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, 1997
Commission file number 0-14276
SIERRA PACIFIC DEVELOPMENT FUND III
(A LIMITED PARTNERSHIP)
State of California 33-0043953
(State or other jurisdiction of (I.R.S. Employer Identification Number)
incorporation or organization)
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 - June 30, 1997 and December 31, 1996 ... 4
Consolidated Statements of Operations - For the Six Months
Ended June 30, 1997 and 1996 and the Three Months Ended
June 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 Six Months Ended June 30, 1997 ................... 6
Consolidated Statements of Cash Flows - For the Six Months
Ended June 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.
2
<PAGE>
(b) RESULTS OF OPERATIONS
Revenues for the six months ended June 30, 1997 increased by $33,000, or 10%,
when compared to the corresponding period in the prior year, primarily due to an
increase in occupancy from 78% at June 30, 1996 to 84% at June 30, 1997. This
increase was partially offset by rent concessions given to new tenants for
build-out delays in the first quarter of 1997. Operating expenses increased by
$7,000, or 3%, principally due to higher utilities and management fees resulting
from the increased occupancy of the Property. Further, professional fees
increased due to costs associated with the refinance of the Property in April
1997. Depreciation and amortization expenses increased by $40,000, or 15%, due
to significant capital expenditures for tenant improvements and leasing
commissons associated with the increased occupancy of the Property. Interest
expense for the same period increased by $88,000, or 65%, due to the accrual of
interest expense associated with the refinance of the Property.
The Partnership recognized virtually no income from its investment in SIP for
the six months ended June 30, 1997 compared to $239,000 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 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 June 30, 1997, the Partnership is in an illiquid position. Total cash and
billed receivables amount to $93,000 compared to $293,000 of accrued and other
liabilities. Significant capital expenditures were required in 1996 for tenant
improvements. This significant build out work is substantially complete at June
30, 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
June 30, 1997 and December 31, 1996
June 30, 1997 December 31, 1996
------------ ------------
ASSETS
Cash and cash equivalents .................... $ 20,808 $ 97,439
Receivables:
Unbilled rent .............................. 84,988 97,448
Billed rent ................................ 72,210 88,445
Other ........................................ 0 1,261
Due from affiliates .......................... 4,770 4,770
Income-producing property - net of
accumulated depreciation and valuation
allowance of $4,671,103 and $4,401,334,
respectively ............................... 5,814,960 5,827,882
Other assets ................................. 360,913 154,690
------------ ------------
Total Assets ................................. $ 6,358,649 $ 6,271,935
============ ============
LIABILITIES AND PARTNERS' EQUITY
Accrued and other liabilities ................ $ 292,632 $ 225,556
Due to affiliates ............................ 795,965 0
Note payable ................................. 3,046,827 3,410,795
Investment in unconsolidated
joint venture .............................. 341,672 341,689
------------ ------------
Total Liabilities ............................ 4,477,096 3,978,040
------------ ------------
Minority interest in consolidated
joint venture .............................. 1,603,193 1,797,208
------------ ------------
Partners' equity :
General Partner ............................ 0 0
Limited Partners:
60,000 units authorized,
36,521 issued and outstanding ............ 278,360 496,687
------------ ------------
Total Partners' equity ....................... 278,360 496,687
------------ ------------
Total Liabilities and Partners' equity ....... $ 6,358,649 $ 6,271,935
============ ============
Unaudited
See Accompanying Notes
4
<PAGE>
SIERRA PACIFIC DEVELOPMENT FUND III
(A Limited Partnership)
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Six Months Ended June 30, 1997 and 1996
and for the Three Months Ended June 30, 1997 and 1996
<TABLE>
<CAPTION>
Six Months Ended June 30, Three Months Ended June 30,
---------------------------- ----------------------------
1997 1996 1997 1996
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
REVENUES:
Rental income ........................ $ 376,250 $ 343,209 $ 234,444 $ 193,455
------------ ------------ ------------ ------------
Total revenues .................. 376,250 343,209 234,444 193,455
------------ ------------ ------------ ------------
EXPENSES:
Operating expenses ................. 256,843 250,274 145,633 145,998
Depreciation and amortization ...... 307,017 266,918 154,768 133,508
Interest ........................... 224,750 136,432 77,506 68,216
------------ ------------ ------------ ------------
Total costs and expenses ........ 788,610 653,624 377,907 347,722
------------ ------------ ------------ ------------
LOSS BEFORE PARTNERSHIP'S SHARE OF
UNCONSOLIDATED JOINT VENTURE
INCOME (LOSS) ....................... (412,360) (310,415) (143,463) (154,267)
------------ ------------ ------------ ------------
PARTNERSHIP'S SHARE OF UNCONSOLIDATED
JOINT VENTURE INCOME (LOSS) ......... 18 239,246 (2,608) 275,250
------------ ------------ ------------ ------------
(LOSS) INCOME BEFORE MINORITY
INTEREST'S SHARE OF CONSOLIDATED
JOINT VENTURE LOSS .................. (412,342) (71,169) (146,071) 120,983
------------ ------------ ------------ ------------
MINORITY INTEREST'S SHARE OF
CONSOLIDATED JOINT VENTURE LOSS ...... 194,015 117,150 67,499 56,924
------------ ------------ ------------ ------------
NET (LOSS) INCOME ...................... $ (218,327) $ 45,981 $ (78,572) $ 177,907
============ ============ ============ ============
Net (loss) income per
limited partnership unit ............. $ (5.98) $ 1.26 $ (2.15) $ 4.87
============ ============ ============ ============
</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 Six Months Ended June 30, 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 ............................... (5.98) (218,327) (218,327)
------------ ------------ ------------ ------------
Partners' equity - June 30, 1997 ....... $ 7.62 $ 278,360 $ 0 $ 278,360
============ ============ ============ ============
</TABLE>
Unaudited
See Accompanying Notes
6
<PAGE>
SIERRA PACIFIC DEVELOPMENT FUND III
(A Limited Partnership)
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Six Months Ended June 30, 1997 and 1996
1997 1996
------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) income ............................ $ (218,327) $ 45,981
Adjustments to reconcile net (loss) income
to cash provided by (used in) operating
activities:
Depreciation and amortization .............. 307,017 266,918
Partnership's share of unconsolidated
joint venture income ..................... (18) (239,246)
Minority interest in consolidated
joint venture loss ....................... (194,015) (117,150)
Decrease (increase) in rent receivable ..... 28,695 (39,221)
Decrease in other receivables .............. 1,261 0
Increase in other assets ................... (240,689) (12,603)
Increase in accrued and other liabilities .. 67,076 114,525
------------ ------------
Net cash provided by (used in)
operating activities ..................... (249,000) 19,204
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Payments for property additions ............ (259,628) (245,172)
------------ ------------
Net cash used in investing activities ...... (259,628) (245,172)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Funding of note payable secured by property 3,050,000 0
Principal payments on notes payable ........ (3,413,968) 0
Contributions from minority investor ....... 0 239,000
Loan from affiliate ........................ 795,965 0
------------ ------------
Net cash provided by financing activities .. 431,997 239,000
------------ ------------
NET (DECREASE) INCREASE IN CASH
AND CASH EQUIVALENTS ....................... (76,631) 13,032
CASH AND CASH EQUIVALENTS
Beginning of period ......................... 97,439 108,953
------------ ------------
CASH AND CASH EQUIVALENTS
End of period ............................... $ 20,808 $ 121,985
============ ============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash paid during the period for interest ..... $ 244,750 $ 120,000
============ ============
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 June 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 June 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 six months ended June 30, 1997 and
1996 are affiliate transactions as follows:
June 30
-------------------
1997 1996
-------- --------
Management fees ................... $ 23,758 $ 18,385
Administrative fees ............... 39,447 19,586
Leasing fees ...................... 48,126 52,461
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 June 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 six months ended June
30, 1997 and 1996 follows:
June 30
---------------------------
1997 1996
------------ ------------
Rental income ............................ $ 141,818 $ 47,272
Total revenue ............................ 141,818 47,272
Operating expenses ....................... 45,130 159,450
Income (loss) before extraordinary item .. 42 (241,103)
Extraordinary gain ....................... 0 1,200,467
Net income ............................... 42 959,278
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: AUGUST 13, 1997 /S/ THOMAS N. THURBER
Thomas N. Thurber
President and Director
Date: AUGUST 13, 1997 /S/ MICHELE E. JOHNSON
Michele E. Johnson
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 JUNE 30, 1997 FINANCIAL STATEMENTS AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1997
<CASH> 20,808
<SECURITIES> 0
<RECEIVABLES> 157,198
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 97,788
<PP&E> 10,486,063
<DEPRECIATION> 4,671,103
<TOTAL-ASSETS> 6,358,649
<CURRENT-LIABILITIES> 1,088,597
<BONDS> 3,046,827
0
0
<COMMON> 0
<OTHER-SE> 278,360
<TOTAL-LIABILITY-AND-EQUITY> 6,358,649
<SALES> 376,250
<TOTAL-REVENUES> 376,250
<CGS> 0
<TOTAL-COSTS> 256,843
<OTHER-EXPENSES> 307,017
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 224,750
<INCOME-PRETAX> (218,327)
<INCOME-TAX> 0
<INCOME-CONTINUING> (218,327)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (218,327)
<EPS-PRIMARY> (5.98)
<EPS-DILUTED> (5.98)
</TABLE>
