FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Quarterly Report Under Section 13 or 15(d)
of the Securities Exchange Act of 1934
For Quarter ended September 30, 2000
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Commission file number 0-11068
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SIERRA PACIFIC DEVELOPMENT FUND
(A LIMITED PARTNERSHIP)
State of California 95-3643693
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(State or other jurisdiction of (I.R.S. Employer Identification
incorporation or organization) Number)
5850 San Felipe, Suite 450
Houston, Texas 77057
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(Address of principal executive (Zip Code)
offices)
Registrant's telephone number,
including area code: (713) 706-6271
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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 [ ].
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
The following financial statements are submitted in the next pages:
PAGE
NUMBER
Consolidated Balance Sheets - September 30, 2000 and December
31, 1999 4
Consolidated Statements of Operations - For the Nine Months
Ended September 30, 2000 and 1999 and for the Three Months
Ended September 30, 2000 and 1999 5
Consolidated Statements of Changes in Partners' Equity - For
the Year Ended December 31, 1999 and for the Nine Months Ended
September 30, 2000 6
Consolidated Statements of Cash Flows - For the Nine Months
Ended September 30, 2000 and 1999 7
Notes to Consolidated Financial Statements 8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
(a) OVERVIEW
The following discussion should be read in conjunction with the Sierra Pacific
Development Fund's (the Partnership) Consolidated Financial Statements and Notes
thereto appearing elsewhere in this Form 10-Q.
The Partnership currently owns a 94.92% interest in the Sierra Creekside
Partnership, which operates the Sierra Creekside property (the Property) in San
Diego, CA.
(b) RESULTS OF OPERATIONS
Rental income for the nine months ended September 30, 2000 increased by
approximately $62,000, or 9%, in comparison to the same period in the 1999,
principally due to higher rental rates. One tenant, who leases approximately
7,000 square feet of the Property, extended his lease for an additional
five-year term in March 2000 at a higher rate. Rental income for the three
months ended September 30, 2000 rose by approximately $20,000, or 9%, primarily
as a result of the lease extension. The Property was 100% occupied at September
30, 2000 compared to 98% at September 30, 1999.
2
<PAGE>
Operating expenses for the nine months ended September 30, 2000 increased by
approximately $29,000, or 8%, in comparison to the same period in the prior
year, principally due to higher utility costs and accounting and auditing fees.
Further, data processing and other professional fees rose during the period.
This increase was partially offset by a decrease in administrative costs.
Operating expenses for the quarter ended September 30, 2000 increased by
approximately $7,000 or 5%, primarily as a result of an increased data
processing and accounting and auditing costs.
Depreciation and amortization expenses for the nine months and three months
ended September 30, 2000 decreased by approximately $21,000, or 8%, and by
approximately $7,000, or 8%, respectively, primarily due to fully depreciated
capitalized tenant improvements and fully amortized lease costs.
Interest expense for the nine months and three months ended September 30, 2000,
increased by approximately $148,000 and $61,000, respectively, when compared to
the same periods in 1999. As stated below, the Partnership refinanced its
mortgage loan on the Property in January 2000.
An extraordinary loss of approximately $46,000 was recorded in the first quarter
due to the write-off of deferred loan costs associated with the payoff of the
mortgage loan with Home Federal Savings.
(c) LIQUIDITY AND CAPITAL RESOURCES
In January 2000, the Partnership paid its loan balance of $1,669,000 to Home
Federal Savings and entered into a loan agreement with General Electric Capital
Corporation (GECC) in the principle amount of $4,250,000. The lender funded
$4,050,000 at closing and held back $200,000 to be drawn upon to help finance
future tenant improvements and leasing costs. The Partnership received net
proceeds of $2,222,000 as a result of the new loan. The loan is secured by the
Property and bears interest at 2.75% above the GECC Composite Commercial Paper
Rate. Principal and interest payments are due monthly based on a 30-year
amortization. The loan matures January 31, 2005. The majority of the loan
proceeds were distributed to the minority owner of the property, Sierra Mira
Mesa Partners (SMMP). During the nine months ended September 30, 2000, SMMP
received distributions totaling approximately $2,528,000 from the Partnership
and made contributions totaling approximately $133,000 to the Partnership.
The Partnership is in an illiquid position at September 30, 2000 with cash and
billed receivables of approximately $23,000 and accrued and other liabilities of
approximately $129,000. A secondary source of cash is available through
contributions from SMMP. Management expects these contributions will be adequate
to meet the financial obligations of the Partnership in the foreseeable future.
The Partnership's primary capital requirements are for the construction of new
tenant space and debt obligations. It is anticipated that these requirements
will be funded from the operations of the Property, the $200,000 tenant
improvement/lease commission holdback and contributions from SMMP.
Inflation:
The Partnership does not expect inflation to be a material factor in its
operations in 2000.
3
<PAGE>
SIERRA PACIFIC DEVELOPMENT FUND
(A LIMITED PARTNERSHIP)
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 2000 AND DECEMBER 31, 1999
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<TABLE>
<CAPTION>
SEPTEMBER 30, 2000 DECEMBER 31, 1999
(UNAUDITED)
-------------------- --------------------
<S> <C> <C>
ASSETS
Cash and cash equivalents ......................................................... $ 16,518 $ 134,154
Receivables:
Unbilled rent .................................................................. 50,890 51,981
Billed rent .................................................................... 6,315 8,640
Income-producing property - net of
accumulated depreciation and valuation
allowance of $3,281,400 and $3,289,481,
respectively .................................................................... 2,408,001 2,557,487
Other assets - net of accumulated amortization
of $207,611 and $263,977, respectively .......................................... 329,292 238,197
Excess distributions to minority Partner .......................................... 2,533,903 128,513
-------------------- --------------------
Total Assets ...................................................................... $ 5,344,919 $ 3,118,972
==================== ====================
LIABILITIES AND PARTNERS' EQUITY
Accrued and other liabilities ..................................................... $ 129,369 $ 64,825
Notes payable ..................................................................... 4,030,435 1,673,186
-------------------- --------------------
Total Liabilities ................................................................. 4,159,804 1,738,011
-------------------- --------------------
Partners' equity (deficit):
General Partner ................................................................. (82,729) 0
Limited Partners:
30,000 units authorized,
29,354 issued and
outstanding ................................................................ 1,267,844 1,380,961
-------------------- --------------------
Total Partners' equity ............................................................ 1,185,115 1,380,961
-------------------- --------------------
Total Liabilities and Partners' equity ............................................ $ 5,344,919 $ 3,118,972
==================== ====================
</TABLE>
SEE ACCOMPANYING NOTES
4
<PAGE>
SIERRA PACIFIC DEVELOPMENT FUND
(A LIMITED PARTNERSHIP)
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999
AND FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999
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<TABLE>
<CAPTION>
NINE MONTHS ENDED THREE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
---------------------------------- ----------------------------------
2000 1999 2000 1999
(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
REVENUES:
Rental income ........................................ $ 744,330 $ 682,407 $ 254,553 $ 234,341
--------------- --------------- --------------- ---------------
Total revenues ............................... 744,330 682,407 254,553 234,341
--------------- --------------- --------------- ---------------
EXPENSES:
Operating expenses ................................... 404,520 376,008 135,584 128,931
Depreciation and amortization ........................ 236,937 257,948 76,902 83,721
Interest ............................................. 263,180 114,824 98,808 38,010
--------------- --------------- --------------- ---------------
Total costs and expenses ..................... 904,637 748,780 311,294 250,662
--------------- --------------- --------------- ---------------
LOSS BEFORE EXTRAORDINARY LOSS ......................... (160,307) (66,373) (56,741) (16,321)
EXTRAORDINARY LOSS FROM WRITE-OFF
OF DEFERRED LOAN COSTS ............................... (46,020) 0 0 0
--------------- --------------- --------------- ---------------
LOSS BEFORE MINORITY INTEREST'S SHARE
OF CONSOLIDATED JOINT VENTURE LOSS ................... (206,327) (66,373) (56,741) (16,321)
--------------- --------------- --------------- ---------------
MINORITY INTEREST'S SHARE OF
CONSOLIDATED JOINT VENTURE LOSS ...................... 10,481 4,347 2,882 1,068
--------------- --------------- --------------- ---------------
NET LOSS ............................................... $ (195,846) $ (62,026) $ (53,859) $ (15,253)
=============== =============== =============== ===============
Per limited partnership unit:
Loss before extraordinary loss ....................... $ (5.06) $ (2.11) $ (1.82) $ (0.52)
Extraordinary loss ................................... (1.55) 0 0 0
--------------- --------------- --------------- ---------------
Net loss per limited partnership unit .................. $ (6.61) $ (2.11) $ (1.82) $ (0.52)
=============== =============== =============== ===============
</TABLE>
SEE ACCOMPANYING NOTES
5
<PAGE>
SIERRA PACIFIC DEVELOPMENT FUND
(A LIMITED PARTNERSHIP)
CONSOLIDATED STATEMENTS OF CHANGES IN PARTNERS' EQUITY
FOR THE YEAR ENDED DECEMBER 31, 1999 AND
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000
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<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, 1998) ........................................ (223.05) (6,547,484) $ 14,600 (6,532,884)
Cumulative distributions
(to December 31, 1998) ........................................ (166.75) (4,894,473) (14,600) (4,909,073)
------------ ------------ ------------ ------------
Partners' equity - January 1, 1999 .............................. 49.91 1,465,181 0 1,465,181
Net loss ........................................................ (2.87) (84,220) (84,220)
------------ ------------ ------------ ------------
Partners' equity - January 1, 2000 (audited) .................... 47.04 1,380,961 0 1,380,961
Transfer among general partner and limited partners ............. 2.26 80,771 (80,771) 0
Net loss (unaudited) ............................................ (6.61) (193,888) (1,958) (195,846)
------------ ------------ ------------ ------------
Partners' equity (deficit) - September 30, 2000 (unaudited) ..... $ 42.69 $ 1,267,844 $ (82,729) $ 1,185,115
============ ============ ============ ============
</TABLE>
SEE ACCOMPANYING NOTES
6
<PAGE>
SIERRA PACIFIC DEVELOPMENT FUND
(A LIMITED PARTNERSHIP)
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
2000 1999
(UNAUDITED) (UNAUDITED)
--------------- ---------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss ............................................................................... $ (195,846) $ (62,026)
Adjustments to reconcile net loss
to cash provided by operating activities:
Depreciation and amortization ........................................................ 236,937 257,948
Extraordinary loss from write-off of deferred
loan costs ......................................................................... 46,020 0
Minority interest's share of consolidated
joint venture loss ................................................................. (10,481) (4,347)
Decrease (increase) in receivables ................................................... 3,416 (673)
Increase in other assets ............................................................. (93,445) (29,758)
Increase in accrued and other liabilities ............................................ 64,544 563
--------------- ---------------
Net cash provided by operating activities ............................................ 51,145 161,707
--------------- ---------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Payments for property additions ...................................................... (18,685) (9,642)
--------------- ---------------
Net cash used in investing activities ................................................ (18,685) (9,642)
--------------- ---------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from note payable secured by property ....................................... 4,050,000 0
Principal payments on notes payable .................................................. (1,692,751) (34,954)
Payments on deferred loan costs ...................................................... (112,436) 0
Contributions from minority partner .................................................. 133,388 0
Distributions to minority partner .................................................... (2,528,297) 0
Loan to affiliate .................................................................... 0 (47,000)
--------------- ---------------
Net cash used in financing activities ................................................ (150,096) (81,954)
--------------- ---------------
NET (DECREASE) INCREASE IN CASH
AND CASH EQUIVALENTS .................................................................. (117,636) 70,111
CASH AND CASH EQUIVALENTS
Beginning of period .................................................................. 134,154 83,408
--------------- ---------------
CASH AND CASH EQUIVALENTS
End of period ........................................................................ $ 16,518 $ 153,519
=============== ===============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for real estate taxes ..................................... $ 36,473 $ 36,816
=============== ===============
Cash paid during the period for interest .............................................. $ 275,941 $ 115,086
=============== ===============
</TABLE>
SEE ACCOMPANYING NOTES
7
<PAGE>
SIERRA PACIFIC DEVELOPMENT FUND
(A LIMITED PARTNERSHIP)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
------------------------------------------------------------------------
1. ORGANIZATION
In February 1994, Sierra Pacific Development Fund (the Partnership) created a
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 Property). The Partnership
Agreement of Sierra Creekside Partners (the Agreement) was amended effective
January 1, 1995 to consider both contributions and distributions when
calculating each partner's percentage interest at January 1st of each year.
Accordingly, on January 1, 2000, the Partnership's interest in Sierra Creekside
Partners was increased to 94.92% from 93.45% to reflect 1999 contributions and
distributions.
2. BASIS OF FINANCIAL STATEMENTS
The accompanying unaudited consolidated condensed financial statements include
the accounts of the Partnership and Sierra Creekside Partners at September 30,
2000. All significant intercompany balances and transactions have been
eliminated in consolidation.
In the opinion of the Partnership's management, these unaudited financial
statements reflect all adjustments which are necessary for a fair presentation
of its financial position at September 30, 2000 and results of operations and
cash flows for the periods presented. All adjustments included in these
statements are of a normal and recurring nature. These financial statements
should be read in conjunction with the financial statements and notes thereto
contained in the Annual Report of the Partnership for the year ended December
31, 1999.
3. RELATED PARTY TRANSACTIONS
Included in the financial statements for the nine months ended September 30,
2000 and 1999 are affiliate transactions as follows:
SEPTEMBER 30
-----------------------
2000 1999
---------- ---------
Management fees $ 33,545 $ 30,414
Administrative fees 30,348 38,877
8
<PAGE>
Sierra Pacific Development Fund
Notes to Consolidated Financial Statements (Unaudited)
Page two
4. PARTNERS' EQUITY
Equity and net loss per limited partnership unit is determined by dividing the
limited partners' share of the Partnership's equity and net loss by the number
of limited partnership units outstanding, 29,354.
During the quarter ended March 31, 2000, an amount was transferred between the
partners' equity accounts such that 99% of cumulative operating income, gains,
losses, deductions and credits of the Partnership was allocated among the
limited partners and 1% was allocated to the general partner. Management does
not believe that the effect of this transfer is significant.
5. PENDING TRANSACTION
CGS Real Estate Company, Inc. (CGS), an affiliate of the general partner, is
continuing the process of developing a plan pursuant to which the property owned
by the Partnership would be combined with the properties of other real estate
partnerships managed by CGS and its affiliates. These limited partnerships own
office properties, industrial properties, shopping centers, and residential
apartment properties. It is expected that the acquirer would in the future
qualify as a real estate investment trust. Limited partners would receive shares
of common stock in the acquirer, which would be listed on a national securities
exchange or the NASDAQ national market system. The transaction is subject to the
approval of the limited partners of the Partnership and portions of the other
partnerships. CGS's management filed a Registration Statement on Form S-4 August
14, 2000 relating to the solicitation of consents with the Securities and
Exchange Commission.
6. RECENT ACCOUNTING PRONOUNCEMENT
In December 1999, the Securities and Exchange Commission (SEC) issued Staff
Accounting Bulletin No. 101 (SAB 101), Revenue Recognition in Financial
Statements, which summarizes certain of the SEC staff's views on applying
generally accepted accounting principles to revenue recognition in financial
statements. The Partnership will adopt the accounting provisions of SAB 101 in
the fourth quarter of 2000. Management believes that the implementation of SAB
101 will not have a significant effect on the Partnership's financial condition
or results of operations.
9
<PAGE>
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
The following Exhibits are filed herewith pursuant to Rule 601 of
Regulation S-K.
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
----------- -----------------------------
27 Financial Data Schedule
(b) Reports on Form 8-K
A Form 8-K was filed in April 2000 reporting a change in the Partnership's
Certifying Accountant.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report be signed on its behalf by the
undersigned thereunto duly authorized.
SIERRA PACIFIC DEVELOPMENT FUND
a Limited Partnership
S-P PROPERTIES, INC.
General Partner
Date: NOVEMBER 14, 2000 /s/ THOMAS N. THURBER
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Thomas N. Thurber
President and Director
Date: NOVEMBER 14, 2000 /s/ G. ANTHONY EPPOLITO
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G. Anthony Eppolito
Chief Accountant
10
