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, 2000
----------------------------------------------------
Commission file number 0-12036
----------------------------------------------------
SIERRA PACIFIC DEVELOPMENT FUND II
(A LIMITED PARTNERSHIP)
State of California 95-3856271
- -------------------------------------- -----------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification
incorporation or organization) Number)
5850 San Felipe, Suite 450
Houston, Texas 77057
- -------------------------------------- -----------------------------------
(Address of principal executive (Zip Code)
offices)
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, 2000 and December 31, 1999..................... 4
Statements of Operations - For the Three Months Ended March 31,
2000 and 1999 ............................................................ 5
Statements of Changes in Partners' Equity - For the Year Ended
December 31, 1999 and for the Three Months Ended March 31, 2000 .......... 6
Statements of Cash Flows - For the Three Months Ended March 31,
2000 and 1999 ............................................................ 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 Sierra Pacific
Development Fund II's (the Partnership) 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
30.17% interest in Sierra Mira Mesa Partners (SMMP).
(b) RESULTS OF OPERATIONS
Rental income for the three months ended March 31, 2000 decreased by
approximately $56,000, or 9%, primarily due to lower occupancy at Sierra
Southwest Pointe. Occupancy at Sierra Southwest Pointe decreased from 94% at
March 31, 1999 to 73% at March 31, 2000. At 5850 San Felipe, occupancy rose
slightly from 97% to 100% between the same periods. Sierra Westlakes remained
75% occupied. The decrease in rental income was also attributable to lower
common area maintenance fees billed during the quarter when compared to the same
period in 1999.
2
<PAGE>
Operating expenses for the three months ended March 31, 2000 increased by
approximately $122,000, or 31%, in comparison to the corresponding period in
prior year, in large part due to an increase in legal fees associated with the
settlement of a lawsuit against the Partnership. Further, higher data processing
costs and accounting and auditing fees were incurred during the quarter.
The Partnership's share of unconsolidated joint venture income was approximately
$55,000 for the three months ended March 31, 2000 compared to approximately
$30,000 for the corresponding period in 1999.
(c) LIQUIDITY AND CAPITAL RESOURCES
In December 1999, a lawsuit was settled against the Partnership that provided
for a complete release of the Partnership, general partners and all affiliates.
As part of the settlement, the Partnership agreed to pay the plaintiff's
attorneys' fees of $1,000,000. In February and March 2000, the Partnership made
scheduled payments totaling $500,000, with the remaining $500,000 due by
December 31, 2000.
The Partnership is in an illiquid position as of March 31, 2000 with cash and
billed rents of approximately $136,000 and current liabilities of approximately
$858,000, which includes the remaining legal liability of $500,000.
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.
Inflation:
The Partnership does not expect inflation to be a material factor in its
operations in 2000.
3
<PAGE>
SIERRA PACIFIC DEVELOPMENT FUND II
(A LIMITED PARTNERSHIP)
BALANCE SHEETS
MARCH 31, 2000 AND DECEMBER 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MARCH 31, 2000 DECEMBER 31, 1999
--------------- ---------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Cash and cash equivalents ........................................................ $ 23,153 $ 260,963
Receivables:
Note, net of deferred gain of $736,271 ......................................... 3,466,553 3,062,629
Unbilled rent .................................................................. 237,144 239,271
Billed rent .................................................................... 112,487 140,211
Due from affiliates ............................................................ 1,013,698 1,013,698
Interest ....................................................................... 114,176 0
Income-producing properties - net of
accumulated depreciation and valuation
allowance of $3,886,195 and $3,728,719,
respectively ................................................................... 10,473,255 10,590,651
Investment in unconsolidated joint venture ....................................... 2,265,201 3,023,177
Other assets - net of accumulated amortization
of $408,815 and $393,674, respectively ......................................... 788,661 873,728
--------------- ---------------
Total Assets ..................................................................... $ 18,494,328 $ 19,204,328
=============== ===============
LIABILITIES AND PARTNERS' EQUITY
Accrued and other liabilities .................................................... $ 858,033 $ 1,452,577
Notes payable .................................................................... 6,385,248 6,397,116
--------------- ---------------
Total Liabilities ................................................................ 7,243,281 7,849,693
--------------- ---------------
Partners' equity (deficit):
General Partner ................................................................ (65,041) 0
Limited Partners:
Class A Limited Partners:
60,000 units authorized,
56,674 issued and outstanding .............................................. 7,401,124 7,426,335
Class B Limited Partners:
60,000 units authorized,
29,979 issued and outstanding .............................................. 3,914,964 3,928,300
--------------- ---------------
Total Partners' equity ........................................................... 11,251,047 11,354,635
--------------- ---------------
Total Liabilities and Partners' equity ........................................... $ 18,494,328 $ 19,204,328
=============== ===============
</TABLE>
SEE ACCOMPANYING NOTES
4
<PAGE>
SIERRA PACIFIC DEVELOPMENT FUND II
(A LIMITED PARTNERSHIP)
STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 2000 AND 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
2000 1999
--------------- ---------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
REVENUES:
Rental income ............................................................................... $ 567,727 $ 624,219
Interest income ............................................................................. 114,371 102,404
--------------- ---------------
Total revenues ........................................................... 682,098 726,623
--------------- ---------------
EXPENSES:
Operating expenses .......................................................................... 511,105 389,112
Depreciation and amortization ............................................................... 217,826 215,764
Interest .................................................................................... 111,766 107,783
--------------- ---------------
Total costs and expenses ................................................. 840,697 712,659
--------------- ---------------
(LOSS) INCOME BEFORE PARTNERSHIP'S
SHARE OF UNCONSOLIDATED JOINT
VENTURE INCOME ............................................................................. (158,599) 13,964
--------------- ---------------
PARTNERSHIP'S SHARE OF UNCONSOLIDATED
JOINT VENTURE INCOME ....................................................................... 55,011 29,875
--------------- ---------------
NET (LOSS) INCOME ............................................................................. $ (103,588) $ 43,839
=============== ===============
Net (loss) income per limited partnership unit ................................................ $ (1.18) $ 0.51
=============== ===============
</TABLE>
SEE ACCOMPANYING NOTES
5
<PAGE>
SIERRA PACIFIC DEVELOPMENT FUND II
(A LIMITED PARTNERSHIP)
STATEMENTS OF CHANGES IN PARTNERS' EQUITY
FOR THE YEAR ENDED DECEMBER 31, 1999 AND
FOR THE THREE MONTHS ENDED MARCH 31, 2000
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
LIMITED PARTNERS TOTAL
---------------------------- GENERAL PARTNERS'
PER UNIT CLASS A CLASS B TOTAL PARTNER EQUITY
------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Proceeds from sale of
partnership units ................. $ 250.00 $ 14,392,000 $ 7,579,000 $ 21,971,000 $ 21,971,000
Underwriting commissions
and other organization expenses ... (33.68) (1,939,045) (1,021,124) (2,960,169) (2,960,169)
Repurchase of 1,231 partnership
units ............................ 0.06 (177,934) (66,167) (244,101) (244,101)
Cumulative net income (loss)
(to December 31, 1999) ............ (20.55) (1,163,641) (616,129) (1,779,770) $ 46,674 (1,733,096)
Cumulative distributions
(to December 31, 1999) ............ (64.80) (3,685,045) (1,947,280) (5,632,325) (46,674) (5,678,999)
------------ ------------ ------------ ------------ ------------ ------------
Partners' equity -
January 1, 2000 (audited) ......... 131.03 7,426,335 3,928,300 11,354,635 0 11,354,635
Cumulative adjustment of net loss
allocation ........................ 0.74 41,861 22,144 64,005 (64,005) 0
Net loss (unaudited)................. (1.18) (67,072) (35,480) (102,552) (1,036) (103,588)
------------ ------------ ------------ ------------ ------------ ------------
Partners' equity (deficit) -
March 31, 2000 (unaudited) ....... $ 130.59 $ 7,401,124 $ 3,914,964 $ 11,316,088 $ (65,041) $ 11,251,047
============ ============ ============ ============ ============ ============
</TABLE>
SEE ACCOMPANYING NOTES
6
<PAGE>
SIERRA PACIFIC DEVELOPMENT FUND II
(A LIMITED PARTNERSHIP)
STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 2000 AND 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
2000 1999
----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) income .................................................................................. $ (103,588) $ 43,839
Adjustments to reconcile net (loss) income
to cash (used in) provided by operating activities:
Depreciation and amortization .................................................................... 217,826 215,764
Partnership's share of unconsolidated
joint venture income ........................................................................... (55,011) (29,875)
Decrease (increase) in rent receivable ........................................................... 29,851 (47,884)
Increase in interest receivable .................................................................. (114,176) (101,859)
Decrease in other receivables .................................................................... 0 7,946
Decrease in other assets ......................................................................... 44,169 67,879
Decrease in accrued and other liabilities ........................................................ (594,544) (104,146)
----------- -----------
Net cash (used in) provided by operating activities .............................................. (575,473) 51,664
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Loan to affiliate of the general partner ......................................................... (403,924) 0
Payments for property additions .................................................................. (58,318) (119,778)
----------- -----------
Net cash used in investing activities ............................................................ (462,242) (119,778)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on notes payable .............................................................. (11,868) (6,952)
Distributions from unconsolidated joint venture .................................................. 811,773 0
Borrowings from affiliate ........................................................................ 0 11,055
----------- -----------
Net cash provided by financing activities ........................................................ 799,905 4,103
----------- -----------
NET DECREASE IN CASH AND CASH EQUIVALENTS ............................................................ (237,810) (64,011)
CASH AND CASH EQUIVALENTS - Beginning of period ...................................................... 260,963 71,180
----------- -----------
CASH AND CASH EQUIVALENTS - End of period ............................................................ $ 23,153 $ 7,169
=========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash paid during the period for property taxes ................................................... $ 223,178 $ 210,727
=========== ===========
Cash paid during the period for interest ......................................................... $ 111,766 $ 107,783
=========== ===========
</TABLE>
SEE ACCOMPANYING NOTES
7
<PAGE>
SIERRA PACIFIC DEVELOPMENT FUND II
(A LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
- --------------------------------------------------------------------------------
1. BASIS OF FINANCIAL STATEMENTS
In the opinion of Sierra Pacific Development Fund II's (the Partnership)
management, these unaudited financial statements reflect all adjustments which
are necessary for a fair presentation of its financial position at March 31,
2000 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, 1999.
2. RELATED PARTY TRANSACTIONS
Included in the financial statements for the three months ended March 31, 2000
and 1999 are affiliate transactions as follows:
MARCH 31
-----------------------
2000 1999
---------- ----------
Management fees $ 29,800 $ 25,320
Administrative fees 69,864 62,297
Leasing fees 18,141 3,571
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, 2000 the
Partnership's interest in SMMP is 30.17%; the remaining 69.83% interest is owned
by SPPI'84.
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, 2000
and 1999 follows:
8
<PAGE>
Sierra Pacific Development Fund II
Notes to Financial Statements (Unaudited)
Page two
March 31
------------------------
2000 1999
----------- ----------
Rental income $ 556,156 $ 500,720
Total revenues 617,334 556,010
Operating expenses 219,914 190,270
Share of unconsolidated
joint venture income (loss) 45,176 (25,266)
Net income 175,848 87,978
As of March 31, 2000, SMMP holds a 43.92% interest in Sorrento II Partners
(SIIP), a California general partnership with Sierra Pacific Institutional
Properties V formed in 1993; a 5.08% interest in Sierra Creekside Partners
(SCP), a California general partnership with Sierra Pacific Development Fund
formed in 1994; and a 33.36% 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, 2000 and 1999 follows:
<TABLE>
<CAPTION>
SCP SVP SIIP
-------------------------- -------------------------- -------------------------
MARCH 31 MARCH 31 MARCH 31
-------------------------- -------------------------- -------------------------
2000 1999 2000 1999 2000 1999
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Rental income ................. $ 229,440 $ 214,772 $ 0 $ 0 $ 385,844 $ 260,066
Total revenues ................ 229,440 214,772 0 11,907 397,049 260,066
Operating expenses ............ 154,180 126,351 13,665 13,797 124,762 123,578
Extraordinary loss ............ 46,020 0 0 0 0 0
Net (loss) income ............. (124,683) (36,421) (20,154) (2,457) 127,660 (63,391)
</TABLE>
9
<PAGE>
Sierra Pacific Development Fund II
Notes to Financial Statements (Unaudited)
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.
Partners' equity accounts have been adjusted to reflect an allocation of
cumulative net loss to the partners in accordance with the agreement of limited
partnership. This agreement provides that 99% of operating income, gains,
losses, deductions and credits of the Partnership shall be allocated among the
limited partners and 1% be allocated to the general partner.
Prior year balances have not been adjusted because management does not believe
that the effects of these adjustments are significant to the prior year
partners' equity balances.
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
A Form 8-K was filed in April 2000 reporting a change in the Partnership's
Certifying Accountant.
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 10, 2000 /S/ THOMAS N. THURBER
------------ -----------------------------------------------
Thomas N. Thurber
President and Director
Date: MAY 10, 2000 /S/ G. ANTHONY EPPOLITO
------------ -----------------------------------------------
G. Anthony Eppolito
Chief Accountant
11
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE FINANCIAL DATA SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM SIERRA PACIFIC DEVELOPMENT FUND II MARCH 31, 2000 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-31-2000
<PERIOD-END> MAR-31-2000
<CASH> 23,153
<SECURITIES> 0
<RECEIVABLES> 463,807
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 249,816
<PP&E> 14,359,450
<DEPRECIATION> 3,886,195
<TOTAL-ASSETS> 18,494,328
<CURRENT-LIABILITIES> 858,033
<BONDS> 6,385,248
0
0
<COMMON> 0
<OTHER-SE> 11,251,047
<TOTAL-LIABILITY-AND-EQUITY> 18,494,328
<SALES> 567,727
<TOTAL-REVENUES> 682,098
<CGS> 0
<TOTAL-COSTS> 511,105
<OTHER-EXPENSES> 217,826
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 111,766
<INCOME-PRETAX> (103,588)
<INCOME-TAX> 0
<INCOME-CONTINUING> (103,588)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (103,588)
<EPS-BASIC> (1.20)
<EPS-DILUTED> (1.20)
</TABLE>
