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, 1997
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
incorporaton 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 - March 31, 1997 and December 31, 1996 4
Statements of Operations - For the Three Months Ended
March 31, 1997 and 1996 5
Statements of Changes in Partners' Equity - From April
29, 1983 (inception of Partnership) to December 31, 1996
and for the Three Months Ended March 31, 1997 6
Statements of Cash Flows - For the Three Months Ended
March 31, 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 increased $27,000, or 7%, primarily due to an increase in
occupancy at 5850 San Felipe from 64% at March 31, 1996 to 69% at March 31,
1997. Occupancy at Sierra Southwest Pointe and Sierra Westlakes remained
comparable between the same periods.
Operating expenses decreased by $30,000, or 9%, as a result of lower accounting
and auditing fees incurred for the first three months of the year in comparision
to the corresponding period in the prior year, lower administrative expenses,
and other expense cutting measures implemented by management. Depreciation and
amortization expenses for the same period increased by $38,000, or 27%,
primarily 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 Property.
Interest expense decreased by $22,000, or 17%, 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 from investment in SMMP was $71,000 for the
three months ended March 31, 1997 compared to $105,000 for the corresponding
period in the prior year. This decrease in loss generated by SMMP was
principally due to its share of income from Sorrento I Partners ("SIP"), which
owns the Sorrento I property. SIP entered into a lease with a tenant for all of
the square footage of the Sorrento I property in May 1996.
(c) LIQUIDITY AND CAPITAL RESOURCES
The Partnership is in an illiquid position as of March 31, 1997 with cash and
billed receivables of $96,000 compared to $214,000 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
MARCH 31, 1997 AND DECEMBER 31, 1996
March 31, December 31,
1997 1996
----------- -----------
ASSETS
Cash and cash equivalents ....................... $ 62,329 $ 22,962
Receivables:
Note, net of deferred gain of $736,271 ....... 2,163,729 2,163,729
Unbilled rent ................................ 325,097 334,495
Billed rent .................................. 33,758 25,181
Due from affiliates .......................... 862,084 1,017,674
Other receivables ............................ 125,091 176,421
Income-producing properties - net of
accumulated depreciation and valuation
allowance of $3,376,462 and $3,222,155,
respectively .................................. 11,173,435 11,206,449
Investment in unconsolidated joint venture ...... 4,955,612 4,838,609
Other assets .................................... 428,554 444,338
----------- -----------
Total Assets .................................... $20,129,689 $20,229,858
=========== ===========
LIABILITIES AND PARTNERS' EQUITY
Accrued and other liabilities ................... $ 213,989 $ 574,648
Due to affiliate ................................ 389,600 0
Notes payable ................................... 6,078,371 6,098,994
----------- -----------
Total Liabilities ............................... 6,681,960 6,673,642
----------- -----------
Partners' equity :
General Partner ............................... 0 0
Limited Partners:
Class A Limited Partners:
60,000 units authorized,
56,674 issued and outstanding ............. 8,795,280 8,866,234
Class B Limited Partners:
60,000 units authorized,
29,979 issued and outstanding ............. 4,652,449 4,689,982
----------- -----------
Total Partners' equity .......................... 13,447,729 13,556,216
----------- -----------
Total Liabilities and Partners' equity ......... $20,129,689 $20,229,858
=========== ===========
Unaudited
See Accompanying Notes
4
<PAGE>
SIERRA PACIFIC DEVELOPMENT FUND II
(A Limited Partnership)
STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1997 AND DECEMBER 31, 1996
1997 1996
--------- ---------
REVENUES:
Rental income ................................ $ 437,787 $ 410,353
Interest income .............................. 84,514 91,799
--------- ---------
Total revenues ............................ 522,301 502,152
--------- ---------
EXPENSES:
Operating expenses ........................... 301,597 331,418
Depreciation and amortization ................ 182,135 143,943
Interest ..................................... 109,683 131,889
--------- ---------
Total costs and expenses .................. 593,415 607,250
--------- ---------
LOSS BEFORE PARTNERSHIP'S SHARE OF
UNCONSOLIDATED JOINT VENTURE LOSS ............ (71,114) (105,098)
--------- ---------
PARTNERSHIP'S SHARE OF UNCONSOLIDATED
JOINT VENTURE INCOME LOSS .................... (37,373) (78,848)
--------- ---------
NET LOSS ....................................... $(108,487) $(183,946)
========= =========
Net loss per limited partnership unit .......... $ (1.25) $ (2.12)
========= =========
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 THREE MONTHS ENDED MARCH 31, 1997
<TABLE>
<CAPTION>
Limited Partners Total
----------------------------------------- General Partners'
Class A Class B Total Per Unit Partner Equity
------------ ----------- ------------ ------- -------- ------------
<S> <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 ........................................... (70,954) (37,533) (108,487) (1.25) (108,487)
------------ ----------- ------------ ------- -------- ------------
Partners' equity - March 31, 1997 .................. $ 8,795,280 $ 4,652,449 $ 13,447,729 $155.20 $ 0 $ 13,447,729
============ =========== ============ ======= ======== ============
</TABLE>
Unaudited
See Accompanying Notes
6
<PAGE>
SIERRA PACIFIC DEVELOPMENT FUND II
(A Limited Partnership)
STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 1997 AND 1996
1997 1996
--------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss ........................................... $(108,487) $ (183,946)
Adjustments to reconcile net loss
to cash used in operating activities:
Depreciation and amortization .................... 182,135 143,943
Undistributed income of unconsolidated
joint venture .................................. 37,373 78,848
Decrease in rent receivable ...................... 821 12,090
Decrease (increase) in other receivables ......... 51,330 (75,237)
Increase in other assets ......................... (10,830) (40,565)
Decrease in accrued and other liabilities ........ (360,659) (96,802)
--------- -----------
Net cash used in operating activities ............ (208,317) (161,669)
--------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Payments for property acquisition and additions .. (121,293) (107,139)
Capital contributions to unconsolidated
joint venture .................................. (155,590) 0
Distributions received from unconsolidated
joint venture .................................. 0 0
--------- -----------
Net cash used in investing activities ............ (276,883) (107,139)
--------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Cash distributions ............................... 0 (100,000)
Funding of note payable secured by property ...... 0 2,000,000
Principal payments on notes payable .............. (20,623) (1,032,506)
Repayment of loans to affiliate .................. 155,590 0
Borrowings from affiliate ........................ 389,600 175,300
--------- -----------
Net cash provided by financing activities ........ 524,567 1,042,794
--------- -----------
NET INCREASE IN CASH AND
CASH EQUIVALENTS ................................. 39,367 773,986
CASH AND CASH EQUIVALENTS - Beginning of period ...... 22,962 202,963
--------- -----------
CASH AND CASH EQUIVALENTS - End of period ............ $ 62,329 $ 976,949
========= ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash paid during the period for interest ......... $ 109,850 $ 131,075
========= ===========
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 March 31, 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 three months ended March 31, 1997
and 1996 are affiliate transactions as follows:
March 31
----------------
1997 1996
------- -------
Management fees ......... $22,406 $21,518
Administrative fees ..... 46,584 5,937
Leasing fees ............ 26,647 13,295
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, 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 three months ended March 31, 1997
and 1996 follows:
March 31
------------------
1997 1996
-------- --------
Rental income ........... $481,365 $393,611
Total revenues .......... 523,937 442,655
Operating expenses ...... 167,018 170,724
Share of unconsolidated
Joint venture loss .... 134,559 93,138
Net loss ................ 103,873 154,604
As of March 31, 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 three months ended March
31, 1997 and 1996 follows:
SIIP
------------------
March 31
------------------
1997 1996
-------- --------
Rental income ........... $275,936 $239,522
Total revenues .......... 275,936 239,522
Operating expenses ...... 80,271 81,739
Net loss ................ 12,056 42,201
UNAUDITED
9
<PAGE>
Sierra Pacific Development Fund II
Notes to Financial Statements
Page three
SCP SVP
--------------------------------------
March 31 March 31
--------------------------------------
1997 1996 1997 1996
-------- -------- -------- --------
Rental income ........... $177,225 $175,284 $141,806 $149,754
Total revenues .......... 177,225 180,329 141,806 149,754
Operating expenses ...... 114,522 103,410 111,210 104,276
Net loss ................ 101,608 78,128 268,897 156,148
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: MAY 14, 1997 /s/ THOMAS N. THURBER
Thomas N. Thurber
President and Director
Date: MAY 14, 1997 /s/ MICHELE E. JOHNSON
Michele E. Johnson
Chief Accounting Officer
11
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE FINANCIAL DATA SCHEDULE CONTAINS SUMMARY FIANACIAL INFORMATION EXTRACTED
FROM SIERRA PACIFIC DEVELOPMENT FUND II MARCH 31, 1997 FINANACIAL STATEMENTS AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> MAR-31-1997
<CASH> 62,329
<SECURITIES> 0
<RECEIVABLES> 358,855
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1,083,262
<PP&E> 14,549,897
<DEPRECIATION> 3,376,462
<TOTAL-ASSETS> 20,129,689
<CURRENT-LIABILITIES> 213,989
<BONDS> 6,078,371
0
0
<COMMON> 0
<OTHER-SE> 13,447,729
<TOTAL-LIABILITY-AND-EQUITY> 20,129,689
<SALES> 437,787
<TOTAL-REVENUES> 522,301
<CGS> 0
<TOTAL-COSTS> 301,597
<OTHER-EXPENSES> 182,135
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 109,683
<INCOME-PRETAX> (108,487)
<INCOME-TAX> 0
<INCOME-CONTINUING> (108,487)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (108,487)
<EPS-PRIMARY> (1.25)
<EPS-DILUTED> (1.25)
</TABLE>
