SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Form 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1996 Commission file number : 0-14269
SIERRA PACIFIC PENSION INVESTORS '84
(A CALIFORNIA LIMITED PARTNERSHIP)
State of California 33-0043952
- --------------------------------------- ---------------------------------------
(State or other jurisdiction (I.R.S. Employer Identification Number)
of 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
5850 San Felipe, Suite 120
Houston, Texas 77057
- --------------------------------------------------------------------------------
(Former name or former address, if changed since last report)
Securities registered pursuant to Section 12 (b) of the Act:
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED
------------------- -----------------------------------------
None None
Securities registered pursuant to Section 12 (g) of the Act:
80,000 Limited Partnership Units
--------------------------------
TITLE OF CLASS
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[ ].
DOCUMENTS INCORPORATED BY REFERENCE
Annual Report to Limited Partners for the Year Ended December 31, 1996
is incorporated by reference into Parts II and III
1
<PAGE>
ITEM 1. BUSINESS
(a.) GENERAL DEVELOPMENT OF BUSINESS. Sierra Pacific Pension Investors '84 (the
"Partnership") is a California limited partnership that was formed in June 1984
for the purpose of acquiring, developing, and operating commercial and
industrial real estate.
The Partnership's activities during the preceding five years have involved the
ownership and operation of two real estate projects in Arizona:
RENTABLE SQUARE
PROJECT NAME, LOCATION TYPE OF REAL ESTATE FOOTAGE
- ---------------------- ------------------- ---------------
Sierra Spectrum, Phoenix(A) Office 70,532
Sierra Valencia, Tucson Industrial/office 81,943
(A)SOLD DECEMBER, 1994.
In December, 1994, the Partnership sold Sierra Spectrum for $4,000,000. The sale
proceeds were received in cash and a note receivable from the buyer. A gain of
$91,823 was recorded in 1994 with an additional gain of $367,296 deferred to
subsequent years when the note receivable is collected. A principal paydown of
$1,318,000 was received in 1995 and $151,510 of this deferred gain was
recognized.
The Partnership holds a 49% interest in Sierra Mira Mesa Partners ("SMMP"), a
California general partnership with Sierra Pacific Development Fund II formed in
1985. SMMP was initially created to develop and operate the office building
known as Sierra Mira Mesa in San Diego, California. SMMP also holds a 75.06%
interest in Sorrento I Partners (a California general partnership with Sierra
Pacific Development Fund III formed in 1993), a 26.92% interest in Sorrento II
Partners (a California general partnership with Sierra Pacific Institutional
Properties V formed in 1993), an 18.87% interest in Sierra Creekside Partners (a
California general partnership with Sierra Pacific Development Fund formed in
1994), and a 37.74% interest in Sierra Vista Partners (a California general
partnership with Sierra Pacific Development Fund III formed in 1994).
Audited financial statements of Sierra Mira Mesa Partners and Sorrento I
Partners are included in the Annual Report to the Limited Partners attached as
an Exhibit.
(b.) NARRATIVE DESCRIPTION OF BUSINESS. During 1996, the Partnership owned and
operated one real estate project in Tucson, Arizona as described above. The
project is occupied by eight tenants, the most significant of which are SHC of
Arizona and Todd Engineering. SHC of Arizona comprised $95,000, or 20%, of 1996
rental income and Todd Engineering comprised $82,000, or 17%, of 1996 rental
income.
There is significant competition in the industrial/office building rental market
in the Partnership's trade area. An appraisal performed at the end of 1994
identified numerous projects near the Partnership's property that offered
similar amenities at comparable rental rates.
Compliance with the provision of the Americans with Disabilities Act and changes
in local building codes could require substantial capital expenditures at the
Partnership's building. However, such expenditures through 1996 have been
minimal and there are no identified deficiencies that will require significant
capital expenditures in the future.
2
<PAGE>
(c.) COMPARISON OF CURRENT ACTIVITIES TO THOSE PROPOSED AT THE INITIATION OF THE
PARTNERSHIP. In the Partnership's prospectus dated September 4, 1984, the
investment objectives were described as follows:
"The Partnership has been formed to acquire and operate on an all-cash basis
commercial and industrial real properties, including properties which are to be
developed by the Partnership or are under development or construction
("development properties") and properties which are newly-constructed or have
operating histories ("existing properties"). A minimum of 50% of the cash
invested in properties by the Partnership will be invested in development
properties. The primary investment objectives of the Partnership are to: (i)
preserve, protect, and return the Partnership's invested capital; (ii) generate
sufficient cash from operations to make distributions of Available Cash to the
Limited Partners; (iii) attempt to maximize long-term appreciation in the value
of the Partnership's real estate investments; (iv) attempt to sell the
Partnership's real estate investments for cash after an approximate three to
five year holding period; (v) exclude from the assets of the Limited Partners,
for purposes of the Employee Retirement Income Security Act of 1974, as amended
("ERISA"), the assets of the Partnership; and (vi) exclude from unrelated
business taxable income the entire amount of any allocations to the Limited
Partners. There is no assurance that such objectives will be attained."
Operations of the Partnership through 1996 have been consistent with the intent
of the original prospectus in that the Partnership has invested in real estate
projects that had the potential for capital gains, preservation of capital, and
providing distributions of Available Cash to the limited partners. The ERISA and
unrelated business tax objectives have been met. However, the Partnership and
its real estate have been adversely affected by the Tax Reform Act of 1986,
aggressive lending by banks that resulted in commercial real estate
overbuilding, and subsequent severe recessions. The original intention to sell
the Partnership's real estate investments after the five year holding period has
been delayed indefinitely. As of December 31, 1996, the Partnership had paid
cash distributions of $20.78 for each $250 unit investment and remaining
partners' equity was computed at $122.26 per unit. Thus, if the Partnership were
to be liquidated at the end of 1996 at book value, each $250 investment would
have returned a total of $143.04.
The General Partner's goal is to continue operating its remaining property until
such time as rental rates return to the level necessary to support new
commercial and industrial building development. At that time, the property may
be sold at a price substantially greater than its current book value.
ITEM 2. PROPERTIES
The Partnership owns Sierra Valencia (the "Property"), an industrial property
located in Tucson, Arizona. The Property includes one building comprising 81,943
rentable square feet and is 100% occupied at December 31, 1996. The
weighted-average effective annual rent per square foot at December 31, 1996 is
$5.58. The principal businesses carried on from the building are varied and
include healthcare sales and administration, pistachio nut marketing and
distribution, optics research and development, manufacturing for the
recreational vehicle segment, and sales and distribution of medical equipment
and supplies. There are no material liens or encumbrances on the Property at
December 31, 1996.
The Partnership also owns a 49% interest in SMMP which owns Sierra Mira Mesa, an
office building in San Diego, California. Through its ownership interest in
SMMP, the Partnership also has an indirect 36.8% interest in an industrial
property known as Sorrento I in San Diego, California. This indirect ownership
interest is subject to adjustment yearly based upon the relative contributions
of the partners.
3
<PAGE>
SIERRA VALENCIA - TUCSON, ARIZONA
SUMMARY OF SIGNIFICANT TENANTS
Six of the Property's eight tenants occupy more than ten percent of the rentable
square footage of the building as follows:
<TABLE>
<CAPTION>
Tenants Square Feet Percent of Effective Rent Effective Rent Percent of Expiration
Occupied Rentable Per Square Per Annum Gross Annual of Lease
Square Foot Rent
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Todd Engineering 23,629 29% $ 3.49 $ 82,412 18% December 1997
SHC of Arizona, L.C. 10,654 13% 8.46 90,134 20% July 2001
SHC of Arizona, L.C. 2,932 4% 3.60 10,560 2% Month to Month
Boeckeler Instruments, Inc. 9,700 12% 6.84 66,348 15% August 1997
Pistachio Corp. of Arizona, Inc. 9,350 11% 4.83 45,168 10% July 1997
Byron Medical, Inc. 8,124 10% 6.24 50,694 11% November 1999
Wick Communications Co. 10,021 12% 5.23 52,364 11% September 2001
Tenants Occupying Less
Than 10% Sq. Ft. 7,533 9% 7.88 59,365 13% Various
----------------------------------------------------------------
Total Rented Space 81,943 100% $ 5.58 $ 457,045 100%
Vacancies 0 0%
-------------------
Total Rentable Space 81,943 100%
====================
</TABLE>
SUMMARY OF LEASES BY EXPIRATION
One of the eight tenants has two leases, one of which is a month to month lease.
The remaining leases on the Property are scheduled to expire over the next five
years as indicated in the table below.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
Year of expiration ................... 1997 1998 1999 2000 2001 Totals
Number of tenants .................... 3 1 2 0 2 8
Percent of total tenants ............. 38% 12% 25% 0% 25% 100%
Total area (square feet) ............. 42,679 4,317 11,340 0 20,675 79,011
Annual rent .......................... $193,928 $27,411 $82,649 $0 $142,498 $446,486
Percent gross annual rent ............ 43% 6% 18% 0% 31% 98%
</TABLE>
DEPRECIABLE PROPERTY Reference is made to Schedule III of the Form 10-K.
REAL ESTATE TAXES The real estate tax obligation for 1996 is approximately
4.67% of assessed value. The annual real estate taxes
for 1996 are $84,718.
INSURANCE In the opinion of management, the property is adequately
covered by insurance.
SIERRA MIRA MESA - SAN DIEGO, CALIFORNIA
Sierra Mira Mesa office building consists of 89,560 rentable square feet and is
98% occupied at December 31, 1996. The principal business carried on from the
building is insurance. The average effective annual rent per square foot at
December 31, 1996 is $18.58.
4
<PAGE>
SUMMARY OF SIGNIFICANT TENANTS
Only one of the five tenants occupies ten percent or more of the rentable square
footage of the building. The principal business of this significant tenant is
insurance. Details of this significant tenant and its leases follow:
<TABLE>
<CAPTION>
Tenants Square Feet Percent of Effective Rent Effective Rent Percent of Expiration
Occupied Rentable Per Square Per Annum Gross Annual of Lease
Square Foot Rent
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
State Comp. Insurance Fund ............. 73,912 83% $ 19.77 $1,461,132 90% February 2003
State Comp. Insurance Fund ............. 1,489 2% 4.03 6,000 0% Month to Month
Tenants Occupying Less
Than 10% Sq. Ft ....................... 11,925 13% 13.02 155,306 10% Various
--------------------------------------------------------------
Total Rented Space...................... 87,326 98% $ 18.58 $1,622,438 100%
Vacancies .............................. 2,234 2%
------------------
Total Rentable Space ................... 89,560 100%
==================
</TABLE>
SUMMARY OF LEASES BY EXPIRATION
One of the five tenants is on a month to month lease; the other four are
scheduled to expire over the next seven years as scheduled below.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C>
Year of expiration ...................... 1997 1998 1999 2000 2001 2002 2003 Total
Number of tenants ....................... 1 1 1 0 0 0 1 4
Percent of total tenants ................ 20% 20% 20% 0% 0% 0% 20% 80%
Total area (square feet) ................ 1,817 4,035 4,762 0 0 0 73,912 84,526
Annual rent ............................. $26,165 $55,396 $61,745 $ 0 $ 0 $ 0 $1,461,132 $1,604,438
Percent gross annual rent ............... 2% 3% 4% 0% 0% 0% 90% 99%
</TABLE>
DEPRECIABLE PROPERTY
Sierra Mira Mesa, San Diego, California
Office Building - Income-Producing Property
<TABLE>
<CAPTION>
Tenant
Land Buildings Improvements Total
<S> <C> <C> <C> <C>
Historical Cost & Tax Basis $2,480,940 $ 6,068,190 $ 2,007,750 $10,556,880
Accumulated Depreciation (2,009,589) (1,639,873) (3,649,462)
-----------------------------------------------------------------------
Net Carrying Value $2,480,940 $ 4,058,601 $ 367,877 $ 6,907,418
=======================================================================
Depreciation Method Not Applicable Straight-line Straight-line
Depreciable Life Not Applicable 5-30 Years 1-10 years
</TABLE>
REAL ESTATE TAXES The real estate tax obligation for 1996 is approximately
1.12% of the assessed value or $68,529.
INSURANCE In the opinion of management, the property is adequately
covered by insurance.
5
<PAGE>
ENCUMBRANCES The property is encumbered by a mortgage lien in favor of
Lincoln National Life Insurance Company with a principal
balance of $5,262,512 at December 31, 1996. The mortgage
bears interest at 7.74%. Monthly principal and interest
payments of $51,738.57 are due through maturity at October
2010. The note is subject to prepayment penalties of
approximately 1% of the outstanding principal balance
between months 25 and 177 of the loan term. No prepayment
is allowed during the first two years of the loan and no
prepayment penalty will be imposed if prepayment occurs in
the final three months of the loan term.
SORRENTO I - SAN DIEGO, CALIFORNIA
Sorrento I is an industrial building with 43,100 square feet of rentable space.
One tenant leased the entire 43,100 rentable square feet of Sorrento I in 1996.
Rental income of $23,636 per month is recognized under this lease, which expires
in April 2003. The effective annual rent per square foot at December 31, 1996 is
$6.58. The principal business of the new tenant is research and development in
the communications sector.
DEPRECIABLE PROPERTY
Sorrento I, San Diego, California
Office Building - Income-Producing Property
<TABLE>
<CAPTION>
Tenant
Land Buildings Improvements Total
<S> <C> <C> <C> <C>
Historical Cost & Tax Basis $ 1,305,518 $ 1,342,683 $ 1,063,783 $ 3,711,984
Accumulated Depreciation (421,749) (748,621) (1,170,370)
------------------------------------------------------------------------
Net Carrying Value $ 1,305,518 $ 920,934 $ 315,162 $ 2,541,614
========================================================================
Depreciation Method Not Applicable Straight-line Straight-line
Depreciable Life Not Applicable 10-30 Years 7-10 years
</TABLE>
REAL ESTATE TAXES The real estate tax obligation for 1996 is approximately
1.13% of the assessed value or $28,324.
INSURANCE In the opinion of management, the property is adequately
covered by insurance.
ENCUMBRANCES Sorrento I Partners ("SIP") had a non-recourse bank note
payable with an original principal balance of $3,000,000
collateralized by the Sorrento I property. The annual
interest rate of the note was variable at bank prime
plus 2-1/2% with a minimum rate of 9% and maximum rate
of 15-1/2%. The original maturity of the note was July
1998 and the note included a discounted payoff option of
$1,500,000.
CGS Real Estate Company, Inc. ("CGS"), an affiliate of
the General Partner, acquired the note and security
documents from the bank in May 1996. In connection with
the purchase of the bank note and security documents by
CGS, SIP made a principal payment to the bank of
$750,000 and entered into a $750,000 note agreement with
CGS (the "CGS Agreement"). The CGS Agreement,
collaterized by real and personal property, calls for
monthly interest payments through December 1996 and
monthly principal and interest payments thereafter until
maturity on May 31, 2016. The interest rate is fixed at
9.34% per annum for the first year of the note and will
thereafter be the one year Treasury rate plus 375 basis
points.
6
<PAGE>
At any time upon 120 days written notice to CGS, SIP may
fully discharge the note by the payment of an amount
equal to $750,000 less the aggregate amount of principal
paid under the note between the date of the CGS
Agreement and the date of payment plus any interest due.
ITEM 3. LEGAL PROCEEDINGS
The Partnership is not involved in any material legal proceedings.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
7
<PAGE>
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S PARTNERS' EQUITY AND RELATED MATTERS
As of December 31, 1996, the number of security holders is as follows:
NUMBER NUMBER OF
OF UNITS RECORD HOLDERS
--------------- ---------------
Limited Partners 77,000 4,030
=============== ===============
These securities are all of the same class, namely, limited partnership
interests (units) and were sold pursuant to a registration statement filed under
the Securities Act of 1933, as amended. The total offering was 80,000 units at
$250.00 per unit.
No broker or dealer currently makes a market in the units of the Partnership.
Accordingly, there are no published price or trading volume figures available
for the units. The units have been transferred on an extremely limited extent
from time-to-time since the inception of the Partnership; however, the market
for the units is highly restricted and sporadic, especially in view of the
investor suitability requirements imposed on new purchasers by the various state
blue sky laws and the restrictions on transfer contained in the Partnership
Agreement.
The Partnership paid cash distributions of $2.60 per limited partnership unit
during each of the years ended December 31, 1996 and 1995. There are no
contractual or other restrictions on the Partnership's ability to make such
distributions.
ITEM 6. SELECTED FINANCIAL DATA
The Selected Financial Data for the Partnership is filed by reference to the
Annual Report to the Limited Partners attached as an Exhibit.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Management's Discussion and Analysis of Financial Condition and Results of
Operations includes certain forward looking statements reflecting the
Partnership's expectations in the near future; however, many factors which may
affect the actual results, especially changing regulations, are difficult to
predict. Accordingly, there is no assurance that the Partnership's expectations
will be realized.
Overview:
The following discussion should be read in conjunction with the Selected
Financial Data and the Partnership's Financial Statements and Notes thereto
incorporated by reference to the Annual Report to the Limited Partners attached
as an Exhibit. As of December 31, 1996, the Partnership owns Sierra Valencia, an
industrial office building in Tucson, Arizona. The Partnership also owns a 49%
interest in Sierra Mira Mesa Partners ("SMMP"). SMMP owns an office building -
Sierra Mira Mesa in San Diego, California.
8
<PAGE>
Results of Operations:
COMPARISON OF YEAR ENDED DECEMBER 31, 1996 TO YEAR ENDED DECEMBER 31, 1995.
Rental income increased by $39,000, or 9%, due primarily to an increase in
occupancy from 88% at December 31, 1995 to 100% at December 31, 1996. One new
tenant accounted for an increase in leased square footage of 10,021, or 12%, of
the rentable square footage of Sierra Valencia. The weighted-average effective
rent per square foot, on an accrual basis, decreased from $5.80 at December 31,
1995 to $5.58 at December 31, 1996, principally as a result of favorable lease
terms given to this new tenant as an incentive to lease space at the Property.
Interest income decreased by $84,000, or 30%, due to a $1,318,000 principal
paydown on the note receivable from the sale of Sierra Spectrum received in July
1995. This note had an original balance of $3,200,000 and bears interest at a
rate of 10% per annum.
Operating expenses decreased by $85,000, or 12%, primarily due to a $70,000
decrease in depreciation and amortization expense resulting from the
discontinuance of depreciation on the building which was fully depreciated in
the first quarter of 1996.
The Partnership's share of income (loss) from investment in SMMP was $156,000
for the year ended December 31, 1996 compared to ($296,000) for the year ended
December 31, 1995. The increase in income generated by SMMP was principally due
to its share of income from Sorrento I Partners ("SIP"), which owns the Sorrento
I property. SIP, which is included in the consolidated financial statements of
SMMP, exercised a discounted payoff option in 1996 which resulted in an
extraordinary gain of $1,200,000. Furthermore, Sorrento I Partners entered into
a lease with a tenant for all of the square footage of the Sorrento I property
in 1996. The property, which was vacant throughout 1995, recorded rental income
of $189,000 in 1996 as a result of this new tenant.
COMPARISON OF YEAR ENDED DECEMBER 31, 1995 TO YEAR ENDED DECEMBER 31, 1994.
Rental income decreased by $576,000, or 57%, as a result of the sale of Sierra
Spectrum on December 30, 1994. Sierra Spectrum generated $702,000 in rental
income in 1994. The effects of this sale were partially offset by increased
occupancy at Sierra Valencia from 84% at December 31, 1994 to 88% at December
31, 1995. Operating expenses decreased by $592,000, or 45%, as a result of the
sale of Sierra Spectrum who had operating expenses of $643,000 in 1994. This
decrease was partially offset by an increase in Sierra Valencia's operating
expenses due primarily to a full year's depreciation taken on significant tenant
improvements capitalized late in 1994.
The gain on sale of Sierra Spectrum was recorded using the installment method in
accordance with Statement of Financial Accounting Standards No. 66, "Accounting
For Sales of Real Estate". A deferred gain of $367,000 was recorded at December
30, 1994 related to this transaction. During the year ended December 31, 1995,
the Partnership received principal payments of $1,318,000 on the trust deed note
and recognized $152,000 of the deferred gain related to this transaction. The
Partnership recorded interest income of $277,000 in 1995 related to the note
receivable from the sale of Sierra Spectrum.
The Partnership's share of loss from investment in SMMP increased by $178,000.
The increase in losses generated by SMMP was principally due to its share of
losses from the Sorrento I Partners joint venture, which owns the Sorrento I
property. This property, whose sole tenant moved out in September 1994, was
unoccupied during all of 1995 and generated a net loss of $640,000. SMMP's share
of that loss was $375,000.
Liquidity and Capital Resources:
The Partnership generated cash of $133,000 from operating activities during
1996. The Partnership is in a liquid position, with current assets of $217,000
and current liabilities of $96,000. Cash of $1,318,000 was received on the note
receivable from the Sierra Spectrum sale in 1995 and short-term advances of
$1,300,000 and $11,300 were made to Sierra Mira Mesa Partners in 1995 and 1996,
respectively. The Partnership's primary capital requirements will be for
construction of new tenant space and compliance with the Americans with
Disabilities Act or other yet unknown changes in building codes. It is
anticipated that these requirements will be funded from operations of the
Property.
9
<PAGE>
Inflation:
The Partnership's long-term leases contain provisions designed to mitigate the
adverse impact of inflation on its results from operations. Such provisions may
include escalation clauses related to Consumer Price Index increases.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The following financial statements and independent auditors' report are
incorporated by reference to the Annual Report to the Limited Partners attached
as an Exhibit.
1. Independent Auditors' Report
2. Balance Sheets - December 31, 1996 and 1995
3. Statements of Operations - for the years ended December 31, 1996,
1995 and 1994
4. Statements of Changes in Partners' Equity - from June 5, 1984
(Inception of Partnership) to December 31, 1993 and for the years
ended December 31, 1996, 1995 and 1994
5. Statements of Cash Flows - for the years ended December 31, 1996,
1995 and 1994
6. Notes to Financial Statements
7. Audited Consolidated Financial Statements and related footnotes of
Sierra Mira Mesa Partners
8. Audited financial statements and related footnotes of Sorrento I
Partners
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURES
None
10
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF REGISTRANT
The Registrant is a California Limited Partnership and has no officers or
directors.
S-P Properties, Inc., a California corporation, is the general partner of the
Registrant. In December 1994, Finance Factors, Inc., a subsidiary of CGS Real
Estate Company, Inc., purchased the common stock of TCP, Inc. TCP, Inc. owns all
of the common stock of S-P Properties, Inc. In July 1995, Finance Factors, Inc.
merged with Bancor Real Estate Company, Inc., a subsidiary of CGS Real Estate
Company, Inc. CGS Real Estate Company, Inc. and its affiliates are engaged in
real estate management, leasing, ownership, and sales. The companies own or
manage more than ten million square feet of commercial real estate in Texas,
Arizona, Colorado, California and the Carolinas.
The executive officers and directors of S-P Properties, Inc. are:
<TABLE>
<CAPTION>
APPROXIMATE
NAME POSITION AGE TIME IN OFFICE
- ---- -------- --- --------------
<S> <C> <C> <C>
Thomas N. Thurber President and Director 46 2 years
Dawson L. Davenport Vice President 41 2 years
Steven M. Speier Secretary/Treasurer and Director 46 2 years
William J. Carden Assistant Secretary/Treasurer and Director 52 2 years
</TABLE>
Thomas N. Thurber - President and Director, S-P Properties, Inc. Mr. Thurber is
a Certified Public Accountant who began his career with Arthur Andersen & Co. in
1972. In 1979, he joined a major publicly traded real estate development firm
(Daon) where he became Controller for U.S. Operations. Subsequently, Mr. Thurber
served as Director of Real Estate for a developer of retail properties, and
Chief Financial Officer of a trust with significant investments in commercial
real estate. Mr. Thurber also serves as a director of Property Secured
Investments, Inc. Mr. Thurber holds a bachelors degree in accounting from
Florida State University.
Dawson L. Davenport - Vice President, S-P Properties, Inc. Mr. Davenport is the
founder of WD Real Estate Services, a full service property management firm that
became part of the Banc Commercial family of companies in 1992. Mr. Davenport
has been responsible for the management, development and rehabilitation of
substantial commercial, industrial, retail, and residential projects during the
past seventeen years. Mr. Davenport specializes in leasing and turning around
distressed properties.
Steven M. Speier - Secretary/Treasurer and Director, S-P Properties, Inc. Mr.
Speier is a Certified Public Accountant who, after spending two years in public
accounting, went into the banking industry in 1975. During his sixteen year
banking career, Mr. Speier managed a real estate loan portfolio of approximately
$1.5 billion secured by properties throughout the United States. Mr. Speier
brings to S-P Properties, Inc. a broad real estate background that includes
management, leasing, and disposition of all categories of commercial real
estate. Mr. Speier also serves as a director of IDM Corporation. Mr. Speier is a
licensed real estate broker and has a masters degree in business administration
from Grand Valley State University in Michigan.
William J. Carden - Assistant Secretary/Treasurer and Director, S-P Properties,
Inc. Mr. Carden is the founder and President of CGS Real Estate Company, Inc.,
which owns over one million square feet of commercial real estate. Mr. Carden
founded DVM Properties, Inc. in 1974 which concentrated on rehabilitation of
retail, office, industrial, and commercial real estate. Mr. Carden is a former
Director of Bay Financial, a New York Stock Exchange company and currently
serves as a director of Property Secured Investments, Inc. and IDM Corporation.
11
<PAGE>
There have been no events under any bankruptcy act, no criminal proceedings, and
no judgments or injunctions material to the evaluation of the ability and
integrity of any director or officer during the past five years.
ITEM 11. MANAGEMENT REMUNERATION
The Registrant is a California Limited Partnership and has no officers or
directors. No options to purchase securities of the Registrant have been granted
to any person.
In accordance with the terms of the Partnership Agreement, certain affiliates of
the General Partner receive real estate brokerage commissions in connection with
the leasing of properties by the Partnership and receive from the Partnership
certain management and administrative services fees. These amounts are set forth
in the Annual Report to the Limited Partners attached as an Exhibit.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
None
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Partnership may pay a management fee of 6% of the gross rental income
collected from the property to Banc Commercial California (BCCA). These fees for
the year ended December 31, 1996 were $15,030. Bancor Real Estate Company, Inc.
(Bancor) provides services to the Partnership such as accounting, legal, data
processing and similar services and is entitled to reimbursement for expenses
incurred to provide such services. Amounts so reimbursed totaled $61,809 during
the year ended December 31, 1996. The Partnership also reimburses BCCA for
construction supervision costs. The Partnership paid $1,873 to BCCA for tenant
improvement supervisory costs in 1996. In consideration for services rendered
with respect to initial leasing of Partnership properties, BCCA is paid initial
leasing costs. For the year ended December 31, 1996, these fees amounted to
$10,153. Bancor and BCCA are both wholly owned subsidiaries of CGS Real Estate
Company, Inc. William J. Carden, an officer and director of S-P Properties,
Inc., the General Partner of the Partnership, owns 50% of CGS Real Estate
Company, Inc.
On December 30, 1994, the Sierra Spectrum property with a historical cost basis
of $2,993,134 was sold for $4,000,000 ($800,000 cash down-payment and $3,200,000
trust deed note) to No.-So., Inc. This note calls for monthly interest only
payments and bears interest of 10% per annum. The original note was due to
mature on June 30, 1995 and was extended to June 30, 1997. All other terms of
the original note remain unchanged. During the year ended December 31, 1995, the
Partnership received principal payments of $1,317,928 on the trust deed note.
CGS Real Estate Company, Inc. owns 33.33% of No.-So., Inc. William J. Carden, an
officer and director of S-P Properties, Inc., the General Partner of the
Partnership, owns 50% of CGS Real Estate Company, Inc.
12
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
A. EXHIBITS
1. Annual Report to the Limited Partners
2. Exhibit Number 27 - Financial Data Schedule
B. FINANCIAL STATEMENT SCHEDULES
The following financial statement schedules and the report of the
independent auditors thereon are included herein:
1. Schedule II - Valuation and Qualifying Accounts and Reserves - for the
years ended December 31, 1996, 1995 and 1994
2. Schedule III - Real Estate and Accumulated Depreciation - December 31,
1996
All other schedules are omitted as they either are not required or are not
applicable, or the required information is set forth in the financial statements
and notes thereto.
C. REPORTS ON FORM 8-K
None
13
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
SIERRA PACIFIC PENSION INVESTORS '84
a California Limited Partnership
S-P PROPERTIES, INC.
General Partner
Date: April 7, 1997 /S/THOMAS N. THURBER
------------- --------------------
Thomas N. Thurber
President and Director
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.
Date: April 7, 1997 /S/THOMAS N. THURBER
------------- --------------------
Thomas N. Thurber
President and Director
S-P Properties, Inc.
Date: April 7, 1997 /S/WILLIAM J. CARDEN
------------- --------------------
William J. Carden
Assistant Secretary/Treasurer
and Director
S-P Properties, Inc.
Date: April 7, 1997 /S/MICHELE E. JOHNSON
------------- --------------------
Michele E. Johnson
Chief Accounting Officer
S-P Properties, Inc.
14
<PAGE>
INDEPENDENT AUDITORS' REPORT ON FINANCIAL STATEMENT SCHEDULES
To the Partners of
Sierra Pacific Pension Investors '84
We have audited the financial statements of Sierra Pacific Pension Investors
'84, a California limited partnership, (the "Partnership") as of December 31,
1996 and 1995, and for each of the three years in the period ended December 31,
1996 and have issued our report thereon dated February 24, 1997, except for Note
7, which the date is April 7, 1997. Such consolidated financial statements and
report are included in your 1996 Annual Report to the Limited Partners and are
incorporated herein by reference. Our audits also included the financial
statement schedules of Sierra Pacific Pension Investors '84, listed in Item 14.
These financial statement schedules are the responsibility of the Partnership's
management. Our responsibility is to express an opinion based on our audits. In
our opinion, such financial statement schedules, when considered in relation to
the basic financial statements taken as a whole, present fairly in all material
respects the information set forth therein.
DELOITTE & TOUCHE LLP
Houston, Texas
February 24, 1997, except for Note 7, which the date is April 7, 1997
15
<PAGE>
SCHEDULE II - FORM 10-K
SIERRA PACIFIC PENSION INVESTORS '84
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
For the Years Ended December 31, 1996, 1995 and 1994
- --------------------------------------------------------------------------------
Income -
Producing
Properties
---------------
Allowance for loss - January 1, 1994 $ 3,660,000
Provision charged to costs
and expenses (1) 0
Reduction due to sale of property (1,780,000)
---------------
Allowance for loss - December 31, 1994 1,880,000
Provision charged to costs
and expenses (1) 0
---------------
Allowance for loss - December 31, 1995 1,880,000
Provision charged to costs
and expenses (1) 0
---------------
Allowance for loss - December 31, 1996 $ 1,880,000
===============
(1) See Notes 1 and 4 to financial statements incorporated by reference to the
Annual Report to the Limited Partners attached as an Exhibit.
16
<PAGE>
SCHEDULE III - FORM 10-K
SIERRA PACIFIC PENSION INVESTORS '84
REAL ESTATE AND ACCUMULATED DEPRECIATION
DECEMBER 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Initial Cost Gross Amount at
to Partnership (1) Improvements Which carried at close of period
--------------------- Capitalized ------------------------------------------
Encumb- Improve- After Acquis- Improve- Total Accumulated Date
Description rances Land ments ition (2) Land ments (3)(4)(5) Depreciation Constructed
<S> <C> <C> <C> <C> <C> <C> <C>
OFFICE BUILDING -
INCOME PRODUCING PROPERTY:
Sierra Valencia
Tucson, Arizona $977,677 $ 3,885,328 $ 977,677 $ 3,826,021 $ 4,803,698 1,494,933 11/87
</TABLE>
<TABLE>
<CAPTION>
Date Depreciation
Description Acquired Life
<S> <C> <C>
OFFICE BUILDING -
INCOME PRODUCING PROPERTY:
Sierra Valencia
Tucson, Arizona 9/85 3-30 yrs.
</TABLE>
(1) The initial cost represents the original purchase price of the property.
(2) The Partnership has capitalized property development costs.
(3) Also represents cost for Federal Income Tax purposes.
(4) A valuation allowance of $1,880,000 was established as the appraised value
of the property declined below book value. See Notes 1 and 4 to the
financial statements incorporated by reference
to the Annual Report to the Limited Partners attached as an Exhibit.
(5) Reconciliation of total real estate carrying value and accumulated
depreciation for the three years ended December 31, 1996 is as follows:
Total Real Estate Accumulated
Carrying Value Depreciation
--------------- ---------------
Balance - January 1, 1994 $ 10,007,326 $ 1,811,593
Additions during the year 698,718 484,257
Sales during the year (5,962,208) (1,189,074)
--------------- ---------------
Balance - December 31, 1994 4,743,836 1,106,776
Additions during the year 25,112 257,965
Write off of fully
depreciated assets (6,000) (6,000)
--------------- ---------------
Balance - December 31, 1995 4,762,948 1,358,741
Additions during the year 94,057 189,499
Write off of fully
depreciated assets (53,307) (53,307)
--------------- ---------------
Balance - December 31, 1996 $ 4,803,698 $ 1,494,933
=============== ===============
17
<PAGE>
SIERRA PACIFIC PENSION INVESTORS '84
(A California Limited Partnership)
SELECTED FINANCIAL DATA
For the Years Ended December 31, 1996, 1995, 1994, 1993 and 1992
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1996 1995 1994 1993 1992
------------- --------------- ------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
REVENUES $ 668,706 $ 713,877 $ 1,024,731 $ 976,600 $ 670,020
OPERATING EXPENSES:
Total 626,646 711,475 1,303,971 1,261,416 1,306,672
Per dollar of revenues 0.94 1.00 1.27 1.29 1.95
NET INCOME (LOSS) FROM
CONTINUING OPERATIONS:
Total (137,422) (141,624) (304,760) (334,852) (431,257)
General Partner 0 0 25,667 0 0
Limited Partners (137,422) (141,624) (330,427) (334,852) (431,257)
Per Limited Partnership Unit (1) (1.78) (1.84) (4.29) (4.35) (5.60)
CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES 133,115 85,860 273,900 (41,067) (109,493)
CASH (USED IN) PROVIDED BY
INVESTING ACTIVITIES (94,057) 1,332,930 (286,770) (61,415) 230,920
CASH (USED IN) PROVIDED BY
FINANCING ACTIVITIES (251,766) (1,507,000) 345,333 (602,000) 0
TOTAL ASSETS 9,510,493 9,496,780 10,011,579 10,471,572 10,850,397
PARTNERS' EQUITY:
Total 9,414,142 9,416,533 9,758,157 10,242,584 10,654,436
General Partner 0 0 0 0 0
Limited Partners 9,414,142 9,416,533 9,758,157 10,242,584 10,654,436
LIMITED PARTNERS' EQUITY - PER UNIT (1) 122.26 122.29 126.73 133.02 138.37
NOTE RECEIVABLE 1,697,739 1,697,739 2,832,704 N/A N/A
INCOME-PRODUCING PROPERTIES:
Number 1 1 1 2 2
Cost 4,803,698 4,762,948 4,743,836 10,007,326 9,931,212
Less: Accumulated depreciation (1,494,933) (1,358,741) (1,106,776) (1,811,593) (1,392,118)
Valuation allowance (1,880,000) (1,880,000) (1,880,000) (3,660,000) (3,660,000)
Net book value 1,428,765 1,524,207 1,757,060 4,535,733 4,879,094
INVESTMENT IN UNCONSOLIDATED
JOINT VENTURE 4,616,117 4,464,589 4,804,259 4,915,823 4,984,578
DISTRIBUTIONS PER UNIT (1) 2.60 2.60 2.00 1.00 N/A
</TABLE>
N/A = Not applicable nor available
(1) The net loss, limited partners' equity and distributions per unit are based
upon the limited partnership units outstanding at the end of the year, 77,000 in
all years. The cumulative distributions per limited partnership unit from
inception to December 31, 1996 equal $20.78.
18
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Partners of
Sierra Pacific Pension Investors '84
We have audited the accompanying balance sheets of Sierra Pacific Pension
Investors '84, a California limited partnership, (the "Partnership") as of
December 31, 1996 and 1995, and the related statements of operations, changes in
partners' equity and cash flows for each of the three years in the period ended
December 31, 1996. These financial statements are the responsibility of the
Partnership's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Sierra Pacific Pension
Investors '84 as of December 31, 1996 and 1995, and the results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1996 in conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Houston, Texas
February 24, 1997, except for Note 7, which the date is April 7, 1997
19
<PAGE>
SIERRA PACIFIC PENSION INVESTORS '84
(A California Limited Partnership)
BALANCE SHEETS
December 31, 1996 and 1995
- --------------------------------------------------------------------------------
December 31, December 31,
1996 1995
---------- ----------
ASSETS
Cash and cash equivalents ......................... $ 42,060 $ 254,768
Receivables:
Note, net of deferred gain of
$215,786 (Notes 3 and 4) ..................... 1,697,739 1,697,739
Unbilled rent (Notes 1 and 4) .................. 76,575 76,462
Billed rent (Note 1) ........................... 15,415 7,139
Due from Sierra Mira Mesa Partners (Note 3) .... 1,311,300 1,300,000
Other .......................................... 159,461 31,894
Due from affiliates (Note 3) ...................... 47,466 7,000
Income-producing property - net of
accumulated depreciation and
valuation allowance of $3,374,933 in 1996
and $3,238,741 in 1995, respectively (Note 4) ... 1,428,765 1,524,207
Investment in unconsolidated
joint venture (Notes 1 and 5) ................... 4,616,117 4,464,589
Other assets (Notes 1, 2 and 3) ................... 115,595 132,982
---------- ----------
Total Assets ...................................... $9,510,493 $9,496,780
========== ==========
LIABILITIES AND PARTNERS' EQUITY
Accrued and other liabilities (Note 2) ............ $ 96,351 $ 80,247
---------- ----------
Total Liabilities ................................. 96,351 80,247
---------- ----------
Partners' equity (Notes 1 and 6):
General Partner ................................. 0 0
Limited Partners:
80,000 units authorized,
77,000 issued and outstanding ................. 9,414,142 9,416,533
---------- ----------
Total Partners' equity ............................ 9,414,142 9,416,533
---------- ----------
Total Liabilities and Partners' equity ........... $9,510,493 $9,496,780
========== ==========
See Accompanying Notes
20
<PAGE>
SIERRA PACIFIC PENSION INVESTORS '84
(A California Limited Partnership)
STATEMENTS OF OPERATIONS
For the Years Ended December 31, 1996, 1995 and 1994
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1996 1995 1994
------------------ -------------- ------------------
<S> <C> <C> <C> <C>
REVENUES:
Rental income (Note 1) $ 475,900 $ 437,188 $ 1,013,682
Interest income (Note 3) 192,806 276,689 0
Other income 0 0 11,049
------------------ -------------- ------------------
Total revenues 668,706 713,877 1,024,731
------------------ -------------- ------------------
EXPENSES:
Operating expenses:
Depreciation and amortization 236,624 306,320 580,197
Property taxes and insurance 125,261 111,347 156,935
General and administrative 36,399 61,655 34,120
Legal and accounting 74,062 61,302 57,452
Administrative fees (Note 3) 61,809 54,349 96,758
Maintenance and repairs 39,857 43,752 150,435
Management fees (Note 3) 27,508 27,134 63,911
Utilities 13,828 17,840 51,504
Salaries and payroll taxes 0 8,854 45,585
Renting expenses 0 7,617 30,680
Other operating expenses 11,298 11,305 36,394
------------------ -------------- ------------------
Total operating expenses 626,646 711,475 1,303,971
------------------ -------------- ------------------
INCOME (LOSS) BEFORE GAIN FROM PROPERTY
DISPOSITION 42,060 2,402 (279,240)
GAIN FROM PROPERTY DISPOSITION (Note 4) 0 151,510 91,823
------------------ -------------- ------------------
INCOME (LOSS) BEFORE PARTNERSHIP'S SHARE
OF UNCONSOLIDATED JOINT VENTURE LOSS 42,060 153,912 (187,417)
------------------ -------------- ------------------
PARTNERSHIP'S SHARE OF UNCONSOLIDATED
JOINT VENTURE LOSS FROM CONTINUING
OPERATIONS (Note 5) (179,482) (295,536) (117,343)
PARTNERSHIP'S SHARE OF UNCONSOLIDATED
JOINT VENTURE EXTRAORDINARY GAIN (Note 5) 335,031 0 0
------------------ -------------- ------------------
NET INCOME (LOSS) $ 197,609 $ (141,624) $ (304,760)
================== ============== ==================
Per limited partnership unit (Note 1):
Loss before extraordinary gain $ (1.78) $ (1.84) $ (4.29)
Extraordinary gain 4.35 0 0
------------------ -------------- ------------------
Net income (loss) $ 2.57 $ (1.84) $ (4.29)
================== ============== ==================
</TABLE>
See Accompanying Notes
21
<PAGE>
SIERRA PACIFIC PENSION INVESTORS '84
(A California Limited Partnership)
STATEMENTS OF CHANGES IN PARTNERS' EQUITY
From June 5, 1984 (Inception of Partnership) to December 31, 1993
and for the Years Ended December 31, 1996, 1995 and 1994
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Limited Partners Total
-------------------------------- General Partners'
Per Unit Total Partner Equity
--------------- -------------- ------------------ ---------------
<S> <C> <C> <C>
Proceeds from sale of
partnership units $ 250.00 $19,418,250 $ 19,418,250
Underwriting commissions
and other organization expenses (37.34) (2,894,014) (2,894,014)
Repurchase of 665 partnership units (0.03) (151,621) (151,621)
Cumulative net (loss) income
(to December 31, 1993) (66.03) (5,084,025) $ 107,667 (4,976,358)
Cumulative distributions
(to December 31, 1993) (13.58) (1,046,006) (107,667) (1,153,673)
--------------- -------------- ------------------ ---------------
Partners' equity - January 1, 1994 133.02 10,242,584 0 10,242,584
Net (loss) income (4.29) (330,427) 25,667 (304,760)
Distributions (2.00) (154,000) (25,667) (179,667)
--------------- -------------- ------------------ ---------------
Partners' equity December 31, 1994 126.73 9,758,157 0 9,758,157
Net loss (1.84) (141,624) (141,624)
Distributions (2.60) (200,000) (200,000)
--------------- -------------- ------------------ ---------------
Partners' equity December 31, 1995 122.29 9,416,533 0 9,416,533
Net income 2.57 197,609 197,609
Distributions (2.60) (200,000) (200,000)
--------------- -------------- ------------------ ---------------
Partners' equity - December 31, 1996 $ 122.26 $ 9,414,142 $ 0 $ 9,414,142
=============== ============== ================== ===============
</TABLE>
See Accompanying Notes
22
<PAGE>
SIERRA PACIFIC PENSION INVESTORS '84
(A California Limited Partnership)
STATEMENTS OF CASH FLOWS
For the Years Ended December 31, 1996, 1995 and 1994
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1996 1995 1994
------------------ -------------- ------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 197,609 $ (141,624) $ (304,760)
Adjustments to reconcile net income (loss) to cash
provided by operating activities:
Depreciation and amortization 236,624 306,320 580,197
Undistributed (income) loss of
unconsolidated joint venture (155,549) 295,536 117,343
Gain from property disposition 0 (151,510) (91,823)
(Increase) decrease in rent receivable (8,389) 12,433 (1,175)
(Increase) decrease in other receivables (127,567) (63,347) 25,040
(Increase) decrease in other assets (25,717) 1,227 (186,989)
Increase (decrease) in accrued and other liabilities 16,104 (173,175) 136,067
------------------ -------------- ------------------
Net cash provided by operating activities 133,115 85,860 273,900
------------------ -------------- ------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Payments for property additions (94,057) (25,112) (698,718)
Net cash proceeds from property disposition 0 0 421,748
Payments received on note receivable 0 1,317,928 0
Capital contributions to
unconsolidated joint venture 0 (1,275,036) (139,650)
Distributions received from unconsolidated
joint venture 0 1,315,150 129,850
------------------ -------------- ------------------
Net cash (used in) provided by investing activities (94,057) 1,332,930 (286,770)
------------------ -------------- ------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings from affiliates 177,200 0 525,000
Payments to affiliates (228,966) (1,307,000) 0
Cash distributions (200,000) (200,000) (179,667)
------------------ -------------- ------------------
Net cash (used in) provided by financing activities (251,766) (1,507,000) 345,333
------------------ -------------- ------------------
NET (DECREASE) INCREASE IN CASH AND
CASH EQUIVALENTS (212,708) (88,210) 332,463
CASH AND CASH EQUIVALENTS - Beginning of year 254,768 342,978 10,515
------------------ -------------- ------------------
CASH AND CASH EQUIVALENTS - End of year $ 42,060 $ 254,768 $ 342,978
================== ============== ==================
</TABLE>
In 1995, $31,453 of interest receivable was added to the principal balance of
the related note receivable. This transaction is a noncash item not reflected in
the above statement of cash flows.
See Accompanying Notes
23
<PAGE>
SIERRA PACIFIC PENSION INVESTORS '84
(A CALIFORNIA LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION
Sierra Pacific Pension Investors '84 (the "Partnership") was organized on June
5, 1984 in accordance with the provisions of the California Uniform Limited
Partnership Act to acquire, develop and operate certain real properties. S-P
Properties, Inc. is the General Partner and manager of the Partnership. On
December 30, 1994, all of the outstanding stock of TCP, Inc. was sold to Finance
Factors, Inc. TCP, Inc. owns all of the common stock of S-P Properties, Inc.
Finance Factors was a subsidiary of CGS Real Estate Company, Inc., a national
real estate company. In July 1995, Finance Factors, Inc. merged with Bancor Real
Estate Company, Inc., another subsidiary of CGS Real Estate Company, Inc.
The Partnership's activities during the preceding five years have involved the
ownership and operation of two real estate projects in Arizona: Sierra Spectrum
in Phoenix, Arizona and Sierra Valencia in Tucson, Arizona. In December 1994,
the Partnership sold Sierra Spectrum.
The Partnership holds a 49% interest in Sierra Mira Mesa Partners ("SMMP"), a
California general partnership with Sierra Pacific Development Fund II formed in
1985. SMMP was initially created to develop and operate the office building
known as Sierra Mira Mesa in San Diego, California. SMMP also holds a 75.06%
interest in Sorrento I Partners (a California general partnership with Sierra
Pacific Development Fund III formed in 1993), a 26.92% interest in Sorrento II
Partners (a California general partnership with Sierra Pacific Institutional
Properties V formed in 1993), an 18.87% interest in Sierra Creekside Partners (a
California general partnership with Sierra Pacific Development Fund formed in
1994), and a 37.74% interest in Sierra Vista Partners (a California general
partnership with Sierra Pacific Development Fund III formed in 1994).
BASIS OF FINANCIAL STATEMENTS
The Partnership maintains its books and prepares its financial statements in
accordance with generally accepted accounting principles. However, the
Partnership prepares its tax returns on the accrual basis of accounting as
defined by the Internal Revenue Code with adjustments to reconcile book and
taxable income (loss) for differences in the treatment of certain income and
expense items. The accompanying financial statements do not reflect any
provision for federal or state income taxes since such taxes are the obligation
of the individual partners.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reported period. Actual
results could differ from those estimates.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents include highly liquid, short-term investments with
original maturities of three months or less.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The financial instruments of the Partnership at December 31, 1996 and 1995
consist of cash and cash equivalents, receivables, note receivables, due from
affiliates and accounts payable. The fair value of cash and cash equivalents,
receivables and accounts payable approximates the carrying value due to the
short term nature of these items. The fair value of the note receivable and due
from affiliates can not be determined due to the related party nature of these
receivables.
24
<PAGE>
Sierra Pacific Pension Investors '84
Notes to Financial Statements
Page two
INCOME-PRODUCING PROPERTIES
Property and tenant improvements are carried at cost and depreciated on the
straight-line method over the estimated lives of the related assets, ranging
from three to thirty years. Tenant improvements incurred at the initial leasing
of the properties are depreciated over ten years and tenant improvements
incurred at the re-leasing of the properties are depreciated over the life of
the related lease.
Expenditures for repairs and maintenance are charged against income as incurred.
Improvements and major renewals are capitalized. Costs and the related
accumulated depreciation of assets sold or retired are removed from the accounts
in the year of disposal or when fully depreciated and any resulting gain or loss
is reflected in income or deferred income as appropriate.
The Partnership employs a systematic approach in determining whether the value
of income-producing property has been impaired. Prior to 1995, a provision for
loss on a property was established if the appraised value of the property
declined below its book value due to what the General Partner believed to be an
other than temporary condition. A complete appraisal was performed on the
properties as of December 31 each year. A provision for loss on the properties
was established as the appraised value of the properties declined below book
value because of depressed real estate market conditions, which the General
Partner believed to be other than temporary. A complete appraisal was performed
on the properties as of December 31, 1994 that indicated an appraised value in
excess of the historical cost basis of the properties.
Effective January 1, 1995, the Partnership implemented Statement of Financial
Accounting Standards No. 121, "Accounting for Impairment of Long-Lived Assets
and for Long-Lived Assets to be Disposed Of" (the "Statement"). The Partnership
regularly evaluates long-lived assets for impairment whenever events or changes
in circumstances indicate that the carrying amount of the asset may not be
recoverable. Future cash flows are estimated and compared to the carrying amount
of the asset to determine if an impairment has occurred. If the sum of the
expected future cash flows is less than the carrying amount of the asset, the
Partnership shall recognize an impairment loss in accordance with the Statement.
No additional provision was required due to the implementation of this
Statement.
Because the determination of fair value is based upon projections of future
economic events such as property occupancy rates, rental rates, operating cost
inflation and market capitalization rates which are inherently subjective, the
amounts ultimately realized at disposition may differ materially from the net
carrying value as of December 31, 1996. The cash flows used to determine fair
value and net realizable value are based on good faith estimates and assumptions
developed by management. Unanticipated events and circumstances may occur and
some assumptions may not materialize; therefore actual results may vary from the
estimates and the variances may be material. The Partnership may provide
additional write-downs which could be material in subsequent years if real
estate markets or local economic conditions change.
INVESTMENT IN UNCONSOLIDATED JOINT VENTURE
The investment in unconsolidated joint venture is stated at cost and is adjusted
for the Partnerships' share in earnings or losses and cash contributions to or
distributions from the joint venture (equity method).
OTHER ASSETS
Deferred leasing costs represent costs incurred to lease the property and are
amortized over the life of the related lease.
25
<PAGE>
Sierra Pacific Pension Investors '84
Notes to Financial Statements
Page three
RENTAL INCOME AND RENT RECEIVABLE
Rental income is recognized on the straight-line method over the term of the
related operating lease in accordance with the provisions of Statement of
Financial Accounting Standards No. 13, "Accounting for Leases".
Rent receivable consists of (a) unbilled rent - the difference between rent
recognized on the straight-line method and actual cash due; and (b) billed rent
- - rent due but not yet received.
CALCULATION OF EQUITY AND NET INCOME (LOSS) PER LIMITED PARTNERSHIP UNIT
Equity and net income (loss) per limited partnership unit are determined by
dividing the Limited Partners' equity and net income (loss) by the number of
limited partnership units outstanding, 77,000.
2. DETAILS OF CERTAIN BALANCE SHEET ACCOUNTS
Additional information regarding certain balance sheet accounts at December 31,
1996 and 1995, is as follows:
1996 1995
------------- --------------
Other assets:
Prepaid expenses $ 3,210 $ 3,214
Deferred leasing costs,
net of accumulated
amortization of $113,032 in 1996
and $98,158 in 1995 112,385 129,768
------------- --------------
$ 115,595 $ 132,982
============= ==============
Accrued and other liabilities:
Accounts payable $ 25,123 $ 14,059
Accrued expenses 44,333 42,834
Security deposits 26,895 23,354
------------- --------------
$ 96,351 $ 80,247
============= ==============
3. GENERAL PARTNER AND 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 June 30, 1995.
An affiliate of the General Partner may receive a management fee of 6% of the
gross rental income collected from the properties. Management fees for the years
ended December 31, 1996, 1995 and 1994 were $15,030, $5,300 and $63,911,
respectively.
An affiliate of the General Partner is entitled to reimbursement for expenses
incurred by the affiliate for services provided to the Partnership such as
accounting, legal, data processing and similar services. The affiliate was
reimbursed $61,809, $33,651 and $96,758 for such services for the years ended
December 31, 1996, 1995 and 1994, respectively. Additionally, the Partnership
reimbursed the affiliate for construction supervision costs incurred by the
affiliate. For the years ended December 31, 1996, 1995 and 1994, the affiliate
received $1,873, $0 and $146, respectively, for tenant improvements supervisory
costs.
26
<PAGE>
Sierra Pacific Pension Investors '84
Notes to Financial Statements
Page four
In consideration for services rendered with respect to initial leasing of
Partnership properties, an affiliate of the General Partner is paid initial
leasing costs. For the year ended December 31, 1996, these fees amounted to
$10,153 and were recorded as deferred leasing costs. No such costs were incurred
in 1995. For the year ended December 31, 1994, the affiliate also received
$9,326 for leasing supervision costs that were recorded as part of renting
expenses of the properties. No such costs were incurred in 1995 and 1996.
In 1995 and 1996, the Partnership made non-interest bearing short-term advances
to Sierra Mira Mesa Partners of $1,300,000 and $11,300, respectively. Repayment
is expected in 1997.
During 1996, the Partnership made non-interest bearing, short-term advances to
other affiliates. Repayment is expected in 1997.
As further described in Note 4, in 1994 the Partnership sold a property to an
affiliate of the General Partner for cash of $800,000 and a $3,200,000 trust
deed note. This note calls for monthly interest only payments and bears interest
of 10% per annum. The original note was due to mature on June 30, 1995 and was
extended to June 30, 1997. All other terms of the original note remain
unchanged. Interest income related to this note of $191,000 and $262,000 was
recognized during the years ended December 31, 1996 and 1995, respectively.
Interest receivable related to this note is $159,461 and $31,894 at December 31,
1996 and 1995, respectively. The Partnership received $47,838 of this receivable
in January 1997.
4. INCOME-PRODUCING PROPERTIES
At December 31, 1996 and 1995 the total cost and accumulated depreciation of the
property are as follows:
1996 1995
------------------ ------------------
Land $ 977,677 $ 977,677
Building and improvements 3,826,021 3,785,271
------------------ ------------------
Total 4,803,698 4,762,948
Accumulated depreciation (1,494,933) (1,358,741)
Valuation allowance (1,880,000) (1,880,000)
------------------ ------------------
Net $ 1,428,765 $ 1,524,207
================== ==================
On December 30, 1994, the Sierra Spectrum property, with a historical cost basis
of $2,993,134, was sold for $4,000,000 ($800,000 cash down-payment and a
$3,200,000 trust deed note) to an affiliate of Finance Factors, Inc. The gain on
sale was recorded in accordance with Statement of Financial Accounting Standards
No. 66, "Accounting For Sales of Real Estate", using the installment method and
the Partnership recorded a gain of $91,823 (net of selling costs and unamortized
loan fees and lease costs). A deferred gain of $367,296 was recorded at December
31, 1994. This gain will be recognized as principal payments on the trust deed
note are received. During the year ended December 31, 1995, the Partnership
received principal payments of $1,317,928 on the trust deed note and recognized
$151,510 of the deferred gain related to this transaction.
27
<PAGE>
Sierra Pacific Pension Investors '84
Notes to Financial Statements
Page five
Future minimum base rental income, under the existing operating leases for the
Sierra Valencia property, to be recognized on a straight-line basis and amounts
to be received on a cash basis are as follows:
Straight-line Cash
YEAR ENDING DECEMBER 31, Basis Basis
------------------ ------------------
1997 $ 405,548 $ 439,004
1998 227,430 238,674
1999 205,373 218,808
2000 142,497 153,489
2001 82,883 90,331
Thereafter 0 0
------------------ -----------------
Total $ 1,063,731 $ 1,140,306
================== =================
The Partnership relied on four tenants to generate approximately 61% of total
1996 rental revenues. The breakdown of these four tenants' industry segments and
rental income contribution is as follows: 17% - manufacturing for the
recreational vehicle segment; 20% - healthcare administration; 11% -
sales/distribution of medical equipment and supplies; and 13% - optical service
research and development.
5. INVESTMENT IN UNCONSOLIDATED JOINT VENTURE
Sierra Mira Mesa Partners ("SMMP"), a California general partnership, was formed
in 1985 between the Partnership and Sierra Pacific Development Fund II, an
affiliate, to develop and operate the real property known as Sierra Mira Mesa,
an office building, located in San Diego, California. The property contains
89,560 square feet and is 98% leased at December 31, 1996. At December 31, 1996
the Partnership's interest in SMMP was 49%; the remaining 51% interest was owned
by Sierra Pacific Development Fund II.
The Partnership's investment in SMMP as of December 31, 1996 and 1995 is
comprised of the following:
1996 1995
------------------ -----------------
Equity interest $ 4,495,515 $ 4,339,966
Investment advisory and
other fees, less accumulated
amortization of $133,622 and
$129,602 in 1996 and 1995,
respectively. 120,602 124,623
------------------ -----------------
Investment in unconsolidated
joint venture $ 4,616,117 $ 4,464,589
================== =================
28
<PAGE>
Sierra Pacific Pension Investors '84
Notes to Financial Statements
Page six
The consolidated financial statements of SMMP include the accounts of SMMP and
Sorrento I Partners, a majority owned California general partnership for the
year ended December 31, 1996. Sorrento I Partners was accounted for under the
equity method in the prior year. The financial statements of SMMP for prior
years have not been restated as the consolidation was accounted for as a step
acquisition in accordance with Accounting Research Bulletin No. 51,
"Consolidated Financial Statements". The condensed balance sheets at December
31, 1996 and 1995, and the condensed statements of operations for the years
ended December 31, 1996, 1995 and 1994 for SMMP follow:
CONDENSED BALANCE SHEETS
December 31, December 31,
1996 1995
------------------ ------------------
ASSETS
Cash and cash equivalents $ 26,721 $ 1,325,020
Rent receivable 1,186,818 1,021,948
Other receivables 169,241 98,955
Due from affiliates 1,536,968 1,830,588
Income-producing property,
net of accumulated depreciation 9,449,032 7,059,867
Investment in unconsolidated
joint ventures 2,773,176 3,306,143
Other assets 1,119,115 1,044,860
------------------ ------------------
Total Assets $ 16,261,071 $ 15,687,381
================== ==================
LIABILITIES AND GENERAL PARTNERS' EQUITY
Accrued and other liabilities $ 104,428 $ 62,940
Due to Sierra Pacific Pension
Investors '84 1,311,300 1,300,000
Note payable 6,012,512 5,467,368
------------------ ------------------
Total Liabilities 7,428,240 6,830,308
------------------ ------------------
Minority interest in joint venture (341,689) 0
------------------ ------------------
General Partners' equity 9,174,520 8,857,073
------------------ ------------------
Total Liabilities and General
Partners' equity $ 16,261,071 $ 15,687,381
================== ==================
29
<PAGE>
Sierra Pacific Pension Investors '84
Notes to Financial Statements
Page seven
CONDENSED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
1996 1995 1994
----------------- ----------------- -------------------
<S> <C> <C> <C>
Revenues:
Rental income $ 1,808,673 $ 1,529,497 $ 1,458,990
Other income 178,726 181,358 376,022
----------------- ----------------- -------------------
Total revenues 1,987,399 1,710,855 1,835,012
----------------- ----------------- -------------------
Expenses:
Operating expenses 728,593 641,206 690,827
Depreciation and amortization 813,359 586,602 526,253
Interest 559,759 392,088 366,330
----------------- ----------------- -------------------
Total expenses 2,101,711 1,619,896 1,583,410
----------------- ----------------- -------------------
(Loss) Income before Partnership's
share of unconsolidated
joint venture losses (114,312) 90,959 251,602
Partnership's share of unconsolidated
joint venture losses (354,765) (694,095) (491,079)
----------------- ----------------- -------------------
Loss before extraordinary gain (469,077) (603,136) (239,477)
Extraordinary gain 1,200,381 0 0
----------------- ----------------- -------------------
Income (Loss) before minority interest's
share of consolidated joint venture
loss 731,304 (603,136) (239,477)
----------------- ----------------- -------------------
Minority interest's share of
consolidated joint venture loss
from continuing operations 102,787 0 0
Minority interest's share of
consolidated joint venture
extraordinary gain (516,644) 0 0
----------------- ----------------- -------------------
Net Income (Loss) $ 317,447 $ (603,136) $ (239,477)
================= ================= ===================
</TABLE>
As of December 31, 1996, SMMP holds a 26.92% interest in Sorrento II Partners (a
California general partnership with Sierra Pacific Institutional Properties V
formed in 1993), an 18.87% interest in Sierra Creekside Partners (a California
general partnership with Sierra Pacific Development Fund formed in 1994), and a
37.74% interest in Sierra Vista Partners (a California general partnership with
Sierra Pacific Development Fund III formed in 1994).
30
<PAGE>
Sierra Pacific Pension Investors '84
Notes to Financial Statements
Page eight
The following is a summary of aggregated financial information for all
investments owned by SMMP which are accounted for under the equity method:
CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31, December 31,
1996 1995
------------------ ------------------
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 159,369 $ 915,348
Restricted certificate of deposit 0 92,782
Rent receivable 781,284 559,063
Due from affiliates 50,681
Income-producing property,
net of accumulated depreciation 15,043,645 17,673,355
Other assets 732,144 831,769
------------------ ------------------
Total Assets $ 16,767,123 $ 20,072,317
================== ==================
LIABILITIES AND GENERAL PARTNERS' EQUITY
Accrued and other liabilities $ 648,328 $ 519,998
Note payable 5,213,615 8,032,405
------------------ ------------------
Total Liabilities 5,861,943 8,552,403
------------------ ------------------
Ground lessors' equity in income
producing property 3,000,000 3,000,000
------------------ ------------------
General Partners' equity 7,905,180 8,519,914
------------------ ------------------
Total Liabilities and General
Partners' equity $ 16,767,123 $ 20,072,317
================== ==================
</TABLE>
31
<PAGE>
Sierra Pacific Pension Investors '84
Notes to Financial Statements
Page nine
CONDENSED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
1996 1995 1994
----------------- ----------------- -------------------
<S> <C> <C> <C>
Revenues:
Rental income $ 2,474,335 $ 2,124,077 $ 2,036,925
Other income 13,968 6,915 9,111
----------------- ----------------- -------------------
Total revenues 2,488,303 2,130,992 2,046,036
----------------- ----------------- -------------------
Expenses:
Operating expenses 1,788,643 2,009,862 2,213,433
Depreciation and amortization 1,461,571 1,438,310 1,303,173
Interest 427,967 691,407 587,893
----------------- ----------------- -------------------
Total expenses 3,678,181 4,139,579 4,104,499
----------------- ----------------- -------------------
Net Loss $ (1,189,878) $ (2,008,587) $ (2,058,463)
================= ================= ===================
</TABLE>
Reference is made to the audited financial statements of Sierra Mira Mesa
Partners and Sorrento I Partners included herein.
32
<PAGE>
Sierra Pacific Pension Investors '84
Notes to Financial Statements
Page ten
6. PARTNERS' EQUITY
Accrual basis profits and losses resulting from operations of the Partnership
are allocated 99% to the Limited Partners and 1% to the General Partner.
Currently, the Partnership does not meet the criteria for distributing cash to
the General Partner, and it cannot reasonably predict when the criteria will be
met. Accordingly, no accrual basis profits and losses from operations were
allocated to the General Partner.
Upon any sale, refinancing or other disposition of the Partnership's real
property, distributions will be made to the Limited Partners until they have
received distributions from the sale or financing proceeds in an amount equal to
100% of their unreturned capital. Thereafter, distributions generally will be
divided 1% to the General Partner and 99% to the Limited Partners until the
Limited Partners have received distributions equal to 15% per annum cumulative
on each Limited Partner's unreturned capital. However, after the Limited
Partners have received distributions from the sale or financing proceeds equal
to their unreturned capital plus distributions from all sources equal to a
cumulative but not compounded return of 6% per annum on their unreturned
capital, the General Partner may be entitled to special distributions not to
exceed 3% of the gross sales prices of property sold by the Partnership.
Thereafter, the General Partner will be entitled to receive incentive
distributions which, when aggregated with the 1% distributions to the General
Partner described in the preceding sentence, will equal 10% of the total net
sale or financing proceeds available for distribution to the Partners. Any
remaining sale or financing proceeds will be distributed to the Limited
Partners.
7. SUBSEQUENT EVENT
In March 1997, the Partnership entered into a loan agreement in the amount of
$1,404,000. This loan, which is secured by the Sierra Valencia property, bears
interest at 9.25% per annum and calls for monthly principal and interest
payments of $12,023.60 on the first day of each month. Such payments shall
continue until April 2007, when the indebtedness is due in full. There is a 1%
premium for prepayment of this note. 33
<PAGE>
SIERRA MIRA MESA PARTNERS
(A CALIFORNIA GENERAL PARTNERSHIP)
AUDITED CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996
34
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Partners of
Sierra Mira Mesa Partners
We have audited the accompanying consolidated balance sheets of Sierra Mira Mesa
Partners, a California general partnership, (the "Partnership") as of December
31, 1996 and 1995, and the related consolidated statements of operations,
changes in partners' equity and cash flows for each of the three years in the
period ended December 31, 1996. These financial statements are the
responsibility of the Partnership's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Sierra Mira Mesa
Partners as of December 31, 1996 and 1995, and the results of its operations and
cash flows for each for the three years in the period ended December 31, 1996 in
conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Houston, Texas
February 24, 1997
35
<PAGE>
SIERRA MIRA MESA PARTNERS
(A California General Partnership)
CONSOLIDATED BALANCE SHEETS
December 31, 1996 and 1995
December 31, December 31,
1996 1995
------------ -----------
ASSETS
Cash and cash equivalents .................... $ 26,721 $ 1,325,020
Receivables:
Unbilled rent (Notes 1 and 4) ............. 1,186,818 1,021,948
Other ..................................... 169,241 98,955
Due from affiliates, net (Note 3) ............ 1,536,968 1,830,588
Income-producing property - net of accumulated
depreciation of $4,819,832 in 1996 and
$3,198,509 in 1995 (Notes 1 and 4) ...... 9,449,032 7,059,867
Investment in unconsolidated
joint ventures (Notes 1 and 5) ........... 2,773,176 3,306,143
Other assets (Notes 1, 2 and 3) .............. 1,119,115 1,044,860
------------ -----------
Total Assets ................................. $ 16,261,071 $15,687,381
============ ===========
LIABILITIES AND GENERAL PARTNERS' EQUITY
Accrued and other liabilities (Note 2) ....... $ 104,428 $ 62,940
Due to Sierra Pacific Pension Investors '84
(Note 3) ................................. 1,311,300 1,300,000
Notes payable (Note 6) ....................... 6,012,512 5,467,368
------------ -----------
Total Liabilities ............................ 7,428,240 6,830,308
------------ -----------
Minority interest in consolidated
joint venture (Note 1) .................. (341,689) 0
General Partners' equity (Notes 1 and 7) ..... 9,174,520 8,857,073
------------ -----------
Total Liabilities and General Partners' equity $ 16,261,071 $15,687,381
============ ===========
See Accompanying Notes
36
<PAGE>
SIERRA MIRA MESA PARTNERS
(A California General Partnership)
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Years Ended December 31, 1996, 1995 and 1994
<TABLE>
<CAPTION>
1996 1995 1994
----------- ----------- -----------
Revenues:
<S> <C> <C> <C>
Rental income (Note 1) ............... $ 1,808,673 $ 1,529,497 $ 1,458,990
Interest income ...................... 178,726 181,358 292,408
Other income ......................... 0 0 83,614
----------- ----------- -----------
Total revenues ................ 1,987,399 1,710,855 1,835,012
----------- ----------- -----------
Expenses:
Operating expenses:
Depreciation and amortization ........ 813,359 586,602 526,253
Property taxes and insurance ......... 53,587 126,078 117,827
Administrative fees (Note 3) ......... 101,142 63,623 45,149
Maintenance and repairs .............. 262,271 201,373 211,374
Management fees (Note 3) ............. 93,780 79,388 101,977
Utilities ............................ 138,443 126,769 129,425
Legal and accounting ................. 42,011 20,231 34,940
General and administrative ........... 4,484 3,475 5,787
Salaries and payroll taxes ........... 0 2,151 24,642
Renting expenses ..................... 5,128 205 7,144
Other operating expenses ............. 27,747 17,913 12,562
----------- ----------- -----------
Total operating expenses ........... 1,541,952 1,227,808 1,217,080
Interest ............................. 559,759 392,088 366,330
----------- ----------- -----------
Total expenses ..................... 2,101,711 1,619,896 1,583,410
----------- ----------- -----------
(LOSS) INCOME BEFORE PARTNERSHIP'S
SHARE OF UNCONSOLIDATED JOINT
VENTURE LOSSES ....................... (114,312) 90,959 251,602
----------- ----------- -----------
PARTNERSHIP'S SHARE OF UNCONSOLIDATED
JOINT VENTURE LOSSES (Note 5) ........ (354,765) (694,095) (491,079)
----------- ----------- -----------
LOSS BEFORE EXTRAORDINARY GAIN .......... (469,077) (603,136) (239,477)
EXTRAORDINARY GAIN ON EXTINGUISHMENT
OF DEBT (Note 6) ..................... 1,200,381 0 0
----------- ----------- -----------
INCOME (LOSS) BEFORE MINORITY INTEREST'S
SHARE OF CONSOLIDATED JOINT VENTURE
LOSS ................................. 731,304 (603,136) (239,477)
----------- ----------- -----------
MINORITY INTEREST'S SHARE OF CONSOLIDATED
JOINT VENTURE LOSS FROM CONTINUING
OPERATIONS ........................... 102,787 0 0
MINORITY INTEREST'S SHARE OF CONSOLIDATED
JOINT VENTURE EXTRAORDINARY GAIN ..... (516,644) 0 0
----------- ----------- -----------
NET INCOME (LOSS) ....................... $ 317,447 $ (603,136) $ (239,477)
=========== =========== ===========
</TABLE>
See Accompanying Notes
37
<PAGE>
SIERRA MIRA MESA PARTNERS
(A California General Partnership)
CONSOLIDATED STATEMENTS OF CHANGES IN GENERAL PARTNERS' EQUITY
For the Years Ended December 31, 1996, 1995 and 1994
General Partners
------------------------------------------
Sierra Pacific Sierra Pacific
Development Pension
Fund II Investors '84 Total
----------- ------------- -----------
General Partners' equity -
January 1, 1994 ........ $ 4,978,391 $ 4,783,160 $ 9,761,551
Net loss ................. (122,133) (117,344) (239,477)
Contributions ............ 145,350 139,650 285,000
Distributions ............ (135,150) (129,850) (265,000)
----------- ----------- -----------
General Partners' equity -
December 31, 1994 ...... 4,866,458 4,675,616 9,542,074
Net loss ................. (307,600) (295,536) (603,136)
Contributions ............ 768,258 1,275,036 2,043,295
Distributions ............ (810,009) (1,315,150) (2,125,160)
----------- ----------- -----------
General Partners' equity -
December 31, 1995 ...... 4,517,107 4,339,966 8,857,073
Net income ............... 161,898 155,549 317,447
----------- ----------- -----------
General Partners' equity -
December 31, 1996 ...... $ 4,679,005 $ 4,495,515 $ 9,174,520
=========== =========== ===========
See Accompanying Notes
38
<PAGE>
SIERRA MIRA MESA PARTNERS
(A California General Partnership)
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended December 31, 1996, 1995 and 1994
<TABLE>
<CAPTION>
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) .................................... $ 317,447 $ (603,136) $ (239,477)
Adjustments to reconcile net income (loss)
to cash provided by (used in) operating activities:
Depreciation and amortization ...................... 813,359 586,602 526,253
Gain from extinguishment of debt ................... (1,200,381) 0 0
Undistributed losses of
unconsolidated joint ventures .................... 354,765 694,095 491,079
Minority interest in consolidated
joint venture income ............................ 413,857 0 0
(Increase) decrease in rent receivable ............. (164,870) (97,228) 310,013
(Increase) decrease in other receivables ........... (70,286) (98,955) 20,079
Increase in other assets ........................... (293,798) (592,548) (151,580)
Increase (decrease) in accrued and other liabilities 12,579 (26,419) 6,449
----------- ----------- -----------
Net cash provided by (used in) operating activities .. 182,672 (137,589) 962,816
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Payments for property additions .................... (745,134) (45,552) (60,054)
Capital contributions to
unconsolidated joint ventures .................... (824,400) (1,972,826) (2,100,000)
Distributions received from unconsolidated
joint ventures ................................... 731,500 488,566 0
----------- ----------- -----------
Net cash used in investing activities ................ (838,034) (1,529,812) (2,160,054)
----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Loans to affiliates ................................ (4,771) (142,801) 0
Repayments of loans to affiliates .................. 142,801 0 0
Borrowings from affiliates ......................... 166,890 1,300,000 0
Repayments of borrowings from affiliates ........... 0 0 1,462,213
Cash contributions from General Partners ........... 0 2,043,295 285,000
Cash distributions ................................. 0 (2,125,160) (265,000)
Principal proceeds from notes payable .............. 0 5,500,000 0
Principal payments on notes payable ................ (992,832) (3,612,225) (272,418)
----------- ----------- -----------
Net cash (used in) provided by financing activities .. (687,912) 2,963,109 1,209,795
----------- ----------- -----------
NET (DECREASE) INCREASE IN CASH
AND CASH EQUIVALENTS ................................ (1,343,274) 1,295,708 12,557
CASH AND CASH EQUIVALENTS - Beginning of year .......... 1,369,995 29,312 16,755
----------- ----------- -----------
CASH AND CASH EQUIVALENTS - End of year ................ $ 26,721 $ 1,325,020 $ 29,312
=========== =========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash paid during the year for interest ............... $ 580,906 $ 399,521 $ 363,899
=========== =========== ===========
</TABLE>
See Accompanying Notes
39
<PAGE>
SIERRA MIRA MESA PARTNERS
(A CALIFORNIA GENERAL PARTNERSHIP)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION
Sierra Mira Mesa Partners ("SMMP"), a California general partnership, was formed
in 1985 between Sierra Pacific Development Fund II ("SPDFII") and Sierra Pacific
Pension Investors '84 ("SPPI'84") to develop and operate the real property known
as Sierra Mira Mesa, an office building, located in San Diego, California. The
property contains 89,560 square feet and is 98% leased at December 31, 1996. At
December 31, 1996 Sierra Pacific Development Fund II's interest in SMMP was 51%;
the remaining 49% interest was owned by Sierra Pacific Pension Investors '84.
S-P Properties, Inc. is the General Partner and manager of SPDFII and SPPI'84.
On December 30, 1994, all of the outstanding stock of TCP, Inc. was sold to
Finance Factors, Inc. TCP, Inc. owns all of the common stock of S-P Properties,
Inc. Finance Factors was a subsidiary of CGS Real Estate Company, Inc., a
national real estate company. In July 1995, Finance Factors, Inc. merged with
Bancor Real Estate Company, Inc., another subsidiary of CGS Real Estate Company,
Inc.
SMMP also holds investments in three other industrial/commercial properties
through its investments in unconsolidated joint ventures. Refer to Note 5 for
additional information.
BASIS OF FINANCIAL STATEMENTS
The Partnership maintains its books and prepares its financial statements in
accordance with generally accepted accounting principles. However, the
Partnership prepares its tax returns on the accrual basis of accounting as
defined by the Internal Revenue Code with adjustments to reconcile book and
taxable income (loss) for differences in the treatment of certain income and
expense items. The accompanying financial statements do not reflect any
provision for federal or state income taxes since such taxes are the obligation
of the individual partners.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reported period. Actual
results could differ from those estimates.
The consolidated financial statements of SMMP include the accounts of SMMP and
Sorrento I Partners, a majority owned joint venture as of December 31, 1996.
Sorrento I Partners was accounted for under the equity method in the prior year.
The financial statements of SMMP for prior years have not been restated as the
consolidation was accounted for as a step acquisition in accordance with
Accounting Research Bulletin No. 51, "Consolidated Financial Statements". All
significant intercompany balances and transactions have been eliminated in
consolidation.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents include highly liquid, short-term investments with
original maturities of three months or less.
40
<PAGE>
Sierra Mira Mesa Partners
Notes to Consolidated Financial Statements
Page two
FAIR VALUE OF FINANCIAL INSTRUMENTS
The financial instruments of the Partnership at December 31, 1996 and 1995
consist of cash and cash equivalents, receivables, due from affiliates, accounts
payable and note payable. The fair value of cash and cash equivalents,
receivables and accounts payable approximate the carrying value due to the short
term nature of these items. In the opinion of management, the fair value of the
notes payable approximates the carrying value as the interest rate is based on
market rates at December 31, 1996. Management was unable to determine the fair
value of due from affiliates due to the related party nature of this receivable.
INCOME-PRODUCING PROPERTIES
Property and tenant improvements are carried at cost and depreciated on the
straight-line method over the estimated lives of the related assets, ranging
from three to thirty years. Tenant improvements incurred at the initial leasing
of the properties are depreciated over ten years and tenant improvements
incurred at the re-leasing of the properties are depreciated over the life of
the related lease.
Expenditures for repairs and maintenance are charged against income as incurred.
Improvements and major renewals are capitalized. Costs and the related
accumulated depreciation of assets sold or retired are removed from the accounts
in the year of disposal or when fully depreciated and any resulting gain or loss
is reflected in income or deferred income as appropriate.
The Partnership employs a systematic approach in determining whether the value
of income-producing property has been impaired. Prior to 1995, a provision for
loss on a property was established if the appraised value of the property
declined below its book value due to what the General Partner believed to be an
other than temporary condition. A complete appraisal was performed on the
property as of December 31 each year. A complete appraisal was performed on the
property as of December 31, 1994 that indicated an appraised value in excess of
the historical cost basis of the property.
Effective January 1, 1995, the Partnership implemented Statement of Financial
Accounting Standards No. 121, "Accounting for Impairment of Long-Lived Assets
and for Long-Lived Assets to be Disposed Of" (the "Statement"). The Partnership
regularly evaluates long-lived assets for impairment whenever events or changes
in circumstances indicate that the carrying amount of the asset may not be
recoverable. Future cash flows are estimated and compared to the carrying amount
of the asset to determine if an impairment has occurred. If the sum of the
expected future cash flows is less than the carrying amount of the asset, the
Partnership shall recognize an impairment loss in accordance with the Statement.
No provision was required due to the implementation of this Statement.
Because the determination of fair value is based upon projections of future
economic events such as property occupancy rates, rental rates, operating cost
inflation and market capitalization rates which are inherently subjective, the
amounts ultimately realized at disposition may differ materially from the net
carrying value as of December 31, 1996. The cash flows used to determine fair
value and net realizable value are based on good faith estimates and assumptions
developed by management. Unanticipated events and circumstances may occur and
some assumptions may not materialize; therefore actual results may vary from the
estimates and the variances may be material. The Partnership may provide
additional write-downs which could be material in subsequent years if real
estate markets or local economic conditions change.
INVESTMENT IN UNCONSOLIDATED JOINT VENTURES
The investment in unconsolidated joint ventures 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 ventures (equity method).
41
<PAGE>
Sierra Mira Mesa Partners
Notes to Consolidated Financial Statements
Page three
OTHER ASSETS
Deferred leasing costs represent costs incurred to lease properties and are
amortized over the life of the related lease.
Deferred loan costs represent costs incurred to obtain financing and are
amortized over the life of the related loan.
RENTAL INCOME AND RENT RECEIVABLE
Rental income is recognized on the straight-line method over the term of the
related operating lease in accordance with the provisions of Statement of
Financial Accounting Standards No. 13, "Accounting for Leases".
Unbilled rent receivable represents the difference between rent recognized on
the straight-line method and actual cash due.
2. DETAILS OF CERTAIN BALANCE SHEET ACCOUNTS
Additional information regarding certain balance sheet accounts, at December 31,
1996 and 1995, is as follows:
1996 1995
---------- ----------
Other assets:
Prepaid expenses ......................... $ 24,066 $ 7,314
Deferred loan costs, net of accumulated
amortization of $153,009 in 1996 and
$104,005 in 1995 ...................... 207,187 256,673
Deferred leasing costs, net of accumulated
amortization of $689,001 in 1996 and
$513,563 in 1995 ...................... 782,199 747,742
Tax impounds ............................. 28,936 23,099
Tenant improvement reserves .............. 76,727 10,032
---------- ----------
$1,119,115 $1,044,860
========== ==========
Accrued and other liabilities:
Accounts payable ......................... $ 56,711 $ 23,341
Security deposits ........................ 2,761 2,761
Accrued expenses ......................... 16,125 12,949
Interest payable ......................... 28,831 23,889
---------- ----------
$ 104,428 $ 62,940
========== ==========
3. GENERAL PARTNER AND 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.
An affiliate of S-P Properties, Inc. receives a management fee of 5.5% of the
gross rental income collected from the property. This fee amounted to $93,780,
$53,392 and $101,977, respectively, for the years ended December 31, 1996, 1995
and 1994. This fee was recorded as part of the operating expenses of the
property.
42
<PAGE>
Sierra Mira Mesa Partners
Notes to Consolidated Financial Statements
Page four
SMMP reimburses an affiliate of S-P Properties, Inc. for expenses incurred by
the affiliate for services provided to SMMP such as accounting, data processing
and similar services. The affiliate was reimbursed $101,142, $51,201 and
$45,149, respectively, for such services for the years ended December 31, 1996,
1995 and 1994. Additionally, SMMP reimbursed an affiliate for construction
supervision costs incurred by the affiliate. For the years ended December 31,
1996, 1995 and 1994, the affiliate received $48,205, $3,374 and $9,595,
respectively, for tenant improvements supervisory costs.
In consideration for services rendered with respect to initial leasing of SMMP's
property, an affiliate of S-P Properties, Inc. is paid initial leasing costs.
For the years ended December 31, 1996 and 1995, these fees amounted to $65,120
and $0, respectively, and were recorded as deferred leasing costs. The affiliate
also received $6,825 in 1994 for leasing supervision costs that were recorded as
part of the operating expenses of the property. No such costs were incurred in
1995 and 1996.
During 1993, SMMP loaned funds to a former affiliate of S-P Properties, Inc. in
the form of demand notes. Such liabilities were assumed by Finance Factors, Inc.
which acquired S-P Properties, Inc. as of December 30, 1994. In July 1995,
Finance Factors, Inc. merged with Bancor Real Estate Company, Inc. who has
assumed the note. The annual interest rate of the loans was variable at bank
prime plus 2-1/4% - 3% with a minimum rate of 9%. The loans totaled $2,360,000
at December 31, 1993 and were reduced to $1,687,787 at December 31, 1994. This
loan was amended effective January 1, 1995 fixing the interest rate at 10%. The
principal balance outstanding at December 31, 1996 is $1,687,787. Interest
receivable related to this note is $169,241 and $98,955 at December 31, 1996 and
1995, respectively.
During 1995, the Partnership made a short-term, non-interest bearing loan to
Sierra Pacific Development Fund II in the amount of $140,000. This loan was
repaid in 1996. In 1996, the Partnership received a short-term, non-interest
bearing loan from SPDFII in the amount of $155,590.
During 1995, an additional $2,801 was loaned to affiliates. This loan was repaid
in 1996. During 1996, the Partnership made a non-interest bearing, short-term
advance to an affiliate in the amount of $4,771. Repayment is expected in 1997.
During 1995 and 1996, the Partnership received non-interest bearing short-term
advances from SPPI'84 of $1,300,000 and $11,300, respectively.
4. INCOME-PRODUCING PROPERTIES
At December 31, 1996 and 1995 the total cost and accumulated depreciation of the
properties are as follows:
1996 1995
------------- -------------
Land $ 3,786,458 $ 2,480,940
Building and improvements 10,482,406 7,777,436
------------- -------------
Total 14,268,864 10,258,376
Accumulated depreciation (4,819,832) (3,198,509)
------------- -------------
Net $ 9,449,032 $ 7,059,867
============= =============
43
<PAGE>
Sierra Mira Mesa Partners
Notes to Consolidated Financial Statements
Page five
Future minimum base rental income, under the existing operating leases for the
Sierra Mira Mesa and Sorrento I properties, to be recognized on a straight-line
basis and amounts to be received on a cash basis are as follows:
Year Ending Straight-line Cash
December 31, Basis Basis
-------------- --------------
1997 $ 1,877,171 $ 1,791,010
1998 1,820,361 1,870,272
1999 1,755,058 1,898,605
2000 1,744,767 1,984,598
2001 1,744,767 2,075,968
Thereafter 2,082,836 2,591,325
-------------- --------------
Total $ 11,024,960 $ 12,211,778
============== ==============
The Partnership relied on two tenants for 91% of 1996 rental income; 81% is from
a state governmental agency associated with workers compensation insurance and
10% is from a tenant in the communications sector.
5. INVESTMENT IN UNCONSOLIDATED JOINT VENTURES
SMMP holds the following investments accounted for under the equity method at
December 31, 1996:
o a 26.92% equity interest in Sorrento II Partners ("SIIP"), a joint venture
formed on October 1, 1993 with Sierra Pacific Institutional Properties V, an
affiliate, to develop and operate Sierra Sorrento II, an industrial building
located in San Diego, California. SMMP's investment in SIIP as of December
31, 1996 and 1995 is $1,078,963 and $1,286,896, respectively. SMMP's share of
the net loss of SIIP for the three years ended December 31, 1996, 1995, and
1994 is $61,933, $51,897 and $77,364, respectively;
o an 18.87% equity interest in Sierra Creekside Partners ("SCP"), a joint
venture formed on February 1, 1994 with Sierra Pacific Development Fund, an
affiliate, to develop and operate Sierra Creekside, a commercial office
building in San Ramon, California. SMMP's investment in SCP as of December
31, 1996 and 1995 is $(102,995) and $476,836, respectively. SMMP's share of
the net loss of SCP for the two years ended December 31, 1996 and December
31, 1995 and the eleven months ended December 31, 1994 is $70,232, $96,868
and $83,254, respectively;
o a 37.74% equity interest in Sierra Vista Partners ("SVP"), a joint venture
formed on February 1, 1994 with Sierra Pacific Development Fund III, an
affiliate, to develop and operate Sierra Vista, an industrial building in
Anaheim, California. SMMP's investment in SVP as of December 31, 1996 and
1995 is $1,797,208 and $1,271,308, respectively. SMMP's share of the net loss
of SVP for the two years ended December 31, 1996 and December 31, 1995 and
the eleven months ended December 31, 1994 is $222,600, $173,375 and $164,748,
respectively.
44
<PAGE>
Sierra Mira Mesa Partners
Notes to Consolidated Financial Statements
Page six
The following is a summary of aggregated financial information for all
investments owned by SMMP which are accounted for under the equity method:
CONDENSED BALANCE SHEETS
December 31, December 31,
1996 1995
----------- -----------
ASSETS
Cash and cash equivalents ......................... $ 159,369 $ 915,348
Restricted certificate of deposit ................. 0 92,782
Rent receivable ................................... 781,284 559,063
Due from affiliate ................................ 50,681 0
Income-producing property,
net of accumulated depreciation ................. 15,043,645 17,673,355
Other assets ...................................... 732,144 831,769
----------- -----------
Total Assets ...................................... $16,767,123 $20,072,317
=========== ===========
LIABILITIES AND GENERAL PARTNERS' EQUITY
Accrued and other liabilities ..................... $ 648,328 $ 519,998
Note payable ...................................... 5,213,615 8,032,405
----------- -----------
Total Liabilities ................................. 5,861,943 8,552,403
----------- -----------
Ground lessors' equity in income-producing property 3,000,000 3,000,000
----------- -----------
General Partners' equity .......................... 7,905,180 8,519,914
----------- -----------
Total Liabilities and General Partners' equity .... $16,767,123 $20,072,317
=========== ===========
45
<PAGE>
Sierra Mira Mesa Partners
Notes to Consolidated Financial Statements
Page seven
CONDENSED STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31,
1996 1995 1994
----------- ----------- -----------
Revenues:
Rental income ............... $ 2,474,335 $ 2,124,077 $ 2,036,925
Other income ................ 13,968 6,915 9,111
----------- ----------- -----------
Total revenues ...... 2,488,303 2,130,992 2,046,036
----------- ----------- -----------
Expenses:
Operating expenses .......... 1,788,643 2,009,862 2,213,433
Depreciation and amortization 1,461,571 1,438,310 1,303,173
Interest .................... 427,967 691,407 587,893
----------- ----------- -----------
Total expenses ...... 3,678,181 4,139,579 4,104,499
----------- ----------- -----------
Net Loss ....................... $(1,189,878) $(2,008,587) $(2,058,463)
=========== =========== ===========
6. NOTES PAYABLE
1996 1995
---------- ----------
Mortgage note payable, due in
monthly installments with interest at 7.74%,
collateralized by the real property
known as Sierra Mira Mesa.
This note matures in October 2010........... $5,262,512 $5,467,368
Mortgage note payable, due in monthly
installments with interest at bank
prime plus 2-1/2%, collateralized
by the real property known as
Sorrento I. This note
was retired in 1996......................... 0 2,782,863
Mortgage note payable to affiliate,
due in monthly installments with
interest at the one year Treasury
rate plus 375 basis points,
collateralized by the real
property known as Sorrento I.
This note matures in May 2016............... 750,000 0
---------- ----------
$6,012,512 $8,250,231
========== ==========
CGS Real Estate Company, Inc. ("CGS"), an affiliate of the General Partner,
acquired the Sorrento I mortgage note, due in July 1998, and security documents
from the bank in May 1996. In connection with the purchase of the bank note and
security documents by CGS, the Partnership made a principal payment to the bank
of $750,000 and entered into a $750,000 note agreement with CGS (the "CGS
Agreement"). The CGS Agreement, collaterized by real and personal property,
calls for monthly interest payments through December 1996 and monthly principal
and interest payments thereafter until maturity on May 31, 2016. The interest
rate is fixed at 9.34% per annum for the first year of the note and will
thereafter be the one year Treasury rate plus 375 basis points.
46
<PAGE>
Sierra Mira Mesa Partners
Notes to Consolidated Financial Statements
Page eight
At any time upon 120 days written notice to CGS, the Partnership may fully
discharge the note by the payment of an amount equal to $750,000 less the
aggregate amount of principal paid under the note between the date of the CGS
Agreement and the date of payment plus any interest due.
The excess of the net carrying amount of the balance due under the bank note
agreement, net of unamortized deferred loan fees, over the balance due under the
CGS Agreement was recognized as an extraordinary item in the current year of
$1,200,381.
Annual maturities under the Sierra Mira Mesa note and the CGS Agreement as of
December 31, 1996 are: $235,523 in 1997; $254,660 in 1998; $275,356 in 1999;
$297,737 in 2000; $321,943 in 2001; and $4,627,293 thereafter.
7. GENERAL PARTNERS' EQUITY
Accrual basis profit and losses resulting from operations of the Partnership are
allocated 51% to Sierra Pacific Development Fund II and 49% to Sierra Pacific
Pension Investors '84.
47
<PAGE>
SORRENTO I PARTNERS
(A CALIFORNIA GENERAL PARTNERSHIP)
AUDITED FINANCIAL STATEMENTS
DECEMBER 31, 1995
48
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Partners of
Sierra Sorrento I Partners
We have audited the accompanying balance sheets of Sorrento I Partners, a
California general partnership, (the "Partnership") as of December 31, 1995 and
1994, and the related statements of operations, changes in partners' equity
(deficit) and cash flows for each of the two years ended December 31, 1995 and
the period April 1, 1993 (date of inception) to December 31, 1993. These
financial statements are the responsibility of the Partnership's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Sorrento I Partners as of
December 31, 1995 and 1994, and the results of its operations and its cash flows
for each of the two years ended December 31, 1995 and the period April 1, 1993
(date of inception) to December 31, 1993 in conformity with generally accepted
accounting principles.
DELOITTE & TOUCHE LLP
Los Angeles, California
February 19, 1996
49
<PAGE>
SORRENTO I PARTNERS
(A GENERAL PARTNERSHIP)
BALANCE SHEETS
DECEMBER 31, 1995 AND 1994
- --------------------------------------------------------------------------------
December 31, December 31,
1995 1994
----------- -----------
ASSETS
Cash and cash equivalents ...................... $ 44,975 $ 9,631
Receivables:
Billed rent (Notes 1 and 4) ................... 0 5,880
Income-producing property -
net of accumulated depreciation
of $1,057,537 in 1995 and
$948,204 in 1994 (Notes 1, 4 and 5) ........... 2,218,597 2,333,966
Other assets (Notes 1 and 2) ................... 63,751 76,622
----------- -----------
Total Assets ................................... $ 2,327,323 $ 2,426,099
=========== ===========
LIABILITIES AND GENERAL PARTNERS'
EQUITY (DEFICIT)
Accrued and other liabilities (Note 2) ......... $ 28,904 $ 40,202
Note payable (Note 5) .......................... 2,782,863 2,731,010
----------- -----------
Total Liabilities .............................. 2,811,767 2,771,212
----------- -----------
Geaneral Partners' equity
(deficit) (Notes 1 and 6) ..................... (484,444) (345,113)
----------- -----------
Total Liabilities and General
Partners' equity (deficit) .................... $ 2,327,323 $ 2,426,099
=========== ===========
SEE ACCOMPANYING NOTES
50
<PAGE>
SORRENTO I PARTNERS
(A GENERAL PARTNERSHIP)
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994
AND THE PERIOD APRIL 1, 1993 (DATE OF INCEPTION) TO
DECEMBER 31, 1993
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1995 1994 1993
----------------- ------------------- ----------------
<S> <C> <C> <C> <C>
Revenues:
Rental income (Note 1) $ 0 $ 351,691 $ 235,288
Interest income 0 0 1,441
----------------- ------------------- ----------------
Total revenues 0 351,691 236,729
----------------- ------------------- ----------------
Expenses:
Operating expenses:
Depreciation and amortization 136,089 154,876 121,649
Property taxes and insurance 39,208 43,250 43,435
Administrative fees (Note 3) 40,354 51,575 40,424
Maintenance and repairs 31,500 47,420 42,085
Management fees (Note 3) 0 21,101 14,117
Utilities 16,175 2,443 6,614
Legal and accounting 26,090 37,425 9,160
General and administrative 29,041 8,322 1,454
Salaries and payroll taxes 1,561 9,663 9,933
Renting expenses 0 6,380 404
Other operating expenses 8,980 6,094 6,414
----------------- ------------------- ----------------
Total operating expenses 328,998 388,549 295,689
Interest 310,575 264,274 181,885
----------------- ------------------- ----------------
Total costs and expenses 639,573 652,823 477,574
----------------- ------------------- ----------------
NET LOSS $ (639,573) $ (301,132) $ (240,845)
================= =================== ================
</TABLE>
SEE ACCOMPANYING NOTES
51
<PAGE>
SORRENTO I PARTNERS
(A GENERAL PARTNERSHIP)
STATEMENTS OF CHANGES IN GENERAL PARTNERS' EQUITY (DEFICIT)
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994
AND THE PERIOD APRIL 1, 1993 (DATE OF INCEPTION) TO
DECEMBER 31, 1993
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
General Partners
--------------------------------------------------------
Sierra Pacific Sierra
Development Mira Mesa
Fund III Partners Total
----------------- ------------------- ----------------
<S> <C> <C> <C> <C>
Contributions at inception, April 1, 1993 $ (246,972) $ 383,836 $ 136,864
Net loss (108,308) (132,537) (240,845)
----------------- ------------------- ----------------
General Partners' equity (deficit) - December 31, 1993 (355,280) 251,299 (103,981)
Net loss (135,419) (165,713) (301,132)
Contributions 0 60,000 60,000
----------------- ------------------- ----------------
General Partners' equity (deficit) - December 31, 1994 (490,699) 145,586 (345,113)
Net loss (264,847) (374,726) (639,573)
Contributions 0 500,242 500,242
----------------- ------------------- ----------------
General Partners' equity (deficit) - December 31, 1995 $ (755,546) $ 271,102 $ (484,444)
================= =================== ================
</TABLE>
SEE ACCOMPANYING NOTES
52
<PAGE>
SORRENTO I PARTNERS
(A GENERAL PARTNERSHIP)
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994
AND THE PERIOD APRIL 1, 1993 (DATE OF INCEPTION) TO
DECEMBER 31, 1993
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1995 1994 1993
----------------- ------------------- ----------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (639,573) $ (301,132) $ (240,845)
Adjustments to reconcile net income
to cash used in operating activities:
Depreciation and amortization 136,089 154,876 121,649
Decrease (increase) in rent receivable 5,880 (1,645) (4,235)
Increase in other assets (7,849) (2,538) (15,661)
Increase (decrease) in accrued and other liabilities 74,411 74,913 (16,148)
----------------- ------------------- ----------------
Net cash used in operating activities (431,042) (75,526) (155,240)
----------------- ------------------- ----------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Payments for property additions 0 0 (6,037)
----------------- ------------------- ----------------
Net cash used in investing activities 0 0 (6,037)
----------------- ------------------- ----------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Contributions by the General Partners 500,242 60,000 482,836
Principal payments on note payable (33,856) (59,275) (237,127)
----------------- ------------------- ----------------
Net cash provided by financing activities 466,386 725 245,709
----------------- ------------------- ----------------
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS 35,344 (74,801) 84,432
CASH AND CASH EQUIVALENTS - Beginning of period 9,631 84,432 0
----------------- ------------------- ----------------
CASH AND CASH EQUIVALENTS - End of period $ 44,975 $ 9,631 $ 84,432
================= =================== ================
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash paid during the period for interest $ 223,811 $ 197,852 $ 204,710
================= =================== ================
</TABLE>
During 1995 and 1994, accrued interest was added to the note payable principal
balance in the amounts of $85,709 and $41,389, respectively. These are noncash
transactions not reflected in the above statement of cash flows.
During 1993, Sierra Pacific Development Fund III contributed the Sorrento I
Property and all related encumbrances to the newly formed joint venture of
Sorrento I Partners. The fair value of the property represented a 44.97%
interest. The net book value of the property transferred was a negative
$345,972. This is a noncash transaction not reflected in the above statement of
cash flows.
SEE ACCOMPANYING NOTES
53
<PAGE>
SORRENTO I PARTNERS
(A GENERAL PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION
Sorrento I Partners ("SIP") was formed on April 1, 1993 between Sierra Mira Mesa
Partners ("SMMP") and Sierra Pacific Development Fund III ("SPDFIII") to develop
and operate the real property known as Sorrento I, an industrial building,
located in San Diego, California. The property contains 43,100 square feet and
is located adjacent to Sierra Mira Mesa office building which is owned and
operated by Sierra Mira Mesa Partners. In 1993, SMMP contributed cash of
$383,836 for a 55.03% interest and SPDFIII contributed the property and all
associated encumbrances for a 44.97% interest in the Partnership. The
partnership agreement calls for a recalculation of the percentage ownership
interest each year on January 1st to account for the portion of Partner's
aggregate capital contributions since inception through the prior year. During
1994, SMMP contributed an additional $60,000, increasing their percentage
interest to 58.59% as of December 31, 1995 and decreasing SPDFIII's interest to
41.41%. During 1995, SMMP contributed $500,242 increasing their percentage to
75.06% and decreasing SPDFIII's interest to 24.94% effective January 1, 1996.
S-P Properties, Inc. is the General Partner of SPDFIII and of SMMP's general
partners, Sierra Pacific Development Fund II and Sierra Pacific Pension
Investors '84. S-P Properties, Inc. was owned by Finance Factors, Inc., a
subsidiary of the national real estate company, CGS Real Estate Company, Inc. In
July 1995, Finance Factors, Inc. merged with Bancor Real Estate Company, Inc.,
another subsidiary of CGS Real Estate Company, Inc.
The building's sole tenant in 1994 occupied 100% of the space and vacated in
September 1994. The building was vacant throughout 1995; however, the property
has been leased effective February 1996 to a single tenant for the term from
March 1996 through April 2003. The principal business of the new tenant is
research and development in the communications sector.
BASIS OF FINANCIAL STATEMENTS
The Partnership maintains its books and prepares its financial statements in
accordance with generally accepted accounting principles. However, the
Partnership prepares its tax returns on the accrual basis of accounting as
defined by the Internal Revenue Code with adjustments to reconcile book and
taxable income (loss) for differences in the treatment of certain income and
expense items. The accompanying financial statements do not reflect any
provision for federal or state income taxes since such taxes are the obligation
of the individual partners.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reported period. Actual
results could differ from those estimates.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents include highly liquid, short-term investments with
original maturities of three months or less.
54
<PAGE>
Sorrento I Partners
Notes to Financial Statements
Page two
INCOME-PRODUCING PROPERTIES
Property and tenant improvements are carried at cost and depreciated on the
straight-line method over the estimated lives of the related assets, ranging
from seven to thirty years. Tenant improvements incurred at the initial leasing
of the properties are depreciated over ten years and tenant improvements
incurred at the re-leasing of the properties are depreciated over the life of
the related lease.
Expenditures for repairs and maintenance are charged against income as incurred.
Improvements and major renewals are capitalized. Costs and the related
accumulated depreciation of assets sold or retired are removed from the accounts
in the year of disposal or when fully depreciated and any resulting gain or loss
is reflected in income or deferred income as appropriate.
The Partnership employs a systematic approach in determining whether the value
of income-producing property has been impaired. Prior to 1995, a provision for
loss on a property was established if the appraised value of the property
declined below its book value due to what the General Partner believed to be an
other than temporary condition. A complete appraisal was performed on the
property as of December 31 each year. A complete appraisal was performed on the
property as of December 31, 1994 that indicated an appraised value in excess of
the historical cost basis of the property.
Effective January 1, 1995, the Partnership implemented Statement of Financial
Accounting Standards No. 121, "Accounting for Impairment of Long-Lived Assets
and for Long-Lived Assets to be Disposed Of" (the "Statement"). The Partnership
regularly evaluates long-lived assets for impairment whenever events or changes
in circumstances indicate that the carrying amount of the asset may not be
recoverable. Future cash flows are estimated and compared to the carrying amount
of the asset to determine if an impairment has occurred. If the sum of the
expected future cash flows is less than the carrying amount of the asset, the
Partnership shall recognize an impairment loss in accordance with the Statement.
No provision was required in 1995 due to the implementation of this Statement.
Because the determination of fair value is based upon projections of future
economic events such as property occupancy rates, rental rates, operating cost
inflation and market capitalization rates which are inherently subjective, the
amounts ultimately realized at disposition may differ materially from the net
carrying value as of December 31, 1995. The cash flows used to determine fair
value and net realizable value are based on good faith estimates and assumptions
developed by management. Unanticipated events and circumstances may occur and
some assumptions may not materialize; therefore actual results may vary from the
estimates and the variances may be material. The Partnership may provide
additional write-downs which could be material in subsequent years if real
estate markets or local economic conditions change.
OTHER ASSETS
Deferred loan costs represent costs incurred to obtain financing and are
amortized over the life of the related loan.
RENTAL INCOME AND RENT RECEIVABLE
Rental income is recognized on the straight-line method over the term of the
related operating lease in accordance with the provisions of Statement of
Financial Accounting Standards No. 13, "Accounting for Leases".
Billed rent receivable represents rent due but not yet received.
55
<PAGE>
Sorrento I Partners
Notes to Financial Statements
Page three
2. DETAILS OF CERTAIN BALANCE SHEET ACCOUNTS:
Additional information regarding certain balance sheet accounts, at December 31,
1995 and 1994 is as follows:
1995 1994
------- -------
Other assets:
Prepaid expenses ................................... $ 2,600 $ 6,091
Deferred loan costs, net of accumulated
amortization of $125,175 in 1995 and
$104,456 in 1994 ................................. 53,664 70,473
Tax impounds ....................................... 7,429 0
Deposits ........................................... 58 58
------- -------
$63,751 $76,622
======= =======
Accrued liabilities:
Accounts payable ................................... $ 2,815 $ 0
Accrued expenses ................................... 0 15,168
Interest payable ................................... 26,089 25,034
------- -------
$28,904 $40,202
======= =======
3. GENERAL AND RELATED PARTY TRANSACTIONS
In 1994, all of the common stock of S-P Properties, Inc. was purchased by
Finance Factors, Inc. from Carlsberg Management Company ("CMC"). CMC continued
to manage the affairs of the Partnership through March 31, 1995.
An affiliate of S-P Properties, Inc. receives a management fee of 6% of the
gross rental income collected from the property. This fee amounted to $21,101
and $14,117, respectively, for the year ended December 31, 1994 and for the
period ended December 31, 1993. This fee was recorded as part of the operating
expenses of the property. No such costs were incurred in 1995.
SIP reimburses an affiliate of S-P Properties, Inc. for expenses incurred by the
affiliate for services provided to SIP such as accounting, data processing and
similar services. The affiliate was reimbursed $31,001, $51,575 and $40,424,
respectively, for such services for the years ended December 31, 1995 and 1994
and for the period ended December 31, 1993. Additionally, SIP reimbursed an
affiliate for construction supervision costs incurred by the affiliate. For the
year ended December 31, 1994 and for the period ended December 31, 1993, the
affiliate received $1,188 and $315, respectively, for tenant improvements
supervisory costs that were recorded as part of the operating expenses of the
property. No such costs were incurred in 1995.
In consideration for services rendered with respect to initial leasing of SIP's
property, an affiliate of S-P Properties, Inc. is paid initial leasing costs.
For the year ended December 31, 1994 and for the period ended December 31, 1993,
these fees amounted to $1,261, and $8,844, respectively, and were recorded as
deferred leasing costs. The affiliate also received in 1994 and 1993, $6,201,
and $366, respectively, for leasing supervision costs that were recorded as part
of the operating expenses of the property. No such costs were incurred in 1995.
56
<PAGE>
Sorrento I Partners
Notes to Financial Statements
Page four
4. INCOME-PRODUCING PROPERTIES
At December 31, 1995 and 1994 the total cost and accumulated depreciation of the
property is as follows:
1995 1994
------------------ ------------------
Land $ 1,305,518 $ 1,305,518
Building and improvements 1,970,616 1,976,652
------------------ ------------------
Total 3,276,134 3,282,170
Accumulated depreciation (1,057,537) (948,204)
------------------ ------------------
Net $ 2,218,597 $ 2,333,966
================== ==================
The Property was vacant at December 31, 1995. On February 19, 1996, management
of the Property entered into a lease for all of the square footage of Sierra
Sorrento I. This lease, which provides for early occupancy on March 1, 1996,
commences May 1, 1996 and expires April 30, 2003. The base rent called for under
this lease is $21,891 per month for the first 24 months, which shall be
increased on the first day of the 25th, 49th and 73rd months by 6% over the base
rent paid per month for the previous 24 month period. This lease contains an
option to extend for an additional five years.
5. NOTE PAYABLE
Real and personal property are collateral for the non-recourse note payable. The
annual interest rate of the note is variable at bank prime plus 2-1/2% with a
minimum rate of 9% and maximum rate of 15-1/2%. The original maturity of the
note is July 1998. At December 31, 1995, the interest rate was 11.25%. This loan
was modified effective May 1, 1995 to include a discounted payoff option. This
option allows for a one time option of paying off the note for $1,500,000
between April and October of 1996 provided there have been no events of default.
If the payoff option is not exercised, the annual maturities of the note payable
as of December 31, 1995 are: $31,348 in 1996; $35,062 in 1997; and $2,716,453 in
1998.
In the opinion of management, the carrying value of the note payable at the
current interest rate approximates fair value at December 31, 1995 based on the
indexing of the note's interest rate to market rates.
57
<PAGE>
Sorrento I Partners
Notes to Financial Statements
Page five
6. GENERAL PARTNERS' EQUITY (DEFICIT)
In accordance with the partnership agreement, accrual basis losses resulting
from operations of the Partnership are first allocated to the General Partners
in proportion to the relative amounts of net cumulative Partnership profits
until such allocated losses equal the previously allocated net cumulative
Partnership profits. Then, losses are allocated in proportion to the Partners'
percentage interests as computed January 1st of the year in which the loss
occurred.
Likewise, accrual basis profits resulting from operations of the Partnership are
first allocated to the General Partners in proportion to the relative amounts of
net cumulative Partnership losses until such allocation of profits equals the
previously allocated net cumulative Partnership losses. Then, profits are
allocated in proportion to the distributions made to the Partners during the
year.
Upon dissolution of the Partnership, any proceeds should be distributed first to
Sierra Mira Mesa as a return of capital in proportion to its aggregate
unreturned capital contributed and then to Sierra Pacific Development Fund III
in proportion to its aggregate unreturned capital contributed. Any remaining
proceeds shall be first distributed pro rata in proportion to the partners'
positive balances in their capital accounts and then in accordance with their
percentage interest in the year of dissolution.
58
<PAGE>
EXECUTIVE OFFICERS OF THE GENERAL PARTNER
The Executive Officers of S-P Properties, Inc., the General Partner are as
follows:
Name Position
- ---- --------
Thomas N. Thurber President and Director
Dawson L. Davenport Vice President
Steven M. Speier Secretary/Treasurer and Director
William J. Carden Assistant Secretary/Treasurer and Director
The 10-K Report sent to the Securities and Exchange Commission contains
additional information on the Partnership's operations and is available to
Limited Partners upon request.
59
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE FINANCIAL DATA SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM SIERRA PACIFIC PENSION INVESTORS '84 DECEMBER 31, 1996 FINANCIAL STATEMENTS
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 42,060
<SECURITIES> 0
<RECEIVABLES> 251,451
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1,575,702
<PP&E> 4,803,698
<DEPRECIATION> 3,374,933
<TOTAL-ASSETS> 9,510,493
<CURRENT-LIABILITIES> 96,351
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 9,414,142
<TOTAL-LIABILITY-AND-EQUITY> 9,510,493
<SALES> 475,900
<TOTAL-REVENUES> 668,706
<CGS> 0
<TOTAL-COSTS> 390,022
<OTHER-EXPENSES> 236,624
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 197,609
<INCOME-TAX> 0
<INCOME-CONTINUING> (137,422)
<DISCONTINUED> 0
<EXTRAORDINARY> 335,031
<CHANGES> 0
<NET-INCOME> 197,609
<EPS-PRIMARY> 2.57
<EPS-DILUTED> 2.57
</TABLE>
