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, 1997
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
incorporation or organization) Number)
5850 San Felipe, Suite 450
Houston, Texas 77057
- ---------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number,
including area code: (713) 706-6271
5850 San Felipe, Suite 500
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, 1997 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 ($147,359,
net, through December 31, 1996) in exchange for an 4.96% interest in Sierra
Creekside Partners. SMMP made additional contributions of $168,500, and received
distributions of $25,000 from Sierra Creekside Partners during 1997. 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, 1998, the Partnership's
interest in Sierra Creekside Partners will be decreased to 90.67%, and SMMP's
interest will be increased to 9.33%.
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 69% of the rental income of the Partnership for the
year ended December 31, 1997.
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.
(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 1997 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, 1997, the Partnership had paid cash
distributions of $166.75 for each $500 unit investment and remaining partners'
equity is $52.70 per unit. Thus, if the Partnership were to be liquidated at the
end of 1997 at book value, each $500 investment would have returned a total of
$219.45.
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 1997, the Partnership owned (fee simple) a 95.04% 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 100% occupied at
December 31, 1997. The average effective annual rent per square foot at December
31, 1997 is $16.16.
The Property is encumbered by a mortgage lien in favor of Home Federal Savings
of San Francisco with a principal balance of $1,763,420 at December 31, 1997.
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, 1997). 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
of Effective Effective Percent
Square Rentable Rent Per Rent of Gross
Feet Square Square Per Annual Expiration
Tenants Occupied Feet Foot Annum Rent of Lease
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
American Savings
Bank 7,189 15% $ 16.95 $121,881 16% October 2001
US Bank 8,588 18% 15.04 129,141 17% February 2000
State Farm Mutual 5,071 11% 14.81 75,108 10% September 2000
Pen-Cal
Administrators 7,331 15% 16.69 122,355 16% January 2000
Tenants Occupying
less than 10% sq ft 19,621 41% 16.52 324,093 41% Various
-----------------------------------------------------------
Total Rented Space 47,800 100% $ 16.16 $772,578 100%
Vacancies 0 0%
--------------------
Total Rentable
Space 47,800 100%
</TABLE>
The US Bank lease is renewable for an additional three year period upon
expiration in February 2000.
SUMMARY OF LEASES BY EXPIRATION
Two of the 16 tenants are on a month to month lease; the other fourteen are on
leases scheduled to expire over the next five years as indicated in the table
below.
<TABLE>
<CAPTION>
Year of expiration 1998 1999 2000 2001 2002 Totals
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Number of tenants ....... 4 3 4 2 1 14
Percent of total tenants 25% 19% 25% 13% 6% 88%
Total area (square feet) 5,737 4,616 23,248 11,669 549 45,819
Annual rent ............. $ 85,452 $ 76,907 $ 370,723 $ 197,575 $ 11,134 $ 741,791
Percent gross annual rent 11% 10% 48% 26% 1% 96%
</TABLE>
DEPRECIABLE PROPERTY Reference is made to Schedule III of the Form 10-K.
REAL ESTATE TAXES The real estate tax obligation for 1997 is approximately
1.3% of the assessed value or $51,808.
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, 1997, the number of security holders is as follows:
NUMBER NUBER OF
OF UNITS RECORD HOLDERS
-------- --------------
Limited Partners 29,354 2,172
=========== ==============
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 Financial 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, 1997, the Partnership owns a 95.04%
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, 1997 TO YEAR ENDED DECEMBER 31, 1996.
Rental income increased by $10,000, or 1%, due primarily to an increase in
occupancy. The Property, which achieved 99% occupancy at December 31, 1996,
maintained a 100% occupancy rate for the majority of 1997. This increase was
partially offset as a result of billing credits given to tenants due to common
area maintenance fees being lower than anticipated in the prior year. Further,
the weighted-average effective annual rent per square foot, on an accrual basis,
decreased from $16.45 at December 31, 1996 to $16.16 at December 31, 1997.
Operating expenses decreased by $64,000, or 7%, primarily due to a $59,000
decrease in depreciation and amortization expenses resulting from the write off
of fully depreciated capitalized tenant improvements. Further, a decrease in
utilities and other operating expenses was partially offset by an increase in
maintenance and repair costs incurred during the year.
COMPARISON OF YEAR ENDED DECEMBER 31, 1996 TO YEAR ENDED DECEMBER 31, 1995.
Rental income 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 was $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 during 1995 that resulted in a
steady increase in occupancy over the prior 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.
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").
During 1997, the Partnership generated cash flows from operations of $19,000 and
paid $134,000 for property additions and lease commissions. SMMP contributed a
total of $168,500 to the Partnership and received distributions of $25,000 from
the Partnership in 1997.
The Partnership is in an illiquid position at December 31, 1997 with cash and
billed rents of $89,000 and current liabilities of $101,000.
The Partnership's primary capital requirements will be for construction of new
tenant space. It is anticipated that these requirments will be funded from the
operations of the Property and SMMP.
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>
YEAR 2000 COMPLIANCE
The Year 2000 Compliance issue is the result of computer programs being written
using two digits rather than four to define the applicable year. Any of the
Partnership's computer programs that have time-sensitive software may recognize
a date using "00" as the year 1900 rather than the year 2000. This could result
in a system failure or miscalculations causing disruptions of operations,
including, among other things, a temporary inability to process transactions,
send invoices, or engage in similar normal business activities.
The total cost to the Partnership of activities associated with the Year 2000
Compliance issue is not anticipated to be material to its financial position or
results of operations in any given year.
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, 1997 and 1996
3. Consolidated Statements of Operations - for the years ended December 31,
1997, 1996 and 1995
4. Consolidated Statements of Changes in Partners' Equity - for the years
ended December 31, 1997, 1996 and 1995
5. Consolidated Statements of Cash Flows - for the years ended December 31,
1997, 1996 and 1995
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:
<TABLE>
<CAPTION>
NAME POSITION AGE TIME IN OFFICE
- ---- -------- --- --------------
<S> <C> <C> <C>
Thomas N. Thurber President and Director 47 3 years
Dawson L. Davenport Vice President 42 3 years
Steven M. Speier Secretary/Treasurer and Director 47 3 years
William J. Carden Assistant Secretary/Treasurer and Director 53 3 years
</TABLE>
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 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, is registered as a
Certified Public Accountant, 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 American Spectrum Real Estate Services, Inc.
(ASRE), formerly Banc Commercial California. These fees for the year ended
December 31, 1997 were $33,559. 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 $34,870 during the year
ended December 31, 1997. The Partnership also reimburses ASRE for construction
supervision costs. The Partnership paid $12,358 to ASRE and Bancor for tenant
improvement supervisory costs in 1997. In consideration for services rendered
with respect to initial leasing of Partnership properties, ASRE is paid initial
leasing costs. For the year ended December 31, 1997, a total of $19,097 was paid
for initial leasing costs. Bancor and ASRE 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, 1997, 1996 and 1995
2. Schedule III - Real Estate and Accumulated Depreciation - December 31,
1997
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, 1998 /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, 1998 /s/THOMAS N. THURBER
-------------- ------------------------------------
Thomas N. Thurber
President and Director
S-P Properties, Inc.
Date: March 19, 1998 /s/WILLIAM J. CARDEN
-------------- ------------------------------------
William J. Carden
Assistant Secretary/Treasurer and Director
S-P Properties, Inc.
Date: March 19, 1998 /s/G. ANTHONY EPPOLITO
-------------- ------------------------------------
G. Anthony Eppolito
Chief Accountant
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, 1997 and 1996, and for each of the three years in the period ended
December 31, 1997 and have issued our report thereon dated March 13, 1998. Such
consolidated financial statements and report are included in your 1997 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
March 13, 1998
12
<PAGE>
SCHEDULE II - FORM 10-K
SIERRA PACIFIC DEVELOPMENT FUND
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
For the Years Ended December 31, 1997, 1996 and 1995
Income -
Producing
Properties
--------------
Allowance for loss - January 1, 1995 .......................... $ 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
Provision charged to costs and expenses (1) ................ 0
--------------
Allowance for loss - December 31, 1997 ........................ $ 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, 1997
<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 $1,763,420 $1,555,033 $5,964,392 $1,555,033 $4,381,977 $5,937,010
Accum. Date Date Deprec.
Description Deprec.(6) Constructed Acquired Life
- -------------------------------------------------------------------------------
OFFICE BUILDING-
INCOME-PRODUCING:
Sierra Creekside(4)
San Ramon, California $ 1,956,254 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, 1997.
(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, 1997 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 asset (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 asset (60,760) (60,760)
--------------- ------------
Balance - December 31, 1996 7,303,973 3,080,645
Additions during the year 91,878 334,450
Deductions:
Write off fully
depreciated asset (1,458,841) (1,458,841)
--------------- ------------
Balance - December 31, 1997 $ 5,937,010 $ 1,956,254
=============== ============
14
<PAGE>
SIERRA PACIFIC DEVELOPMENT FUND
(A California Limited Partnership)
SELECTED FINANCIAL DATA
For the Years Ended December 31, 1997, 1996, 1995, 1994, and 1993
The following table sets forth certain selected historical financial data of the
Partnership. The selected operating and financial position data as of and for
each of the five years ended December 31, 1997 have been derived from the
audited consolidated financial statements of the Partnership. This information
should be read in conjunction with "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and the Consolidated Financial
Statements and Notes thereto which are incorporated by reference to the Annual
Report to the Limited Partners attached as an Exhibit.
<TABLE>
<CAPTION>
1997 1996 1995 1994 1993
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
REVENUES ...................................... $ 757,755 $ 755,644 $ 592,529 $ 449,965 $ 811,333
OPERATING EXPENSES:
Total ....................................... 899,704 964,074 932,506 823,239 1,609,572
Per dollar of revenues ...................... 1.19 1.28 1.57 1.83 1.98
INTEREST EXPENSE:
Total ....................................... 160,359 163,762 69,614 1,375 429,767
Per dollar of revenues ...................... 0.21 0.22 0.12 0.00 0.53
NET LOSS:
Total ....................................... (287,313) (301,960) (312,723) (291,395) (461,938)
General Partner ............................. 0 0 0 0 0
Limited Partners ............................ (287,313) (301,960) (312,723) (291,395) (461,938)
Per unit (1) ................................ (9.79) (10.29) (10.65) (9.93) (15.73)
CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES ........................ 19,341 45,678 (587,447) 25,782 (103,787)
CASH USED IN
INVESTING ACTIVITIES ........................ (91,878) (204,875) (284,946) (218,325) (133,547)
CASH PROVIDED BY (USED IN)
FINANCING ACTIVITIES ........................ 104,100 (572,443) 1,620,705 231,500 223,500
TOTAL ASSETS .................................. 3,436,450 3,709,875 4,554,858 3,617,493 3,713,971
PARTNERS' EQUITY:
Total ....................................... 1,547,008 1,834,321 2,136,281 2,449,004 2,740,399
General Partner ............................. 0 0 0 0 0
Limited Partners ............................ 1,547,008 1,834,321 2,136,281 2,449,004 2,740,399
LIMITED PARTNERS' EQUITY - PER UNIT (1) ....... 52.70 62.49 72.78 83.43 93.36
INCOME-PRODUCING PROPERTIES:
Number ...................................... 1 1 1 1 1
Cost ........................................ 5,937,010 7,303,973 7,159,858 6,937,726 6,719,401
Less: Accumulated depreciation .............. (1,956,254) (3,080,645) (2,737,823) (2,435,363) (2,107,082)
Valuation allowance ................... (1,000,000) (1,000,000) (1,000,000) (1,000,000) (1,000,000)
Net book value .............................. 2,980,756 3,223,328 3,422,035 3,502,363 3,612,319
NOTE PAYABLE - related to income-
producing property .......................... 1,763,420 1,802,820 1,838,747 N/A N/A
MINORITY INTEREST IN CONSOLIDATED
JOINT VENTURE ............................... 25,510 (102,995) 476,836 791,746 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 limited
partnership unit from inception to December 31, 1997 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, 1997 and 1996, 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, 1997. 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, 1997 and 1996, and the results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1997 in conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Houston, Texas
March 13, 1998
16
<PAGE>
SIERRA PACIFIC DEVELOPMENT FUND
(A CALIFORNIA LIMITED PARTNERSHIP)
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1997 AND 1996
DECEMBER 31, DECEMBER 31,
1997 1996
----------- -----------
ASSETS (NOTE 5)
Cash and cash equivalents ..................... $ 87,192 $ 55,629
Rent receivables:
Unbilled rent (Notes 1 and 4) .............. 71,309 81,086
Billed rent (Note 1) ....................... 1,653 23,078
Due from affiliates (Note 3) .................. 26,916 26,916
Income-producing property - net of
accumulated depreciation and
valuation allowance of $2,956,254
in 1997 and $4,080,645 in 1996 (Note 4) ..... 2,980,756 3,223,328
Other assets (Notes 1, 2 and 3) ............... 268,624 299,838
----------- -----------
Total Assets .................................. $ 3,436,450 $ 3,709,875
=========== ===========
LIABILITIES AND PARTNERS' EQUITY
Accrued and other liabilities (Note 2) ........ $ 100,512 $ 175,729
Note payable (Note 5) ......................... 1,763,420 1,802,820
----------- -----------
Total Liabilities ............................. 1,863,932 1,978,549
----------- -----------
Minority interest in consolidated
joint venture (Note 4) ..................... 25,510 (102,995)
----------- -----------
Partners' equity (Notes 1 and 6):
General Partner ............................. 0 0
Limited Partners:
30,000 units authorized,
29,354 issued and
outstanding ............................ 1,547,008 1,834,321
----------- -----------
Total Partners' equity ........................ 1,547,008 1,834,321
----------- -----------
Total Liabilities and Partners' equity ........ $ 3,436,450 $ 3,709,875
=========== ===========
SEE ACCOMPANYING NOTES
17
<PAGE>
SIERRA PACIFIC DEVELOPMENT FUND
(A CALIFORNIA LIMITED PARTNERSHIP)
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
<TABLE>
<CAPTION>
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
REVENUES:
Rental income (Note 1) ...................... $ 757,716 $ 747,865 $ 585,614
Interest income ............................. 39 7,779 6,915
----------- ----------- -----------
Total revenues .......................... 757,755 755,644 592,529
----------- ----------- -----------
EXPENSES:
Operating expenses:
Depreciation and amortization ............. 409,297 468,130 407,418
Maintenance and repairs ................... 140,098 112,480 109,301
Utilities ................................. 105,780 131,283 129,886
Property taxes and insurance .............. 78,394 76,667 91,681
Legal and accounting ...................... 37,083 43,160 34,432
Administrative fees (Note 3) .............. 30,750 33,714 40,679
General and administrative ................ 38,720 40,908 34,472
Management fees (Note 3) .................. 33,559 29,075 26,036
Salaries and payroll taxes ................ 14,400 14,400 20,663
Renting expenses .......................... 2,861 2,174 1,262
Other operating expenses .................. 8,762 12,083 36,676
----------- ----------- -----------
Total operating expenses ................ 899,704 964,074 932,506
Interest ...................................... 160,359 163,762 69,614
----------- ----------- -----------
Total expenses .......................... 1,060,063 1,127,836 1,002,120
----------- ----------- -----------
LOSS BEFORE MINORITY INTEREST'S SHARE
OF CONSOLIDATED JOINT VENTURE LOSS .......... (302,308) (372,192) (409,591)
----------- ----------- -----------
MINORITY INTEREST'S SHARE OF
CONSOLIDATED JOINT VENTURE LOSS ............. 14,995 70,232 96,868
----------- ----------- -----------
NET LOSS ...................................... $ (287,313) $ (301,960) $ (312,723)
=========== =========== ===========
Net loss per limited partnership unit (Note 1). $ (9.79) $ (10.29) $ (10.65)
=========== =========== ===========
</TABLE>
SEE ACCOMPANYING NOTES
18
<PAGE>
SIERRA PACIFIC DEVELOPMENT FUND
(A CALIFORNIA LIMITED PARTNERSHIP)
CONSOLIDATED STATEMENTS OF CHANGES IN PARTNERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
<TABLE>
<CAPTION>
Limited Partners Total
------------------------------ General Partners'
Per Unit Total Partner Equity
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Partners' equity - January 1, 1995 ......................... $ 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
Net loss ................................................... (9.79) (287,313) (287,313)
------------ ------------ ------------ ------------
Partners' equity - December 31, 1997 ....................... $ 52.70 $ 1,547,008 $ 0 $ 1,547,008
============ ============ ============ ============
</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, 1997, 1996 AND 1995
<TABLE>
<CAPTION>
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss ............................................................. $ (287,313) $ (301,960) $ (312,723)
Adjustments to reconcile net loss
to net cash provided by (used in) operating activities:
Depreciation and amortization ...................................... 409,297 468,130 407,418
Minority interest's share of consolidated
joint venture loss ............................................... (14,995) (70,232) (96,868)
Decrease (increase) in rent receivable ............................. 31,202 (30,238) (59,478)
Decrease in other receivables ...................................... 0 0 10,795
Increase in other assets ........................................... (43,633) (92,757) (262,842)
(Decrease) increase in accrued and other liabilities................ (75,217) 72,735 (273,749)
----------- ----------- -----------
Net cash provided by (used in) operating activities ................ 19,341 45,678 (587,447)
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Payments for property additions ...................................... (91,878) (204,875) (284,946)
----------- ----------- -----------
Net cash used in investing activities ................................ (91,878) (204,875) (284,946)
----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Contributions from minority investor ................................ 168,500 31,400 190,000
Distributions to minority investor .................................. (25,000) (541,000) (408,042)
Funding of note payable secured by property ......................... 0 0 1,850,000
Principal payments on note payable .................................. (39,400) (35,927) (11,253)
Payments to affiliates .............................................. 0 (26,916) 0
----------- ----------- -----------
Net cash provided by (used in) financing activities .................. 104,100 (572,443) 1,620,705
----------- ----------- -----------
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS ................................................ 31,563 (731,640) 748,312
CASH AND CASH EQUIVALENTS - Beginning of year .......................... 55,629 787,269 38,957
----------- ----------- -----------
CASH AND CASH EQUIVALENTS - End of year ................................ $ 87,192 $ 55,629 $ 787,269
=========== =========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the year for interest ............................... $ 160,655 $ 164,031 $ 55,823
=========== =========== ===========
</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, 1997, the Partnership's remaining real estate asset
is a 95.04% 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, 1997 and 1996
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.
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, 1997. 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,
1997 and 1996, is as follows:
1997 1996
-------- --------
Other assets:
Prepaid expenses .................................. $ 40,875 $ 39,141
Deferred loan costs, net of accumulated
amortization of $19,880 in 1997
and $11,637 in 1996 ............................. 62,505 70,748
Deferred leasing costs, net of accumulated
amortization of $147,529 in 1997
and $93,914 in 1996 ............................. 165,244 189,949
-------- --------
$268,624 $299,838
======== ========
Accrued and other liabilities:
Accounts payable .................................. $ 40,686 $122,061
Accrued expenses .................................. 8,400 14,862
Security deposits ................................. 24,124 22,271
Interest payable .................................. 13,225 13,521
Other ............................................. 14,077 3,014
-------- --------
$100,512 $175,729
======== ========
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, 1997, 1996 and 1995 were $33,559,
$29,075 and $17,217, 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 $34,870, $33,714 and $25,601 for such services for the years ended
December 31, 1997, 1996 and 1995, respectively. Additionally, the Partnership
reimbursed the affiliate for construction supervision costs incurred by the
affiliate. For the years ended December 31, 1997, 1996 and 1995 the affiliate
received $12,358, $9,657 and $17,900, 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, 1997, 1996 and 1995 these fees
amounted to $19,097, $38,277 and $22,441, respectively, and were recorded as
deferred leasing costs.
During 1996, the Partnership made a non-interest bearing loan to an affiliate in
the amount of $26,916. Repayment is expected in 1998.
4. INCOME-PRODUCING PROPERTY
At December 31, 1997 and 1996, the total cost and accumulated depreciation of
the property are as follows:
1997 1996
----------- -----------
Land ................................... $ 1,555,033 $ 1,555,033
Building and improvements .............. 4,381,977 5,748,940
----------- -----------
Total .............................. 5,937,010 7,303,973
Accumulated depreciation ............... (1,956,254) (3,080,645)
Valuation allowance .................... (1,000,000) (1,000,000)
----------- -----------
Net ................................ $ 2,980,756 $ 3,223,328
=========== ===========
During 1997 and 1996, the Partnership removed $1,458,841 and $60,760,
respectively, from its buildings and improvements and related accumulated
depreciation accounts for fully depreciated property.
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 ($875,000, net, through December 31, 1994).
SMMP made additional cash contributions amounting to $190,000, $31,400 and
$168,500 and received distributions amounting to $408,042, $541,000 and $25,000
during 1995, 1996 and 1997, 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, 1996 and 1997, the Partnership's interest in
SCP was changed to 76.35%, 81.13% and 95.04%, respectively. On January 1, 1998,
the Partnership's interest will be decreased to 90.67% and SMMP's interest will
be increased to 9.33% to reflect the 1997 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
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
---------- ----------
1998 .............................. $ 729,293 $ 749,307
1999 .............................. 638,886 666,109
2000 .............................. 376,333 390,245
2001 .............................. 207,172 213,395
2002 .............................. 79,815 83,752
Thereafter ......................... 0 0
---------- ----------
Total ............................ $2,031,499 $2,102,808
========== ==========
The Partnership relied on five tenants to generate 69% of total 1997 rental
income. The breakdown for these five tenants' industry segments and rental
income contribution is as follows: 16% and 10% for two tenants related to the
mortgage industry; 16% billing and collections; 17% banking, and 10% insurance.
5. NOTE PAYABLE
At December 31, 1997, 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 1997). 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, 1997, are: $42,900 in 1998;
$46,924 in 1999; $51,326 in 2000; $56,140 in 2001; $61,407 in 2002 and
$1,504,723 thereafter.
The Partnership is exposed to interest rate fluctuations on $1,763,420 of
variable rate debt at December 31, 1997.
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, 1997 FINANCIAL STATEMENTS AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<CASH> 87,192
<SECURITIES> 0
<RECEIVABLES> 72,962
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 115,761
<PP&E> 5,937,010
<DEPRECIATION> 2,956,254
<TOTAL-ASSETS> 3,436,450
<CURRENT-LIABILITIES> 100,512
<BONDS> 1,763,420
0
0
<COMMON> 0
<OTHER-SE> 1,547,008
<TOTAL-LIABILITY-AND-EQUITY> 3,436,450
<SALES> 757,716
<TOTAL-REVENUES> 757,755
<CGS> 0
<TOTAL-COSTS> 490,407
<OTHER-EXPENSES> 409,297
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 160,359
<INCOME-PRETAX> (287,313)
<INCOME-TAX> 0
<INCOME-CONTINUING> (287,313)
<DISCONTINUED> 0
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</TABLE>
