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, 1997 Commission file number : 0-15702
SIERRA PACIFIC INSTITUTIONAL PROPERTIES V
(A CALIFORNIA LIMITED PARTNERSHIP)
State of California 33-0122424
- ------------------------------- ---------------------------------------
(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:
140,000 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, 1997 is
incorporated by reference into Parts II and III
<PAGE>
PART I
ITEM 1. BUSINESS
(a.) GENERAL DEVELOPMENT OF BUSINESS. Sierra Pacific Institutional Properties V
(the "Partnership") is a California limited partnership that was formed in
October 1985 for the purpose of acquiring, developing, and operating commercial
and industrial real estate.
The Partnership acquired land in August 1987 for the development of an 88,423
square foot office property in San Diego, California known as Sierra Sorrento
II. This development consists of two separate buildings; a two-story building
consisting of 29,500 usable square feet that was completed in November 1988 and
a two-story building consisting of 58,923 usable square feet that was completed
in May 1989.
The Partnership sold the Sierra Sorrento II land holdings to Lincoln National
Life Insurance Company for $3,000,000 on February 1, 1989. Upon ownership
transfer, the Partnership entered into a 40 year ground lease with the insurance
company. The Sierra Sorrento II land lease requires initial minimum payments of
$25,000 per month commencing February 1989. The terms of the ground lease
require scheduled rent increases over the lease term and additional ground rent.
Subject to the provisions of the ground lease, the Partnership has the right to
sell the property (land and buildings) to a third party. Upon ownership transfer
the ground lease will terminate. Upon sale, the Ground Lessor is entitled to
remuneration of the $3,000,000 investment prior to distribution of proceeds to
the Partnership. The Ground Lessor will also participate in the appreciation of
the property (upon sale) based on a formula contained in the ground lease
agreement. On July 8, 1997, the land was purchased by CGS Real Estate Company,
Inc., an affiliate of the General Partner. On September 24, 1997, all rights,
title and interest in the ground lease were transferred and assigned to CGS Real
Estate Company, Inc. ("Ground Lessor").
On October 1, 1993, the Partnership created a California general partnership
(Sorrento II Partners or "SIIP") with Sierra Mira Mesa Partners ("SMMP"), an
affiliate, to facilitate cash contributions by SMMP for the continued
development and operation of the Sorrento II property. The Partnership
contributed the Sierra Sorrento II property and $115,000 in cash and SMMP
contributed cash ($1,324,400, net, through December 31, 1996) in exchange for a
24.91% interest in Sorrento II Partners. Such interest was computed based upon
the estimated fair value of SIIP's net assets at the date of formation of the
joint venture. SMMP made additional cash contributions amounting to $953,400 and
received distributions amounting to $262,000 during 1997. The percentage
interests of the Partnership and Sierra Mira Mesa Partners are to be adjusted
every January 1st during the term of Sorrento II Partners, beginning January 1,
1995. Accordingly, as of January 1, 1998, the Partnership's interest in SIIP
will be decreased to 66.45%, and SMMP's interest will be increased to 33.55%.
(b.) NARRATIVE DESCRIPTION OF BUSINESS. The Partnership owns and operates
Sierra Sorrento II, an office project in San Diego, California. Success of the
office building is dependent upon the timely payment of rent by two tenants
which occupied 92% of the building at December 31, 1997.
The Sierra Sorrento II property consists of two adjacent office buildings. There
is significant competition in the rental market in the Partnership's trade area.
A 1994 appraisal identified just over seven million square feet of competing
research and development space in the property's market area.
2
<PAGE>
(c.) COMPARISON OF CURRENT ACTIVITIES TO THOSE PROPOSED AT THE INITIATION OF THE
PARTNERSHIP. In the Partnership's prospectus dated January 6, 1986, 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 both 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 75% of the cash
invested in properties by the Partnership will be invested in properties which
are in the development or lease-up stage. The properties in which the
Partnership will invest will be located in areas in the western and southwestern
United States which are expected to experience high population and/or economic
growth levels during the Partnership's period of operations. The principal
investment objectives of the Partnership are to: (i) preserve, protect and
return the Partnership's invested capital; (ii) generate sufficient cash from
operations to provide for distributions of Available Cash to the Limited
Partners, a portion of which will be tax-sheltered to the holders of Taxable
Entity Units; (iii) obtain maximum long-term appreciation in the value of the
Partnership's real estate investments; and (iv) sell the Partnership's real
estate investments for cash after an approximate three to five year holding
period. There can be no assurance that such objectives will be attained."
Operations of the Partnership through 1997 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 distributable cash flow partially sheltered from Federal Income Tax.
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 its real estate investments after a five year holding period
was delayed indefinitely. As of December 31, 1997, the Partnership had paid cash
distributions of $2.69 for each $250 unit investment and remaining partners'
equity was computed at $74.12 per unit. Thus, if the Partnership were to be
liquidated at the end of 1997 at book value, each $250 investment would have
returned a total of $76.81.
The General Partner's goal is to continue operating the Sierra Sorrento II
property until such time as rental rates return to the level necessary to
support new office building development. At that time, the property may be sold
at a price substantially greater than current book value.
3
<PAGE>
ITEM 2. PROPERTY
During 1997, the Partnership owned a 75.09% interest in Sierra Sorrento II, an
office property located in San Diego, California. (See Item 1. Business for
discussion of percentage ownership changes.) The property includes two separate
buildings comprising 88,423 rentable square feet and is 92% occupied at December
31, 1997. There are no material liens or encumbrances against the property at
December 31, 1997. The average effective annual rent per square foot at December
31, 1997 is $10.12. The property has only two tenants whose principal businesses
are electronics manufacturing and healthcare administration. Details of these
significant tenants and their leases follow.
SUMMARY OF TENANTS/LEASES
<TABLE>
<CAPTION>
Square Percent of Effective Effective Percent of
Feet Rentable Rent per Rent Per Gross Expiration
Tenants Occupied Space Square Foot Annum Annual Rent of Lease
- ------------------ ------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Cigna 22,150 25% $ 13.08 $ 289,739 35% Month to Month
Insight
Electronics 58,923 67% 9.00 530,502 65% February 2003
---------- ------------ ------------ ------------ ------------
Total Rented Space 81,073 92% $ 10.12 $ 820,241 100%
Vacancies 7,350 8%
---------- ------------
Total Rentable
Space 88,423 100%
========== ============
</TABLE>
DEPRECIABLE PROPERTY Reference is made to Schedule III of the Form 10-K.
REAL ESTATE TAXES The real estate tax obligation for 1997 is approximately
1.12% of the assessed value or $63,498.
INSURANCE It is the opinion of management that the property is
adequately covered by insurance.
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
4
<PAGE>
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S PARTNERS' EQUITY AND RELATED MATTERS
As of December 31, 1997, the number of security holders is as follows:
Number of
Number Record
of Units Holders
------------- ---------
Limited Partners 30,777 1,502
============= =========
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 140,000 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 has neither paid nor declared any cash or other distributions to
the General or Limited Partners during the two most recent years. There are no
contractual or other restrictions on the Partnership's ability to make such
distributions.
ITEM 6. SELECTED FINANCIAL DATA
The Selected Financial Data for the Partnership is filed by reference to the
Annual Report to the Limited Partners attached as an Exhibit.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Management's Discussion and Analysis of Financial Condition and Results of
Operations includes certain forward looking statements reflecting the
Partnership's expectations in the near future; however, many factors which may
affect the actual results, especially changing regulations, are difficult to
predict. Accordingly, there is no assurance that the Partnership's expectations
will be realized.
Overview:
The following discussion should be read in conjunction with the Selected
Financial Data and the Partnership's 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, 1997, the Partnership owned a 75.09%
interest in Sierra Sorrento II, an industrial property located in San Diego,
California.
5
<PAGE>
Results of Operations:
COMPARISON OF YEAR ENDED DECEMBER 31, 1997 TO YEAR ENDED DECEMBER 31, 1996.
Revenues decreased by $12,000, or 1%, primarily as a result of lower common area
maintenance billings. The occupancy rate of the Property remained unchanged at
92% throughout 1997. The weighted-average annual rent per square foot, on an
accrual basis, remained unchanged at $10.12 at December 31, 1997. Operating
expenses decreased by $5,000, principally due to lower maintenance and repair
costs and a decrease in general and administrative expenses resulting from cost
cutting measures implemented by management. This decrease was partially offset
by an increase in legal and accounting fees due to professional fees associated
with the property's ground lease.
COMPARISON OF YEAR ENDED DECEMBER 31, 1996 TO YEAR ENDED DECEMBER 31, 1995.
Revenues increased by $68,000, or 7%, due primarily to increased expense
recoveries of common area maintenance fees. The weighted-average annual rent per
square foot, on an accrual basis, increased from $9.89 at December 31, 1995 to
$10.12 at December 31, 1996. The occupancy rate remained constant at 92%
throughout 1996. Operating expenses increased $40,000, or 3%, primarily as a
result of a full year's depreciation taken on significant tenant improvements
capitalized late in 1995 and increased maintenance and repair costs due to the
costs of making repairs that were deferred in the prior year.
Liquidity and Capital Resources:
On October 1, 1993, the Partnership created a California general partnership
(Sorrento II Partners) with Sierra Mira Mesa Partners ("SMMP"), an affiliate, to
facilitate cash contributions by SMMP for the continued development and
operation of the Sorrento II property. SMMP has adequate resources to make the
necessary advances during the foreseeable future.
In October 1997, the Partnership prepaid its ground lease $900,000 in return for
a reduction in future miniumum rent. These funds were contributed to the
Partnership by SMMP. During 1997, SMMP contributed a total of $953,400 to the
Partnership and received distributions of $262,000 from the Partnership.
During 1997, the Partnership used cash of $647,000 in operating activities and
paid $29,000 for property additions. The Partnership is in an illiquid position
at December 31, 1997 with cash of $23,000 and current liabilities of $48,000.
The Partnership's primary capital requirements will be for construction of new
tenant space. It is anticipated that these requirements will be funded from
operations of the property.
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.
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.
The total cost to the Partnership of activities associated with the Year 2000
Compliance issue is not anticipated to be material to its financial position or
results of operations in any given year.
6
<PAGE>
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, 1997 and 1996
3. Consolidated Statements of Operations - for the years ended
December 31, 1997, 1996 and 1995
4. Consolidated Statements of Changes in Partners' Equity - for the
years ended December 31, 1997, 1996 and 1995
5. Consolidated Statements of Cash Flows - for the years ended
December 31, 1997, 1996 and 1995
6. Notes to Consolidated Financial Statements
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURES
None
7
<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 TCP, Inc. TCP, Inc. owns all of
the common stock of S-P Properties, Inc. In July 1995, Finance Factors, Inc.
merged with Bancor Real Estate Company, Inc., a subsidiary of CGS Real Estate
Company, Inc. CGS Real Estate Company, Inc. and its affiliates are engaged in
real estate management, leasing, ownership, and sales. The companies own or
manage more than ten million square feet of commercial real estate in Texas,
Arizona, Colorado, California and the Carolinas.
The executive officers and directors of S-P Properties, Inc. are:
APPROXIMATE
NAME POSITION AGE TIME IN OFFICE
- --------------------------------------------------------------------------------
Thomas N. Thurber President and Director 47 3 years
Dawson L. Davenport Vice President 42 3 years
Steven M. Speier Secretary/Treasurer and Director 47 3 years
William J. Carden Assistant Secretary/Treasurer
and Director 53 3 years
Thomas N. Thurber - President and Director, S-P Properties, Inc. Mr. Thurber is
a Certified Public Accountant who began his career with Arthur Andersen & Co. in
1972. In 1979, he joined a major publicly traded real estate development firm
(Daon) where he became Controller for U.S. Operations. Subsequently, Mr. Thurber
served as Director of Real Estate for a developer of retail properties, and
Chief Financial Officer of a trust with significant investments in commercial
real estate. Mr. Thurber also serves as a director of Property Secured
Investments, Inc. Mr. Thurber holds a bachelors degree in accounting from
Florida State University.
Dawson L. Davenport - Vice President, S-P Properties, Inc. Mr. Davenport is the
founder of WD Real Estate Services, a full service property management firm that
became part of the Banc Commercial family of companies in 1992. Mr. Davenport
has been responsible for the management, development and rehabilitation of
substantial commercial, industrial, retail, and residential projects during the
past seventeen years. Mr. Davenport specializes in leasing and turning around
distressed properties.
Steven M. Speier - Secretary/Treasurer and Director, S-P Properties, Inc. Mr.
Speier who after spending two years in public accounting, went into the banking
industry in 1975. During his sixteen year banking career, Mr. Speier managed a
real estate loan portfolio of approximately $1.5 billion secured by properties
throughout the United States. Mr. Speier brings to S-P Properties, Inc. a broad
real estate background that includes management, leasing, and disposition of all
categories of commercial real estate. Mr. Speier also serves as a director of
IDM Corporation. Mr. Speier is a licensed real estate broker, is registered as a
Certified Public Accountant, and has a masters degree in business administration
from Grand Valley State University in Michigan.
William J. Carden - Assistant Secretary/Treasurer and Director, S-P Properties,
Inc. Mr. Carden is the founder and President of CGS Real Estate Company, Inc.,
which owns over one million square feet of commercial real estate. Mr. Carden
founded DVM Properties, Inc. in 1974 which concentrated on rehabilitation of
retail, office, industrial, and commercial real estate. Mr. Carden is a former
Director of Bay Financial, a New York Stock Exchange company, and currently
serves as a director of Property Secured Investments, Inc. and IDM Corporation.
There have been no events under any bankruptcy act, no criminal proceedings, and
no judgments or injunctions material to the evaluation of the ability and
integrity of any director or officer during the past five years.
8
<PAGE>
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 pays 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,
1997 were $59,515. 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 $69,720 during the year ended December
31, 1997. The Partnership also reimbursed ASRE for construction supervision
costs. These fees for the year ended December 31, 1997 were $1,998. 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, owns 50% of CGS Real Estate Company, Inc.
The Partnership sold the Sierra Sorrento II land holdings to Lincoln National
Life Insurance Company for $3,000,000 on February 1, 1989. Upon ownership
transfer, the Partnership entered into a 40 year ground lease with the insurance
company. The Sierra Sorrento II land lease requires initial minimum payments of
$25,000 per month commencing February 1989. The terms of the ground lease
require scheduled rent increases over the lease term and additional ground rent.
Subject to the provisions of the ground lease, the Partnership has the right to
sell the property (land and buildings) to a third party. Upon ownership transfer
the ground lease will terminate. Upon sale, the Ground Lessor is entitled to
remuneration of its $3,000,000 investment prior to distribution of proceeds to
the Partnership. The Ground Lessor will also participate in the appreciation of
the property (upon sale) based on a formula contained in the ground lease
agreement. On July 8, 1997, the land was purchased by CGS Real Estate Company,
Inc., an affiliate of the General Partner. On September 24, 1997, all rights,
title and interest in the ground lease were transferred and assigned to CGS Real
Estate Company, Inc. ("Ground Lessor").
In October 1997, the Partnership prepaid $900,000 of the ground lease to CGS
Real Estate Company, Inc. in exchange for an amendment reducing the minimium
rent required under the lease from $360,000 to $330,000 per year from 1999 to
2008. The minimum basic rent effective January 1, 2009 through December 31, 2028
remained unchanged at $360,000 per year. The November 1997, December 1997, and
January 1998 rent amounts payable under the terms of the lease will be applied
against the prepaid balance. Effective February 1998, rent amounts shall be paid
at the rate of $18,000 per month until such time that the prepaid balance is
extinguished. For the year ended December 31, 1997, the Partnership paid $35,000
to CGS Real Estate Company, Inc. and an additional $55,000 was applied against
the prepaid balance. Hence, at December 31, 1997 the prepaid balance was
$845,000.
9
<PAGE>
Future minimum basic rent required under the ground lease is as follows:
Minimum
YEAR ENDING DECEMBER 31, Basic Rent
-------------
1998 $ 330,000
1999 330,000
2000 330,000
2001 330,000
2002 330,000
Thereafter 9,180,000
-------------
Total $ 10,830,000
=============
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
A. EXHIBITS
1. Annual Report to the Limited Partners
2. Exhibit Number 27 - Financial Data Schedule
B. FINANCIAL STATEMENT SCHEDULES
The following financial statement schedule and the report of the independent
auditors thereon are included herein:
1. Schedule III - Real Estate and Accumulated Depreciation - December 31,
1997
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
10
<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 INSTITUTIONAL PROPERTIES V
a California Limited Partnership
S-P PROPERTIES, INC.
General Partner
Date: March 19, 1998 /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, 1998 /s/THOMAS N. THURBER
- -------------------- -------------------------------------------
Thomas N. Thurber
President and Director
S-P Properties, Inc.
Date: March 19, 1998 /s/WILLIAM J. CARDEN
- -------------------- -------------------------------------------
William J. Carden
Assistant Secretary/Treasurer and Director
S-P Properties, Inc.
Date: March 19, 1998 /s/G. ANTHONY EPPOLITO
- -------------------- -------------------------------------------
Anthony Eppolito
Chief Accountant
S-P Properties, Inc.
11
<PAGE>
INDEPENDENT AUDITORS' REPORT ON FINANCIAL STATEMENT SCHEDULE
To the Partners of
Sierra Pacific Institutional Properties V
We have audited the consolidated financial statements of Sierra Pacific
Institutional Properties V, a California limited partnership, (the
"Partnership") as of December 31, 1997 and 1996, and for each of the three years
in the period ended December 31, 1997 and have issued our report thereon dated
March 13, 1998. Such consolidated financial statements and report are included
in your 1997 Annual Report to the Limited Partners and are incorporated herein
by reference. Our audits also included the financial statement schedule of
Sierra Pacific Institutional Properties V, listed in Item 14. This financial
statement schedule is the responsibility of the Partnership's management. Our
responsibility is to express an opinion based on our audits. In our opinion,
such financial statement schedule, when considered in relation to the basic
consolidated financial statements taken as a whole, presents fairly in all
material respects the information set forth therein.
DELOITTE & TOUCHE LLP
Houston, Texas
March 13, 1998
12
<PAGE>
SCHEDULE III - FORM 10-K
SIERRA PACIFIC INSTITUTIONAL PROPERTIES V
REAL ESTATE AND ACCUMULATED DEPRECIATION
DECEMBER 31, 1997
<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)(6)
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
OFFICE BUILDING-
INCOME -PRODUCING:
Sierra Sorrento II (3)
San Diego, California $ 3,000,000 $ 2,420,186 0 $5,450,087 $2,569,815 $5,450,087 $8,019,902
Accum. Date Date Deprec.
Description Deprec. (6) Constructed Acquired Life
- -------------------------------------------------------------------------------
OFFICE BUILDING-
INCOME -PRODUCING:
Sierra Sorrento II (3)
San Diego, California $ 2,390,306 (5) 8/87 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) On February 1, 1989, the Sierra Sorrento II land was sold for $3,000,000
and leased back from the buyer. Sales and Leaseback costs of $149,629 were
capitalized. Because the sale and leaseback transaction contains many
characteristics of a joint venture, the Partnership accounts for this
arragement under the method of accounting described in Note 4 to the
consolidated financial statements incorporated by reference to the Annual
Report to the Limited Partners attached as an Exhibit. On October 1, 1993,
the property was transferred to a general partnership, Sorrento II
Partners. The Partnership has an equity interest of 75.09% and Sierra Mira
Mesa Partners, an affiliate, has 24.91% interest at December 31, 1997.
(4) For Federal Income Tax purposes, the total cost of the Property (net of the
ground lessor's equity) is $5,019,902.
(5) Construction on a two-story building ("Building B"), 29,500 usable square
footage, was completed in November 1988. Construction on a two-story
building ("Building A") 58,923 usable square footage, was completed in May
1989.
(6) Reconciliation of total real estate carrying value and accumulated
depreciation for the three years ended December 31, 1997 is as follows:
Total Real Estate Accumulated
Carrying Value Depreciation
---------- ----------
Balance - January 1, 1995 .................. $7,633,493 $1,237,998
Additions during the year ............... 305,219 368,005
---------- ----------
Balance - December 31, 1995 ................ 7,938,712 1,606,003
Additions during the year .............. 51,877 392,151
---------- ----------
Balance - December 31, 1996 ................ 7,990,589 1,998,154
Additions during the year .............. 29,313 392,152
---------- ----------
Balance - December 31, 1997 ................ $8,019,902 $2,390,306
========== ==========
13
<PAGE>
SIERRA PACIFIC INSTITUTIONAL PROPERTIES V
(A California Limited Partnership)
SELECTED FINANCIAL DATA
For the Years Ended December 31, 1997, 1996, 1995, 1994 and 1993
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, 1997 have been derived from the
audited consolidated 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>
1997 1996 1995 1994 1993
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
REVENUES ...................................... $ 979,052 $ 990,901 $ 923,375 $ 671,486 $ 386,124
OPERATING EXPENSES:
Total ....................................... 1,216,169 1,220,966 1,181,440 1,138,026 2,844,698
Per dollar of revenues ...................... 1.24 1.23 1.28 1.69 7.37
NET LOSS:
Total ....................................... (178,051) (168,132) (206,168) (389,176) (2,404,332)
General Partner ............................. 0 0 0 0 0
Limited Partners ............................ (178,051) (168,132) (206,168) (389,176) (2,404,332)
Per Unit (1) ................................ (5.79) (5.46) (6.70) (12.64) (78.13)
CASH (USED IN) PROVIDED BY OPERATING ACTIVITIES (647,186) 158,517 (96,063) (534,943) (277,391)
CASH USED IN INVESTING ACTIVITIES ............. (29,313) (51,877) (305,219) (324,502) (871,867)
CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 691,400 (164,995) 465,400 845,000 101,649
TOTAL ASSETS .................................. 7,212,994 6,785,833 7,130,169 6,856,102 7,988,849
PARTNERS' EQUITY:
Total ....................................... 2,281,253 2,459,304 2,627,436 2,833,604 3,222,780
General Partner ............................. 0 0 0 0 0
Limited Partners ............................ 2,281,253 2,459,304 2,627,436 2,833,604 3,222,780
LIMITED PARTNERS' EQUITY - PER UNIT (1) ....... 74.12 79.91 85.37 92.07 104.71
INCOME-PRODUCING PROPERTIES:
Number ...................................... 1 1 1 1 1
Cost ........................................ 8,019,902 7,990,589 7,938,712 7,633,493 7,308,991
Less: Accumulated depreciation .............. (2,390,306) (1,998,154) (1,606,003) (1,237,998) (891,477)
Net book value .............................. 5,629,596 5,992,435 6,332,709 6,395,495 6,417,514
MINORITY INTEREST IN CONSOLIDATED JOINT VENTURE 1,711,297 1,078,963 1,286,896 873,393 1,445,758
DISTRIBUTIONS PER UNIT (1): ................... 0 0 0 0 0
</TABLE>
N/A = Not applicable nor available
(1) The net loss, limited partners' equity and distributions per unit are based
upon the limited partnership units outstanding at the end of the year,
30,777 in all years. The cumulative distributions per limited partnership
unit from inception to December 31, 1997 equal $2.69.
14
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Partners of
Sierra Pacific Institutional Properties V
We have audited the accompanying consolidated balance sheets of Sierra Pacific
Institutional Properties V, a California limited partnership, (the
"Partnership") as of December 31, 1997 and 1996, 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, 1997. 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
Institutional Properties V as of December 31, 1997 and 1996, and the results of
its operations and its cash flows for each of the three years in the period
ended December 31, 1997 in conformity with generally accepted accounting
principles.
DELOITTE & TOUCHE LLP
Houston, Texas
March 13, 1998
15
<PAGE>
SIERRA PACIFIC INSTITUTIONAL PROPERTIES V
(A California Limited Partnership)
CONSOLIDATED BALANCE SHEETS
December 31, 1997 and 1996
<TABLE>
<CAPTION>
December 31, 1997 December 31, 1996
----------------- -----------------
<S> <C> <C>
ASSETS
Cash and cash equivalents ........................................................ $ 23,479 $ 8,578
Receivables:
Unbilled rent (Notes 1 and 4) .................................................. 476,278 489,965
Due from affiliates (Note 3) ..................................................... 18,995 18,995
Prepaid ground lease (Note 3) .................................................... 845,000 0
Income-producing property - net of accumulated depreciation of
$2,390,306 in 1997 and $1,998,154 in 1996 (Note 4) ............................. 5,629,596 5,992,435
Other assets (Notes 1, 2 and 3) .................................................. 219,646 275,860
---------- ----------
Total Assets ..................................................................... $7,212,994 $6,785,833
========== ==========
LIABILITIES AND PARTNERS' EQUITY
Accrued and other liabilities (Notes 1 and 2) .................................... $ 48,386 $ 97,333
Ground lease payable ............................................................. 172,058 150,233
---------- ----------
Total Liabilities ................................................................ 220,444 247,566
---------- ----------
Ground lessor's equity in income-producing property (Note 3) ..................... 3,000,000 3,000,000
---------- ----------
Minority interest in consolidated joint venture (Note 4) ......................... 1,711,297 1,078,963
---------- ----------
Partners' equity (Notes 1 and 5):
General Partner ................................................................ 0 0
Limited Partners:
140,000 units authorized, 30,777 issued and outstanding ...................... 2,281,253 2,459,304
---------- ----------
Total Partners' equity ........................................................... 2,281,253 2,459,304
---------- ----------
Total Liabilities and Partners' equity ........................................... $7,212,994 $6,785,833
========== ==========
</TABLE>
See Accompanying Notes
16
<PAGE>
SIERRA PACIFIC INSTITUTIONAL PROPERTIES V
(A California Limited Partnership)
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Years Ended December 31, 1997, 1996 and 1995
<TABLE>
<CAPTION>
1997 1996 1995
----------- ----------- ------------
<S> <C> <C> <C>
REVENUES:
Rental income (Note 1) ......................................... $ 979,052 $ 990,901 $ 923,375
----------- ----------- -----------
Total revenues ............................................. 979,052 990,901 923,375
----------- ----------- -----------
EXPENSES:
Operating expenses:
Depreciation and amortization ................................ 447,453 447,452 423,305
Ground lease (Note 3) ........................................ 381,826 382,733 382,500
Property taxes and insurance ................................. 89,444 90,530 108,055
Maintenance and repairs ...................................... 66,599 84,287 62,390
Administrative fees (Note 3) ................................. 65,163 67,428 62,167
Management fees (Note 3) ..................................... 59,515 54,102 46,718
Legal and accounting ......................................... 61,781 33,070 44,957
General and administrative ................................... 13,655 25,316 20,689
Utilities .................................................... 22,029 20,193 17,897
Salaries and payroll taxes ................................... 0 0 3,362
Renting expenses ............................................. 1,981 1,940 101
Other operating expenses ..................................... 6,723 13,915 9,299
----------- ----------- -----------
Total operating expenses ................................... 1,216,169 1,220,966 1,181,440
----------- ----------- -----------
LOSS BEFORE MINORITY INTEREST'S SHARE
OF CONSOLIDATED JOINT VENTURE LOSS ............................. (237,117) (230,065) (258,065)
----------- ----------- -----------
MINORITY INTEREST'S SHARE OF
CONSOLIDATED JOINT VENTURE LOSS ................................ 59,066 61,933 51,897
----------- ----------- -----------
NET LOSS ......................................................... $ (178,051) $ (168,132) $ (206,168)
=========== =========== ===========
Net loss per limited partnership unit (Note 1) ................... $ (5.79) $ (5.46) $ (6.70)
=========== =========== ===========
</TABLE>
See Accompanying Notes
17
<PAGE>
SIERRA PACIFIC INSTITUTIONAL PROPERTIES V
(A California Limited Partnership)
CONSOLIDATED STATEMENTS OF CHANGES IN PARTNERS' EQUITY
For the Years Ended December 31, 1997, 1996 and 1995
<TABLE>
<CAPTION>
Limited Partners Total
------------------------- General Partners'
Per Unit Total Partner Equity
---------- ----------- ------------ ------------
<S> <C> <C> <C> <C>
Partners' equity - January 1, 1995 ............................. $ 92.07 $ 2,833,604 $ 0 $ 2,833,604
Net loss ....................................................... (6.70) (206,168) (206,168)
------- ----------- ----------- -----------
Partners' equity - December 31, 1995 ........................... 85.37 2,627,436 0 2,627,436
Net loss ....................................................... (5.46) (168,132) (168,132)
------- ----------- ----------- -----------
Partners' equity - December 31, 1996 ........................... 79.91 2,459,304 0 2,459,304
Net loss ....................................................... (5.79) (178,051) (178,051)
------- ----------- ----------- -----------
Partners' equity - December 31, 1997 ........................... $ 74.12 $ 2,281,253 $ 0 $ 2,281,253
======= =========== =========== ===========
</TABLE>
See Accompanying Notes
18
<PAGE>
SIERRA PACIFIC INSTITUTIONAL PROPERTIES V
(A California Limited Partnership)
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended December 31, 1997, 1996 and 1995
<TABLE>
<CAPTION>
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss ................................................................... $(178,051) $(168,132) $(206,168)
Adjustments to reconcile net loss to cash
(used in) provided by operating activities:
Depreciation and amortization ............................................ 447,453 447,452 423,305
Minority interest's share of unconsolidated joint venture loss ........... (59,066) (61,933) (51,897)
(Increase) decrease in rent receivable ................................... 13,687 (88,632) (185,285)
Decrease in other receivables ............................................ 0 0 31,958
Increase in other assets ................................................. (844,087) (1,967) (174,708)
(Decrease) increase in accrued and other liabilities ..................... (27,122) 31,729 66,732
--------- --------- ---------
Net cash (used in) provided by operating activities ...................... (647,186) 158,517 (96,063)
--------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Payments for property additions ............................................ (29,313) (51,877) (305,219)
--------- --------- ---------
Net cash used in investing activities ...................................... (29,313) (51,877) (305,219)
--------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments to affiliates ..................................................... 0 (18,995) 0
Distributions to minority investor ......................................... (262,000) (190,500) (23,600)
Contributions from minority investor ....................................... 953,400 44,500 489,000
--------- --------- ---------
Net cash provided by (used in) financing activities ........................ 691,400 (164,995) 465,400
--------- --------- ---------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS ......................... 14,901 (58,355) 64,118
CASH AND CASH EQUIVALENTS - Beginning of year ................................ 8,578 66,933 2,815
--------- --------- ---------
CASH AND CASH EQUIVALENTS - End of year ..................................... $ 23,479 $ 8,578 $ 66,933
========= ========= =========
</TABLE>
See Accompanying Notes
19
<PAGE>
SIERRA PACIFIC INSTITUTIONAL PROPERTIES V
(A CALIFORNIA LIMITED PARTNERSHIP)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION
Sierra Pacific Institutional Properties V (the "Partnership") was organized on
October 8, 1985 in accordance with the provisions of the California Uniform
Limited Partnership Act to acquire and operate commercial and industrial 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 acquired land in August 1987 for the development of an 88,423
square foot office property in San Diego, California known as Sierra Sorrento
II. This development consists of two separate buildings; a two-story building
consisting of 29,500 usable square feet that was completed in November 1988 and
a two-story building consisting of 58,923 usable square feet that was completed
in May 1989.
On October 1, 1993, the Partnership created a California general partnership
(Sorrento II Partners) with Sierra Mira Mesa Partners ("SMMP"), an affiliate, to
facilitate cash contributions by SMMP for the continued development and
operation of the Sorrento II property. The Partnership contributed the Sierra
Sorrento II property and cash and SMMP contributed cash to the newly formed
partnership. At December 31, 1997, the Partnership's remaining asset is a 75.09%
interest in Sorrento II Partners.
On July 8, 1997, the Sorrento II land was purchased from Lincoln National Life
Insurance Company by CGS Real Estate Company, Inc., an affiliate of the General
Partner. On September 24, 1997, all rights, title and interest in the ground
lease were transferred and assigned to CGS Real Estate Company, Inc. ("Ground
Lessor") (See Note 3).
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 include the accounts of the Partnership
and Sorrento II Partners, a majority owned California general partnership (see
Note 4). All significant intercompany balances and transactions have been
eliminated in consolidation.
20
<PAGE>
Sierra Pacific Institutional Properties V
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, 1997 and 1996
consist of cash and cash equivalents, receivables, due from affiliates, and
accounts payable. The fair value of cash and cash equivalents, receivables, and
accounts payable approximates the carrying value due to the short term nature of
these items. The fair value of due from affiliates can not be determined due to
the related party nature of this receivable.
INCOME-PRODUCING PROPERTY
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 property are depreciated over ten years and tenant improvements incurred
at the re-leasing of the property are depreciated over the life of the related
lease.
Expenditures for repairs and maintenance are charged against income as incurred.
Improvements and major renewals are capitalized. Costs and the related
accumulated depreciation of assets sold or retired are removed from the accounts
in the year of disposal or when fully depreciated and any resulting gain or loss
is reflected in income or deferred income as appropriate.
The Partnership employs a systematic approach in determining whether the value
of income-producing property has been impaired. Prior to 1995, a provision for
loss on a property was established if the appraised value of the property
declined below its book value due to what the General Partner believed to be an
other than temporary condition. A complete appraisal was performed on the
property as of December 31 each year through December 31, 1994. A provision for
loss on the property was established as the appraised value of the property
declined below book value because of depressed real estate market conditions,
which the General Partner believed to be other than temporary.
Effective January 1, 1995, the Partnership implemented Statement of Financial
Accounting Standards No. 121, "Accounting for Impairment of Long-Lived Assets
and for Long-Lived Assets to be Disposed Of" (the "Statement"). The Partnership
regularly evaluates long-lived assets for impairment whenever events or changes
in circumstances indicate that the carrying amount of the asset may not be
recoverable. Future cash flows are estimated and compared to the carrying amount
of the asset to determine if an impairment has occurred. If the sum of the
expected future cash flows is less than the carrying amount of the asset, the
Partnership shall recognize an impairment loss in accordance with the Statement.
No loss provision was required with the implementation of this Statement.
Because the determination of fair value is based upon projections of future
economic events such as property occupancy rates, rental rates, operating cost
inflation and market capitalization rates which are inherently subjective, the
amounts ultimately realized at disposition may differ materially from the net
carrying value as of December 31, 1997. 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.
21
<PAGE>
Sierra Pacific Institutional Properties V
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.
RENTAL INCOME AND RENT RECEIVABLE
Rental income is recognized on the straight-line method over the term of the
related operating lease in accordance with the provisions of Statement of
Financial Accounting Standards No. 13, "Accounting for Leases".
Unbilled rent receivable represents the difference between rent recognized on
the straight-line method and actual cash due.
ACCRUED AND OTHER LIABILITIES
Ground lease payable, included in accrued and other liabilities, represents the
difference between rent recognized on the straight-line method in accordance
with the provisions of Statement of Financial Accounting Standards No. 13,
"Accounting for Leases" and actual cash due and paid by that date.
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 30,777, the
number of limited partnership units outstanding.
2. DETAILS OF CERTAIN BALANCE SHEET ACCOUNTS
Additional information regarding certain balance sheet accounts, at December 31,
1997 and 1996, is as follows:
1997 1996
-------- --------
Other assets:
Prepaid expenses .............................. $ 37,106 $ 38,020
Deferred leasing costs, net of accumulated
amortization of $204,574 in 1997 and
$149,273 in 1996 ............................ 182,540 237,840
-------- --------
$219,646 $275,860
======== ========
Accrued and other liabilities:
Accounts payable .............................. $ 40,319 $ 84,380
Security deposits ............................. 7,249 7,249
Other ......................................... 818 5,704
-------- --------
$ 48,386 $ 97,333
======== ========
22
<PAGE>
Sierra Pacific Institutional Properties V
Notes to Consolidated Financial Statements
Page four
3. GENERAL PARTNER AND RELATED PARTY TRANSACTIONS
In 1994, all of the common stock of TCP, Inc., was purchased by Finance Factors,
Inc. from Carlsberg Management Company ("CMC"). TCP, Inc. owns all of the common
stock of S-P Properties, Inc., the General Partner of the Partnership. CMC
continued to manage the affairs of the Partnership through March 31, 1995.
An affiliate of the General Partner may receive a management fee of 6% of the
gross rental income collected from the properties. Management fees paid to
affiliates for the years ended December 31, 1997, 1996 and 1995 were $59,515,
$54,102 and $33,554, 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 $69,720, $67,428 and $46,318 for such services for the years ended
December 31, 1997, 1996 and 1995, respectively. Additionally, the Partnership
reimbursed the affiliate for construction supervision costs incurred by the
affiliate. For the years ended December 31, 1997, 1996 and 1995, the affiliate
received $1,998, $0 and $27,235, respectively, for tenant improvements
supervisory costs.
The Partnership sold the Sierra Sorrento II land holdings to Lincoln National
Life Insurance Company for $3,000,000 on February 1, 1989. Upon ownership
transfer, the Partnership entered into a 40 year ground lease with the insurance
company. The Sierra Sorrento II land lease requires initial minimum payments of
$25,000 per month commencing February 1989. The terms of the ground lease
require scheduled rent increases over the lease term and additional ground rent.
Subject to the provisions of the ground lease, the Partnership has the right to
sell the property (land and buildings) to a third party. Upon ownership transfer
the ground lease will terminate. Upon sale, the Ground Lessor is entitled to
remuneration of the prior $3,000,000 investment prior to distribution of
proceeds to the Partnership. The Ground Lessor will also participate in the
appreciation of the property (upon sale) based on a formula contained in the
ground lease agreement. On July 8, 1997, the land was purchased from Lincoln
National Life Insurance Company by CGS Real Estate Company, Inc., an affiliate
of the General Partner. On September 24, 1997, all rights, title and interest in
the ground lease were transferred and assigned to CGS Real Estate Company, Inc.
("Ground Lessor").
In October 1997, the Partnership prepaid $900,000 of the ground lease to CGS
Real Estate Company, Inc in exchange of an amendment reducing the minimum rent
required under the lease from $360,000 to $330,000 per year from 1999 to 2008.
The minimum basic rent effective January 1, 2009 through December 31, 2028
remained unchanged at $360,000 per year. The November 1997, December 1997, and
January 1998 rent amounts payable under the terms of the lease will be applied
against the prepaid balance. Effective February 1998, rent amounts shall be paid
at the rate of $18,000 per month until such time that the prepaid balance is
extinguished. For the year ended December 31, 1997, the Partnership paid $35,000
to CGS Real Estate Company, Inc. and an additional $55,000 was applied against
the prepaid balance. Hence, at December 31, 1997 the prepaid balance was
$845,000.
Future minimum basic rent required under the ground lease is as follows:
Minimum
YEAR ENDING DECEMBER 31, Basic Rent
------------
1998 $ 330,000
1999 330,000
2000 330,000
2001 330,000
2002 330,000
Thereafter 9,180,000
------------
Total $10,830,000
============
23
<PAGE>
Sierra Pacific Institutional Properties V
Notes to Consolidated Financial Statements
Page five
During 1996, the Partnership made a non-interest bearing loan to an affiliate in
the amount of $18,995. Repayment is expected in 1998.
4. INCOME-PRODUCING PROPERTY
At December 31, 1997 and 1996 the total cost and accumulated depreciation of the
property are as follows:
1997 1996
------------- ---------------
Land ................................ $ 2,569,815 $ 2,569,815
Building and improvements ........... 5,450,087 5,420,774
------------- ---------------
Total .................... 8,019,902 7,990,589
Accumulated depreciation ............ (2,390,306) (1,998,154)
------------- ---------------
Net ...................... $ 5,629,596 $ 5,992,435
============= ===============
Sierra Sorrento II experienced land ownership transfer during 1997 (See Note 3).
On October 1, 1993, the Partnership formed a joint venture with SMMP, an
affiliate. The joint venture, known as Sorrento II Partners ("SIIP"), was formed
as a California general partnership to develop and operate the Sierra Sorrento
II property. The Partnership had an 83.2% equity interest with its contribution
of Sierra Sorrento II and $115,000 in cash. Such interest was computed based
upon the estimated fair value of SIIP's net assets at the date of formation of
the joint venture. SMMP was allocated a 16.8% initial equity interest in SIIP in
exchange for its $710,000 cash contribution ($1,005,000, net, through December
31, 1994). SMMP made additional cash contributions amounting to $489,000,
$44,500 and $953,400, and received distributions amounting to $23,600, $190,500
and $262,000 during 1995, 1996 and 1997, respectively. The percentage interests
of the Partnership and SMMP are to be adjusted every January 1st during the term
of SIIP, beginning January 1, 1995. Accordingly, as of January 1, 1995, 1996 and
1997, the Partnership's interest in SIIP was changed to 79.89%, 73.08% and
75.09%, respectively, and SMMP's interest was changed to 20.11%, 26.92% and
24.91%, respectively. On January 1, 1998, the Partnership's interest will be
decreased to 66.45% and SMMP's interest will be increased to 33.55% to reflect
the 1997 contributions and distributions. Under the terms of the SIIP joint
venture agreement, SMMP will receive preferential cash distributions of
available "Distributable Funds" from the operation of SIIP or sale of its
property to the extent of its capital contributions. Additional Distributable
Funds are allocable to the Partnership to the extent of the deemed fair value of
its property contribution, and the remainder to the Partnership and SMMP in
proportion to their respective equity interests.
24
<PAGE>
Sierra Pacific Institutional Properties V
Notes to Consolidated Financial Statements
Page six
Future minimum base rental income, under the existing operating leases for the
Sierra Sorrento II 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
----------- ----------
1998 $ 530,502 $ 559,766
1999 530,502 595,127
2000 530,502 630,487
2001 530,502 651,103
2002 530,502 668,768
Thereafter 88,415 111,952
---------- ----------
Total $ 2,740,925 $ 3,217,203
========== ==========
The Partnership relies on two tenants to generate all of rental income; 35% is
from a healthcare administrator and the remaining 65% is from an electronics
manufacturer.
5. 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 or other disposition of the Partnership's real properties,
distributions will be made to the Limited Partners until they have received
distributions from sales 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 from all sources equal to the sum of their respective priority
distributions (an amount equal to not less than 12% per annum cumulative, but
not compounded, on each Limited Partners' unreturned capital). Thereafter, the
General Partner will be entitled to receive incentive distributions which, when
aggregated with the 1% distributions to the General Partner described above, are
equal to 10% of the total net sale proceeds available for distribution to the
Partners. Any remaining sale proceeds will be distributed to the Limited
Partners.
25
<PAGE>
EXECUTIVE OFFICERS OF THE GENERAL PARTNER
The Executive Officers of S-P Properties, Inc., the General Partner are as
follows:
NAME POSITION
- ----------------- -----------------------
Thomas N. Thurber President and Director
Dawson L. Davenport Vice President
Steven M. Speier Secretary/Treasurer and Director
William J. Carden Assistant Secretary/Treasurer and Director
The 10-K Report sent to the Securities and Exchange Commission contains
additional information on the Partnership's operations and is available to
Limited Partners upon request.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE FINANCIAL DATA SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM SIERRA PACIFIC INSTITUTIONAL PROPERTIES V DECEMBER 31, 1997 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-31-1997
<PERIOD-END> DEC-31-1997
<CASH> 23,479
<SECURITIES> 0
<RECEIVABLES> 476,278
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 42,474
<PP&E> 8,019,902
<DEPRECIATION> 2,390,306
<TOTAL-ASSETS> 7,212,994
<CURRENT-LIABILITIES> 48,386
<BONDS> 3,000,000
0
0
<COMMON> 0
<OTHER-SE> 2,281,253
<TOTAL-LIABILITY-AND-EQUITY> 7,212,994
<SALES> 979,052
<TOTAL-REVENUES> 979,052
<CGS> 0
<TOTAL-COSTS> 768,716
<OTHER-EXPENSES> 447,453
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (178,051)
<INCOME-TAX> 0
<INCOME-CONTINUING> (178,051)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (178,051)
<EPS-PRIMARY> (5.79)
<EPS-DILUTED> (5.79)
</TABLE>
