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, 2000
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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
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(State or other jurisdiction of (I.R.S. Employer Identification
incorporation or organization) Number)
5850 San Felipe, Suite 450
Houston, Texas 77057
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(Address of principal executive (Zip Code)
offices)
Registrant's telephone number,
including area code: (713) 706-6271
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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, 2000 and December 31, 1999 4
Statements of Operations - For the Six Months and Three Months
Ended June 30, 2000 and 1999 5
Statements of Changes in Partners' Equity - For the Year Ended
December 31, 1999 and for the Six Months Ended June 30, 2000 6
Statements of Cash Flows - For the Six Months Ended June 30, 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 six months and three months ended June 30, 2000 increased
by approximately $73,000, or 6%, and by approximately $129,000, or 23%,
respectively, when compared to the same periods in the prior year. These
increases were primarily due to higher common area maintenance fees billed at
5850 San Felipe. Supplemental billings were made in the second quarter to
recover higher than anticipated prior year common area maintenance fees.
Further, rental rates rose at 5850 San Felipe and Sierra Southwest Pointe. These
increases in rental income were partially offset by lower occupancy at Sierra
Southwest Pointe. Occupancy at Sierra Southwest Pointe decreased
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from 85% at June 30, 1999 to 73% at June 30, 2000. At 5850 San Felipe, occupancy
rose slightly from 98% to 100% between the same periods. Sierra Westlakes
remained 75% occupied.
Operating expenses for the six months ended June 30, 2000 increased by
approximately $92,000, or 12%, 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 maintenance and
repairs costs and accounting and auditing fees were incurred during the period.
This increase was partially offset by a decrease in administrative costs.
Operating expenses for the quarter ended June 30, 2000 decreased by
approximately $30,000, or 7%, principally as a result of lower administrative
costs and data processing fees.
The Partnership's share of unconsolidated joint venture income was approximately
$101,000 for the six months ended June 30, 2000 compared to approximately
$90,000 for the corresponding period in the prior year.
(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 the first quarter of 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 June 30, 2000 with cash and
billed rents of approximately $298,000 and current liabilities of approximately
$953,000, which includes the remaining legal liability of $500,000.
The Partnership's primary capital requirements will be for the construction of
new tenant space and the remaining legal obligation. 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
JUNE 30, 2000 AND DECEMBER 31, 1999
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
JUNE 30, 2000
(UNAUDITED) DECEMBER 31, 1999
------------------ ------------------
<S> <C> <C>
ASSETS
Cash and cash equivalents ........................................................... $ 109,490 $ 260,963
Receivables:
Note, net of deferred gain of $736,271 ............................................ 3,632,946 3,062,629
Unbilled rent ..................................................................... 222,696 239,271
Billed rent ....................................................................... 188,230 140,211
Due from affiliates ............................................................... 1,013,698 1,013,698
Interest .......................................................................... 236,473 0
Income-producing properties - net of
accumulated depreciation and valuation
allowance of $3,991,052 and $3,728,719,
respectively ...................................................................... 10,324,783 10,590,651
Investment in unconsolidated joint venture .......................................... 2,141,531 3,023,177
Other assets - net of accumulated amortization
of $434,421 and $393,674, respectively ............................................ 865,279 873,728
------------------ ------------------
Total Assets ........................................................................ $ 18,735,126 $ 19,204,328
================== ==================
LIABILITIES AND PARTNERS' EQUITY
Accrued and other liabilities ....................................................... $ 952,632 $ 1,452,577
Notes payable ....................................................................... 6,373,119 6,397,116
------------------ ------------------
Total Liabilities ................................................................... 7,325,751 7,849,693
------------------ ------------------
Partners' equity (deficit):
General Partner ................................................................... (63,458) 0
Limited Partners:
Class A Limited Partners:
60,000 units authorized,
56,674 issued and outstanding ................................................. 7,503,640 7,426,335
Class B Limited Partners:
60,000 units authorized,
29,979 issued and outstanding ................................................. 3,969,193 3,928,300
------------------ ------------------
Total Partners' equity .............................................................. 11,409,375 11,354,635
------------------ ------------------
Total Liabilities and Partners' equity .............................................. $ 18,735,126 $ 19,204,328
================== ==================
</TABLE>
SEE ACCOMPANYING NOTES
4
<PAGE>
SIERRA PACIFIC DEVELOPMENT FUND II
(A LIMITED PARTNERSHIP)
STATEMENTS OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 2000 AND 1999
AND FOR THE THREE MONTHS ENDED JUNE 30, 2000 AND 1999
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<TABLE>
<CAPTION>
SIX MONTHS ENDED THREE MONTHS ENDED
JUNE 30, JUNE 30,
------------------------------ -----------------------------
2000 1999 2000 1999
(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
REVENUES:
Rental income ......................................... $ 1,266,942 $ 1,194,025 $ 699,215 $ 569,806
Interest income ....................................... 236,944 204,768 122,573 102,364
----------- ----------- ----------- -----------
Total revenues ..................... 1,503,886 1,398,793 821,788 672,170
----------- ----------- ----------- -----------
EXPENSES:
Operating expenses .................................... 885,750 793,426 374,645 404,314
Depreciation and amortization ......................... 440,882 434,505 223,056 218,741
Interest .............................................. 223,270 214,322 111,504 106,539
----------- ----------- ----------- -----------
Total costs and expenses ........... 1,549,902 1,442,253 709,205 729,594
----------- ----------- ----------- -----------
(LOSS) INCOME BEFORE PARTNERSHIP'S
SHARE OF UNCONSOLIDATED JOINT
VENTURE INCOME ....................................... (46,016) (43,460) 112,583 (57,424)
----------- ----------- ----------- -----------
PARTNERSHIP'S SHARE OF UNCONSOLIDATED
JOINT VENTURE INCOME ................................. 100,756 89,769 45,745 59,894
----------- ----------- ----------- -----------
NET INCOME .............................................. $ 54,740 $ 46,309 $ 158,328 $ 2,470
=========== =========== =========== ===========
Net income per limited partnership unit ................. $ 0.63 $ 0.53 $ 1.81 $ 0.03
=========== =========== =========== ===========
</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 SIX MONTHS ENDED JUNE 30, 2000
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<TABLE>
<CAPTION>
LIMITED PARTNERS TOTAL
---------------------------- GENERAL PARTNERS'
PER UNIT CLASS A CLASS B TOTAL PARTNER EQUITY
------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <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, 1998) ............. (6.96) (393,677) (208,839) (602,516) $ 46,674 (555,842)
Cumulative distributions
(to December 31, 1998) ............. (64.80) (3,685,045) (1,947,280) (5,632,325) (46,674) (5,678,999)
------------ ------------ ------------ ------------ ------------ ------------
Partners' equity - January 1, 1999 ... 144.62 8,196,299 4,335,590 12,531,889 0 12,531,889
Net loss ............................. (13.59) (769,964) (407,290) (1,177,254) (1,177,254)
------------ ------------ ------------ ------------ ------------ ------------
Partners' equity -
January 1, 2000 (audited) .......... 131.03 7,426,335 3,928,300 11,354,635 0 11,354,635
Transfer among general partner and
limited partners ................... 0.74 41,861 22,144 64,005 (64,005) 0
Net income (unaudited) ............... 0.63 35,444 18,749 54,193 547 54,740
------------ ------------ ------------ ------------ ------------ ------------
Partners' equity (deficit) -
June 30, 2000 (unaudited) ......... $ 132.40 $ 7,503,640 $ 3,969,193 $ 11,472,833 $ (63,458) $ 11,409,375
============ ============ ============ ============ ============ ============
</TABLE>
SEE ACCOMPANYING NOTES
6
<PAGE>
SIERRA PACIFIC DEVELOPMENT FUND II
(A LIMITED PARTNERSHIP)
STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 2000 AND 1999
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2000 1999
(UNAUDITED) (UNAUDITED)
----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income ...................................... $ 54,740 $ 46,309
Adjustments to reconcile net income
to cash used in operating activities:
Depreciation and amortization ................. 440,882 434,505
Partnership's share of unconsolidated
joint venture income ........................ (100,756) (89,769)
Increase in rent receivable ................... (31,444) (28,359)
Increase in interest receivable ............... (236,473) (203,876)
Decrease in other receivables ................. 0 7,946
Increase in other assets ...................... (73,665) (35,967)
Decrease in accrued and other liabilities ..... (499,945) (249,356)
----------- -----------
Net cash used in operating activities ......... (446,661) (118,567)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Loan to affiliate of the general partner ...... (570,317) 0
Payments for property additions ............... (90,471) (198,863)
----------- -----------
Net cash used in investing activities ......... (660,788) (198,863)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on notes payable ........... (23,997) (11,674)
Contributions to unconsolidated joint venture . (23,000) 0
Distributions from unconsolidated joint venture 1,002,973 0
Borrowings from affiliate ..................... 0 306,184
----------- -----------
Net cash provided by financing activities ..... 955,976 294,510
----------- -----------
NET DECREASE IN CASH AND CASH EQUIVALENTS ......... (151,473) (22,920)
CASH AND CASH EQUIVALENTS - Beginning of period ... 260,963 71,180
----------- -----------
CASH AND CASH EQUIVALENTS - End of period ......... $ 109,490 $ 48,260
=========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for property taxes $ 223,178 $ 210,731
=========== ===========
Cash paid during the period for interest ...... $ 223,270 $ 191,335
=========== ===========
SEE ACCOMPANYING NOTES
7
<PAGE>
SIERRA PACIFIC DEVELOPMENT FUND II
(A LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
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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 June 30, 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 six months ended June 30, 2000 and
1999 are affiliate transactions as follows:
June 30
-----------------------
2000 1999
-----------------------
Management fees $ 62,065 $ 55,105
Administrative fees 143,040 163,402
Leasing fees 46,960 12,173
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 June 30, 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 six months ended June 30, 2000 and
1999 follows:
8
<PAGE>
Sierra Pacific Development Fund II
Notes to Financial Statements (Unaudited)
Page two
June 30
------------------------
2000 1999
------------------------
Rental income $ 1,096,679 $1,059,081
Total revenues 1,220,016 1,170,121
Operating expenses 446,008 361,757
Share of unconsolidated
joint venture income (loss) 81,931 (36,566)
Net income 326,619 269,349
As of June 30, 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 six months ended June 30,
2000 and 1999 follows:
SCP SVP SIIP
--------------------------------------------------------
June 30 June 30 June 30
--------------------------------------------------------
2000 1999 2000 1999 2000 1999
--------------------------------------------------------
Rental income $489,777 $448,066 $ 0 $ 0 $699,130 $554,777
Total revenues 489,777 448,066 0 11,907 710,335 554,777
Operating expenses 268,936 247,078 13,735 14,577 236,241 243,567
Extraordinary loss (46,020) 0 0 0 0 0
Net (loss) income (149,586) (50,053) (13,735) (2,670) 214,281 (92,300)
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.
During the quarter ended March 31, 2000, an amount was transferred between the
partners' equity accounts such that 99% of cumulative operating income, gains,
losses, deductions and credits of the Partnership is allocated among the limited
partners and 1% is allocated to the general partner. Management does not believe
that the effect of this transfer is significant.
5. PENDING TRANSACTION
CGS Real Estate Company, Inc. (CGS), an affiliate of the general partner, is in
the process of developing a plan pursuant to which the properties owned by the
Partnership would be combined with the properties of other real estate
partnerships managed by CGS and its affiliates. These limited partnerships own
office properties, industrial properties, shopping centers, and residential
apartment properties. It is expected that the acquirer would in the future
qualify as a real estate investment trust. Limited partners would receive shares
of common stock in the acquirer, which would be listed on a national securities
exchange or the NASDAQ national market system.
10
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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: AUGUST 14, 2000 /s/ THOMAS N. THURBER
--------------- -----------------------------------------------------
Thomas N. Thurber
President and Director
Date: AUGUST 14, 2000 /s/ G. ANTHONY EPPOLITO
--------------- -----------------------------------------------
G. Anthony Eppolito
Chief Accountant
11
