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, 1996
Commission file number 0-12036
SIERRA PACIFIC DEVELOPMENT FUND II
(A LIMITED PARTNERSHIP)
State of California 95-3836271
- -------------------------------------------- --------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
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
--------------------
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
------
Balance Sheets - September 30, 1996 and December 31, 1995 ................. 4
Statements of Operations - For the Nine Months Ended
September 30, 1996 and 1995 and the Three Months Ended
September 30, 1996 and 1995 ............................................... 5
Statements of Changes in Partners' Equity - From April 29,
1983 (inception of Partnership) to December 31, 1995 and
for the Nine Months Ended September 30, 1996 .............................. 6
Statements of Cash Flows - For the Nine Months Ended
September 30, 1996 and 1995 ............................................... 7
Notes to 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 Partnership's
Financial Statements and Notes thereto appearing elsewhere in this Form 10-Q.
The Partnership currently owns three properties; 5850 San Felipe, Sierra
Westlakes, and Sierra Southwest Pointe. In addition, the Partnership holds a 51%
interest in Sierra Mira Mesa Partners ("SMMP").
(b) RESULTS OF OPERATIONS
Rental revenues for the nine months ended September 30 are virtually unchanged
when compared to the prior year, having increased $23,000, or 2%. Rental income
for the three months ended September 30 increased $82,000, or 22%. This increase
is primarily due to the write off of rent receivable in August 1995. This write
off was due to the replacement of an existing tenant lease with a new lease
effective January 1, 1995. The terms of the new lease were not finalized until
the fourth quarter of 1995 at which time income for the full year was
recognized.
2
<PAGE>
Operating expenses for the first nine months of the year increased by $50,000,
or 5%, as a result of additional expenses associated with an increase in
occupancy at the 5850 San Felipe office building. Included in operating expenses
for the three months ended September 30, 1995 is an adjustment to correct an
overaccrual of administrative fees in the second quarter of 1995. Depreciation
expense increased by $71,000, or 18%, primarily due to increased depreciation on
$352,000 of tenant improvements for the build out of the fifth floor at 5850 San
Felipe. These improvements were substantially completed in December 1995.
Renovations to the lobby at 5850 San Felipe in the amount of $127,000 have also
attributed to this increase. These renovations were substantially completed at
September 30, 1996.
Interest expense increased by $8,000, or 2%, due to funding of a $2,000,000 note
collateralized by the Sierra Westlakes property in February 1996. This loan
bears an interest rate of 9%. The additional interest expense resulting from
this agreement was partially offset by reduced interest expense associated with
the restructure of the debt collateralized by 5850 San Felipe. This modification
agreement, which was effective March 22, 1996, reduced the interest rate on this
debt to 5% from the previous 8.5% in exchange for a principal paydown of
approximately $1,000,000.
The Partnership's share of income (loss) from investment in SMMP was $256,000
for the nine months ended September 30, 1996 compared to ($177,000) for the
corresponding period in the prior year due to SMMP's share of Sorrento I
Partners' ("SIP") second quarter income. SIP, which is consolidated with SMMP,
exercised a discounted payoff option in May 1996. SIP recorded an extraordinary
gain of $1,200,000 in connection with this transaction.
(c) LIQUIDITY AND CAPITAL RESOURCES
The Partnership is in an illiquid position as of September 30, 1996 with cash
and billed receivables of $78,000 compared to $294,000 of accrued and other
liabilities. In February 1996, the Partnership received funding on a $2,000,000
loan collateralized by the Sierra Westlakes property. This property was
previously unencumbered. In March 1996, the Partnership paid a principal paydown
of approximately $1,000,000 as a condition for the restructure of the 5850 San
Felipe note. The Partnership's primary capital requirements will be for the
possible acquisition of land for additional parking at Sierra Westlakes,
construction of new tenant space and compliance with the Americans with
Disabilities Act or other yet unknown changes in building codes. The capital
required to fund these capital requirements will be generated from a combination
of current cash flow from rental activities and the proceeds of the $2,000,000
mortgage loan funded on Sierra Westlakes.
3
<PAGE>
SIERRA PACIFIC DEVELOPMENT FUND II
(A Limited Partnership)
BALANCE SHEETS
September 30, 1996 and December 31, 1995
September 30, 1996 December 31, 1995
ASSETS
Cash and cash equivalents ........................ $ 23,690 $ 202,963
Receivables:
Note, net of deferred gain of $736,271 ........ 2,163,729 2,163,729
Unbilled rent ................................. 330,633 364,615
Billed rent ................................... 54,525 42,435
Due from affiliate of General Partner ......... 812,640 812,000
Due from other affiliates ..................... 187,200 0
Other receivables ............................. 91,641 117,542
Income-producing properties - net of
accumulated depreciation and valuation
allowance of $3,155,833 and $2,791,220,
respectively ................................... 10,993,428 10,900,398
Investment in unconsolidated joint venture ....... 4,933,829 4,681,570
Other assets ..................................... 538,220 391,009
----------- -----------
Total Assets ..................................... $20,129,535 $19,676,261
=========== ===========
LIABILITIES AND PARTNERS' EQUITY
Accrued and other liabilities .................... $ 294,046 $ 294,499
Due to affiliate ................................. 0 140,000
Notes payable .................................... 6,119,125 5,185,902
----------- -----------
Total Liabilities ................................ 6,413,171 5,620,401
----------- -----------
Partners' equity :
General Partner ................................ 0 0
Limited Partners:
Class A Limited Partners:
60,000 units authorized,
56,674 issued and outstanding ............. 9,075,554 9,193,008
Class B Limited Partners:
60,000 units authorized,
29,979 issued and outstanding .............. 4,640,810 4,862,852
----------- -----------
Total Partners' equity ........................... 13,716,364 14,055,860
----------- -----------
Total Liabilities and Partners' equity .......... $20,129,535 $19,676,261
=========== ===========
Unaudited
See Accompanying Notes
4
<PAGE>
SIERRA PACIFIC DEVELOPMENT FUND II
(A Limited Partnership)
STATEMENTS OF OPERATIONS
For the Nine Months Ended September 30, 1996 and 1995
and for the Three Months Ended September 30, 1996 and 1995
<TABLE>
<CAPTION>
Nine Months Ended Three Months Ended
September 30, September 30,
------------------------------- -------------------------------
1996 1995 1996 1995
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
REVENUES:
Rental income .................................... $ 1,326,093 $ 1,303,521 $ 456,098 $ 374,152
Interest income .................................. 264,480 260,405 85,010 78,321
----------- ----------- ----------- -----------
Total Revenues ..................................... 1,590,573 1,563,926 541,108 452,473
----------- ----------- ----------- -----------
EXPENSES:
Operating expenses ............................. 1,073,447 1,023,916 360,957 288,500
Depreciation and amortization .................. 457,824 386,808 158,276 128,301
Interest ....................................... 354,701 346,780 111,673 115,175
----------- ----------- ----------- -----------
Total costs and expenses ........................... 1,885,972 1,757,504 630,906 531,976
----------- ----------- ----------- -----------
LOSS BEFORE PARTNERSHIP'S SHARE OF
UNCONSOLIDATED JOINT VENTURE
INCOME (LOSS) ................................... (295,399) (193,578) (89,798) (79,503)
----------- ----------- ----------- -----------
PARTNERSHIP'S SHARE OF UNCONSOLIDATED
JOINT VENTURE INCOME (LOSS) ..................... 255,903 (176,964) (39,652) (78,606)
----------- ----------- ----------- -----------
NET LOSS ........................................... $ (39,496) $ (370,542) $ (129,450) $ (158,109)
=========== =========== =========== ===========
Net loss per limited partnership unit .............. $ (0.46) $ (4.28) $ (1.49) $ (1.82)
=========== =========== =========== ===========
</TABLE>
Unaudited
See Accompanying Notes
5
<PAGE>
SIERRA PACIFIC DEVELOPMENT FUND II
(A Limited Partnership)
STATEMENTS OF CHANGES IN PARTNERS' EQUITY
From April 29, 1983 (Inception of Partnership) to December 31, 1995
and for the Nine Months Ended September 30, 1996
<TABLE>
<CAPTION>
Limited Partners Total
-------------------------------------------- General Partners'
Class A Class B Total Per Unit Partner Equity
------------ ------------ ------------ ------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Proceeds from sale of
partnership units ..................... $ 14,392,000 $ 7,579,000 $ 21,971,000 $250.00 -- $ 21,971,000
Underwriting commissions
and other organization expenses ....... (1,939,045) (1,021,124) (2,960,169) (33.68) -- (2,960,169)
Repurchase of 1,231 partnership
units ................................ (177,934) (66,167) (244,101) 0.06 -- (244,101)
Cumulative net income
(to December 31, 1995) ................ 374,140 197,315 571,455 6.59 $ 46,674 618,129
Cumulative distributions
from operations
(to December 31, 1995) ................ (2,747,272) (1,451,193) (4,198,465) (48.25) (46,674) (4,245,139)
Cumulative distributions
from dispositions of assets
(to December 31, 1995) ................ (708,881) (374,979) (1,083,860) (12.51) 0 (1,083,860)
------------ ------------ ------------ ------- ------------ ------------
Partners' equity -
January 1, 1996 ....................... 9,193,008 4,862,852 14,055,860 162.21 0 14,055,860
Net income - year to date ............... (13,664) (25,832) (39,496) (0.46) -- (39,496)
Distributions from disposition
of assets ............................. (103,790) (196,210) (300,000) (3.46) -- (300,000)
------------ ------------ ------------ ------- ------------ ------------
Partners' equity - September 30, 1996 ... $ 9,075,554 $ 4,640,810 $ 13,716,364 $158.29 $ 0 $ 13,716,364
============ ============ ============ ======= ============ ============
</TABLE>
Unaudited
See Accompanying Notes
6
<PAGE>
SIERRA PACIFIC DEVELOPMENT FUND II
(A Limited Partnership)
STATEMENTS OF CASH FLOWS
For the Nine Months Ended September 30, 1996 and 1995
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss ................................................ $ (39,496) $ (370,542)
Adjustments to reconcile net loss
to cash provided by (used in) operating activities:
Depreciation and amortization ....................... 457,824 386,808
Undistributed (income) loss of unconsolidated
joint venture ..................................... (255,903) 176,964
Decrease (increase) in rent receivable .............. 21,892 (85,508)
Decrease (increase) in other receivables ............ 25,901 (115,607)
Increase in other assets ............................ (207,696) (165,218)
Decrease in accrued and other liabilities ........... (453) (597,315)
----------- -----------
Net cash provided by (used in) operating activities . 2,069 (770,418)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Payments for property acquisition and additions ....... (486,725) (82,609)
Capital contributions to unconsolidated joint venture . 0 (685,045)
Distributions received from unconsolidated
joint venture ....................................... 0 385,967
----------- -----------
Net cash used in investing activities ................. (486,725) (381,687)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Cash distributions from disposition of assets ......... (300,000) (100,000)
Funding of note payable secured by property ........... 2,000,000 0
Principal payments on notes payable ................... (1,066,777) (37,449)
Payments to affiliate ................................. (327,840) 0
----------- -----------
Net cash provided by (used in) financing activities 305,383 (137,449)
----------- -----------
NET DECREASE IN CASH
AND CASH EQUIVALENTS .................................. (179,273) (1,289,554)
CASH AND CASH EQUIVALENTS - Beginning of period ......... 202,963 1,541,302
----------- -----------
CASH AND CASH EQUIVALENTS - End of period ............... $ 23,690 $ 251,748
=========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash paid during the period for interest .............. $ 355,056 $ 318,573
=========== ===========
</TABLE>
Unaudited
See Accompanying Notes
7
<PAGE>
SIERRA PACIFIC DEVELOPMENT FUND II
(A LIMITED PARTNERSHIP)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
---------------------------------------------------------------------
1. BASIS OF FINANCIAL STATEMENTS
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, 1996 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, 1995.
2. RELATED PARTY TRANSACTIONS
In 1994, all of the common stock of S-P Properties, Inc., the General Partner of
the Partnership, was purchased by Finance Factors, Inc. from Carlsberg
Management Company ("CMC"). CMC continued to manage the affairs of the
Partnership through March 31, 1995.
Included in the financial statements for the nine months ended September 30,
1996 and 1995 are affiliate transactions as follows:
September 30
--------------------------
1996 1995
------------- ------------
Management fees $ 66,841 $ 47,739
Administrative fees 144,798 107,679
Leasing fees 44,215 0
Construction fees 43,257 0
3. INVESTMENT IN UNCONSOLIDATED JOINT VENTURE
Sierra Mira Mesa Partners ("SMMP") was formed in 1985 between the Partnership
and Sierra Pacific Pension Investors '84, an affiliate, to develop and operate
the real property known as Sierra Mira Mesa, an office building, located in San
Diego, California. At September 30, 1996 the Partnership's interest in SMMP is
51%; the remaining 49% interest is owned by Sierra Pacific Pension Investors
'84.
UNAUDITED
8
<PAGE>
Sierra Pacific Development Fund II
Notes to Financial Statements
Page two
Summarized income statement information for SMMP for the nine months ended
September 30, 1996 and 1995 follows:
September 30
--------------------------
1996 1995
------------- ------------
Rental income $1,327,910 $1,098,260
Total revenues 1,463,279 1,224,497
Operating expenses 605,231 482,134
Share of unconsolidated joint venture
loss 277,055 345,842
Loss before extraordinary item (463,792) (346,989)
Extraordinary gain 1,200,380 0
Net income (loss) 501,770 (346,989)
As of September 30, 1996, SMMP holds a 75.06% interest in Sorrento I Partners
("SIP"), a general partnership with Sierra Pacific Development Fund III formed
in 1993; a 26.92% interest in Sorrento II Partners ("SIIP"), a general
partnership with Sierra Pacific Institutional Properties V formed in 1993; a
18.87% interest in Sierra Creekside Partners ("SCP"), a general partnership with
Sierra Pacific Development Fund formed in 1994; and a 37.74% interest in Sierra
Vista Partners ("SVP"), a general partnership with Sierra Pacific Development
Fund III formed in 1994.
Summarized income statement information for these Partnerships for the nine
months ended September 30, 1996 and 1995 follows:
SIP SIIP
----------------------- ----------------------
September 30 September 30
----------------------- ----------------------
1996 1995 1996 1995
----------- ---------- ----------- ----------
Rental income $ 118,181 $ 0 $ 748,770 $ 671,973
Total revenues 118,268 0 748,770 672,139
Operating expenses 127,141 142,877 275,159 294,754
Loss before extraordinary item (246,823) (476,635) (148,853) (220,936)
Extraordinary gain 1,200,380 0 0 0
Net income (loss) 953,557 (476,635) (148,853) (220,936)
UNAUDITED
9
<PAGE>
Sierra Pacific Development Fund II
Notes to Financial Statements
Page three
SCP SVP
--------------------- -----------------------
September 30 September 30
--------------------- -----------------------
1996 1995 1996 1995
---------- ---------- ---------- ------------
Rental income $ 547,972 $ 419,964 $ 523,377 $ 474,346
Total revenues 555,744 420,211 523,377 474,346
Operating expenses 376,892 404,365 388,328 415,595
Loss before extraordinary item (291,816) (306,561) (481,951) (532,529)
Extraordinary gain 0 0 0 0
Net income (loss) (291,816) (306,561) (481,951) (532,529)
4. PARTNERS' EQUITY
Equity and net income (loss) per limited partnership unit is determined by
dividing the Limited Partners' share of the Partnership's equity and net income
(loss) by the number of limited partnership units outstanding, 56,674 Class A
and 29,979 Class B.
UNAUDITED
10
<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
None
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 II
a Limited Partnership
S-P PROPERTIES, INC.
General Partner
Date: NOVEMBER 11, 1996 /S/ THOMAS N. THURBER
Thomas N. Thurber
President and Director
Date: NOVEMBER 11, 1996 /S/ MICHELE E. JOHNSON
Michele E. Johnson
Chief Accounting Officer
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE FINANCIAL DATA SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM SIERRA PACIFIC DEVELOPMENT FUND SEPTEMBER 30, 1996 FINANCIAL STATEMENTS AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> SEP-30-1996
<CASH> 23,690
<SECURITIES> 0
<RECEIVABLES> 385,158
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1,169,696
<PP&E> 14,149,261
<DEPRECIATION> 3,155,833
<TOTAL-ASSETS> 20,129,535
<CURRENT-LIABILITIES> 294,046
<BONDS> 6,119,125
0
0
<COMMON> 0
<OTHER-SE> 13,716,364
<TOTAL-LIABILITY-AND-EQUITY> 20,129,535
<SALES> 1,326,093
<TOTAL-REVENUES> 1,590,573
<CGS> 0
<TOTAL-COSTS> 1,073,447
<OTHER-EXPENSES> 457,824
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 354,701
<INCOME-PRETAX> (39,496)
<INCOME-TAX> 0
<INCOME-CONTINUING> (39,496)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (39,496)
<EPS-PRIMARY> (.46)
<EPS-DILUTED> (.46)
</TABLE>
