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, 1997
------------------------------------------------------
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 Identification Number)
of incorporation or organization)
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, 1997 and December 31, 1996 4
Statements of Operations - For the Six Months Ended
June 30, 1997 and 1996 and the Three Months Ended
June 30, 1997 and 1996 5
Statements of Changes in Partners' Equity - From
April 29, 1983 (inception of Partnership) to
December 31, 1996 and for the Six Months Ended
June 30, 1997 6
Statements of Cash Flows - For the Six Months Ended
June 30, 1997 and 1996 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
35.98% interest in Sierra Mira Mesa Partners ("SMMP").
2
<PAGE>
(b) RESULTS OF OPERATIONS
Rental revenues for the six months ended June 30, 1997 increased by $78,000, or
9%, when compared to the corresponding period in the prior year primarily due to
an increase in occupancy at 5850 San Felipe and Sierra Southwest Pointe.
Occupany increased from 64% at June 30, 1996 to 75% at June 30, 1997 at 5850 San
Felipe and from 79% to 95% at Sierra Southwest Pointe during the same period.
Occupancy at Sierra Westlakes remained unchanged.
Operating expenses for the six months ended June 30, 1997 increased $50,000, or
7%, principally due to higher maintenance and repair costs associated with the
increased occupancy of the Properties and from an increase in legal fees
incurred defending against litigation pending against the Partnership. Operating
expenses for the three months ended June 30, 1997 increased by $79,000, or 21%,
primarily as a result of the additional maintenance and repair costs and from
the increase in legal fees. Depreciation and amortization expenses for the six
months ended June 30, 1997 increased by $75,000, or 25%, principally due to
increased depreciation and amortization on renovations to the lobby at 5850 San
Felipe in 1996 and from additional tenant improvements associated with the
increased occupancy of the Properties.
Interest expense decreased by $24,000, or 10%, due primarily 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 exhange 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 the funding of a $2,000,000
note collateralized by the Sierra Westlakes property in February 1996.
The Partnership's share of (loss) income from investment in SMMP was ($76,000)
for the six months ended June 30, 1997 compared to $296,000 for the
corresponding period in the prior year. The income generated by SMMP in the
second quarter of 1996 was principally due to its share of income from Sorrento
I Partners ("SIP"), which owns the Sorrento I property. SIP exercised a
discounted payoff option in May 1996 and 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 June 30, 1997 with cash and
billed receivables of $252,000 compared to $712,000 of accrued and other
liabilities. 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. It is
anticipated that the capital required to fund these capital requirements will be
generated from current cash flow from rental activities.
3
<PAGE>
SIERRA PACIFIC DEVELOPMENT FUND II
(A LIMITED PARTNERSHIP)
BALANCE SHEETS
JUNE 30, 1997 AND DECEMBER 31, 1996
JUNE 30, 1997 DECEMBER 31, 1996
-------------- --------------
ASSETS
Cash and cash equivalents ................... $ 137,805 $ 22,962
Receivables:
Note, net of deferred gain of $736,271 .... 2,163,729 2,163,729
Unbilled rent ............................. 315,460 334,495
Billed rent ............................... 113,890 25,181
Due from affiliates ....................... 862,084 1,017,674
Other receivables ......................... 209,738 176,421
Income-producing properties - net of
accumulated depreciation and valuation
allowance of $3,540,356 and $3,222,155,
respectively .............................. 11,138,093 11,206,449
Investment in unconsolidated joint venture .. 4,915,515 4,838,609
Other assets ................................ 754,458 444,338
-------------- --------------
Total Assets ................................ $ 20,610,772 $ 20,229,858
============== ==============
LIABILITIES AND PARTNERS' EQUITY
Accrued and other liabilities ............... $ 712,150 $ 574,648
Due to affiliate ............................ 650,300 0
Notes payable ............................... 6,057,241 6,098,994
-------------- --------------
Total Liabilities ........................... 7,419,691 6,673,642
-------------- --------------
Partners' equity:
General Partner ........................... 0 0
Limited Partners:
Class A Limited Partners:
60,000 units authorized,
56,674 issued and outstanding ......... 8,627,423 8,866,234
Class B Limited Partners:
60,000 units authorized,
29,979 issued and outstanding ......... 4,563,658 4,689,982
-------------- --------------
Total Partners' equity ...................... 13,191,081 13,556,216
-------------- --------------
Total Liabilities and Partners' equity ...... $ 20,610,772 $ 20,229,858
============== ==============
UNAUDITED
SEE ACCOMPANYING NOTES
4
<PAGE>
SIERRA PACIFIC DEVELOPMENT FUND II
(A LIMITED PARTNERSHIP)
STATEMENTS OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1997 AND 1996
AND FOR THE THREE MONTHS ENDED JUNE 30, 1997 AND 1996
<TABLE>
<CAPTION>
SIX MONTHS ENDED THREE MONTHS ENDED
JUNE 30, JUNE 30,
---------------------------- ----------------------------
1997 1996 1997 1996
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
REVENUES:
Rental income .................................. $ 947,783 $ 869,995 $ 509,996 $ 459,642
Interest income ................................ 169,161 179,470 84,647 87,671
------------ ------------ ------------ ------------
Total revenues .............................. 1,116,944 1,049,465 594,643 547,313
------------ ------------ ------------ ------------
EXPENSES:
Operating expenses ............................. 762,151 712,490 460,554 381,072
Depreciation and amortization .................. 374,815 299,548 192,680 155,605
Interest ....................................... 218,857 243,028 109,174 111,139
------------ ------------ ------------ ------------
Total costs and expenses .................... 1,355,823 1,255,066 762,408 647,816
------------ ------------ ------------ ------------
LOSS BEFORE PARTNERSHIP'S SHARE OF
UNCONSOLIDATED JOINT VENTURE (LOSS)
INCOME ........................................ (238,879) (205,601) (167,765) (100,503)
------------ ------------ ------------ ------------
PARTNERSHIP'S SHARE OF UNCONSOLIDATED
JOINT VENTURE (LOSS) INCOME ................... (76,256) 295,555 (38,883) 374,403
------------ ------------ ------------ ------------
NET (LOSS) INCOME ................................ $ (315,135) $ 89,954 $ (206,648) $ 273,900
============ ============ ============ ============
Net (loss) income per limited partnership unit ... $ (3.64) $ 1.04 $ (2.38) $ 3.16
============ ============ ============ ============
</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, 1996
AND FOR THE SIX MONTHS ENDED JUNE 30, 1997
<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, 1996) ........ 243,566 128,245 371,811 4.29 $ 46,674 418,485
Cumulative distributions
(to December 31, 1996) ........ (3,652,353) (1,929,972) (5,582,325) (64.22) (46,674) (5,628,999)
------------ ----------- ------------ -------- -------- ------------
Partners' equity -
January 1, 1997 ............... 8,866,234 4,689,982 13,556,216 156.45 0 13,556,216
Net loss ........................ (206,109) (109,026) (315,135) (3.64) (315,135)
Distributions ................... (32,702) (17,298) (50,000) (0.58) (50,000)
------------ ----------- ------------ -------- -------- ------------
Partners' equity - June 30, 1997 $ 8,627,423 $ 4,563,658 $ 13,191,081 $ 152.23 $ 0 $ 13,191,081
============ =========== ============ ======== ======== ============
</TABLE>
UNAUDITED
SEE ACCOMPANYING NOTES
6
<PAGE>
SIERRA PACIFIC DEVELOPMENT FUND II
(A LIMITED PARTNERSHIP)
STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996
------------ ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) income ........................................ $ (315,135) $ 89,954
Adjustments to reconcile net (loss) income
to cash (used in) provided by operating activities:
Depreciation and amortization .......................... 374,815 299,548
Undistributed loss (income) of unconsolidated
joint venture ........................................ 76,256 (295,555)
(Increase) decrease in rent receivable ................. (69,674) 11,287
(Increase) decrease in other receivables ............... (33,317) 97,387
Increase in other assets ............................... (364,306) (80,560)
Increase (decrease) in accrued and other liabilities ... 137,502 (65,322)
------------ ------------
Net cash (used in) provided by operating activities .... (193,859) 56,739
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Payments for property additions ........................ (249,845) (308,503)
Capital contributions to unconsolidated joint venture .. (155,590) 0
Distributions received from unconsolidated
joint venture ........................................ 0 0
------------ ------------
Net cash used in investing activities .................. (405,435) (308,503)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Cash distributions ..................................... (50,000) (200,000)
Funding of note payable secured by property ............ 0 2,000,000
Principal payments on notes payable .................... (41,753) (1,047,128)
Payments to affiliate .................................. 0 (351,840)
Repayment of loans to affiliate ........................ 155,590 0
Borrowings from affiliate .............................. 650,300 0
------------ ------------
Net cash provided by financing activities .............. 714,137 401,032
------------ ------------
NET INCREASE IN CASH AND
CASH EQUIVALENTS ....................................... 114,843 149,268
CASH AND CASH EQUIVALENTS - Beginning of period ............ 22,962 202,963
------------ ------------
CASH AND CASH EQUIVALENTS - End of period .................. $ 137,805 $ 352,231
============ ============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash paid during the period for interest ............... $ 219,195 $ 244,232
============ ============
</TABLE>
UNAUDITED
SEE ACCOMPANYING NOTES
7
<PAGE>
SIERRA PACIFIC DEVELOPMENT FUND II
(A LIMITED PARTNERSHIP)
NOTES TO 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, 1997 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, 1996.
2. 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.
Included in the financial statements for the six months ended June 30, 1997 and
1996 are affiliate transactions as follows:
June 30
-----------------------
1997 1996
---------- ----------
Management fees ......... $ 44,221 $ 44,029
Administrative fees ..... 121,375 94,961
Leasing fees ............ 166,812 14,204
Construction Fees ....... 50,083 28,995
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, 1997 the Partnership's interest in SMMP is
35.98%; the remaining 64.02% interest is owned by Sierra Pacific Pension
Investors '84.
UNAUDITED
8
<PAGE>
Sierra Pacific Development Fund II
Notes to Financial Statements
Page two
The consolidated financial statements of SMMP include the accounts of SMMP and
Sorrento I Partners, a majority owned California general partnership. Summarized
income statement information for SMMP for the six months ended June 30, 1997 and
1996 follows:
June 30
----------------------------
1997 1996
------------ ------------
Rental income ........... $ 955,585 $ 848,603
Total revenues .......... 1,040,240 940,590
Operating expenses ...... 368,729 526,358
Share of unconsolidated
Joint venture loss .... 236,476 181,890
Net (loss) income ....... (211,922) 818,758
As of June 30, 1997, SMMP holds a 24.91% interest in Sorrento II Partners
("SIIP"), a California general partnership with Sierra Pacific Institutional
Properties V formed in 1993; a 4.96% interest in Sierra Creekside Partners
("SCP"), a California general partnership with Sierra Pacific Development Fund
formed in 1994; and a 47.05% interest in Sierra Vista Partners ("SVP"), a
California general partnership with Sierra Pacific Development Fund III formed
in 1994.
Summarized income statement information for these Partnerships, which are
accounted for by SMMP under the equity method, for the six months ended June 30,
1997 and 1996 follows:
SIIP
--------------------------
June 30
--------------------------
1997 1996
--------------------------
Rental income $ 494,567 $ 506,638
Total revenues 494,567 506,638
Operating expenses 209,493 197,964
Net loss (130,368) (106,301)
UNAUDITED
9
<PAGE>
Sierra Pacific Development Fund II
Notes to Financial Statements
Page three
SCP SVP
----------------------------------------------------
June 30 June 30
----------------------------------------------------
1997 1996 1997 1996
----------------------------------------------------
Rental income $ 354,983 $ 372,584 $ 376,250 $ 343,209
Total revenues 354,983 379,912 376,250 343,209
Operating expenses 247,305 255,607 256,843 250,274
Net income (loss) (201,322) (191,276) (412,360) (310,415)
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: AUGUST 13, 1997 /S/ THOMAS N. THURBER
Thomas N. Thurber
President and Director
Date: AUGUST 13, 1997 /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, 1997 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-31-1997
<PERIOD-END> JUN-30-1997
<CASH> 137,805
<SECURITIES> 0
<RECEIVABLES> 639,088
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1,323,517
<PP&E> 14,678,449
<DEPRECIATION> 3,540,356
<TOTAL-ASSETS> 20,610,772
<CURRENT-LIABILITIES> 1,362,450
<BONDS> 6,057,241
0
0
<COMMON> 0
<OTHER-SE> 13,191,081
<TOTAL-LIABILITY-AND-EQUITY> 20,610,772
<SALES> 947,783
<TOTAL-REVENUES> 1,116,944
<CGS> 0
<TOTAL-COSTS> 762,151
<OTHER-EXPENSES> 374,815
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 218,857
<INCOME-PRETAX> (315,135)
<INCOME-TAX> 0
<INCOME-CONTINUING> (315,135)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (315,135)
<EPS-PRIMARY> (3.64)
<EPS-DILUTED> (3.64)
</TABLE>
