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, 1998
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Commission file number 0-12036
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SIERRA PACIFIC DEVELOPMENT FUND II
(A LIMITED PARTNERSHIP)
State of California 95-3856271
- ------------------------------------------ --------------------------------
(State or other jurisdiction of
incorporation or organization) (I.R.S. Employer Identification Number)
5850 San Felipe, Suite 450
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, 1998 and December 31, 1997 4
Statements of Operations - For the Three Months Ended March 31, 1998 and
1997 5
Statements of Changes in Partners' Equity - From April 29, 1983
(inception of Partnership) to December 31, 1997 and for the Three Months
Ended March 31, 1998 6
Statements of Cash Flows - For the Three Months Ended March 31, 1998 and
1997 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
33.74% interest in Sierra Mira Mesa Partners ("SMMP").
(b) RESULTS OF OPERATIONS
Rental income for the three months ended March 31, 1998 increased by $186,000,
or 43%, when compared to the corresponding period in the prior year, primarily
due to an increase in occupancy. Occupancy increased from 69% at March 31, 1997
to 94% at March 31, 1998 at 5850 San Felipe and from 91% to 97% at Sierra
Southwest Pointe between the same periods. Occupancy at Sierra Westlakes
remained unchanged. Further, additional common area maintenance fees were billed
during the period. Similar fees were billed in the second quarter in 1997.
2
<PAGE>
Operating expenses for the three months ended March 31, 1998 increased $35,000,
or 12%, in comparison to the corresponding period in prior year, principally due
to accounting and auditing costs incurred during the quarter. Similar fees were
accrued in the second quarter in 1997. Further, management fees and utilities
increased as a result of the increased occupancy. This increase was partially
offset by a decrease in maintenance and repair costs and lower professional fees
incurred during the period.
Depreciation and amortization expenses for the three months ended March 31, 1998
increased by $45,000, or 25%, principally due to increased depreciation and
amortization on additional tenant improvements and lease costs associated with
the increased occupancy of the properties.
The Partnership's share of loss from investment in SMMP was $74,000 for the
three months ended March 31, 1998 compared to $37,000 for the corresponding
period in the prior year. The Partnership understated its share of
unconsolidated joint venture loss $76,000 in the prior year. An adjustment was
recorded in 1998. The increase in loss was partially offset due its share of
unconsolidated joint venture income generated by SMMP in the first quarter of
1998. SMMP recorded income during the period primarily due to a decrease in its
share of loss from Sierra Vista Partners, which owned the Sierra Vista property.
The Sierra Vista property was sold in October 1997.
(c) LIQUIDITY AND CAPITAL RESOURCES
The Partnership is in an illiquid position as of March 31, 1998 with cash and
billed receivables of $139,000 compared to $335,000 of accrued and other
liabilities. The Partnership's primary capital requirements will be for the
construction of new tenant space. It is anticipated that these requirements will
be funded from the operations of the properties and distributions from SMMP.
3
<PAGE>
SIERRA PACIFIC DEVELOPMENT FUND II
(A Limited Partnership)
BALANCE SHEETS
March 31, 1998 and December 31, 1997
March 31, December 31,
1998 1997
----------- ------------
ASSETS
Cash and cash equivalents ........................ $ 40,418 $ 69,790
Receivables:
Note, net of deferred gain of $736,271 ......... 2,453,729 2,453,729
Unbilled rent .................................. 292,809 277,452
Billed rent .................................... 98,973 78,698
Due from affiliates ............................ 873,892 951,381
Other receivables .............................. 93,084 37,795
Income-producing properties - net of
accumulated depreciation and valuation
allowance of $4,030,417 and $3,855,671,
respectively ................................... 11,072,386 11,212,379
Investment in unconsolidated joint venture ....... 3,341,752 3,416,664
Other assets ..................................... 995,679 979,415
----------- -----------
Total Assets ..................................... $19,262,722 $19,477,303
=========== ===========
LIABILITIES AND PARTNERS' EQUITY
Accrued and other liabilities .................... $ 334,585 $ 513,990
Notes payable .................................... 6,253,282 6,257,503
----------- -----------
Total Liabilities ................................ 6,587,867 6,771,493
----------- -----------
Partners' equity:
General Partner ................................ 0 0
Limited Partners:
Class A Limited Partners:
60,000 units authorized,
56,674 issued and outstanding .............. 8,289,803 8,310,049
Class B Limited Partners:
60,000 units authorized,
29,979 issued and outstanding .............. 4,385,052 4,395,761
----------- -----------
Total Partners' equity ........................... 12,674,855 12,705,810
----------- -----------
Total Liabilities and Partners' equity ........... $19,262,722 $19,477,303
=========== ===========
Unaudited
See Accompanying Notes
4
<PAGE>
SIERRA PACIFIC DEVELOPMENT FUND II
(A Limited Partnership)
STATEMENTS OF OPERATIONS
For the Three Months Ended March 31, 1998 and 1997
1998 1997
----------- ---------
REVENUES:
Rental income ................................. $ 624,016 $ 437,787
Interest income ............................... 93,085 84,514
--------- ---------
Total revenues ............. 717,101 522,301
--------- ---------
EXPENSES:
Operating expenses ............................ 336,611 301,597
Depreciation and amortization ................. 227,041 182,135
Interest ...................................... 110,707 109,683
--------- ---------
Total costs and expenses ... 674,359 593,415
--------- ---------
INCOME (LOSS) BEFORE PARTNERSHIP'S
SHARE OF UNCONSOLIDATED JOINT
VENTURE LOSS ................................. 42,742 (71,114)
--------- ---------
PARTNERSHIP'S SHARE OF UNCONSOLIDATED
JOINT VENTURE LOSS ........................... (73,697) (37,373)
--------- ---------
NET LOSS ........................................ $ (30,955) $(108,487)
========= =========
Net loss per limited partnership unit ........... $ (0.36) $ (1.25)
========= =========
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, 1997
and for the Three Months Ended March 31, 1998
<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, 1997) ........ (279,927) (148,668) (428,595) (4.95) $ 46,674 (381,921)
Cumulative distributions
(to December 31, 1997) ........ (3,685,045) (1,947,280) (5,632,325) (64.80) (46,674) (5,678,999)
------------- ------------ ------------- ---------------- ----------- -----------------
Partners' equity -
January 1, 1998 ............... 8,310,049 4,395,761 12,705,810 146.63 0 12,705,810
Net loss ........................ (20,246) (10,709) (30,955) (0.36) (30,955)
------------- ------------ ------------- ---------------- ----------- -----------------
Partners' equity - March 31, 1998 $ 8,289,803 $ 4,385,052 $12,674,855 $ 146.27 $ 0 $ 12,674,855
============= ============ ============= ================ =========== =================
</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, 1998 and 1997
1998 1997
---------- ----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss .............................................. $ (30,955) $(108,487)
Adjustments to reconcile net loss
to cash used in operating activities:
Depreciation and amortization ....................... 227,041 182,135
Undistributed loss of unconsolidated
joint venture ..................................... 73,697 37,373
(Increase) decrease in rent receivable .............. (35,632) 821
(Increase) decrease in other receivables ............ (55,289) 51,330
Increase in other assets ............................ (53,521) (10,830)
Decrease in accrued and other liabilities ........... (179,405) (360,659)
---------- ----------
Net cash used in operating activities ............... (54,064) (208,317)
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Payments for property additions ..................... (48,576) (121,293)
Capital contributions to unconsolidated joint venture 0 (155,590)
---------- ----------
Net cash used in investing activities ............... (48,576) (276,883)
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on notes payable ................. (4,221) (20,623)
Repayment of loans to affiliate ..................... 0 155,590
Borrowings from affiliate ........................... 77,489 389,600
---------- ----------
Net cash provided by financing activities ........... 73,268 524,567
---------- ----------
NET (DECREASE) INCREASE IN CASH AND
CASH EQUIVALENTS .................................... (29,372) 39,367
CASH AND CASH EQUIVALENTS - Beginning of period ......... 69,790 22,962
---------- ----------
CASH AND CASH EQUIVALENTS - End of period ............... $ 40,418 $ 62,329
========== ==========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash paid during the period for interest ............ $ 90,656 $ 109,850
========== ==========
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, 1998 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, 1997.
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, 1998
and 1997 are affiliate transactions as follows:
March 31
--------------------------
1998 1997
------------- ------------
Management fees $ 31,755 $ 22,406
Administrative fees 58,034 46,584
Leasing fees 12,405 26,647
Construction fees 10,787 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 ("SPPI'84"), an affiliate, to develop
and operate the real property known as Sierra Mira Mesa, an office building,
located in San Diego, California. The Partnership's initial ownership interest
in SMMP was 51%; the remaining 49% was owned by SPPI'84. Effective December 31,
1996, the general partners amended the partnership agreement to allow for
adjustments in the sharing ratio each year based upon the relative net
contributions and distributions since inception of each general partner. At
March 31, 1998 the Partnership's interest in SMMP is 33.74%; the remaining
66.26% interest is owned by SPPI'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, 1998
and 1997 follows:
March 31
----------------------------
1998 1997
-------------- -------------
Rental income $ 482,917 $ 481,365
Total revenues 534,154 523,937
Operating expenses 206,776 167,018
Share of unconsolidated
joint venture loss 57,843 134,559
Net income (loss) 5,549 (101,246)
As of March 31, 1998, SMMP holds a 33.55% interest in Sorrento II Partners
("SIIP"), a California general partnership with Sierra Pacific Institutional
Properties V formed in 1993; a 9.33% interest in Sierra Creekside Partners
("SCP"), a California general partnership with Sierra Pacific Development Fund
formed in 1994; and a 34.51% 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, 1998 and 1997 follows:
SIIP
--------------------------
March 31
--------------------------
1998 1997
------------- ------------
Rental income $ 169,808 $ 275,936
Total revenues 169,808 275,936
Operating expenses 104,860 80,271
Net loss 136,367 12,056
UNAUDITED
9
<PAGE>
Sierra Pacific Development Fund II
Notes to Financial Statements
Page three
SCP SVP
------------------------- --------------------------
March 31 March 31
------------------------- --------------------------
1998 1997 1998 1997
------------ ------------ ------------- ------------
Rental income $ 203,881 $ 177,225 $ 0 $ 141,806
Total revenues 203,881 177,225 0 141,806
Operating expenses 125,117 114,522 20,852 111,210
Net loss 52,473 101,608 20,852 268,897
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 4, 1998 /s/ THOMAS N. THURBER
----------- --------------------------
Thomas N. Thurber
President and Director
Date: MAY 4, 1998 /s/ G. ANTHONY EPPOLITO
----------- --------------------------
G. Anthony Eppolito
Chief Accountant
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE FINANCIAL DATA SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM SIERRA PACIFIC DEVELOPMENT FUND II MARCH 31, 1998 FINANCIAL STATEMENTS AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> MAR-31-1998
<CASH> 40,418
<SECURITIES> 0
<RECEIVABLES> 484,866
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1,106,367
<PP&E> 15,102,803
<DEPRECIATION> 4,030,417
<TOTAL-ASSETS> 19,262,722
<CURRENT-LIABILITIES> 334,585
<BONDS> 6,253,282
0
0
<COMMON> 0
<OTHER-SE> 12,674,855
<TOTAL-LIABILITY-AND-EQUITY> 19,262,722
<SALES> 624,016
<TOTAL-REVENUES> 717,101
<CGS> 0
<TOTAL-COSTS> 336,611
<OTHER-EXPENSES> 227,041
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 110,707
<INCOME-PRETAX> (30,955)
<INCOME-TAX> 0
<INCOME-CONTINUING> (30,955)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (30,955)
<EPS-PRIMARY> (.36)
<EPS-DILUTED> (.36)
</TABLE>
