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 June 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 - June 30, 1996 and December 31, 1995 4
Statements of Operations - For the Six Months Ended
June 30, 1996 and 1995 and the Three Months Ended
June 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 Six Months Ended June 30, 1996 6
Statements of Cash Flows - For the Six Months Ended
June 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").
2
(b) RESULTS OF OPERATIONS
Revenues decreased by $62,000, 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 decreased by $23,000, or 3%, primarily due to lower
administrative costs and other expense cutting measures implemented by
management. Further, administrative fees were overaccrued in the second quarter
of 1995. This overaccrual was corrected in the third quarter of 1995.
Depreciation expense increased by $41,000, or 16%, primarily due to increased
depreciation on $327,804 of tenant improvements for the build out of the fifth
floor at 5850 San Felipe. These improvements were substantially completed in
December 1995.
Interest expense increased by $11,000, or 5%, 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 $296,000
for the six months ended June 30, 1996 compared to ($98,000) for the
corresponding period in the prior year due to SMMP's share of Sorrento I
Partners' ("SIP") second quarter income. SIP, which is accounted for by SMMP on
the equity method, 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 generated cash flows from operations of $57,000 during the six
months ended June 30, 1996, primarily through the collection of receivables
outstanding at 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 June 30, 1996 totaled
$352,000 while current liabilities were $229,000. 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.
3
SIERRA PACIFIC DEVELOPMENT FUND II
(A LIMITED PARTNERSHIP)
BALANCE SHEETS
JUNE 30, 1996 AND DECEMBER 31, 1995
June 30, December 31,
1996 1995
----------- -----------
ASSETS
Cash and cash equivalents ...................... $ 352,231 $ 202,963
Receivables:
Note, net of deferred gain of $736,271 ..... 2,163,729 2,163,729
Unbilled rent ............................... 348,429 364,615
Billed rent ................................. 47,334 42,435
Due from affiliate of General Partner ....... 812,640 812,000
Due from other affiliates ................... 211,200 0
Other receivables ........................... 20,155 117,542
Income-producing properties - net of
accumulated depreciation and valuation
allowance of $3,019,298 and $2,791,220,
respectively ................................. 10,951,891 10,900,398
Investment in unconsolidated joint venture ..... 4,974,696 4,681,570
Other assets ................................... 431,460 391,009
----------- -----------
Total Assets ................................... $20,313,765 $19,676,261
=========== ===========
LIABILITIES AND PARTNERS' EQUITY
Accrued and other liabilities .................. $ 229,177 $ 294,499
Due to affiliate ............................... 0 140,000
Notes payable .................................. 6,138,774 5,185,902
----------- -----------
Total Liabilities .............................. 6,367,951 5,620,401
----------- -----------
Partners' equity :
General Partner .............................. 0 0
Limited Partners:
Class A Limited Partners:
60,000 units authorized,
56,674 issued and outstanding .......... 9,121,034 9,193,008
Class B Limited Partners:
60,000 units authorized,
29,979 issued and outstanding ........... 4,824,780 4,862,852
----------- -----------
Total Partners' equity ......................... 13,945,814 14,055,860
----------- -----------
Total Liabilities and Partners' equity ........ $20,313,765 $19,676,261
=========== ===========
Unaudited
See Accompanying Notes
4
SIERRA PACIFIC DEVELOPMENT FUND II
(A LIMITED PARTNERSHIP)
STATEMENTS OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1996 AND 1995
AND FOR THE THREE MONTHS ENDED JUNE 30, 1996 AND 1995
<TABLE>
<CAPTION>
Six Months Ended Three Months Ended
June 30, June 30,
-------------------------- ----------------------
1996 1995 1996 1995
----------- ----------- --------- ---------
<S> <C> <C> <C> <C>
REVENUES:
Rental income .............................. $ 869,995 $ 929,370 $ 459,642 $ 487,836
Interest income ............................ 179,470 182,084 87,671 91,598
----------- ----------- --------- ---------
Total Revenues ............................... 1,049,465 1,111,454 547,313 579,434
----------- ----------- --------- ---------
EXPENSES:
Operating expenses ....................... 712,490 735,416 381,072 435,780
Depreciation and amortization ............ 299,548 258,507 155,605 129,474
Interest ................................. 243,028 231,605 111,139 87,180
----------- ----------- --------- ---------
Total costs and expenses ..................... 1,255,066 1,225,528 647,816 652,434
----------- ----------- --------- ---------
LOSS BEFORE PARTNERSHIP'S SHARE OF
UNCONSOLIDATED JOINT VENTURE
INCOME (LOSS) ............................. (205,601) (114,074) (100,503) (73,000)
----------- ----------- --------- ---------
PARTNERSHIP'S SHARE OF UNCONSOLIDATED
JOINT VENTURE INCOME (LOSS) ............... 295,555 (98,358) 374,403 (31,744)
----------- ----------- --------- ---------
NET INCOME (LOSS) ............................ $ 89,954 $ (212,432) $ 273,900 $(104,744)
=========== =========== ========= =========
Net income (loss) per limited partnership unit $ 1.04 $ (2.45) $ 3.16 $ (1.21)
=========== =========== ========= =========
</TABLE>
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 SIX MONTHS ENDED JUNE 30, 1996
<TABLE>
<CAPTION>
Total
Limited Partners 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 ....... 58,833 31,121 89,954 1.04 -- 89,954
Distributions from disposition
of assets ..................... (130,807) (69,193) (200,000) (2.31) -- (200,000)
------------ ----------- ------------ --------- --------- ----------
Partners' equity June 30, 1996 .. $ 9,121,034 $ 4,824,780 $ 13,945,814 $ 160.94 $ 0 $ 13,945,814
============ =========== ============ ========= ========= ============
</TABLE>
Unaudited
See Accompanying Notes
6
SIERRA PACIFIC DEVELOPMENT FUND II
(A LIMITED PARTNERSHIP)
STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 1996 AND 1995
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) ....................................... $ 89,954 $ (212,432)
Adjustments to reconcile net income (loss)
to cash provided by (used in) operating activities:
Depreciation and amortization ....................... 299,548 258,507
Undistributed (income) loss of unconsolidated
joint venture ..................................... (295,555) 98,358
Decrease (increase) in rent receivable .............. 11,287 (5,049)
Decrease (increase) in other receivables ............ 97,387 (162,658)
Increase in other assets ............................ (80,560) (69,200)
Decrease in accrued and other liabilities ........... (65,322) (537,603)
----------- -----------
Net cash provided by (used in) operating activities . 56,739 (630,077)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Payments for property acquisition and additions ....... (308,503) (86,807)
Capital contributions to unconsolidated joint venture . 0 (686,259)
----------- -----------
Net cash used in investing activities ................. (308,503) (773,066)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Cash distributions from disposition of assets ......... (200,000) 0
Funding of note payable secured by property ........... 2,000,000 0
Principal payments on notes payable ................... (1,047,128) (24,654)
Payments to affiliate of the General Partner .......... (351,840) 0
----------- -----------
Net cash provided by (used in) financing activities 401,032 (24,654)
----------- -----------
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS .................................. 149,268 (1,427,797)
CASH AND CASH EQUIVALENTS - Beginning of period ......... 202,963 1,541,302
----------- -----------
CASH AND CASH EQUIVALENTS - End of period ............... $ 352,231 $ 113,505
=========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash paid during the period for interest .............. $ 244,232 $ 203,188
=========== ===========
</TABLE>
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 June 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 six months ended June 30, 1996 and
1995 are affiliate transactions as follows:
June 30
--------------------------
1996 1995
--------- ---------
Management fees ............................ $44,029 $24,028
Administrative fees ........................ $94,961 $93,304
Leasing fees ............................... $14,204 $ 0
Construction fees .......................... $28,995 $ 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 June 30, 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 six months ended June
30, 1996 and 1995 follows:
June 30
-----------------------------
1996 1995
---------- -----------
Rental income ............................ $848,603 $ 715,942
Total revenues ........................... $940,590 $ 809,383
Operating expenses ....................... $526,358 $ 340,196
Share of unconsolidated
joint venture loss ..................... $181,890 $ 364,800
Net income (loss) ........................ $818,758 $(192,858)
As of June 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 six
months ended June 30, 1996 and 1995 follows:
<TABLE>
<CAPTION>
SIP SIIP
------------------------ ----------------------
June 30 June 30
------------------------ ----------------------
1996 1995 1996 1995
----------- --------- --------- ---------
<S> <C> <C> <C> <C>
Rental income ................ $ 47,272 $ 0 $ 506,638 $ 460,267
Total revenues ............... $ 47,272 $ 0 $ 506,638 $ 460,383
Operating expenses ........... $ 159,450 $ 123,917 $ 197,964 $ 223,275
Loss before extraordinary item $ (241,103) $(347,147) $(106,301) $(162,077)
Extraordinary gain ........... $ 1,200,467 $ 0 $ 0 $ 0
Net income (loss) ............ $ 959,278 $(347,147) $(106,301) $(162,077)
</TABLE>
UNAUDITED
9
Sierra Pacific Development Fund II
Notes to Financial Statements
Page three
<TABLE>
<CAPTION>
SCP SVP
---------------------- ----------------------
June 30 June 30
---------------------- ----------------------
1996 1995 1996 1995
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Rental income ................ $ 372,584 $ 275,413 $ 343,209 $ 347,235
Total revenues ............... $ 379,912 $ 275,413 $ 343,209 $ 347,235
Operating expenses ........... $ 255,607 $ 269,983 $ 250,274 $ 271,337
Loss before extraordinary item $(191,276) $(193,519) $(310,415) $(356,365)
Extraordinary gain ........... $ 0 $ 0 $ 0 $ 0
Net income (loss) ............ $(191,276) $(193,519) $(310,415) $(356,366)
</TABLE>
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
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: AUGUST 9, 1996 /S/ THOMAS N. THURBER
Thomas N. Thurber
President and Director
Date: AUGUST 9, 1996 /S/ MICHELE E. JOHNSON
Michele E. Johnson
Chief Accounting Officer
11
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE FINANCIAL DATA SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM SIERRA PACIFIC DEVELOPMENT FUND II JUNE 30, 1996 FINANCIAL STATEMENTS AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> JUN-30-1996
<CASH> 352,231
<SECURITIES> 0
<RECEIVABLES> 395,763
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1,443,560
<PP&E> 13,971,189
<DEPRECIATION> 3,019,298
<TOTAL-ASSETS> 20,313,765
<CURRENT-LIABILITIES> 229,177
<BONDS> 6,138,774
0
0
<COMMON> 0
<OTHER-SE> 13,945,814
<TOTAL-LIABILITY-AND-EQUITY> 20,313,765
<SALES> 869,995
<TOTAL-REVENUES> 1,049,465
<CGS> 0
<TOTAL-COSTS> 712,490
<OTHER-EXPENSES> 299,548
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 243,028
<INCOME-PRETAX> 89,954
<INCOME-TAX> 0
<INCOME-CONTINUING> 89,954
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 89,954
<EPS-PRIMARY> 1.04
<EPS-DILUTED> 1.04
</TABLE>
