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, 1999 Commission file number : 0-14269
SIERRA PACIFIC PENSION INVESTORS `84
(A CALIFORNIA LIMITED PARTNERSHIP)
--------------------------------
State of California 33-0043952
- ------------------------------- ---------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification Number)
incorporation or organization)
5850 San Felipe, Suite 450
Houston, Texas 77057
- ---------------------------------------- ------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number,
including area code: (713) 706-6271
-------------------------------------------------
5850 San Felipe, Suite 500
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, 1999
is incorporated by reference into Parts II and III
<PAGE>
PART I
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 82,520
(A) SOLD DECEMBER, 1994.
On March 7, 1997 Sierra Valencia LLC ("SVLLC") was formed with the Partnership
being the sole member. This company was formed solely to engage in the following
activities: a) to acquire from Sierra Pacific Pension Investors `84 the property
known as Sierra Valencia, b) to own, hold, sell, assign, transfer, operate,
lease, mortgage, pledge and otherwise deal with the Property, c) to exercise all
powers enumerated in the Delaware Limited Liability Company Act necessary or
convenient to conduct, promotion or attainment of the business or purposes
otherwise set forth. The Sierra Valencia property was transferred at no cost
from the Partnership to SVLLC.
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. In 1999, the Partnership received a principal paydown of $943,413
and recognized an additional $83,315 of the deferred gain.
In 1985 Sierra Mira Mesa Partners ("SMMP"), a California general partnership,
was formed between the Partnership and Sierra Pacific Development Fund II
("SPDFII"). SMMP was initially created to develop and operate the office
building known as Sierra Mira Mesa in San Diego, California. The Partnership's
initial ownership interest in SMMP was 49%; the remaining 51% was owned by
SPDFII. Effective December 31, 1996, the general partners amended the
partnership agreement to allow for adjustments in the sharing ratio each year
based upon the relative net contributions and distributions since inception of
each general partner. In conjunction with this amendment, the general partners
forgave the December 31, 1996 balances of advances due from SMMP and included
these amounts as adjustments to their respective equity accounts. As a result,
the sharing ratio in effect for 1997, 1998 and 1999 was 54.42%, 66.26% and
66.99%, respectively, for the Partnership and 45.58%, 33.74% and 33.01%,
respectively, for SPDFII. On January 1, 2000, the sharing ratio will be
increased to 69.83% for the Partnership and decreased to 30.17% for SPDFII to
reflect the 1999 contributions and distributions.
SMMP also holds an 88.12% interest in Sorrento I Partners (a California general
partnership with Sierra Pacific Development Fund III formed in 1993), a 35.10%
interest in Sorrento II Partners (a California general partnership with Sierra
Pacific Institutional Properties V formed in 1993), a 6.55% interest in Sierra
Creekside Partners (a California general partnership with Sierra Pacific
Development Fund formed in 1994), and a 33.32% 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 are included in the
Annual Report to the Limited Partners attached as an Exhibit.
(b.) NARRATIVE DESCRIPTION OF BUSINESS. During 1999, the Partnership owned and
operated one real estate project in Tucson, Arizona as described above.
Success of the project is dependent upon timely payment of rent by three
tenants who accounted for approximately 51% of the rental income of the
Partnership for the year ended December 31, 1999.
2
<PAGE>
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.
(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 1999 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, 1999, the Partnership had paid
cash distributions of $21.43 for each $250 unit investment and remaining
partners' equity was computed at $120.61 per unit. Thus, if the Partnership were
to be liquidated at the end of 1999 at book value, each $250 investment would
have returned a total of $142.04.
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 82,520
rentable square feet and is 86% occupied at December 31, 1999. The
weighted-average effective annual rent per square foot at December 31, 1999 is
$7.19. The principal businesses carried on from the building are varied and
include healthcare sales and administration, pistachio nut marketing and
distribution, communication services, optics research and development, and
telecommunications manufacturing.
The Partnership also owns a 66.99% 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 59.03% interest in an industrial
property known as Sorrento I in San Diego, California. 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 seven tenants occupy more than ten percent of the rentable
square footage of the building as follows:
<TABLE>
<CAPTION>
Square Percent of Effective Effective Percent of
Feet Rentable Rent Per Rent Per Gross
Tenants Occupied Square Feet Square Foot Annum Annual Rent Expiration of Lease
- ------------------------------ ---------- ------------- ------------- ------------- ------------- --------------------
<S> <C> <C> <C> <C> <C> <C>
Innovative Lasers Corporation 14,017 17% $ 7.24 $ 101,451 20% October 2001
Pistachio Corp. of Arizona, Inc. 10,648 13% 5.10 54,305 11% July 2000
Excel Technologies 10,111 12% 4.70 47,529 9% December 2003
Lucent Technologies 9,721 12% 9.69 94,188 18% May 2001
Wick Communications Co. 10,021 12% 5.23 52,364 10% September 2001
SHC of Arizona, L.C. 13,586 16% 9.16 124,471 24% June 2002
Tenant Occupying <10% sq ft 3,216 4% 11.89 38,225 8% September 2004
---------- ------------- ------------- ------------- -------------
Total Rented Space 71,320 86% $ 7.19 $ 512,533 100%
Vacancies 11,200 14%
---------- -------------
Total Rentable Space 82,520 100%
========== =============
</TABLE>
SUMMARY OF LEASES BY EXPIRATION
The leases on the Property are scheduled to expire over the next five years as
indicated in the table below.
<TABLE>
<CAPTION>
Year of expiration 2000 2001 2002 2003 2004 Totals
<S> <C> <C> <C> <C> <C> <C>
Number of tenants 1 3 1 1 1 7
Percent of total tenants 14% 44% 14% 14% 14% 100%
Total area (square feet) 10,648 33,759 13,586 10,111 3,216 71,320
Annual rent $ 54,305 $ 248,003 $ 124,471 $ 47,529 $ 38,225 $ 512,533
Percent gross annual rent 11% 48% 24% 9% 8% 100%
</TABLE>
DEPRECIABLE PROPERTY Reference is made to Schedule III of the Form 10-K.
REAL ESTATE TAXES The real estate tax obligation for 1999 is approximately
4.9% of assessed value. The annual real estate taxes for
1999 are $112,647.
INSURANCE In the opinion of management, the property is adequately
covered by insurance.
ENCUMBRANCES On March 27, 1997, Sierra Valencia LLC entered into a
loan agreement with First Union Bank of North Carolina
in the amount of $1,404,000. This loan, which is secured
by a first lien on the Sierra Valencia property, bears
interest at 9.25% per annum and calls for monthly
principal and interest payments of $12,024 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. As of
December 31, 1999 the loan balance was $1,366,244.
4
<PAGE>
On April 15, 1997, the Partnership entered into a loan
agreement with IDM Participating Income Company II, an
affiliate of the general partner, in the amount of
$200,000. This loan is secured by a second lien on the
Sierra Valencia property. This note bears a variable
interest rate determined by the Federal Reserve of San
Francisco's discount rate prevailing on the 25th day of
the month preceding the payment due date plus a 3%
premium. The interest rate can be adjusted the last day
of March, June, September and December of each year
until note agreement is fulfilled. The minimum rate will
be 12.12%. The maximum rate will be 15.15%. The current
interest rate paid is 12.12%. Monthly payment of $6,659,
consisting of both interest and principle, commenced on
May 15, 1997 and shall continue until April 15, 2000,
when the indebtedness is paid in full. As of December
31, 1999, the loan balance was $32,124.
SIERRA MIRA MESA - SAN DIEGO, CALIFORNIA
Sierra Mira Mesa office building consists of 89,560 rentable square feet and is
100% occupied at December 31, 1999. The principal business carried on from the
building is insurance. The average effective annual rent per square foot at
December 31, 1999 is $19.94.
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 lease follow:
<TABLE>
<CAPTION>
Square Percent of Effective Effective Percent of
Feet Rentable Rent Per Rent Per Gross
Tenants Occupied Square Feet Square Foot Annum Annual Rent Expiration of Lease
- ----------------------------- ----------- ------------- ------------- ------------- ------------- --------------------
<S> <C> <C> <C> <C> <C> <C>
State Comp. Insurance Fund 74,567 83% $ 19.79 $1,475,948 83% February 2003
Tenants Occupying <10% sq ft 14,888 17% 20.64 307,355 17% Various
----------- ------------- ------------- ------------- -------------
Total Rented Space 89,455 100% $ 19.94 $1,783,303 100%
Vacancies 105 0%
----------- -------------
Total Rentable Space 89,560 100%
=========== =============
</TABLE>
SUMMARY OF LEASES BY EXPIRATION
The Property's five tenants have leases scheduled to expire over the next nine
years as scheduled below.
<TABLE>
<CAPTION>
Year of expiration 2000 2001 2002 2003 2004 2005 2006 2007 2008 Totals
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Number of tenants 1 1 0 1 1 0 0 0 1 5
Percent of tot. tenants 20% 20% 0% 20% 20% 0% 0% 0% 20% 100%
Tot. area (square feet) 2,651 762 0 74,567 4,762 0 0 0 6,713 89,455
Annual rent $ 40,607 $12,000 $ 0 $1,475,948 $ 100,002 $ 0 $ 0 $ 0 $154,746 $1,783,303
Per. gross annual rent 2% 1% 0% 83% 5% 0% 0% 0% 9% 100%
</TABLE>
5
<PAGE>
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 $ 6,294,326 $ 529,732 $ 9,304,998
Accumulated Depreciation (2,612,091) (210,492) (2,822,583)
------------------- -------------------- ------------------ -------------------
Net Carrying Value $ 2,480,940 $ 3,682,235 $ 319,240 $ 6,482,415
=================== ==================== ================== ===================
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 1999 is approximately
1.12% of the assessed value or $72,469.
INSURANCE In the opinion of management, the property is adequately
covered by insurance.
ENCUMBRANCES The property is encumbered by a mortgage lien in favor
of Lincoln National Life Insurance Company with a
principal balance of $4,543,984 at December 31, 1999.
The mortgage bears interest at 7.74%. Monthly principal
and interest payments of $51,739 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.
SORRENTO I - SAN DIEGO, CALIFORNIA
Sorrento I is an industrial building with 43,100 square feet of rentable space.
One tenant began leasing 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,
1999 is $6.58. The principal business of the 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 $ 1,347,961 $ 329,299 $ 2,982,778
Accumulated Depreciation (579,615) (162,182) (741,797)
------------------- -------------------- ------------------ -------------------
Net Carrying Value $ 1,305,518 $ 768,346 $ 167,117 $ 2,240,981
=================== ==================== ================== ===================
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 1999 is approximately
1.11% of the assessed value or $29,672.
6
<PAGE>
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.
A modification agreement was entered into on September
30, 1997. The interest rate remained fixed at 9.34%
through October 1998, at which time the rate converted
to the one-year treasury rate plus 375 basis points. The
note was amortized over a 210-month term and payments
were $6,048 per month, principal and interest inclusive
until maturity in March 2015.
In August 1999, the CGS note with an outstanding balance
of $607,693 was paid. On the same date, SIP entered into
a new loan agreement with Finova Realty Capital, Inc. in
the amount of $1,637,500. This loan, which is secured by
the Sorrento I property, bears interest at 8.75% per
annum. Monthly payments of $12,882, consisting of both
principal and interest, are due until maturity in
September 2009. The note balance as of December 31, 1999
was $1,635,054.
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, 1999, the number of security holders is as follows:
NUMBER NUMBER OF
OF UNITS RECORD HOLDERS
---------------- --------------
Limited Partners 77,000 2,742
================ ==============
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 $.65 per limited partnership unit in
1997. No distributions were made in 1999 or 1998. 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 include 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 Consolidated Financial Statements and Notes
thereto incorporated by reference to the Annual Report to the Limited Partners
attached as an Exhibit. As of December 31, 1999, the Partnership owns Sierra
Valencia, an industial office building in Tucson, Arizona. The Partnership also
owns a 66.99% interest in Sierra Mira Mesa Partners ("SMMP"). SMMP owns an
office building - Sierra Mira Mesa in San Diego, California.
Results of Operations:
COMPARISON OF YEAR ENDED DECEMBER 31, 1999 TO YEAR ENDED DECEMBER 31, 1998.
Rental income increased by $119,000, or 24%, principally due to higher rental
rates and common area maintenance charges. One tenant, whose lease accounted for
19,255 square feet, vacated in 1998. This space was re-leased to
8
<PAGE>
two new tenants at higher rental rates. The weighted-average effective rent per
square foot, on an accrual basis, increased from $6.99 at December 31, 1998 to
$7.19 at December 31, 1999. The Property was 86% occupied at December 31, 1999.
Total operating expenses increased by $73,000, or 11%, when compared to the
prior year. This increase was partially attributable to the write-off of a loan
made to an affiliate in 1996. The loan was deemed uncollectible and subsequently
written-off to bad debt expense in 1999. In addition, higher administrative
costs incurred in 1999 attributed to the increase in total operating expenses.
This increase was partially offset by a decrease in depreciation and
amortization expenses associated with the write-off of fully depreciated
building and tenant improvements.
In 1999, the Partnership received a principal pay-down of $943,000 on its note
receivable from affiliate and recognized $83,000 of its deferred gain associated
with the note.
The Partnership's share of income from investment in SMMP increased by $127,000,
primarily due to improved operations of SMMP's rental properties and its joint
ventures.
COMPARISON OF YEAR ENDED DECEMBER 31, 1998 TO YEAR ENDED DECEMBER 31, 1997.
Rental income increased by $31,000, or 6%, principally due to an increase in
rental rates. The weighted-average effective rent per square foot, on an accrual
basis, increased from $6.07 at December 31, 1997 to $6.99 at December 31, 1998.
One tenant, whose lease accounted for 19,255 square feet, vacated in 1998. This
space was re-leased to two new tenants at higher rental rates. Occupancy at
December 31, 1998 and 1997 remained constant at 99%.
Total operating expenses increased by $41,000, or 7%, when compared to the prior
year. Depreciation and amortization expenses increased primarily due to
additional tenant improvements and lease costs associated with the new tenants
at the Property. Further, higher property taxes were attributable to an increase
in the assessed value of the Property.
The Partnership recognized interest expense in the amount of $148,000 for the
year in comparison to $115,000 in the prior year. This increase was the result
of a full year of interest expense on two loan agreements entered into in 1997.
The Partnership's share of income from investment in SMMP was $196,000 in 1998,
which includes a $76,000 adjustment to account for the Partnership's share of an
overstatement of SMMP's unconsolidated joint venture loss in the prior year. In
1997, the Partnership recorded a $507,000 loss from investment in SMMP. The loss
generated by SMMP in 1997 was primarily the result of its share of loss from its
joint venture partner, Sierra Vista Partners ("SVP"). SVP sold the Sierra Vista
property in October 1997 and recorded a $968,000 loss from property disposition.
Liquidity and Capital Resources:
In 1997, the Partnership entered into two loan agreements totaling $1,604,000.
The loans are secured by the Sierra Valencia property. The proceeds of these
loans were primarily used to satisfy the liquidity requirements of SMMP. The
Property was previously unencumbered.
Excluding collections of the note receivable, the Partnership used cash of
$355,000 in its operating activities and paid $157,000 for property additions
and lease commissions in 1999. The Partnership is in an illiquid position at
December 31, 1999 with cash and billed rents of $34,000 and current liabilities
of $102,000. The Partnership anticipates cash required to meet debt obligations,
operating expenses and costs for construction of new tenant space will be funded
from the operations of the Property and distributions from SMMP.
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.
9
<PAGE>
YEAR 2000 COMPLIANCE
The Year 2000 Compliance issue is the result of computer programs being written
using two digits rather than four to define the applicable year. Any of the
Partnership's computer programs that have time-sensitive software may recognize
a date using "00" as the year 1900 rather than the year 2000. This could result
in a system failure or miscalculations causing disruptions of operations,
including, among other things, a temporary inability to process transactions,
send invoices, or engage in similar normal business activities. As a result,
many companies' software and computer systems may need to be upgraded or
replaced in order to comply with Year 2000 requirements.
The Partnership did not experience any major system failures or disruptions in
operations over the year 2000 transition. All systems have continued to operate
as normal.
The Partnership did not separately track internal costs related to the Year 2000
issue and Partnership management believes these amounts did not have a material
impact on the Partnership's financial position or results of operations.
The Partnership employs a property management company to manage, operate and
lease the property. The management company did not experience any major systems
failures or disruptions in operations at the property. The Partnership remains
confident that no Year 2000 issues with the property management company or other
third parties will arise in the future although no guarantees can be made to
that effect.
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. Consolidated Balance Sheets - December 31, 1999 and 1998
3. Consolidated Statements of Operations - for the years ended December
31, 1999, 1998 and 1997
4. Consolidated Statements of Changes in Partners' Equity - for the
years ended December 31, 1999, 1998 and 1997
5. Consolidated Statements of Cash Flows - for the years ended December
31, 1999, 1998 and 1997
6. Notes to Consolidated Financial Statements
7. Consolidated Balance Sheets of Sierra Mira Mesa Partners as of
December 31, 1999 and 1998 and Statements of Operations, Changes in
General Partners' Equity and Cash Flows for each of the three years
in the period ended December 31, 1999 and Independent Auditors'
Report
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, Missouri, 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 49 5 years
Gregory J. Nooney, Jr. Vice President 68 2 years
Patricia A. Nooney Vice President 43 2 years
William J. Carden Assistant Secretary/Treasurer and Director 55 5 years
Morris S. Cohen Director 62 1 year
</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.
Gregory J. Nooney, Jr. - Vice President, S-P Properties, Inc. He also has served
as Chairman of the Board and Chief Executive Officer of Brooklyn Street
Properties, Inc. since May 1983. Mr. Nooney joined Brooklyn Street Properties,
Inc. in 1954 and served as President from 1969 to May 1983. Brooklyn Street
Properties, Inc., which was founded in 1945, is a real estate investment
company. In addition, Mr. Nooney was chairman and Chief Executive Officer of
Nooney Realty Trust from 1984 through February 1998 and then served as Vice
Chairman from February 1998 through November 1999. Mr. Nooney is currently
Chairman of Coldwell Banker Commercial American Spectrum.
Patricia A. Nooney - Vice President, S-P Properties, Inc. Patricia A. Nooney is
President of Coldwell Banker Commercial American Spectrum, a wholly-owned
subsidiary of CGS Real Estate Company. Ms. Nooney joined Brooklyn Street
Properties, Inc., in 1981 and has served as an officer since 1985. From 1990 to
November 1999, Ms. Nooney was President and Secretary of Nooney Realty Trust,
Inc.
Morris S. Cohen - Director, S-P Properties, Inc. Mr. Cohen's extensive real
estate background includes negotiation of joint venture partnerships for
property acquisitions, production of syndication packages and direct
responsibilities for operations, finance, sales, leasing and property
management. Mr. Cohen was a senior level officer with major public and privately
held real estate companies and served as President of IDM Participating Income
Corporation from April 1995 to October 1996. Mr. Cohen is a graduate of Queens
College.
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
11
<PAGE>
Director of Bay Financial, a New York Stock Exchange company and currently
serves as a director of Property Secured Investments, Inc. and IDM Corporation.
There have been no events under any bankruptcy act, no criminal proceedings, and
no judgements or injunctions material to the evaluation of the ability and
integrity of any director 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 American Spectrum Real Estate Services, Inc.
(ASRE), formerly Banc Commercial California. These fees for the year ended
December 31, 1999 were $21,105. 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 $91,885 during the year
ended December 31, 1999. The Partnership also reimburses ASRE and Bancor for
construction supervision costs. Such costs amounted to $2,131 for the year ended
December 31, 1999. Bancor and ASRE 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, controls 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. During the year ended December 31,
1995, the Partnership received principal payments of $1,317,928 on the trust
deed note. In 1999, 1998 and 1997, interest receivable of $91,610, $222,128 and
$307,759, respectively, was added to the principal balance of the note. In 1999,
the Partnership received a principal paydown of $943,413. In each of the three
years ended December 31, 1999, maturity has been extended for additional
one-year terms. All other terms of the original note remain unchanged. CGS Real
Estate Company, Inc. owns 33.33% of No.-So., Inc.
Reference is made to Item 2 for additional information concerning related party
transactions.
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 - Selected Financial Data
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, 1999, 1998 and 1997
2. Schedule III - Real Estate and Accumulated Depreciation -
December 31, 1999
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: March 19, 2000 /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: March 19, 2000 /S/THOMAS N. THURBER
- -------------------- ------------------------------------
Thomas N. Thurber
President and Director
S-P Properties, Inc.
Date: March 19, 2000 /S/WILLIAM J. CARDEN
- -------------------- ------------------------------------
William J. Carden
Assistant Secretary/Treasurer and
Director S-P Properties, Inc.
Date: March 19, 2000 /S/G. ANTHONY EPPOLITO
- -------------------- ------------------------------------
G. Anthony Eppolito
Chief Accountant
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 consolidated financial statements of Sierra Pacific Pension
Investors '84 and subsidiary, a California limited partnership, (the
"Partnership") as of December 31, 1999 and 1998, and for each of the three years
in the period ended December 31, 1999 and have issued our report thereon dated
February 25, 2000. Such consolidated financial statements and report are
included in your 1999 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
consolidated financial statements taken as a whole, present fairly in all
material respects the information set forth therein.
DELOITTE & TOUCHE LLP
Houston, Texas
February 25, 2000
15
<PAGE>
SCHEDULE II - FORM 10-K
SIERRA PACIFIC PENSION INVESTORS '84 AND SUBSIDIARY
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
For the Years Ended December 31, 1999, 1998 and 1997
<TABLE>
<CAPTION>
Income -
Producing
Properties
----------
<S> <C>
Allowance for loss - January 1, 1997 ....................... $1,880,000
Provision charged to costs
and expenses (1) ...................................... 0
----------
Allowance for loss - December 31, 1997 ..................... 1,880,000
Provision charged to costs
and expenses (1) ...................................... 0
----------
Allowance for Loss - December 31, 1998 ..................... 1,880,000
Provision charged to costs
and expenses (1) ...................................... 0
----------
Allowance for loss - December 31, 1999 ..................... $1,880,000
==========
</TABLE>
(1) See Notes 1 and 4 to consolidated 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 AND SUBSIDIARY
REAL ESTATE AND ACCUMULATED DEPRECIATION
DECEMBER 31, 1999
<TABLE>
<CAPTION>
INITIAL COST GROSS AMOUNT AT
TO PARTNERSHIP (1) IMPROVEMENTS WHICH CARRIED AT CLOSE OF PERIOD
------------------ CAPITALIZED ---------------------------------
ENCUMB- IMPROVE- AFTER ACQUIS- IMPROVE- TOTAL
DESCRIPTION RANCES LAND MENTS ITION (2) LAND MENTS (3)(4)(5)
- ----------- ---------- -------- --------- ------------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
OFFICE BUILDING-
INCOME -PRODUCING:
Sierra Valencia
Tucson, AZ $1,398,368 $977,677 $4,201,837 $ 977,677 $3,060,925 $4,038,602
<CAPTION>
ACCUM. DATE DATE DEPREC.
DESCRIPTION DEPREC.(5) CONSTRUCTED ACQUIRED LIFE
- ----------- ----------- ----------- -------- ---------
<S> <C> <C> <C> <C>
OFFICE BUILDING-
INCOME -PRODUCING:
Sierra Valencia
Tucson, AZ $984,363 11/87 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 costs for Federal Income Tax purposes.
(4) A valuation allowance of $1,880,000 was established as the appraised value
of the properties 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, 1999 is as follows:
<TABLE>
<CAPTION>
Total Real Estate Accumulated
Carrying Value Depreciation
----------------- ------------
<S> <C> <C>
Balance - January 1, 1997 $ 4,803,698 $ 1,494,933
Additions during the year 126,289 182,431
----------------- ------------
Balance - December 31, 1997 4,929,987 1,677,364
Additions during the year 42,614 203,222
Write off fully depreciated assets (18,649) (18,649)
----------------- ------------
Balance - December 31, 1998 4,953,952 1,861,937
Additions during the year 147,606 185,382
Write off fully depreciated assets (1,062,956) (1,062,956)
----------------- ------------
Balance - December 31, 1999 $ 4,038,602 $ 984,363
================= ============
</TABLE>
17
<PAGE>
SIERRA PACIFIC PENSION INVESTORS '84 AND SUBSIDIARY
(A California Limited Partnership)
SELECTED FINANCIAL DATA
For the Years Ended December 31, 1999, 1998, 1997, 1996, and 1995
The following table sets forth certain selected historical financial data of the
Partnership. The selected operating and financial position data as of and for
each of the five years ended December 31, 1999 have been derived from the
audited financial statements of the Partnership. This information should be read
in conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the Consolidated Financial Statements and Notes
thereto which are incorporated by reference to the Annual Report to the Limited
Partners attached as an Exhibit.
<TABLE>
<CAPTION>
1999 1998 1997 1996 1995
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
REVENUES .............................. $ 809,929 $ 726,154 $ 670,986 $ 668,706 $ 713,877
OPERATING EXPENSES:
Total ............................... 722,204 649,550 608,721 626,646 711,475
Per dollar of revenues .............. 0.89 0.89 0.91 0.94 1.00
INTEREST EXPENSE:
Total ............................... 137,091 147,712 114,696 0 0
Per dollar of revenues .............. 0.17 0.20 0.17 0.00 0.00
NET INCOME (LOSS) FROM
CONTINUING OPERATIONS:
Total ............................... 357,351 124,886 (559,320) (137,422) (141,624)
General Partner ..................... 0 0 0 0 0
Limited Partnership ................. 357,351 124,886 (559,320) (137,422) (141,624)
Per Limited Partnership Unit (1) .... 4.64 1.62 (7.26) (1.78) (1.84)
CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES ................ 496,945 (66,517) (96,708) 133,115 85,860
CASH (USED IN) PROVIDED BY
INVESTING ACTIVITIES ................ (388,890) 126,636 (1,430,332) (94,057) 1,332,930
CASH (USED IN) PROVIDED BY
FINANCING ACTIVITIES ................ (86,615) (77,151) 1,512,134 (251,766) (1,507,000)
TOTAL ASSETS .......................... 10,808,318 10,558,178 10,475,000 9,510,493 9,496,780
PARTNERS' EQUITY:
Total ............................... 9,287,059 8,929,708 8,804,822 9,414,142 9,416,533
General Partner ..................... 0 0 0 0 0
Limited Partners .................... 9,287,059 8,929,708 8,804,822 9,414,142 9,416,533
LIMITED PARTNERS' EQUITY - PER UNIT (1) 120.61 115.97 114.35 122.26 122.29
NOTE RECEIVABLE ....................... 1,459,139 2,227,627 2,005,498 1,697,739 1,697,739
INCOME-PRODUCING PROPERTIES:
Number .............................. 1 1 1 1 1
Cost ................................ 4,038,602 4,953,952 4,929,987 4,803,698 4,762,948
Less: Accumulated depreciation ...... (984,363) (1,861,937) (1,677,364) (1,494,933) (1,358,741)
Valuation allowance ........... (1,880,000) (1,880,000) (1,880,000) (1,880,000) (1,880,000)
Net book value ...................... 1,174,239 1,212,015 1,372,623 1,428,765 1,524,207
INVESTMENT IN UNCONSOLIDATED
JOINT VENTURE ....................... 7,303,940 6,743,274 6,720,551 4,616,117 4,464,589
NOTES PAYABLE - Related to income-
producing property .................. 1,398,368 1,484,983 1,562,134 0 0
DISTRIBUTIONS PER UNIT (1): ........... 0 0 0.65 2.60 2.60
</TABLE>
(1) The net income (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, 1999 equal $21.43.
18
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Partners of
Sierra Pacific Pension Investors '84
We have audited the accompanying consolidated balance sheets of Sierra Pacific
Pension Investors '84 and subsidiary, a California limited partnership, (the
"Partnership") as of December 31, 1999 and 1998, 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, 1999. 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 Pacific
Pension Investors '84 and subsidiary as of December 31, 1999 and 1998, and the
results of its operations and its cash flows for each of the three years in the
period ended December 31, 1999 in conformity with generally accepted accounting
principles.
DELOITTE & TOUCHE LLP
Houston, Texas
February 25, 2000
19
<PAGE>
SIERRA PACIFIC PENSION INVESTORS '84 AND SUBSIDIARY
(A CALIFORNIA LIMITED PARTNERSHIP)
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1999 AND 1998
<TABLE>
<CAPTION>
DECEMBER 31, 1999 DECEMBER 31, 1998
----------------- -----------------
<S> <C> <C>
ASSETS
Cash and cash equivalents .......................... $ 31,562 $ 10,122
Receivables:
Note, net of deferred gain of $132,471 and
$215,786, respectively (Notes 3 and 4) ........ 1,459,139 2,227,627
Unbilled rent (Notes 1 and 4) ................... 44,708 42,331
Billed rent (Note 1) ............................ 2,762 962
Due from affiliates (Note 3) ....................... 0 47,466
Income-producing property - net of
accumulated depreciation and valuation
allowance of $2,864,363 in 1999 and
$3,741,937 in 1998, respectively (Notes 4 and 6) . 1,174,239 1,212,015
Investment in unconsolidated
joint venture (Notes 1 and 5) .................... 7,303,940 6,743,274
Other assets (Notes 1, 2 and 3) .................... 791,968 274,381
----------------- -----------------
Total Assets ....................................... $ 10,808,318 $ 10,558,178
================= =================
LIABILITIES AND PARTNERS' EQUITY
Accrued and other liabilities (Note 2) ............. $ 122,891 $ 143,487
Notes payable (Note 6) ............................. 1,398,368 1,484,983
----------------- -----------------
Total Liabilities .................................. 1,521,259 1,628,470
----------------- -----------------
Partners' equity (Notes 1 and 7):
General Partner .................................. 0 0
Limited Partners:
80,000 units authorized,
77,000 issued and outstanding .................. 9,287,059 8,929,708
----------------- -----------------
Total Partners' equity ............................. 9,287,059 8,929,708
----------------- -----------------
Total Liabilities and Partners' equity ............. $ 10,808,318 $ 10,558,178
================= =================
</TABLE>
SEE ACCOMPANYING NOTES
20
<PAGE>
SIERRA PACIFIC PENSION INVESTORS '84 AND SUBSIDIARY
(A CALIFORNIA LIMITED PARTNERSHIP)
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
<TABLE>
<CAPTION>
1999 1998 1997
--------- --------- ---------
<S> <C> <C> <C>
REVENUES:
Rental income (Note 1) .............................. $ 622,524 $ 504,016 $ 473,408
Interest income (Note 3) ............................ 187,405 222,138 197,578
--------- --------- ---------
Total revenues ...................... 809,929 726,154 670,986
--------- --------- ---------
EXPENSES:
Operating expenses:
Depreciation and amortization ....................... 249,067 258,718 236,395
Property taxes and insurance ........................ 141,531 139,225 121,953
General and administrative .......................... 39,848 33,353 44,028
Legal and accounting ................................ 60,322 62,651 55,960
Administrative fees (Note 3) ........................ 84,970 51,699 45,684
Maintenance and repairs ............................. 40,182 40,688 36,639
Management fees (Note 3) ............................ 36,373 33,341 35,768
Utilities ........................................... 16,272 15,526 14,609
Bad debt expense .................................... 46,342 0 0
Other operating expenses ............................ 7,297 14,349 17,685
--------- --------- ---------
Total operating expenses ...................... 722,204 649,550 608,721
--------- --------- ---------
Interest ............................................ 137,091 147,712 114,696
--------- --------- ---------
Total expenses ...................... 859,295 797,262 723,417
--------- --------- ---------
LOSS BEFORE GAIN FROM PROPERTY ........................ (49,366) (71,108) (52,431)
DISPOSITION
GAIN FROM PROPERTY DISPOSITION (Note 4) ............... 83,315 0 0
--------- --------- ---------
INCOME (LOSS) BEFORE PARTNERSHIP'S SHARE
OF UNCONSOLIDATED JOINT VENTURE
INCOME (LOSS) ....................................... 33,949 (71,108) (52,431)
--------- --------- ---------
PARTNERSHIP'S SHARE OF UNCONSOLIDATED
JOINT VENTURE INCOME (LOSS) (Note 5) ................ 323,402 195,994 (506,889)
--------- --------- ---------
NET INCOME (LOSS) ..................................... $ 357,351 $ 124,886 $(559,320)
========= ========= =========
Net income (loss) per limited partnership unit (Note 1) $ 4.64 $ 1.62 $ (7.26)
========= ========= =========
</TABLE>
SEE ACCOMPANYING NOTES
21
<PAGE>
SIERRA PACIFIC PENSION INVESTORS '84 AND SUBSIDIARY
(A CALIFORNIA LIMITED PARTNERSHIP)
CONSOLIDATED STATEMENTS OF CHANGES IN PARTNERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
<TABLE>
<CAPTION>
Limited Partners Total
-------------------------- General Partners'
Per Unit Total Partner Equity
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Partners' equity - January 1, 1997 . $ 122.26 $ 9,414,142 $ 0 $ 9,414,142
Net loss ........................... (7.26) (559,320) (559,320)
Distributions ...................... (0.65) (50,000) (50,000)
----------- ----------- ----------- -----------
Partners' equity December 31, 1997 . 114.35 8,804,822 0 8,804,822
Net income ......................... 1.62 124,886 124,886
----------- ----------- ----------- -----------
Partners' equity December 31, 1998 . 115.97 8,929,708 0 8,929,708
Net income ......................... 4.64 357,351 357,351
----------- ----------- ----------- -----------
Partners' equity - December 31, 1999 $ 120.61 $ 9,287,059 $ 0 $ 9,287,059
=========== =========== =========== ===========
</TABLE>
SEE ACCOMPANYING NOTES
22
<PAGE>
SIERRA PACIFIC PENSION INVESTORS '84 AND SUBSIDIARY
(A CALIFORNIA LIMITED PARTNERSHIP)
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
<TABLE>
<CAPTION>
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) .................................... $ 357,351 $ 124,886 $ (559,320)
Adjustments to reconcile net income (loss) to cash
provided by (used in) operating activities:
Depreciation and amortization ...................... 249,067 258,718 236,395
Gain from property disposition ..................... (83,315) 0 0
Undistributed (income) loss of
unconsolidated joint venture ..................... (323,402) (195,994) 506,889
Bad debt expense ................................... 46,342 0 0
(Increase) decrease in rent receivable ............. (4,177) 6,739 41,958
Decrease (increase) in note receivable ............. 851,803 (222,128) (148,298)
Increase in other assets ........................... (577,252) (74,181) (186,025)
(Decrease) increase in accrued and other liabilities (19,472) 35,443 11,693
----------- ----------- -----------
Net cash provided by (used in) operating activities 496,945 (66,517) (96,708)
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Payments for property additions .................... (147,606) (42,614) (126,289)
Capital contributions to
unconsolidated joint venture ..................... (539,784) (42,000) (1,551,843)
Distributions from unconsolidated
joint venture .................................... 298,500 211,250 247,800
----------- ----------- -----------
Net cash (used in) provided by investing activities (388,890) 126,636 (1,430,332)
----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Funding of notes payable secured by property ....... 0 0 1,604,000
Principal payments on notes payable ................ (86,615) (77,151) (41,866)
Cash distributions ................................. 0 0 (50,000)
----------- ----------- -----------
Net cash (used in) provided by financing activities (86,615) (77,151) 1,512,134
----------- ----------- -----------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS .................................... 21,440 (17,032) (14,906)
CASH AND CASH EQUIVALENTS - Beginning of year .......... 10,122 27,154 42,060
----------- ----------- -----------
CASH AND CASH EQUIVALENTS - End of year ................ $ 31,562 $ 10,122 $ 27,154
=========== =========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash paid during the period for interest ........... $ 137,574 $ 148,142 $ 102,738
=========== =========== ===========
</TABLE>
In 1999, 1998 and 1997, interest receivable of $91,610, $222,128 and $307,759
was added to the principal balance of the related note receivable. These
transactions are noncash items not reflected in the above statements of cash
flows.
SEE ACCOMPANYING NOTES
23
<PAGE>
SIERRA PACIFIC PENSION INVESTORS '84 AND SUBSIDIARY
(A CALIFORNIA LIMITED PARTNERSHIP)
--------------------------------
NOTES TO CONSOLIDATED 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.
On March 7, 1997 Sierra Valencia LLC ("SVLLC") was formed with the Partnership
being the sole member. This company was formed solely to engage in the following
activities: a) to acquire from Sierra Pacific Pension Investors `84 the property
known as Sierra Valencia, b) to own, hold, sell, assign, transfer, operate,
lease, mortgage, pledge and otherwise deal with the Property, c) to exercise all
powers enumerated in the Delaware Limited Liability Company Act necessary or
convenient to conduct, promotion or attainment of the business or purposes
otherwise set forth. Title to the Sierra Valencia property was transferred from
the Partnership to SVLLC. The accounts of SVLLC are consolidated into the
financial statements of the Partnership since the date of formation and all
significant intercompany transactions are eliminated in consolidation.
In 1985 Sierra Mira Mesa Partners ("SMMP"), a California general partnership was
formed between the Partnership and Sierra Pacific Development Fund II
("SPDFII"). SMMP was initially created to develop and operate the office
building known as Sierra Mira Mesa in San Diego, California. The Partnership's
initial ownership interest in SMMP was 49%; the remaining 51% was owned by
SPDFII. Effective December 31, 1996, the general partners amended the
partnership agreement to allow for adjustments in the sharing ratio each year
based upon the relative net contributions and distributions since inception of
each general partner. In conjunction with this amendment, the general partners
forgave the December 31, 1996 balances of advances due from SMMP and included
these amounts as adjustments to their respective equity accounts. As a result,
the sharing ratio in effect for 1997, 1998 and 1999 was 54.42%, 66.26% and
66.99%, respectively, for the Partnership and 45.58%, 33.74% and 33.01%,
respectively, for SPDFII. On January 1, 2000, the sharing ratio will be
increased to 69.83% for the Partnership and decreased to 30.17% for SPDFII to
reflect the 1999 contributions and distributions.
SMMP also holds an 88.12% interest in Sorrento I Partners (a California general
partnership with Sierra Pacific Development Fund III formed in 1993), a 35.10%
interest in Sorrento II Partners (a California general partnership with Sierra
Pacific Institutional Properties V formed in 1993), a 6.55% interest in Sierra
Creekside Partners (a California general partnership with Sierra Pacific
Development Fund formed in 1994), and a 33.32% interest in Sierra Vista Partners
(a California general partnership with Sierra Pacific Development Fund III
formed in 1994).
24
<PAGE>
Sierra Pacific Pension Investors '84 and subsidiary
Notes to Consolidated Financial Statements
Page two
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, 1999 and 1998
consist of cash and cash equivalents, receivables, note receivables, due from
affiliates, accounts payable and notes 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. In the opinion on management, the
fair value of the notes payable approximates the carrying value based on market
rates at December 31, 1999. The note receivable and the amounts due from
affiliates are not fair valued due to the related party nature of these
receivables.
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.
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 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. An impairment of
$1,880,000 was recognized prior to 1995 as appraisals indicated an other than
temporary decline in value.
25
<PAGE>
Sierra Pacific Pension Investors `84 and subsidiary
Notes to Consolidated Financial Statements
Page three
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, 1999. 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 using the straight line method of
accounting.
Deferred loan costs represent costs incurred to obtain financing and are
amortized over the life of the related loan using the straight line method of
accounting.
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 for all periods.
RECENT ACCOUNTING PRONOUNCEMENTS
The Financial Accounting Standards Board has issued Statement of Financial
Accounting Standards ("SFAS") No. 130, "Reporting Comprehensive Income" and SFAS
No. 131, "Disclosures About Segments of an Enterprise and Related Information."
These SFAS's, which are effective for the Partnership's fiscal year ending
December 31, 1998, establish additional disclosure requirements but do not
affect the measurement of the results of operations. During the periods
presented, the Partnership did not have any items of comprehensive income. The
adoption of SFAS No. 131 had no effect on the Partnership's financial statements
as the Partnership operates in only one segment, the acquisition, development,
and operation of commercial real estate.
26
<PAGE>
Sierra Pacific Pension Investors `84 and subsidiary
Notes to Consolidated Financial Statements
Page four
2. DETAILS OF CERTAIN BALANCE SHEET ACCOUNTS
Additional information regarding certain balance sheet accounts, at December 31,
1999 and 1998, is as follows:
1999 1998
-------- --------
Other assets:
Prepaid expenses .................................. $584,537 $ 3,341
Tax and insurance impounds ........................ 35,645 25,185
Tenant improvements reserves ...................... 22,736 46,586
Deferred loan costs, net of accumulated
amortization of $25,051 in 1999
and $15,863 in 1998 ............................ 66,608 75,795
Deferred leasing costs, net of accumulated
amortization of $147,093 in 1999 and
$132,440 in 1998 ............................... 82,442 123,474
-------- --------
$791,968 $274,381
======== ========
Accrued and other liabilities:
Accounts payable .................................. $ 34,558 $ 44,401
Accrued expenses .................................. 67,368 72,028
Security deposits ................................. 20,965 27,058
-------- --------
$122,891 $143,487
======== ========
3. GENERAL PARTNER AND RELATED PARTY TRANSACTIONS
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, 1999, 1998 and 1997 were $21,105, $20,103, and $21,799,
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 $91,885, $72,284 and $63,910 for such services for the years ended
December 31, 1999, 1998 and 1997, respectively. Additionally, the Partnership
reimbursed the affiliates for construction supervision costs incurred by the
affiliates. For the years ended December 31, 1999, 1998, and 1997, the
affiliates received $2,131, $0 and $10,504, respectively, for tenant
improvements supervisory costs.
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, 1997, these fees amounted to
$19,109 and were recorded as deferred leasing costs. No such costs were incurred
in 1999 or 1998.
Prior to 1997, the Partnership made non-interest bearing short-term advances to
Sierra Mira Mesa Partners of $1,311,300. These advances were forgiven and
reclassed to investment in Sierra Mira Mesa Partners in 1997 (See Note 1).
During 1996, the Partnership made a non-interest bearing advance to an affiliate
in the amount of $47,466. This advance was deemed uncollectible and subsequently
written off to bad debt expense in 1999.
27
<PAGE>
Sierra Pacific Pension Investors `84 and subsidiary
Notes to Consolidated Financial Statements
Page five
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. In 1997 and 1998 interest receivable of $307,759 and $222,128,
respectively, was added to the principal balance of the note and maturity was
extended for additional one-year terms. In 1999, the Partnership received a
principal paydown of $943,413. The maturity date was extended to December 31,
2000 and interest receivable of $91,610 was added to the principal balance of
the note. All other terms of the original note remained unchanged. Interest
income related to this note of $187,227, $222,128, and $196,136 was recognized
during the years ended December 31, 1999, 1998, and 1997, respectively. The
December 31, 1999 balance of the note was $1,591,610 and is secured by a second
lien on the property. Management believes the collateral has sufficient value to
recover the Partnership's net investment in the note after satisfaction of the
first lien holder.
4. INCOME-PRODUCING PROPERTIES
At December 31, 1999 and 1998 the total cost and accumulated depreciation of the
property are as follows:
1999 1998
----------- -----------
Land ..................................... $ 977,677 $ 977,677
Building and improvements ................ 3,060,925 3,976,275
----------- -----------
Total ....................... 4,038,602 4,953,952
Accumulated depreciation ................. (984,363) (1,861,937)
Valuation allowance (Note 1) ............. (1,880,000) (1,880,000)
----------- -----------
Net ......................... $ 1,174,239 $ 1,212,015
=========== ===========
In 1999 and 1998, the Partnership removed $1,062,956 and $18,649, respectively,
from its building and improvements and related accumulated depreciation accounts
for fully depreciated property.
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 using the installment method and the Partnership recorded a
deferred gain of $367,296 at December 31, 1994, which 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. In 1999, the Partnership received a principal payment of $943,413
and recognized an additional $83,315 of the deferred gain. As of December 31,
1999 the remaining deferred gain was $132,471.
28
<PAGE>
Sierra Pacific Pension Investors `84 and subsidiary
Notes to Consolidated Financial Statements
Page six
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
------------------------ ------------- ----------
2000 .................. $ 489,906 $ 493,918
2001 .................. 373,286 387,320
2002 .................. 147,990 159,030
2003 .................. 85,754 99,651
2004 .................. 28,668 30,393
------------- ----------
Total ............... $ 1,125,604 $1,170,312
============= ==========
The Partnership relied on three tenants to generate approximately 51% of total
1999 rental revenues. The breakdown of these three tenants' industry segments
and rental income contribution is as follows: 16% - optics research and
development; 15% - telecommunications manufacturing; and 20% - healthcare
administration.
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 100% leased at December 31, 1999. At December 31, 1999
the Partnership's interest in SMMP was 66.99%; the remaining 33.01% interest was
owned by Sierra Pacific Development Fund II.
The Partnership's investment in SMMP as of December 31, 1999 and 1998 is
comprised of the following:
1999 1998
---------- ----------
Equity interest .............................. $7,195,398 $6,630,711
Investment advisory and
other fees, less accumulated
amortization of $145,683 and
$141,662 in 1999 and 1998,
respectively .............................. 108,542 112,563
---------- ----------
Investment in unconsolidated
joint venture ............................ $7,303,940 $6,743,274
========== ==========
29
<PAGE>
Sierra Pacific Pension Investors `84 and subsidiary
Notes to Consolidated Financial Statements
Page seven
The consolidated financial statements of SMMP include the accounts of SMMP and
Sorrento I Partners, a majority owned California general partnership for the
years ended December 31, 1999 and 1998. The condensed balance sheets at December
31, 1999 and 1998, and the condensed statements of operations for the years
ended December 31, 1999, 1998 and 1997 for SMMP follow:
CONDENSED CONSOLIDATED BALANCE SHEETS
December 31, December 31,
1999 1998
------------ ------------
ASSETS
Cash and cash equivalents ...................... $ 319,400 $ 14,064
Rent receivable ................................ 1,198,515 1,226,156
Due from affiliates ............................ 2,451,227 2,233,158
Income-producing property,
net of accumulated depreciation .............. 8,723,396 9,000,294
Investment in unconsolidated
joint ventures .............................. 2,526,875 1,640,460
Other assets ................................... 793,658 897,993
------------ ------------
Total Assets ................................... $ 16,013,071 $ 15,012,125
============ ============
LIABILITIES AND GENERAL PARTNERS' EQUITY
Accrued and other liabilities .................. $ 101,104 $ 251,990
Notes payable .................................. 6,179,038 5,418,414
------------ ------------
Total Liabilities .............................. 6,280,142 5,670,404
------------ ------------
Minority interest in joint venture ............. (340,614) (332,996)
------------ ------------
General Partners' equity ....................... 10,073,543 9,674,717
------------ ------------
Total Liabilities and General Partners' equity . $ 16,013,071 $ 15,012,125
============ ============
30
<PAGE>
Sierra Pacific Pension Investors `84 and subsidiary
Notes to Consolidated Financial Statements
Page eight
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
-----------------------------------------
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
Revenues:
Rental income ........................ $ 2,126,106 $ 1,883,630 $ 1,919,582
Other income ......................... 224,308 205,781 184,168
----------- ----------- -----------
Total revenues ................... 2,350,414 2,089,411 2,103,750
----------- ----------- -----------
Expenses:
Operating expenses ................... 800,654 754,978 742,548
Depreciation and amortization ........ 587,070 581,956 825,911
Interest ............................. 450,177 438,711 463,804
----------- ----------- -----------
Total expenses ................... 1,837,901 1,775,645 2,032,263
----------- ----------- -----------
Income before Partnership's share of
unconsolidated venture losses ....... 512,513 313,766 71,487
Partnership's share of unconsolidated
joint venture losses ................ (36,405) (131,897) (855,349)
----------- ----------- -----------
Income (loss) before minority interest's
share of consolidated joint venture
loss (income) ....................... 476,108 181,869 (783,862)
----------- ----------- -----------
Minority interest's share of consolidated
joint venture loss (income) ......... 7,618 (787) (7,906)
----------- ----------- -----------
Net income (loss) ....................... $ 483,726 $ 181,082 $ (791,768)
=========== =========== ===========
</TABLE>
As of December 31, 1999, SMMP holds a 35.10% interest in Sorrento II Partners (a
California general partnership with Sierra Pacific Institutional Properties V
formed in 1993), a 6.55% interest in Sierra Creekside Partners (a California
general partnership with Sierra Pacific Development Fund formed in 1994), and a
33.32% interest in Sierra Vista Partners (a California general partnership with
Sierra Pacific Development Fund III formed in 1994).
31
<PAGE>
Sierra Pacific Pension Investors `84 and subsidiary
Notes to Consolidated Financial Statements
Page nine
The following is a summary of aggregated financial information for all
investments owned by SMMP which are accounted for under the equity method:
CONDENSED COMBINED BALANCE SHEETS
December 31, December 31,
1999 1998
----------- -----------
ASSETS
Cash and cash equivalents ......................... $ 272,657 $ 85,792
Rent receivable ................................... 588,742 542,527
Due from affiliates ............................... 0 47,666
Income-producing property,
net of accumulated depreciation ................. 8,109,927 8,343,438
Other assets ...................................... 1,897,050 1,320,667
----------- -----------
Total Assets ...................................... $10,868,376 $10,340,090
=========== ===========
LIABILITIES AND GENERAL PARTNERS' EQUITY
Accrued and other liabilities ..................... $ 350,272 $ 520,646
Note payable ...................................... 1,673,186 1,720,324
----------- -----------
Total Liabilities ................................. 2,023,458 2,240,970
----------- -----------
Ground lessors' equity in income producing property 3,000,000 3,000,000
----------- -----------
General Partners' equity .......................... 5,844,918 5,099,120
----------- -----------
Total Liabilities and General Partners' equity .... $10,868,376 $10,340,090
=========== ===========
32
<PAGE>
Sierra Pacific Pension Investors `84 and subsidiary
Notes to Consolidated Financial Statements
Page ten
CONDENSED COMBINED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
-----------------------------------------
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
Revenues:
Rental income .................. $ 2,112,254 $ 1,734,403 $ 2,294,859
Interest income ................ 34,540 0 0
Other income ................... 15,151 93,668 9,698
----------- ----------- -----------
Total revenues .............. 2,161,945 1,828,071 2,304,557
----------- ----------- -----------
Expenses:
Operating expenses ............. 1,407,262 1,302,968 1,755,826
Depreciation and amortization .. 779,142 829,081 1,321,177
Interest ....................... 152,563 156,636 459,763
----------- ----------- -----------
Total expenses .............. 2,338,967 2,288,685 3,536,766
----------- ----------- -----------
Loss before loss from property
disposition .................. (177,022) (460,614) (1,232,209)
Loss from property disposition .... 0 0 (967,764)
----------- ----------- -----------
Net loss .......................... $ (177,022) $ (460,614) $(2,199,973)
=========== =========== ===========
</TABLE>
Reference is made to the audited financial statements of Sierra Mira Mesa
Partners included herein.
33
<PAGE>
Sierra Pacific Pension Investors `84 and subsidiary
Notes to Consolidated Financial Statements
Page eleven
6. NOTES PAYABLE
On March 27, 1997, Sierra Valencia LLC entered into a loan agreement with First
Union Bank of North Carolina in the amount of $1,404,000. This loan, which is
secured by a first lien on the Sierra Valencia property, bears interest at 9.25%
per annum and calls for monthly principal and interest payments of $12,024 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. As of December 31, 1999 the loan balance was $1,366,244.
On April 15, 1997, the Partnership entered into a loan agreement with IDM
Participating Income Company II, an affiliate of the general partner, in the
amount of $200,000. This loan is secured by a second lien on the Sierra Valencia
property. This note bears a variable interest rate determined by the Federal
Reserve of San Francisco's discount rate prevailing on the 25th day of the month
preceding the payment due date plus a 3% premium. The interest rate can be
adjusted the last day of March, June, September and December of each year until
note agreement is fulfilled. The minimum rate will be 12.12%. The maximum rate
will be 15.15%. The current interest rate paid is 12.12%. Monthly payment of
$6,659, consisting of both interest and principal, commenced on May 15, 1997 and
shall continue until April 15, 2000, when the indebtedness is paid in full. As
of December 31, 1999, the loan balance was $32,124.
The annual maturities of the notes payable as of December 31, 1999 are $50,809
in 2000, $20,488 in 2001, $22,466 in 2002, $24,634 in 2003, $27,012 in 2004, and
$1,252,959 thereafter.
The Partnership is exposed to interest rate fluctuations on $32,124 of variable
rate debt at December 31, 1999.
7. 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.
34
<PAGE>
SIERRA MIRA MESA PARTNERS AND SUBSIDIARY
(A CALIFORNIA GENERAL PARTNERSHIP)
CONSOLIDATED BALANCE SHEETS AS OF DECEMBER 31, 1999 AND 1998 AND STATEMENTS OF
OPERATIONS, CHANGES IN GENERAL PARTNERS' EQUITY AND CASH FLOWS FOR EACH OF
THE THREE YEARS IN THE PERIOD ENDED DECEMBER 31, 1999 AND INDEPENDENT
AUDITORS' REPORT
35
<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 and subsidiary, a California general partnership, (the "Partnership")
as of December 31, 1999 and 1998, 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, 1999. 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 and subsidiary as of December 31, 1999 and 1998, and the results of its
operations and cash flows for each of the three years in the period ended
December 31, 1999 in conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Houston, Texas
February 25, 2000
36
<PAGE>
SIERRA MIRA MESA PARTNERS AND SUBSIDIARY
(A CALIFORNIA GENERAL PARTNERSHIP)
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1999 AND 1998
December 31, December 31,
1999 1998
------------ ------------
ASSETS
Cash and cash equivalents ...................... $ 319,400 $ 14,064
Receivables:
Unbilled rent (Notes 1 and 4) ............... 1,114,598 1,226,156
Billed rent (Note 1) ........................ 83,917 0
Due from affiliates, net (Note 3) .............. 2,451,227 2,233,158
Income-producing property - net of accumulated
depreciation of $3,564,380 in 1999 and
$3,273,970 in 1998 (Notes 1, 4 and 6) ....... 8,723,396 9,000,294
Investment in unconsolidated
joint ventures (Notes 1 and 5) .............. 2,526,875 1,640,460
Other assets (Notes 1, 2 and 3) ................ 793,658 897,993
------------ ------------
Total Assets ................................... $ 16,013,071 $ 15,012,125
============ ============
LIABILITIES AND GENERAL PARTNERS' EQUITY
Accrued and other liabilities (Note 2) ......... $ 101,104 $ 251,990
Notes payable (Note 6) ......................... 6,179,038 5,418,414
------------ ------------
Total Liabilities .............................. 6,280,142 5,670,404
------------ ------------
Minority interest in consolidated
joint venture (Note 1) ...................... (340,614) (332,996)
General Partners' equity (Note 1) .............. 10,073,543 9,674,717
------------ ------------
Total Liabilities and General Partners' equity . $ 16,013,071 $ 15,012,125
============ ============
SEE ACCOMPANYING NOTES
37
<PAGE>
SIERRA MIRA MESA PARTNERS AND SUBSIDIARY
(A CALIFORNIA GENERAL PARTNERSHIP)
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
<TABLE>
<CAPTION>
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
Revenues:
Rental income (Note 1) ............... $ 2,126,106 $ 1,883,630 $ 1,919,582
Interest income ...................... 224,308 205,781 174,764
Other income ......................... 0 0 9,404
----------- ----------- -----------
Total revenues .................. 2,350,414 2,089,411 2,103,750
----------- ----------- -----------
Expenses:
Operating expenses:
Depreciation and amortization ........ 587,070 581,956 825,911
Property taxes and insurance ......... 98,611 97,781 92,347
Administrative fees (Note 3) ......... 121,889 111,206 104,580
Maintenance and repairs .............. 233,615 240,965 228,890
Management fees (Note 3) ............. 119,166 109,725 101,558
Utilities ............................ 135,301 135,077 138,203
Legal and accounting ................. 24,767 27,657 47,242
General and administrative ........... 16,122 7,443 12,677
Renting expenses ..................... 0 0 309
Bad debt expense ..................... 4,770 0 0
Other operating expenses ............. 46,413 25,124 16,742
----------- ----------- -----------
Total operating expenses ......... 1,387,724 1,336,934 1,568,459
Interest ............................. 450,177 438,711 463,804
----------- ----------- -----------
Total expenses .................. 1,837,901 1,775,645 2,032,263
----------- ----------- -----------
INCOME BEFORE PARTNERSHIP'S SHARE OF
UNCONSOLIDATED JOINT VENTURE LOSSES .. 512,513 313,766 71,487
----------- ----------- -----------
PARTNERSHIP'S SHARE OF UNCONSOLIDATED
JOINT VENTURE LOSSES (Note 5) ........ (36,405) (131,897) (855,349)
----------- ----------- -----------
INCOME (LOSS) BEFORE MINORITY INTEREST'S
SHARE OF CONSOLIDATED JOINT VENTURE
LOSS (INCOME) ........................ 476,108 181,869 (783,862)
----------- ----------- -----------
MINORITY INTEREST'S SHARE OF CONSOLIDATED
JOINT VENTURE LOSS (INCOME) .......... 7,618 (787) (7,906)
----------- ----------- -----------
NET INCOME (LOSS) ....................... $ 483,726 $ 181,082 $ (791,768)
=========== =========== ===========
</TABLE>
SEE ACCOMPANYING NOTES
38
<PAGE>
SIERRA MIRA MESA PARTNERS AND SUBSIDIARY
(A CALIFORNIA GENERAL PARTNERSHIP)
CONSOLIDATED STATEMENTS OF CHANGES IN GENERAL PARTNERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
<TABLE>
<CAPTION>
General Partners
------------------------------------------------------
Sierra Pacific Sierra Pacific
Development Pension
Fund II Investors '84 Total
----------------- ----------------- ------------
<S> <C> <C> <C>
General Partners' equity - January 1, 1997 . $ 4,679,005 $ 4,495,515 $ 9,174,520
Transfer of advances ....................... 155,590 1,311,300 1,466,890
Net loss ................................... (284,878) (506,890) (791,768)
Contributions .............................. 293,000 1,551,843 1,844,843
Distributions .............................. (1,580,800) (247,800) (1,828,600)
----------------- ----------------- ------------
General Partners' equity - December 31, 1997 3,261,917 6,603,968 9,865,885
Net income (loss) .......................... (14,912) 195,994 181,082
Contributions .............................. 8,490 42,000 50,490
Distributions .............................. (211,490) (211,250) (422,740)
----------------- ----------------- ------------
General Partners' equity - December 31, 1998 3,044,005 6,630,712 9,674,717
Net income ................................. 159,678 324,048 483,726
Contributions .............................. 44,000 539,784 583,784
Distributions .............................. (370,184) (298,500) (668,684)
----------------- ----------------- ------------
General Partners' equity - December 31, 1999 $ 2,877,499 $ 7,196,044 $ 10,073,543
================= ================= ============
</TABLE>
SEE ACCOMPANYING NOTES
39
<PAGE>
SIERRA MIRA MESA PARTNERS AND SUBSIDIARY
(A CALIFORNIA GENERAL PARTNERSHIP)
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
<TABLE>
<CAPTION>
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) .................................... $ 483,726 $ 181,082 $ (791,768)
Adjustments to reconcile net income (loss)
to cash provided by operating activities:
Depreciation and amortization ...................... 587,070 581,956 825,911
Undistributed losses of
unconsolidated joint ventures .................... 36,405 131,897 855,349
Minority interest in consolidated
joint venture (loss) income ..................... (7,618) 787 7,906
Bad debt expense ................................... 4,770 0 0
Decrease (increase) in rent receivable ............. 27,641 60,853 (100,191)
Increase in due from affiliates .................... (222,839) (202,581) (168,779)
(Increase) decrease in other assets ................ (45,022) (215,974) 55,566
(Decrease) increase in accrued and other liabilities (150,886) 183,225 (35,663)
----------- ----------- -----------
Net cash provided by operating activities ............ 713,247 721,245 648,331
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Payments for property additions .................... (160,815) (346,113) (231,484)
Capital contributions to unconsolidated
joint ventures ................................... (1,027,820) (350,900) (2,315,041)
Distributions received from unconsolidated
joint ventures ................................... 105,000 372,312 2,439,098
----------- ----------- -----------
Net cash used in investing activities ................ (1,083,635) (324,701) (107,427)
----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Capital contributions from General Partners ........ 583,784 50,490 1,844,843
Cash distributions ................................. (668,684) (422,740) (1,828,600)
Funding of note payable secured by property ........ 1,637,500 0 0
Principal payments on notes payable ................ (876,876) (254,638) (339,460)
----------- ----------- -----------
Net cash provided by (used in) financing activities .. 675,724 (626,888) (323,217)
----------- ----------- -----------
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS ................................ 305,336 (230,344) 217,687
CASH AND CASH EQUIVALENTS - Beginning of year .......... 14,064 244,408 26,721
----------- ----------- -----------
CASH AND CASH EQUIVALENTS - End of year ................ $ 319,400 $ 14,064 $ 244,408
=========== =========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash paid during the year for interest ............... $ 439,792 $ 439,756 $ 470,608
=========== =========== ===========
</TABLE>
In 1999, 1998, and 1997 interest receivable of $222,839, $202,581, and $338,020,
respectively, was added to the principal balance of the related note receivable
from affiliate. These transactions are noncash items not reflected in the above
statement of cash flows.
SEE ACCOMPANYING NOTES
40
<PAGE>
SIERRA MIRA MESA PARTNERS AND SUBSIDIARY
(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 100% leased at December 31, 1999.
Per the terms of the partnership agreement, SPDFII and SPPI'84 shared in
earnings, contributions and distributions in a ratio of 51% to 49%,
respectively. Effective December 31, 1996, the general partners amended the
partnership agreement to allow for adjustments in the sharing ratio each year
based upon the relative net contributions and distributions since inception of
each general partner. In conjunction with this amendment, the general partners
forgave the December 31, 1996 balances of advances due from SMMP and included
these amounts as adjustments to their respective equity accounts. As a result,
the sharing ratio in effect for 1997, 1998 and 1999 was 45.58%, 33.74% and
33.01%, respectively, for SPDFII and 54.42%, 66.26% and 66.99%, respectively,
for SPPI'84. On January 1, 2000, the sharing ratio will be decreased to 30.17%
for SPDFII and increased to 69.83% for SPPI'84 to reflect the 1999 contributions
and distributions.
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 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, 1999. All
significant intercompany balances and transactions have been eliminated in
consolidation.
41
<PAGE>
Sierra Mira Mesa Partners
Notes to Consolidated Financial Statements
Page two
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, 1999 and 1998
consist of cash and cash equivalents, receivables, due from affiliates, accounts
payable and notes 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, 1999. Management does not fair value the amounts
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.
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. No such
impairment has been recognized by the Partnership.
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, 1999. 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).
42
<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 using the straight line method of
accounting.
Deferred loan costs represent costs incurred to obtain financing and are
amortized over the life of the related loan using the straight line method of
accounting.
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; (b) billed rent -
rent due but not yet received.
2. DETAILS OF CERTAIN BALANCE SHEET ACCOUNTS
Additional information regarding certain balance sheet accounts, at December 31,
1999 and 1998, is as follows:
1999 1998
-------- --------
Other assets:
Prepaid expenses .................................. $ 7,383 $ 21,070
Deferred loan costs, net of accumulated
amortization of $49,842 in 1999 and
$226,318 in 1998 ................................ 168,225 133,878
Deferred leasing costs, net of accumulated
amortization of $531,945 in 1999 and
$414,395 in 1998 ................................ 507,000 637,028
Tax impounds ...................................... 26,831 23,728
Tenant improvement reserves ....................... 84,219 82,289
-------- --------
$793,658 $897,993
======== ========
Accrued and other liabilities:
Accounts payable .................................. $ 51,008 $192,455
Security deposits ................................. 17,922 17,922
Accrued expenses .................................. 0 8,101
Interest payable .................................. 32,174 20,982
Unearned rental income ............................ 0 12,530
-------- --------
$101,104 $251,990
======== ========
43
<PAGE>
Sierra Mira Mesa Partners
Notes to Consolidated Financial Statements
Page four
3. GENERAL PARTNER AND RELATED PARTY TRANSACTIONS
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 $119,166,
$109,725, and $101,558 respectively, for the years ended December 31, 1999,
1998, and 1997. This fee was recorded as part of the operating expenses of the
property.
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 $122,239, $111,206, and
$104,580 respectively, for such services for the years ended December 31, 1999,
1998, and 1997. Additionally, SMMP reimbursed an affiliate for construction
supervision costs incurred by the affiliate. For the years ended December 31,
1999, 1998, and 1997, the affiliate received $28,201, $1,327, and $11,154
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, 1999, 1998, and 1997, these fees amounted to
$0, $63,492, and $3,656 respectively, and were recorded as deferred leasing
costs.
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%. On
December 31, 1999, 1998 and 1997, interest receivable of $222,839, $202,581 and
$338,020, respectively, was added to the principal balance of the loan. No
interest related to this loan was due to the Partnership at December 31, 1999
and 1998. The principal balance outstanding at December 31, 1999 is $2,451,227.
The loan is guaranteed by the owners of CGS Real Estate Company, Inc. In
connection with the settlement of a lawsuit by SPDFII, the Partnership will call
a portion of the note receivable from Bancor Real Estate Company, Inc. The
portion called will be that percentage of the loan that is equal to SPDFII's
ownership interest in the Partnership, in any event no less than 30%. Such funds
that are collected will be distributed to SPDFII in accordance with the lawsuit
settlement.
During 1995 and 1996, the Partnership received non-interest bearing short-term
advances from SPPI'84 of $1,300,000 and $11,300, respectively. These advances
were reclassed to equity in 1997 (See Note 1).
In 1996, the Partnership received a short-term, non-interest bearing loan from
SPDFII in the amount of $155,590. This loan was reclassed to equity in 1997 (See
Note 1).
During 1996, the Partnership made a non-interest bearing advance to an affiliate
in the amount of $4,770. The advance was deemed uncollectible and subsequently
written off to bad debt expense in 1999.
See Note 6 for note payable transactions with related parties.
44
<PAGE>
Sierra Mira Mesa Partners
Notes to Consolidated Financial Statements
Page five
4. INCOME-PRODUCING PROPERTIES
At December 31, 1999 and 1998 the total cost and accumulated depreciation of the
properties are as follows:
1999 1998
------------ ------------
Land ................................. $ 3,786,458 $ 3,786,458
Building and improvements ............ 8,501,318 8,487,806
------------ ------------
Total ....................... 12,287,776 12,274,264
Accumulated depreciation ............. (3,564,380) (3,273,970)
------------ ------------
Net ......................... $ 8,723,396 $ 9,000,294
============ ============
During 1999 and 1998, the Partnership removed $147,303 and $1,784,496,
respectively, from its building and improvements and related accumulated
depreciation accounts for fully depreciated property.
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
--------------------- ------------- -------------
2000 $ 2,029,716 $ 2,246,281
2001 2,023,332 2,339,768
2002 2,014,332 2,437,297
2003 595,285 677,208
2004 179,747 184,288
Thereafter 593,192 665,360
------------- -------------
Total $ 7,435,604 $ 8,550,202
============= =============
In each of the three years in the period ending December 31, 1999, two tenants
accounted for the majority of the Partnership's rental income. A state
governmental agency associated with workers compensation insurance accounted for
rental income of 69%, 78%, and 67% in 1999, 1998 and 1997, respectively; a
tenant in the communications sector accounted for rental income of 13%, 15% and
13% in 1999, 1998 and 1997, respectively.
5. INVESTMENT IN UNCONSOLIDATED JOINT VENTURES
SMMP holds the following investments accounted for under the equity method at
December 31, 1999:
o a 35.10% 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, 1999 and 1998 is $2,647,872 and $1,711,089, respectively.
SMMP's share of the net loss of SIIP for the three years ended December
31, 1999, 1998 and 1997 is $30,637, $143,251 and $59,066, respectively;
45
<PAGE>
Sierra Mira Mesa Partners
Notes to Consolidated Financial Statements
Page six
o a 6.55% 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, 1999 and 1998 is $(128,513) and $(75,610), respectively. SMMP's share
of the net loss of SCP for the three years ended December 31, 1999, 1998
and 1997 is $5,903, $8,420 and $14,995, respectively;
o a 33.32% 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, 1999 and
1998 is $7,516 and $4,981, respectively. SMMP's share of the net income
(loss) of SVP for the three years ended December 31, 1999, 1998 and 1997
is $135, $19,774 and $(781,288), respectively. The Sierra Vista property
was sold in October 1997.
The following is a summary of aggregated financial information for all
investments owned by SMMP which are accounted for under the equity method:
CONDENSED COMBINED BALANCE SHEETS
December 31, December 31,
1999 1998
------------ ------------
ASSETS
Cash and cash equivalents ........................ $ 272,657 $ 85,792
Rent receivable .................................. 588,742 542,527
Due from affiliate ............................... 0 47,666
Income-producing property, net of accumulated
depreciation ................................... 8,109,927 8,343,438
Other assets ..................................... 1,897,050 1,320,667
------------ ------------
Total Assets ..................................... $ 10,868,376 $ 10,340,090
============ ============
LIABILITIES AND GENERAL PARTNERS' EQUITY
Accrued and other liabilities .................... $ 350,272 $ 520,646
Note payable ..................................... 1,673,186 1,720,324
------------ ------------
Total Liabilities ................................ 2,023,458 2,240,970
------------ ------------
Ground lessors' equity in income-producing
property ....................................... 3,000,000 3,000,000
------------ ------------
General Partners' equity ......................... 5,844,918 5,099,120
------------ ------------
Total Liabilities and General Partners' equity ... $ 10,868,376 $ 10,340,090
============ ============
46
<PAGE>
Sierra Mira Mesa Partners
Notes to Consolidated Financial Statements
Page seven
CONDENSED COMBINED STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31,
-----------------------------------------
1999 1998 1997
----------- ----------- -----------
Revenues:
Rental income .................. $ 2,112,254 $ 1,734,403 $ 2,294,859
Interest income ................ 34,540 0 0
Other income ................... 15,151 93,668 9,698
----------- ----------- -----------
Total revenues ......... 2,161,945 1,828,071 2,304,557
----------- ----------- -----------
Expenses:
Operating expenses ............. 1,407,262 1,302,968 1,755,826
Depreciation and amortization .. 779,142 829,081 1,321,177
Interest ....................... 152,563 156,636 459,763
----------- ----------- -----------
Total expenses ......... 2,338,967 2,288,685 3,536,766
----------- ----------- -----------
Net loss before disposition of
property ....................... (177,022) (460,614) (1,232,209)
Loss from property disposition .... 0 0 (967,764)
----------- ----------- -----------
Net loss .......................... $ (177,022) $ (460,614) $(2,199,973)
=========== =========== ===========
6. NOTES PAYABLE
1999 1998
---------- ----------
Mortgage note payable, due in monthly
installments with interest at 7.74% per
annum, collateralized by the real property
known as Sierra Mira Mesa. This note matures
in October 2010 .................................. $4,543,984 $4,802,191
Mortgage note payable to affiliate, due in
monthly installments with interest fixed
at 9.34% per annum through October 1998, at
which time the rate converted to the one-year
treasury rate plus 375 basis points. This note,
which was collateralized by the real property
known as Sorrento I, was paid in August 1999 ..... 0 616,223
Mortgage note payable, due in monthly
installments with interest at 8.75% per annum,
collateralized by the Sorrento I property. The
note matures in September 2009 ................... 1,635,054 0
---------- ----------
$6,179,038 $5,418,414
========== ==========
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,
called 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. A
pre-payment in the amount of $105,000 was paid in April 1997.
47
<PAGE>
Sierra Mira Mesa Partners
Notes to Consolidated Financial Statements
Page eight
A modification agreement was entered into on September 30, 1997. The interest
rate remained fixed at 9.34% through October 1998, at which time the rate
converted to the one-year treasury rate plus 375 basis points. The note was
amortized over a 210-month term and payments were $6,048 per month, principal
and interest inclusive until maturity in March 2015.
In August 1999, the CGS note with an outstanding balance of $607,693 was paid.
On the same date, SIP entered into a new loan agreement with Finova Realty
Capital, Inc. in the amount of $1,637,500. This loan, which is secured by the
Sorrento I property, bears interest at 8.75% per annum. Monthly payments of
$12,882, consisting of both principal and interest, are due until maturity in
September 2009. The note balance as of December 31, 1999 was $1,635,054. In
connection with the repayment of the CGS note, SIP paid $29,528 to CGS related
to late fees which were included in other operating expenses in the statement of
operations for 1999.
As of December 31, 1999, annual maturities on notes payable are: $290,909 in
2000; $314,372 in 2001; $339,729 in 2002; $367,133 in 2003; $396,749 in 2004;
and $4,470,146 thereafter.
48
<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
Gregory J. Nooney, Jr. Vice President
Patricia A. Nooney Vice President
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.
49
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE FINANCIAL DATA SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM SIERRA PACIFIC PENSION INVESTORS '84 DECEMBER 31, 1999 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-31-1999
<PERIOD-END> DEC-31-1999
<CASH> 31,562
<SECURITIES> 0
<RECEIVABLES> 47,470
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 34,324
<PP&E> 10,168,303
<DEPRECIATION> 2,864,363
<TOTAL-ASSETS> 10,808,318
<CURRENT-LIABILITIES> 101,926
<BONDS> 1,398,368
0
0
<COMMON> 0
<OTHER-SE> 9,287,059
<TOTAL-LIABILITY-AND-EQUITY> 10,808,318
<SALES> 622,524
<TOTAL-REVENUES> 809,929
<CGS> 0
<TOTAL-COSTS> 473,137
<OTHER-EXPENSES> 249,067
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 137,091
<INCOME-PRETAX> 357,351
<INCOME-TAX> 0
<INCOME-CONTINUING> 357,351
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 357,351
<EPS-BASIC> 4.64
<EPS-DILUTED> 4.64
</TABLE>
