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 September 30, 1997
----------------------------------------------------
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 (I.R.S. Employer Identification
incorporation or organization) Number)
5850 San Felipe, Suite 500
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
-------
Consolidated Balance Sheets - September 30, 1997 and December 31, 1996 4
Consolidated Statements of Operations - For the Nine Months Ended
September 30, 1997 and 1996 and the Three Months Ended September 30,
1997 and 1996 5
Consolidated Statements of Changes in Partners' Equity - From June 5,
1984 (inception of the Partnership) to December 31, 1996 and for the
Nine Months Ended September 30, 1997 6
Consolidated Statements of Cash Flows - For the Nine Months Ended
September 30, 1997 and 1996 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 52.95% interest in the Sierra Vista Partnership
which operates the Sierra Vista property (the "Property"). In addition, the
Partnership holds a 11.31% interest in Sorrento I Partners ("SIP"), which
operates the Sierra Sorrento I property.
(b) RESULTS OF OPERATIONS
Revenues for the nine months ended September 30, 1997 increased by $43,000, or
8%, when compared to the corresponding period in the prior year, primarily due
to an increase in occupancy from 82% at September 30, 1996 to 92% at September
30, 1997. This increase was partially offset by rent concessions given to new
tenants for build-out delays in the first quarter of 1997.
2
<PAGE>
Operating expenses for the nine months ended September 30, 1997 increased by
$30,000, or 8%, when compared to the same period in the prior year. This
increase was principally due to higher professional fees associated with the
refinance of the Sierra Vista property in April 1997, and due to costs incurred
in the third quarter associated with the proposed sale of the Property. Further,
higher utilities and management fees were incurred during the period resulting
from the increased occupancy of the Property. Operating expenses for the three
months ended September 30, 1997 increased by $23,000 or 17%, due primarily to
the higher professional fees associated with the proposed sale of the Property.
Depreciation and amortization expenses for the nine months ended September 30,
1997 increased by $52,000, or 13%, due to significant capital expenditures for
tenant improvements and leasing commissons associated with the increased
occupancy of the Property. The increase in interest expense for the same period
was principally the result of interest and other finance charges associated with
the payoff of the mortgage note that matured in February 1997. The Partnership
entered into a new loan agreement in April 1997. The increase in interest
expense for the quarter ending September 30, 1997 was primarily due to the
higher interest rate associated with this new loan agreement.
The Partnership share of income from investment in SIP was $2,000 for the nine
months ended September 30, 1997 compared to $238,000 for the corresponding
period in the prior year. Sorrento I Partners exercised a discounted payoff
option in May 1996 and recorded an extraordinary gain of $1,200,000 in
connection with this transaction.
(c) LIQUIDITY AND CAPITAL RESOURCES
On October 10, 1997 the Partnership sold the Sierra Vista property for
$5,630,000. The Partnership received cash of $2,152,000 from the sale of the
Property and the secured loan was paid.
In April 1997, the mortgage lien with a principal balance of $3,410,795, which
matured in February 1997, was paid off. On this same date, the Partnership
entered into a new loan agreement in the amount of $3,050,000. This loan is
secured by the Sierra Vista property.
As of September 30, 1997, the Partnership is in an illiquid position. Total cash
and billed receivables amount to $81,000 compared to $326,000 of accrued and
other liabilities. Significant capital expenditures were required for tenant
improvements in 1996 and 1997.
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 enture 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
<PAGE>
SIERRA PACIFIC DEVELOPMENT FUND III
(A Limited Partnership)
CONSOLIDATED BALANCE SHEETS
September 30, 1997 and December 31, 1996
September 30, December 31,
1997 1996
---------- ----------
ASSETS
Cash and cash equivalents ........................ $ 5,833 $ 97,439
Receivables:
Unbilled rent .................................. 80,593 97,448
Billed rent .................................... 74,959 88,445
Other ............................................ 0 1,261
Due from affiliates .............................. 4,770 4,770
Income-producing property - net of
accumulated depreciation and valuation
allowance of $4,807,865 and $4,401,334,
respectively ................................... 5,783,532 5,827,882
Other assets ..................................... 387,669 154,690
---------- ----------
Total Assets ..................................... $6,337,356 $6,271,935
========== ==========
LIABILITIES AND PARTNERS' EQUITY
Accrued and other liabilities .................... $ 325,784 $ 225,556
Due to affiliates ................................ 946,065 0
Note payable ..................................... 3,044,397 3,410,795
Investment in unconsolidated
joint venture .................................. 339,225 341,689
---------- ----------
Total Liabilities ................................ 4,655,471 3,978,040
---------- ----------
Minority interest in consolidated
joint venture .................................. 1,508,098 1,797,208
---------- ----------
Partners' equity:
General Partner ................................ 0 0
Limited Partners:
60,000 units authorized,
36,521 issued and outstanding ................ 173,787 496,687
---------- ----------
Total Partners' equity ........................... 173,787 496,687
---------- ----------
Total Liabilities and Partners' equity ........... $6,337,356 $6,271,935
========== ==========
Unaudited
See Accompanying Notes
4
<PAGE>
SIERRA PACIFIC DEVELOPMENT FUND III
(A Limited Partnership)
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Nine Months Ended September 30, 1997 and 1996
and for the Three Months Ended September 30, 1997 and 1996
<TABLE>
<CAPTION>
Nine Months Ended Three Months Ended
September 30, September 30,
-------------------------- ----------------------
1997 1996 1997 1996
----------- ----------- --------- ---------
<S> <C> <C> <C> <C>
REVENUES:
Rental income ..................... $ 566,780 $ 523,377 $ 190,530 $ 180,168
Interest income ................... 633 0 633 0
----------- ----------- --------- ---------
Total revenues ............... 567,413 523,377 191,163 180,168
----------- ----------- --------- ---------
EXPENSES:
Operating expenses .............. 418,057 388,328 161,214 138,054
Depreciation and amortization ... 464,427 412,794 157,410 145,876
Interest ........................ 299,404 204,206 74,654 67,774
----------- ----------- --------- ---------
Total costs and expenses ..... 1,181,888 1,005,328 393,278 351,704
----------- ----------- --------- ---------
LOSS BEFORE PARTNERSHIP'S SHARE OF
UNCONSOLIDATED JOINT VENTURE
INCOME (LOSS) .................... (614,475) (481,951) (202,115) (171,536)
----------- ----------- --------- ---------
PARTNERSHIP'S SHARE OF UNCONSOLIDATED
JOINT VENTURE INCOME (LOSS) ...... 2,465 237,817 2,447 (1,429)
----------- ----------- --------- ---------
LOSS BEFORE MINORITY INTEREST'S SHARE
OF CONSOLIDATED JOINT VENTURE LOSS (612,010) (244,134) (199,668) (172,965)
----------- ----------- --------- ---------
MINORITY INTEREST'S SHARE OF
CONSOLIDATED JOINT VENTURE LOSS ... 289,110 181,889 95,095 64,739
----------- ----------- --------- ---------
NET LOSS ............................ $ (322,900) $ (62,245) $(104,573) $(108,226)
=========== =========== ========= =========
Net loss per limited partnership unit $ (8.84) $ (1.70) $ (2.86) $ (2.96)
=========== =========== ========= =========
</TABLE>
Unaudited
See Accompanying Notes
5
<PAGE>
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, 1996
and for the Nine Months Ended September 30, 1997
<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, 1996) ............ (188.03) (6,866,976) $ 21,522 (6,845,454)
Cumulative distributions
(to December 31, 1996) ............ (11.19) (408,847) (21,522) (430,369)
------- ----------- --------- -----------
Partners' equity - January 1, 1996 .. 13.60 496,687 0 496,687
Net loss ............................ (8.84) (322,900) (322,900)
------- ----------- --------- -----------
Partners' equity - September 30, 1997 $ 4.76 $ 173,787 $ 0 $ 173,787
======= =========== ========= ===========
</TABLE>
Unaudited
See Accompanying Notes
6
<PAGE>
SIERRA PACIFIC DEVELOPMENT FUND III
(A Limited Partnership)
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Nine Months Ended September 30, 1997 and 1996
<TABLE>
<CAPTION>
1997 1996
----------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss ............................................ $ (322,900) $ (62,245)
Adjustments to reconcile net loss
to cash (used in) provided by operating activities:
Depreciation and amortization ..................... 464,427 412,794
Partnership's share of unconsolidated
joint venture income ............................ (2,465) (237,817)
Minority interest in consolidated
joint venture loss .............................. (289,110) (181,889)
Decrease (increase) in rent receivable ............ 30,341 (59,105)
Decrease in other receivables ..................... 1,261 0
Increase in other assets .......................... (288,091) (32,020)
Increase in accrued and other liabilities ......... 100,228 404,204
----------- ---------
Net cash (used in) provided by operating activities (306,309) 243,922
----------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Payments for property additions ................... (364,963) (488,289)
----------- ---------
Net cash used in investing activities ............. (364,963) (488,289)
----------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Funding of note payable secured by property ....... 3,050,000 0
Principal payments on notes payable ............... (3,416,399) 0
Contributions from minority investor .............. 0 239,000
Loan from affiliate ............................... 946,065 0
----------- ---------
Net cash provided by financing activities ......... 579,666 239,000
----------- ---------
NET DECREASE IN CASH
AND CASH EQUIVALENTS .............................. (91,606) (5,367)
CASH AND CASH EQUIVALENTS
Beginning of period ................................ 97,439 108,953
----------- ---------
CASH AND CASH EQUIVALENTS
End of period ...................................... $ 5,833 $ 103,586
=========== =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash paid during the period for interest ............ $ 293,934 $ 180,000
=========== =========
</TABLE>
Unaudited
See Accompanying Notes
7
<PAGE>
SIERRA PACIFIC DEVELOPMENT FUND III
(A LIMITED PARTNERSHIP)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------------------------------------
1. ORGANIZATION
In April 1993, the Partnership created a general partnership (Sorrento I
Partners) with Sierra Mira Mesa Partners ("SMMP") to facilitate cash
contributions by SMMP for the continued development and operation of the Sierra
Sorrento I property. In February 1994, the Partnership formed a joint venture
with SMMP known as Sierra Vista Partners to facilitate cash contributions by
SMMP for the continued development and operation of the Sierra Vista property.
The Partnership Agreements of Sorrento I Partners and Sierra Vista Partners (the
"Agreements") were amended effective January 1, 1995 to consider both
contributions and distributions when calculating each partners' percentage
interest at January 1 of each year as called for by the Agreements. Accordingly,
on January 1, 1997, the Partnership's interest in Sierra Vista Partners was
decreased from 62.26% to 52.95% to reflect 1996 contributions by SMMP.
2. 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 September 30, 1997. 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 September 30, 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.
3. 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.
UNAUDITED
8
<PAGE>
Sierra Pacific Development Fund III
Notes to Consolidated Financial Statements
Page two
Included in the financial statements for the nine months ended September 30,
1997 and 1996 are affiliate transactions as follows:
September 30
-------------------------
1997 1996
------- -------
Management fees ............................ $35,395 $28,273
Administrative fees ........................ 56,972 56,913
Leasing fees ............................... 71,821 75,938
Construction supervision
fees ..................................... 56,444 7,782
4. 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 September 30, 1997, the Partnership has a
11.31% 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 nine months ended
September 30, 1997 and 1996 follows:
September 30
-----------------------------
1997 1996
-------- -----------
Rental income .......................... $212,727 $ 118,181
Total revenue .......................... 212,727 118,268
Operating expenses ..................... 62,941 127,141
Income (loss) before
extraordinary item ................... 5,726 (246,823)
Extraordinary gain ..................... 0 1,200,380
Net income ............................. 5,726 953,557
UNAUDITED
9
<PAGE>
Sierra Pacific Development Fund III
Notes to Consolidated Financial Statements
Page three
5. 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, 36,521.
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 III
a Limited Partnership
S-P PROPERTIES, INC.
General Partner
Date: NOVEMBER 10, 1997 /S/ THOMAS N. THURBER
Thomas N. Thurber
President and Director
Date: NOVEMBER 10, 1997 /S/ BRUCE R. TIMBERS
Bruce R. Timbers
Chief Accounting Officer
11
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE FINANCIAL DATA SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM SIERRA PACIFIC DEVELOPMENT FUND III SEPTEMBER 30, 1997 FINANCIAL STATEMENTS
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> SEP-30-1997
<CASH> 5,833
<SECURITIES> 0
<RECEIVABLES> 152,552
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 85,562
<PP&E> 10,591,397
<DEPRECIATION> 4,807,865
<TOTAL-ASSETS> 6,337,356
<CURRENT-LIABILITIES> 1,271,849
<BONDS> 3,044,397
0
0
<COMMON> 0
<OTHER-SE> 173,787
<TOTAL-LIABILITY-AND-EQUITY> 6,337,356
<SALES> 566,780
<TOTAL-REVENUES> 567,413
<CGS> 0
<TOTAL-COSTS> 418,057
<OTHER-EXPENSES> 464,427
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 299,404
<INCOME-PRETAX> (322,900)
<INCOME-TAX> 0
<INCOME-CONTINUING> (322,900)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (322,900)
<EPS-PRIMARY> (8.84)
<EPS-DILUTED> (8.84)
</TABLE>
