitate cash contributions by SMMP for the continued development and
operation of the Sierra Creekside property. The Partnership contributed the
Property and SMMP contributed cash to this newly formed California general
partnership. At December 31, 1996, the Partnership's remaining asset is an
81.13% interest in Sierra Creekside Partners.
BASIS OF FINANCIAL STATEMENTS
The Partnership maintains its books and prepares its financial statements in
accordance with generally accepted accounting principles. However, the
Partnership prepares its tax returns on the accrual basis of accounting as
defined by the Internal Revenue Code with adjustments to reconcile book and
taxable income (loss) for differences in the treatment of certain income and
expense items. The accompanying financial statements do not reflect any
provision for federal or state income taxes since such taxes are the obligation
of the individual partners.
The preparation of financial statements in conformity with generally accepted
accounting principles 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 amounts of revenues and expenses during the reported period. Actual
results could differ from those estimates.
The consolidated financial statements include the accounts of the Partnership
and Sierra Creekside Partners, a majority owned California general partnership
(see Note 4). All significant intercompany balances and transactions have been
eliminated in consolidation.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents include highly liquid, short-term investments with
original maturities of three months or less.
21
<PAGE>
Sierra Pacific Development Fund
Notes to Consolidated Financial Statements
Page two
FAIR VALUE OF FINANCIAL INSTRUMENTS
The financial instruments of the Partnership at December 31, 1996 and 1995
consist of cash and cash equivalents, receivables, due from affiliates, accounts
payable and note payable. The fair value of cash and cash equivalents,
receivables, and accounts payable approximates the carrying value due to the
short term nature of these items. In the opinion of management, the fair value
of the note payable approximates the carrying value as the interest rate is
based on a floating index. The fair value of due from affiliates can not be
determined due to the related party nature of this receivable.
INCOME-PRODUCING PROPERTY
Property and tenant improvements are carried at cost and depreciated on the
straight-line method over the estimated lives of the related assets, ranging
from one to thirty years. Tenant improvements incurred at the initial leasing of
the properties are depreciated over ten years and tenant improvements incurred
at the re-leasing of the properties are depreciated over the life of the related
lease.
Expenditures for repairs and maintenance are charged against income as incurred.
Improvements and major renewals are capitalized. Costs and the related
accumulated depreciation of assets sold or retired are removed from the accounts
in the year of disposal or when fully depreciated and any resulting gain or loss
is reflected in income or deferred income as appropriate.
The Partnership employs a systematic approach in determining whether the value
of income-producing property has been impaired. Prior to 1995, a provision for
loss on a property was established if the appraised value of the property
declined below its book value due to what the General Partner believed to be an
other than temporary condition. A provision for loss on the property was
established as the appraised value of the property declined below book value
because of depressed real estate market conditions, which the General Partner
believed to be other than temporary. A complete appraisal was performed on the
property as of December 31 each year. The appraisal performed as of December 31,
1994 indicated an appraised value in excess of the historical cost basis of the
Property.
Effective January 1, 1995, the Partnership implemented Statement of Financial
Accounting Standards No. 121, "Accounting for Impairment of Long-Lived Assets
and for Long-Lived Assets to be Disposed Of" (the "Statement"). The Partnership
regularly evaluates long-lived assets for impairment whenever events or changes
in circumstances indicate that the carrying amount of the asset may not be
recoverable. Future cash flows are estimated and compared to the carrying amount
of the asset to determine if an impairment has occurred. If the sum of the
expected future cash flows is less than the carrying amount of the asset, the
Partnership shall recognize an impairment loss in accordance with the Statement.
No additional provision was required with the implementation of this Statement.
Because the determination of fair value is based upon projections of future
economic events such as property occupancy rates, rental rates, operating cost
inflation and market capitalization rates which are inherently subjective, the
amounts ultimately realized at disposition may differ materially from the net
carrying value as of December 31, 1996. The cash flows used to determine fair
value and net realizable value are based on good faith estimates and assumptions
developed by management. Unanticipated events and circumstances may occur and
some assumptions may not materialize; therefore, actual results may vary from
the estimates and the variances may be material. The Partnership may provide
additional write-downs which could be material in subsequent years if real
estate markets or local economic conditions change.
OTHER ASSETS
Deferred leasing costs represent costs incurred to lease properties and are
amortized over the life of the related lease.
Deferred loan costs represent costs incurred to obtain financing and are
amortized over the life of the related loan.
22
<PAGE>
Sierra Pacific Development Fund
Notes to Consolidated Financial Statements
Page three
RENTAL INCOME AND RENT RECEIVABLE
Rental income is recognized on the straight-line method over the term of the
related operating lease in accordance with the provisions of Statement of
Financial Accounting Standards No. 13, "Accounting for Leases".
Rent receivable consists of (a) unbilled rent - the difference between rent
recognized on the straight-line method and actual cash due; and (b) billed rent
- - rent due but not yet received.
CALCULATION OF EQUITY AND NET INCOME (LOSS) PER LIMITED PARTNERSHIP UNIT
Equity and net income (loss) per limited partnership unit are determined by
dividing the Limited Partners' equity and net income (loss) by the number of
limited partnership units outstanding, 29,354.
2. DETAILS OF CERTAIN BALANCE SHEET ACCOUNTS
Additional information regarding certain balance sheet accounts, at December 31,
1996 and 1995, is as follows:
1996 1995
-------- --------
Other assets:
Prepaid expenses .................................. $ 39,141 $ 38,883
Deferred loan costs, net of accumulated
amortization of $11,637 in 1996
and $3,395 in 1995 .............................. 70,748 78,990
Deferred leasing costs, net of accumulated
amortization of $93,914 in 1996
and $50,597 in 1995 ............................. 189,949 153,755
-------- --------
$299,838 $271,628
======== ========
Accrued and other liabilities:
Accounts payable .................................. $122,061 $ 32,506
Accrued expenses .................................. 14,862 14,015
Security deposits ................................. 22,271 26,893
Interest payable .................................. 13,521 13,791
Leasing commissions payable ....................... 0 11,515
Other ............................................. 3,014 4,274
-------- --------
$175,729 $102,994
======== ========
3. GENERAL PARTNER AND RELATED PARTY TRANSACTIONS
In 1994, all of the common stock of TCP, Inc. was purchased by Finance Factors,
Inc. from Carlsberg Management Company ("CMC"). TCP, Inc. owns all of the common
stock of S-P Properties, Inc., the General Partner of the Partnership. CMC
continued to manage the affairs of the Partnership through March 31, 1995.
An affiliate of the General Partner may receive a management fee of 6% of the
gross rental income collected from the properties. Management fees paid to
affiliates for the years ended December 31, 1996, 1995 and 1994 were $29,075,
$17,217 and $27,220, respectively.
23
<PAGE>
Sierra Pacific Development Fund
Notes to Consolidated Financial Statements
Page four
An affiliate of the General Partner is entitled to reimbursement for expenses
incurred by the affiliate for services provided to the Partnership such as
accounting, legal, data processing and similar services. The affiliate was
reimbursed $33,714, $25,601 and $31,074 for such services for the years ended
December 31, 1996, 1995 and 1994, respectively. Additionally, the Partnership
reimbursed the affiliate for construction supervision costs incurred by the
affiliate. For the years ended December 31, 1996, 1995 and 1994 the affiliate
received $9,657, $17,900 and $0, respectively, for tenant improvements
supervisory costs.
In consideration for services rendered with respect to initial leasing of
Partnership properties, an affiliate of the General Partner is paid initial
leasing costs. For the years ended December 31, 1996 and 1995 these fees
amounted to $38,277 and $22,441, respectively, and were recorded as deferred
leasing costs. For the year ended December 31, 1994, the affiliate received
$8,269 for leasing supervision costs that were recorded as part of renting
expenses of the properties. No such costs were incurred in 1995 and 1996.
During 1996, the Partnership made a short-term, non-interest bearing loan to an
affiliate. Repayment is expected in 1997.
4. INCOME-PRODUCING PROPERTY
At December 31, 1996 and 1995, the total cost and accumulated depreciation of
the property are as follows:
1996 1995
----------- -----------
Land ................................... $ 1,555,033 $ 1,555,033
Building and improvements .............. 5,748,940 5,604,825
----------- -----------
Total ....................... 7,303,973 7,159,858
Accumulated depreciation ............... (3,080,645) (2,737,823)
Valuation allowance .................... (1,000,000) (1,000,000)
----------- -----------
Net ......................... $ 3,223,328 $ 3,422,035
=========== ===========
On February 1, 1994, the Partnership formed a California general partnership
with Sierra Mira Mesa Partners ("SMMP"), an affiliate. The joint venture, known
as Sierra Creekside Partners ("SCP"), was formed to develop and operate the
Sierra Creekside property. The Partnership had a 79.2% equity interest with its
contribution of Sierra Creekside. Such interest was computed based upon the
estimated fair value of SCP's net assets at the date of formation of the joint
venture. SMMP was allocated a 20.8% initial equity interest in SCP in exchange
for its $745,000 cash contribution. SMMP made additional cash contributions
amounting to $130,000, $190,000 and $31,400 and received distributions amounting
to $0, $408,042 and $541,000 during 1994, 1995 and 1996, respectively. The
percentage interests of the Partnership and Sierra Mira Mesa Partners are to be
adjusted every January 1st during the term of Sierra Creekside Partners,
beginning January 1, 1995. Accordingly, as of January 1, 1995 and 1996, the
Partnership's interest in SCP was changed to 76.35% and 81.13%, respectively,
and SMMP's interest was changed to 23.65% and 18.87%, respectively. On January
1, 1997, the Partnership's interest will be increased to 95.04% and SMMP's
interest will be reduced to 4.96% to reflect the 1996 contributions and
distributions. Under the terms of the SCP joint venture agreement, SMMP will
receive preferential cash distributions of available "Distributable Funds" from
the operation of SCP or sale of its property to the extent of its capital
contributions. Additional Distributable Funds are allocable to the Partnership
to the extent of the deemed fair value of its property contribution, and the
remainder to the Partnership and SMMP in proportion to their respective equity
interests.
24
<PAGE>
Sierra Pacific Development Fund
Notes to Consolidated Financial Statements
Page five
As a result of cash distributions to SMMP from SCP in excess of contributions
and earnings, SMMP's minority interest reflects a debit balance or receivable at
December 31, 1996.
Future minimum base rental income, under the existing operating leases for the
Sierra Creekside property, to be recognized on a straight-line basis and amounts
to be received on a cash basis are as follows:
Straight-line Cash
YEAR ENDING DECEMBER 31, Basis Basis
------------------------ ---------- ----------
1997 ............................. $ 691,562 $ 705,937
1998 ............................. 626,218 647,328
1999 ............................. 541,999 570,254
2000 ............................. 280,943 294,078
2001 ............................. 101,583 105,794
Thereafter ......................... 0 0
---------- ----------
Total ........................... $2,242,305 $2,323,391
========== ==========
The Partnership relied on five tenants to generate 66% of total 1996 rental
income. The breakdown for these five tenants' industry segments and rental
income contribution is as follows: 17% and 10% for two tenants related to the
mortgage industry; 16% billing and collections; 13% banking, and 10% insurance.
5. NOTE PAYABLE
At December 31, 1996, note payable consisted of one loan with a bank with an
original principal balance of $1,850,000. The note bears interest at 3.5% above
the 11th District Cost of Funds Index with a minimum of 9% and a maximum of 14%
(9% at December 1996). The maturity date of the note payable is July 1, 2005.
The note is subject to prepayment penalties of 1% to 3% if more than 20% of the
outstanding balance is prepaid during the first four calendar years of the loan.
The note is secured by substantially all of the assets of the Partnership.
Annual maturities of note payable as of December 31, 1996, are: $39,221 in 1997;
$42,900 in 1998; $46,924 in 1999; $51,326 in 2000; $56,140 in 2001 and
$1,566,309 thereafter.
6. PARTNERS' EQUITY
Accrual basis profits and losses resulting from operations of the Partnership
are allocated 99% to the Limited Partners and 1% to the General Partner.
Currently, the Partnership does not meet the criteria for distributing cash to
the General Partner, and it cannot reasonably predict when the criteria will be
met. Accordingly, no accrual basis profits and losses from operations were
allocated to the General Partner.
Upon any sale, refinancing or other dispositions of the Partnership's real
property, allocations and distributions are made after each Limited Partner has
received 100% of his Adjusted Capital Contributions plus a 15% per annum
cumulative return on such invested capital. Any remaining proceeds shall be
distributed 80% to the Limited Partners and 20% to the General Partner.
25
<PAGE>
EXECUTIVE OFFICERS OF THE GENERAL PARTNER
The Executive Officers of S-P Properties, Inc., the General Partner are as
follows:
NAME POSITION
- ----------------- -----------------------
Thomas N. Thurber President and Director
Dawson L. Davenport Vice President
Steven M. Speier Secretary/Treasurer and Director
William J. Carden Assistant Secretary/Treasurer and Director
The 10-K Report sent to the Securities and Exchange Commission contains
additional information on the Partnership's operations and is available to
Limited Partners upon request.
26
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE FINANCIAL DATA SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM SIERRA PACIFIC DEVELOPMENT FUND DECEMBER 31, 1996 FINANCIAL STATEMENTS AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 55,629
<SECURITIES> 0
<RECEIVABLES> 104,164
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 105,623
<PP&E> 7,303,973
<DEPRECIATION> 4,080,645
<TOTAL-ASSETS> 3,709,875
<CURRENT-LIABILITIES> 175,729
<BONDS> 1,802,820
0
0
<COMMON> 0
<OTHER-SE> 1,834,321
<TOTAL-LIABILITY-AND-EQUITY> 3,709,875
<SALES> 747,865
<TOTAL-REVENUES> 755,644
<CGS> 0
<TOTAL-COSTS> 495,944
<OTHER-EXPENSES> 468,130
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 163,762
<INCOME-PRETAX> (301,960)
<INCOME-TAX> 0
<INCOME-CONTINUING> (301,960)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
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