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 March 31, 1996
---------------------------------------------------------
Commission file number 0-12036
---------------------------------------------------------
SIERRA PACIFIC DEVELOPMENT FUND II
(A LIMITED PARTNERSHIP)
State of California 95-3836271
- ------------------------------- -------------------
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification Number)
5850 San Felipe, Suite 500
Houston, Texas 77057
- --------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, ncluding 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[ ].
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
The following financial statements are submitted in the next pages:
Page Number
Balance Sheets - March 31, 1996 and December 31, 1995 ..................... 4
Statements of Operations - For the Three Months
Ended March 31, 1996 and 1995 ............................................. 5
Statements of Changes in Partners' Equity -
From April 29, 1983 (inception of Partnership)
to December 31, 1995 and for the Three Months
Ended March 31, 1996 ....................................................... 6
Statements of Cash Flows - For the Three Months
Ended March 31, 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's financial position at March 31, 1996 remained relatively
unchanged from December 31, 1995, except for additional borrowings and principal
paydowns on notes payable. Comments relating to the Partnership's liquidity and
capital resources reported in its 1995 Annual Report continue to apply.
2
(b) RESULTS OF OPERATIONS
Revenues decreased by $30,000, or 6%, primarily due to the expiration of
government leases at 5850 San Felipe. The Partnership had previously benefited
from rental rates on long-term leases that were higher than current market rates
and, as these leases expired, these rates were reduced.
Operating expenses increased by $32,000, or 11%, as a result of additional
expenses associated with increased occupancy at the 5850 San Felipe office
building. Depreciation expense increased by $15,000, or 12%, primarily due to
increased depreciation on $318,026 of tenant improvements for the build out of
the fifth floor at 5850 San Felipe. These improvements were completed in
December 1995.
Interest expense decreased by $13,000, or 9%, due to 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 reduced interest expense resulting from this agreement was partially offset
by the interest associated with a $2,000,000 note collateralized by the Sierra
Westlakes property which funded in February 1996.
The Partnership's share of loss from investment in SMMP increased by $12,000.
The increase in losses generated by SMMP were principally due to its share of
losses from the Sorrento I Partners ("SIP") joint venture, which owns the
Sorrento I property. SMMP's ownership interest in SIP increased from 58.59% in
1995 to 75.06% in 1996 which contributed to the increase in losses recorded in
the current year.
(c) LIQUIDITY AND CAPITAL RESOURCES
The Partnership used cash flows from operations of $162,000 during the three
months ended March 31, 1996, primarily to reduce liabilities from December 31,
1995. 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. Cash and cash equivalents at March 31, 1996 totaled $977,000 while
current liabilities were $513,000. 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.
SIERRA PACIFIC DEVELOPMENT FUND II
(A Limited Partnership)
BALANCE SHEETS
MARCH 31, 1996 AND DECEMBER 31,
1995
March 31, December 31,
1996 1996
----------- -----------
ASSETS
Cash and cash equivalents .................. $ 976,949 $ 202,963
Receivables:
Note, net of deferred gain of
$736,271 2,163,729 2,163,729
Unbilled rent ........................... 342,335 364,615
Billed rent ............................. 52,625 42,435
Due from affiliate of General
Partner .................................... 812,000 812,000
Other receivables ....................... 192,779 117,542
Income-producing properties - net
of
accumulated depreciation and
valuation
allowance of $2,885,768 and
$2,791,220,
respectively ............................. 10,884,057 10,900,398
Investment in unconsolidated
joint venture .............................. 4,601,507 4,681,570
Other assets ............................... 412,326 391,009
----------- -----------
Total Assets ............................... $20,438,307 $19,676,261
=========== ===========
LIABILITIES AND PARTNERS' EQUITY
Accrued and other liabilities .............. $ 197,697 $ 294,499
Due to affiliate ........................... 315,300 140,000
Notes payable .............................. 6,153,396 5,185,902
----------- -----------
Total Liabilities .......................... 6,666,393 5,620,401
----------- -----------
Partners' equity :
General Partner .......................... 0 0
Limited Partners:
Class A Limited Partners:
60,000 units authorized,
56,674 issued and
outstanding ................................ 9,007,298 9,193,008
Class B Limited Partners:
60,000 units authorized,
29,979 issued and
outstanding ................................ 4,764,616 4,862,852
----------- -----------
Total Partners' equity ..................... 13,771,914 14,055,860
----------- -----------
Total Liabilities and Partners'
equity ..................................... $20,438,307 $19,676,261
=========== ===========
UNAUDITED
SEE ACCOMPANYING NOTES
4
SIERRA PACIFIC DEVELOPMENT FUND II
(A LIMITED PARTNERSHIP)
STATEMENTS OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 1996 AND 1995
1996 1995
--------- ----------
REVENUES:
Rental income .............................. $ 410,353 $ 441,533
Interest income ............................ 91,799 90,486
--------- ---------
Total Revenues ........... 502,152 532,019
--------- ---------
EXPENSES:
Operating expenses ....................... 331,418 299,636
Depreciation and amortization ............ 143,943 129,033
Interest ................................. 131,889 144,425
--------- ---------
Total costs and expenses ........... 607,250 573,094
--------- ---------
LOSS BEFORE PARTNERSHIP'S SHARE OF
UNCONSOLIDATED JOINT VENTURE
LOSS ......................................... (105,098) (41,075)
--------- ---------
PARTNERSHIP'S SHARE OF
UNCONSOLIDATED
JOINT VENTURE LOSS ........................ (78,848) (66,614)
--------- ---------
NET LOSS ..................................... $(183,946) $(107,689)
========= =========
Net loss per limited partnership
unit ......................................... $ (2.12) $ (1.24)
========= =========
UNAUDITED
SEE ACCOMPANYING NOTES
5
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 THREE MONTHS ENDED MARCH 31, 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 ........................... (120,307) (63,639) (183,946) (2.12) -- (183,946)
Distributions from disposition
of assets .......................... (65,403) (34,597) (100,000) (1.16) -- (100,000)
------------ ----------- ------------ ---------- -------- ------------
Partners' equity March 31, 1996 ...... $ 9,007,298 $ 4,764,616 $ 13,771,914 $ 158.93 $ 0 $ 13,771,914
============ =========== ============ ========== ======== ============
</TABLE>
UNAUDITED
SEE ACCOMPANYING NOTES
6
SIERRA PACIFIC DEVELOPMENT FUND II
(A LIMITED PARTNERSHIP)
STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 1996 AND 1995
1996 1995
----------- -----------
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net loss ..................................... $ (183,946) $ (107,689)
Adjustments to reconcile net
loss
to cash used in operating
activities:
Depreciation and amortization ............ 143,943 129,033
Undistributed loss of
unconsolidated
joint venture .......................... 78,848 66,614
Decrease (increase) in rent
receivable ................................... 12,090 (56,685)
Increase in other receivable ............. (75,237) (4,163)
Increase in other assets ................. (40,565) (138,072)
Decrease in accrued and other
liabilities .................................. (96,802) (743,404)
----------- -----------
Net cash used in operating
activities ................................... (161,669) (854,366)
----------- -----------
CASH FLOWS FROM INVESTING
ACTIVITIES:
Payments for property
acquisition and additions .................... (107,139) (7,324)
Capital contributions to
unconsolidated joint venture ................. 0 (186,150)
----------- -----------
Net cash used in investing
activities ................................... (107,139) (193,474)
----------- -----------
CASH FLOWS FROM FINANCING
ACTIVITIES:
Cash distributions from
disposition of assets ........................ (100,000) 0
Funding of note payable secured
by property .................................. 2,000,000 0
Principal payments on notes
payable ...................................... (1,032,506) (12,173)
Borrowings from affiliate of
the General Partner .......................... 175,300 0
Repayments of loan to affiliate
of the General Partner ....................... 0 (375,400)
----------- -----------
Net cash provided by (used
in) financing activities ..................... 1,042,794 (387,573)
----------- -----------
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS ....................... 773,986 (1,435,413)
CASH AND CASH EQUIVALENTS -
Beginning of period .......................... 202,963 1,541,302
----------- -----------
CASH AND CASH EQUIVALENTS - End
of
period ....................................... $ 976,949 $ 105,889
=========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH
FLOW
INFORMATION:
Cash paid during the period for
interest ..................................... $ 131,075 $ 116,007
=========== ===========
UNAUDITED
SEE ACCOMPANYING NOTES
7
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 March 31, 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 three months ended March 31, 1996
and 1995 are affiliate transactions as follows:
March 31
--------------------------------
1996 1995
--------------- ----------------
Management fees $21,518 $ 0
Administrative fees $ 5,937 $ 0
Leasing fees $13,295 $ 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 March 31, 1996 the Partnership's interest in SMMP is 51%;
the remaining 49% interest is owned by Sierra Pacific Pension Investors '84.
UNAUDITED
8
Sierra Pacific Development Fund II
Notes to Financial Statements
Page two
Summarized income statement information for SMMP for the three months ended
March 31, 1996 and 1995 follows:
March 31
--------------------------------
1996 1995
--------------- ----------------
Rental income $393,611 $379,574
Total revenues $442,655 $425,676
Operating expenses $170,724 $147,855
Share of unconsolidated
joint venture loss $ 93,138 $178,886
Net loss $154,604 $130,615
As of March 31, 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 27.23% interest in Sorrento II Partners ("SIIP"), a general
partnership with Sierra Pacific Institutional Properties V formed in 1993; a
27.38% interest in Sierra Creekside Partners ("SCP"), general partnership with
Sierra Pacific Development Fund formed in 1994; and a 38.57% 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 three
months ended March 31, 1996 and 1995 follows:
SIP SIIP
----------------------------------------------------------
March 31 March 31
----------------------------------------------------------
1996 1995 1996 1995
-------------- ---------------------------- -------------
Rental income $ 0 $ 0 $ 239,522 $ 224,503
Total revenues $ 0 $ 0 $ 239,522 $ 224,503
Operating expenses $ 35,031 $ 68,122 $ 81,739 $ 113,308
Net loss $ 144,364 $ 176,989 $ 42,201 $ 86,211
SCP SVP
---------------------------------------------------------
March 31 March 31
---------------------------------------------------------
1996 1995 1996 1995
------------- ---------------------------- -------------
Rental income $175,284 $132,009 $149,754 $181,509
Total revenues $180,329 $132,009 $149,754 $181,509
Operating expenses $103,410 $125,702 $104,276 $114,169
Net loss $ 78,128 $ 89,231 $156,148 $148,657
Sierra Pacific Development Fund II
Notes to Financial Statements
Page three
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.
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: MAY 13, 1996 /S/ THOMAS N. THURBER
Thomas N. Thurber
President and Director
Date: MAY 13, 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 II MARCH 31,1996 FINANCIAL STATEMENTS
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> MAR-31-1996
<CASH> 976,949
<SECURITIES> 0
<RECEIVABLES> 394,960
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 2,034,353
<PP&E> 13,769,825
<DEPRECIATION> 2,885,768
<TOTAL-ASSETS> 20,438,307
<CURRENT-LIABILITIES> 512,997
<BONDS> 6,153,396
0
0
<COMMON> 0
<OTHER-SE> 13,771,914
<TOTAL-LIABILITY-AND-EQUITY> 20,438,307
<SALES> 410,353
<TOTAL-REVENUES> 502,152
<CGS> 0
<TOTAL-COSTS> 331,418
<OTHER-EXPENSES> 143,943
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 131,889
<INCOME-PRETAX> (183,946)
<INCOME-TAX> 0
<INCOME-CONTINUING> (183,946)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (183,946)
<EPS-PRIMARY> (2.12)
<EPS-DILUTED> (2.12)
</TABLE>
