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, 1997
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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 (I.R.S. Employer
incorporaton or 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 [_].
<PAGE>
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, 1997 and December 31, 1996 4
Consolidated Statements of Operations - For the Three Months Ended
March 31, 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 Three Months Ended March 31, 1997 6
Consolidated Statements of Cash Flows - For the Three Months Ended
March 31, 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
operates the Sierra Vista property. In addition, the Partnership holds a 11.31%
interest in Sorrento I Partners ("SIP"), which operates the Sierra Sorrento I
property.
2
<PAGE>
(b) RESULTS OF OPERATIONS
Revenues for the three months ended March 31, 1997 decreased by $8,000, or 5%,
when compared to the corresponding period in the prior year, primarily due to
rent concessions given to new tenants for build-out delays in the first quarter
of 1997. This decrease was offset by an increase in occupancy for the same
period. Operating expenses increased by $7,000, or 7%, principally due to higher
utilities and maintenance and repair costs. Depreciation and amortization
expenses increased by $19,000, or 14%, due to significant capital expenditures
for tenant improvements and leasing commissons associated with the increased
occupancy of the Property. Interest expense increased by $79,000, due to the
accrual of interest expense associated with the refinance of the Property in
April 1997.
The Partnership's share of income (loss) from investment in SIP was $3,000 for
the three months ended March 31, 1997 compared to ($36,000) for the
corresponding period in the prior year due to occupancy of the Sorrento I
property. Sorrento I Partners entered into a lease with a tenant for all the
square footage of the Sorrento I property in May 1996. The Property was vacant
throughout the first quarter of 1996.
(c) LIQUIDITY AND CAPITAL RESOURCES
On April 10, 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 March 31, 1997, the Partnership is in an illiquid position. Total cash and
billed receivables amount to $153,137 compared to $436,531 of accrued and other
liabilities. Significant capital expenditures were required in 1996 for tenant
improvements. This significant build out work is substantially complete at March
31, 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 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
<PAGE>
SIERRA PACIFIC DEVELOPMENT FUND III
(A Limited Partnership)
CONSOLIDATED BALANCE SHEETS
MARCH 31, 1997 AND DECEMBER 31, 1996
March 31, December 31,
1997 1996
------------ ------------
ASSETS
Cash and cash equivalents ...................... $ 101,761 $ 97,439
Receivables:
Unbilled rent .............................. 85,535 97,448
Billed rent ................................ 51,376 88,445
Other .......................................... 0 1,261
Due from affiliates ............................ 4,770 4,770
Income-producing property - net of
accumulated depreciation and valuation
allowance of $4,534,828 and $4,401,334,
respectively ................................. 5,929,726 5,827,882
Other assets ................................... 142,669 154,690
------------ ------------
Total Assets ................................... $ 6,315,837 $ 6,271,935
============ ============
LIABILITIES AND PARTNERS' EQUITY
Accrued and other liabilities .................. $ 436,531 $ 225,556
Due to affiliates .............................. 101,823 0
Note payable ................................... 3,410,795 3,410,795
Investment in unconsolidated
joint venture ................................ 339,064 341,689
------------ ------------
Total Liabilities .............................. 4,288,213 3,978,040
------------ ------------
Minority interest in consolidated
joint venture ................................ 1,670,692 1,797,208
------------ ------------
Partners' equity :
General Partner .............................. 0 0
Limited Partners:
60,000 units authorized,
36,521 issued and outstanding .............. 356,932 496,687
------------ ------------
Total Partners' equity ......................... 356,932 496,687
------------ ------------
Total Liabilities and Partners' equity ......... $ 6,315,837 $ 6,271,935
============ ============
Unaudited
See Accompanying Notes
4
<PAGE>
SIERRA PACIFIC DEVELOPMENT FUND III
(A Limited Partnership)
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1997 AND DECEMBER 31, 1996
1997 1996
------------ ------------
REVENUES:
Rental income .............................. $ 141,806 $ 149,754
------------ ------------
Total revenues ........................ 141,806 149,754
------------ ------------
EXPENSES:
Operating expenses ....................... 111,210 104,276
Depreciation and amortization ............ 152,249 133,410
Interest ................................. 147,244 68,216
------------ ------------
Total costs and expenses .............. 410,703 305,902
------------ ------------
LOSS BEFORE PARTNERSHIP'S SHARE OF
UNCONSOLIDATED JOINT VENTURE
INCOME (LOSS) ............................. (268,897) (156,148)
------------ ------------
PARTNERSHIP'S SHARE OF UNCONSOLIDATED
JOINT VENTURE INCOME (LOSS) ............... 2,626 (36,004)
------------ ------------
LOSS BEFORE MINORITY INTEREST'S
SHARE OF CONSOLIDATED JOINT VENTURE
LOSS ...................................... (266,271) (192,152)
------------ ------------
MINORITY INTEREST'S SHARE OF
CONSOLIDATED JOINT VENTURE LOSS ............ 126,516 60,226
------------ ------------
NET LOSS ..................................... $ (139,755) $ (131,926)
============ ============
Net loss per limited partnership unit ........ $ (3.83) $ (3.61)
============ ============
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 THREE MONTHS ENDED MARCH 31, 1997
<TABLE>
<CAPTION>
Limited Partners Total
------------------------- General Partners'
Per Unit Total Partner Equity
----------- ----------- ----------- -----------
<S> <C> <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 .......................... (3.83) (139,755) (139,755)
----------- ----------- ----------- -----------
Partners' equity - March 31, 1997 . $ 9.77 $ 356,932 $ 0 $ 356,932
=========== =========== =========== ===========
</TABLE>
Unaudited
See Accompanying Notes
6
<PAGE>
SIERRA PACIFIC DEVELOPMENT FUND III
(A Limited Partnership)
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 1997 and 1996
1997 1996
--------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss ............................................. $(139,755) $(131,926)
Adjustments to reconcile net loss
to cash provided by (used in) operating activities:
Depreciation and amortization ...................... 152,249 133,410
Partnership's share of unconsolidated
joint venture (income) loss ...................... (2,626) 36,004
Minority interest in consolidated
joint venture loss ............................... (126,516) (60,226)
Decrease (increase) in rent receivable ............. 48,982 (11,928)
Decrease in other receivables ...................... 1,261 0
Increase in other assets ........................... (3,952) (7,140)
Increase (decrease) in accrued and other liabilities 210,975 (50,007)
--------- ---------
Net cash provided by (used in) operating activities 140,618 (91,813)
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Payments for property additions .................... (238,119) (155,251)
--------- ---------
Net cash used in investing activities .............. (238,119) (155,251)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Contributions from minority investor ............... 0 239,000
Loan from affiliate ................................ 101,823 0
--------- ---------
Net cash provided by financing activities .......... 101,823 239,000
--------- ---------
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS ............................... 4,322 (8,064)
CASH AND CASH EQUIVALENTS
Beginning of period ................................. 97,439 16,171
--------- ---------
CASH AND CASH EQUIVALENTS
End of period ....................................... $ 101,761 $ 8,107
========= =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash paid during the period for interest ............. $ 40,000 $ 60,000
========= =========
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 March 31, 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 March 31, 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 three months ended March 31, 1997
and 1996 are affiliate transactions as follows:
March 31
----------------
1997 1996
------- -------
Management fees ................... $10,900 $ 8,120
Administrative fees ............... 15,140 11,783
Leasing fees ...................... 0 33,573
Construction supervision fees ..... 56,444 0
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, 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 three months ended March
31, 1997 and 1996 follows:
March 31
--------------------
1997 1996
--------- ---------
Rental income ..................... $ 70,909 $ 0
Total revenue ..................... 70,909 0
Operating expenses ................ 15,432 35,031
Net income (loss) ................. 6,102 (144,364)
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: MAY 14, 1997 /s/ THOMAS N. THURBER
Thomas N. Thurber
President and Director
Date: MAY 14, 1997 /s/ MICHELE E. JOHNSON
Michele E. Johnson
Chief Accounting Officer
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE FIANANCIAL DATA SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM SIERRA PACIFIC DEVELOPMENT FUND III MARCH 31, 1997 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-31-1997
<PERIOD-END> MAR-31-1997
<CASH> 101,767
<SECURITIES> 0
<RECEIVABLES> 136,911
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 153,137
<PP&E> 10,464,554
<DEPRECIATION> 4,534,828
<TOTAL-ASSETS> 6,315,837
<CURRENT-LIABILITIES> 436,531
<BONDS> 3,410,795
0
0
<COMMON> 0
<OTHER-SE> 356,932
<TOTAL-LIABILITY-AND-EQUITY> 6,315,837
<SALES> 141,806
<TOTAL-REVENUES> 141,806
<CGS> 0
<TOTAL-COSTS> 111,210
<OTHER-EXPENSES> 152,249
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 147,244
<INCOME-PRETAX> (139,755)
<INCOME-TAX> 0
<INCOME-CONTINUING> (139,755)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (139,755)
<EPS-PRIMARY> (3.83)
<EPS-DILUTED> (3.83)
</TABLE>
