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, 1996
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Commission file number 0-14276
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SIERRA PACIFIC DEVELOPMENT FUND III
(A LIMITED PARTNERSHIP)
State of California 33-0043953
- --------------------------------------------- ---------------------------
(State or other jurisdiction of incorporation or (I.R.S. Employer
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 [ ].
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
The following financial statements are submitted in the next pages:
PAGE
NUMBER
Consolidated Balance Sheets - March 31, 1996 and December 31, 1995 ......... 4
Consolidated Statements of Operations -
For the Three Months Ended March 31, 1996 and 1995 ......................... 5
Consolidated Statements of Changes in Partners' Equity -
From June 5, 1984 (inception of the Partnership) to
December 31, 1995 and For the Three Months Ended March 31, 1996 ............ 6
Consolidated Statements of Cash Flows - For the Three Months Ended
March 31, 1996 and 1995 .................................................... 7
Notes to Consolidated 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
Consolidated Financial Statements and Notes thereto appearing elsewhere in this
Form 10-Q.
The Partnership currently owns a 61.43% interest in the Sierra Vista Partnership
which operates the Sierra Vista property. In addition, the Partnership holds a
24.94% interest in Sorrento I Partners ("SIP"), which operates the Sierra
Sorrento I property.
The Partnership's financial position at March 31, 1996 remained relatively
unchanged from December 31, 1995 and the comments relating to the Partnership's
liquidity and capital resources in its 1995 annual report continue to apply.
2
(b) RESULTS OF OPERATIONS
Revenues decreased by $32,000, or 17%, principally as a result of a reduction in
rent rates on new leases. This decrease in effective rental rates is primarily
caused by early move in provisions given to new tenants as an incentive to enter
into new leases. Operating expenses decreased by $10,000, or 9%, primarily due
to lower administrative costs and other expense cutting measures implemented by
management.
Interest expense decreased $31,000, or 31%, due to the restructuring of the note
in August 1995. The annual interest rate on the note was reduced from 3% above
Bank of America's prime rate to a fixed rate of 8% retroactive to June 1995.
The Partnership's share of loss from investment in SIP decreased by $37,000, or
50%, due to a decrease in the Partnership's ownership percentage from 41.41%
during 1995 to 24.94% during 1996. This decrease was the result of additional
contributions to SIP by Sierra Mira Mesa Partners ("SMMP") during the past year.
(c) LIQUIDITY AND CAPITAL RESOURCES
The Partnership used cash of $92,000 in operating activities during the quarter
ended March 31, 1996. Cash of $239,000 was received from SMMP during the
quarter. As of March 31, 1996, the Partnership is in an illiquid position. Total
unrestricted cash and billed receivables amount to $38,000 compared to $122,000
of accrued and other liabilities. Significant capital expenditures will be
required in 1996 for tenant improvements and leasing commissions for the Sierra
Vista property as the Partnership attempts to increase occupancy. The source of
these funds will be net cash flow from operation of the property and advances
from SMMP.
Sierra Vista Partners was formed, in part, to provide the Property with a source
of cash for tenant improvements and leasing commissions. As required, the
Partnership's joint venture partner (SMMP) either advances or contributes cash
to meet the Partnership's requirements. SMMP has adequate resources to make the
necessary advances during the foreseeable future.
3
SIERRA PACIFIC DEVELOPMENT FUND III
(A LIMITED PARTNERSHIP)
CONSOLIDATED BALANCE SHEETS
MARCH 31, 1996 AND DECEMBER 31, 1995
March 31, December 31,
1996 1995
---------- ----------
ASSETS
Cash and cash equivalents .................. $ 8,107 $ 16,171
Restricted certificate of
deposit .................................... 92,782 92,782
Receivables:
Unbilled rent .......................... 65,577 59,150
Billed rent ............................ 30,155 24,654
Income-producing property -
net of
accumulated depreciation
and valuation
allowance of $4,056,309 and
$3,944,100,
respectively ............................. 5,743,057 5,700,014
Other assets ............................... 153,134 167,196
---------- ----------
Total Assets ............................... $6,092,812 $6,059,967
========== ==========
LIABILITIES AND PARTNERS' EQUITY
Accrued and other liabilities .............. $ 122,256 $ 172,263
Note payable ............................... 3,410,795 3,410,795
Investment in unconsolidated
joint venture ............................ 791,550 755,546
---------- ----------
Total Liabilities .......................... 4,324,601 4,338,604
---------- ----------
Minority interest in
consolidated
joint venture ........................... 1,450,082 1,271,308
---------- ----------
Partners' equity :
General Partner .......................... 0 0
Limited Partners:
60,000 units authorized,
36,521 issued and
outstanding ......................... 318,129 450,055
---------- ----------
Total Partners' equity ..................... 318,129 450,055
---------- ----------
Total Liabilities and
Partners' equity .......................... $6,092,812 $6,059,967
========== ==========
UNAUDITED
SEE ACCOMPANYING NOTES
4
SIERRA PACIFIC DEVELOPMENT FUND III
(A LIMITED PARTNERSHIP)
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1996 AND 1995
1996 1995
--------- ---------
REVENUES:
Rental income ............................ $ 149,754 $ 181,509
--------- ---------
Total Revenues ............. 149,754 181,509
--------- ---------
EXPENSES:
Operating expenses ..................... 104,276 114,169
Depreciation and
amortization ............................... 133,410 116,523
Interest ............................... 68,216 99,474
--------- ---------
Total costs and expenses ............. 305,902 330,166
--------- ---------
LOSS BEFORE PARTNERSHIP'S SHARE
OF UNCONSOLIDATED JOINT
VENTURE LOSS ............................... (156,148) (148,657)
--------- ---------
PARTNERSHIP'S SHARE OF
UNCONSOLIDATED
JOINT VENTURE LOSS ...................... (36,004) (73,291)
--------- ---------
LOSS BEFORE MINORITY
INTEREST'S SHARE
OF CONSOLIDATED JOINT
VENTURE LOSS ............................... (192,152) (221,948)
--------- ---------
MINORITY INTEREST'S SHARE OF
CONSOLIDATED JOINT VENTURE
LOSS ....................................... 60,226 36,748
--------- ---------
NET LOSS ................................... $(131,926) $(185,200)
========= =========
Net loss per limited
partnership unit ........................... $ (3.61) $ (5.07)
========= =========
UNAUDITED
SEE ACCOMPANYING NOTES
5
SIERRA PACIFIC DEVELOPMENT FUND III
(A LIMITED PARTNERSHIP)
CONSOLIDATED STATEMENTS OF CHANGES IN PARTNERS' EQUITY
FROM JUNE 5, 1984 (INCEPTION OF PARTNERSHIP) TO DECEMBER 31, 1995
AND FOR THE THREE MONTHS ENDED MARCH 31, 1996
<TABLE>
<CAPTION>
Limited Partners Total
------------------------------------ General Partners'
Per Unit Total Partner Equity
---------------- ---------------- ----------------- ---------
<S> <C> <C> <C>
Proceeds from sale of
partnership units ............................... $ 250.00 $ 9,222,500 -- $ 9,222,500
Underwriting commissions
and other organization
expenses .......................................... (37.00) (1,364,985) -- (1,364,985)
Repurchase of 369 partnership
units ............................................. (0.18) (85,005) -- (85,005)
Cumulative net income (loss)
(to December 31, 1995) .......................... (189.31) (6,913,608) $ 21,522 (6,892,086)
Cumulative distributions
from operations
(to December 31, 1995) .......................... (11.19) (408,847) (21,522) (430,369)
---------- ----------- -------- -----------
Partners' equity - January 1, 1996 ................ 12.32 450,055 0 450,055
Net loss .......................................... (3.61) (131,926) -- (131,926)
---------- ----------- -------- -----------
Partners' equity -March 31, 1996 .................. $ 8.71 $ 318,129 $ 0 $ 318,129
========== =========== ======== ===========
</TABLE>
UNAUDITED
SEE ACCOMPANYING NOTES
6
SIERRA PACIFIC DEVELOPMENT FUND III
(A LIMITED PARTNERSHIP)
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 1996 AND 1995
1996 1995
---------- ---------
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net loss ................................. $(131,926) $(185,200)
Adjustments to reconcile
net loss
to cash used in operating
activities:
Depreciation and
amortization ............................... 133,410 116,523
Partnership's share of
unconsolidated
joint venture loss ................... 36,004 73,291
Minority interest in
consolidated
joint venture loss ................... (60,226) (36,748)
Increase in rent
receivable ................................. (11,928) (3,475)
Increase in other assets ............... (7,140) (42,437)
(Decrease) increase in
accrued and other liabilities .............. (50,007) 15,270
--------- ---------
Net cash used in
operating activities ....................... (91,813) (62,776)
--------- ---------
CASH FLOWS FROM INVESTING
ACTIVITIES:
Payments for property
additions .................................. (155,251) (4,326)
--------- ---------
Net cash used in investing
activities ................................. (155,251) (4,326)
--------- ---------
CASH FLOWS FROM FINANCING
ACTIVITIES:
Contributions from minority
investor ................................... 239,000 90,000
--------- ---------
Net cash provided by
financing activities ....................... 239,000 90,000
--------- ---------
NET (DECREASE) INCREASE IN
CASH AND CASH EQUIVALENTS ............... (8,064) 22,898
CASH AND CASH EQUIVALENTS
Beginning of period ..................... 16,171 4,126
--------- ---------
CASH AND CASH EQUIVALENTS
End of period ........................... $ 8,107 $ 27,024
========= =========
SUPPLEMENTAL DISCLOSURE OF
CASH FLOW
INFORMATION:
Cash paid during the period
for interest ............................... $ 60,000 $ 95,100
========= =========
UNAUDITED
SEE ACCOMPANYING NOTES
7
SIERRA PACIFIC DEVELOPMENT FUND III
(A LIMITED PARTNERSHIP)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------------------------------------
1. BASIS OF FINANCIAL STATEMENTS
The accompanying unaudited consolidated condensed financial statements include
the accounts of the Partnership and Sierra Vista Partners, a majority owned
joint venture at March 31, 1996. All significant intercompany balances and
transactions have been eliminated in consolidation.
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, 1996 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, 1995.
2. RELATED PARTY TRANSACTIONS
In 1994, all of the common stock of S-P Properties, Inc., the General Partner of
the Partnership, was purchased by Finance Factors, Inc. from Carlsberg
Management Company ("CMC"). 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, 1996
and 1995 are affiliate transactions as follows:
March 31
--------------------------------
1996 1995
--------------- ----------------
Management fees $ 8,120 $ 0
Administrative fees $ 11,783 $ 0
Leasing fees $ 33,573 $ 0
UNAUDITED
9
Sierra Pacific Development Fund III
Notes to Consolidated Financial Statements
Page two
3. INVESTMENT IN UNCONSOLIDATED JOINT VENTURE
Sorrento I Partners ("SIP") was formed on April 1, 1993 between the Partnership
and Sierra Mira Mesa Partners, an affiliate, to develop and operate the real
property known as Sierra Sorrento I (the "Property"), an industrial building
located in San Diego, California. At March 31, 1996, the Partnership has a
24.94% equity interest with its contribution of Sierra Sorrento I and the
related debt. This investment is stated at cost and is adjusted for the
Partnership's share in earnings or losses and cash contributions to or
distributions from the joint venture (equity method).
Summarized income statement information for SIP for the three months ended March
31, 1996 and 1995 follows:
March 31
--------------------------------
1996 1995
--------------- ----------------
Rental income $ 0 $ 0
Operating expenses $ 35,031 $ 68,122
Net loss $144,364 $176,989
4. PARTNERS' EQUITY
Equity and net loss per limited partnership unit is determined by dividing the
Limited Partners' share of the Partnership's equity and net loss by the number
of limited partnership units outstanding, 36,521.
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 III
a Limited Partnership
S-P PROPERTIES, INC.
General Partner
Date: MAY 13, 1996 /S/ THOMAS N. THURBER
Thomas N. Thurber
President and Director
Date: MAY 13, 1996 /S/ MICHELE E. JOHNSON
Michele E. Johnson
Chief Accounting Officer
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE FINANCIAL DATA SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM SIERRA PACIFIC DEVELOPMENT FUND III MARCH 31, 1996 FINANCIAL STATEMENTS
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> MAR-31-1996
<CASH> 8,107
<SECURITIES> 0
<RECEIVABLES> 95,732
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 131,044
<PP&E> 9,799,366
<DEPRECIATION> 4,056,309
<TOTAL-ASSETS> 6,092,812
<CURRENT-LIABILITIES> 122,256
<BONDS> 3,410,795
0
0
<COMMON> 0
<OTHER-SE> 318,129
<TOTAL-LIABILITY-AND-EQUITY> 6,092,812
<SALES> 149,754
<TOTAL-REVENUES> 149,754
<CGS> 0
<TOTAL-COSTS> 104,276
<OTHER-EXPENSES> 133,410
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 68,216
<INCOME-PRETAX> (131,926)
<INCOME-TAX> 0
<INCOME-CONTINUING> (131,926)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (131,926)
<EPS-PRIMARY> (3.61)
<EPS-DILUTED> (3.61)
</TABLE>
