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, 1998 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
incorporation or organization) Number)
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, 1998 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 88,073
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 58,573 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 ($2,015,800, net, through December 31, 1997) in exchange for a
33.55% 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 $228,700 and
received distributions amounting to $85,657 during 1998. 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, 1999, the Partnership's interest in SIIP
will be decreased to 64.90%, and SMMP's interest will be increased to 35.10%.
(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 100% of the building at December 31, 1998.
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 1998 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, 1998, the Partnership had paid cash
distributions of $2.69 for each $250 unit investment and remaining partners'
equity was computed at $64.90 per unit. Thus, if the Partnership were to be
liquidated at the end of 1998 at book value, each $250 investment would have
returned a total of $67.59.
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 1998, the Partnership owned a 66.45% 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 88,073 rentable square feet and is 100% occupied at
December 31, 1998. There are no material liens or encumbrances against the
property at December 31, 1998. The average effective annual rent per square foot
at December 31, 1998 is $10.95. The property has only two tenants whose
principal businesses are electronics manufacturing and media and marketing.
Details of these significant tenants and their leases follow.
SUMMARY OF TENANTS/LEASES
<TABLE>
<CAPTION>
PERCENT EFFECTIVE PERCENT
SQUARE OF RENT PER EFFECTIVE OF GROSS
FEET RENTABLE SQUARE RENT PER ANNUAL EXPIRATION
TENANTS OCCUPIED SPACE FOOT ANNUM RENT OF LEASE
-------- --------- --------- --------- -------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Insight Electronics 58,923 67% $ 9.00 $ 530,502 55% February 2003
Ziff-Davis, Inc. ... 22,150 25% 16.02 354,783 37% July 2005
Ziff-Davis, Inc. ... 7,000 8% 11.31 79,200 8% December 2002
-------- --------- --------- --------- --------
Total Rented Space . 88,073 100% $ 10.95 $ 964,485 100%
Vacancies .......... 0%
-------- ---------
Total Rentable Space 88,073 100%
======== =========
</TABLE>
DEPRECIABLE PROPERTY Reference is made to Schedule III of the Form 10-K.
REAL ESTATE TAXES The real estate tax obligation for 1998 is
approximately 1.13% of the assessed value or $80,768.
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, 1998, the number of security holders is as follows:
NUMBER OF
NUMBER RECORD
OF UNITS HOLDERS
--------- ---------
Limited Partners ................................... 30,777 1,485
========= =========
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 three 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, 1998, the Partnership owned a 66.45%
interest in Sierra Sorrento II, an industrial property located
in San Diego, California.
5
<PAGE>
Results of Operations:
COMPARISON OF YEAR ENDED DECEMBER 31, 1998 TO YEAR ENDED DECEMBER 31, 1997.
Rental income decreased by $164,000, or 17%, primarily due to lower occupancy
during the first seven months of 1998. One tenant, whose lease accounted for
22,150 square feet of the Property, expired December 31, 1997. This vacant space
was re-leased to a tenant in the second quarter of 1998 and rent commenced in
late August. This same tenant began leasing an additional 7,000 square feet in
December 1998. The Property was 100% occupied at December 31, 1998. The
weighted-average annual rent per square foot, on an accrual basis, increased
from $10.12 at December 31, 1997 to $10.95 at December 31, 1998 as a result of
higher rental rates.
Total operating expenses increased by $26,000, or 2%, when compared to the prior
year. Depreciation and amortization, maintenance and repairs, and other
operating expenses increased due to costs associated with the new tenant.
Further, property taxes were higher due to an increase in the assessed value of
the Property. The increase in total operating expenses was partially offset due
to a decrease in management fees and legal fees. Management fees were lower as a
result of the decrease in rental income. Legal fees were higher in 1997 due to
professional fees associated with the property's ground lease.
COMPARISON OF YEAR ENDED DECEMBER 31, 1997 TO YEAR ENDED DECEMBER 31, 1996.
Rental income 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 fees due to professional fees
associated with the property's ground lease.
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 in 1997. During 1998, SMMP contributed a total of $228,700
to the Partnership and received distributions of $85,657 from the Partnership.
During 1998, the Partnership generated cash flows from operations of $177,000
and paid $556,000 for property additions and lease commissions. The Partnership
is in an illiquid position at December 31, 1998 with cash of $3,000 and current
liabilities of $246,000.
The Partnership's primary capital requirements will be for construction of new
tenant space. It is anticipated that these requirements and any operating
capital requirements will be funded from operations of the Property and 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.
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,
6
<PAGE>
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 employs a property management company to manage, operate and
lease the property. The management company believes it will be ready for the
Year 2000 date change by the end of 1999. The impact of Year 2000 non-compliance
by other third parties cannot accurately be gauged.
The total cost to the Partnership of activities associated with Year 2000
Compliance is not anticipated to be material to its financial position or
results of operations in any given year. In January 1999, the Partnership began
utilizing a new software program to maintain books and records. The new software
program is Year 2000 compliant.
The total amount of potential risk that would be reasonably likely to result
from Year 2000 failures cannot presently be estimated. In the event the
Partnership does not properly identify Year 2000 issues in a timely manner,
there can be no assurance that Year 2000 issues will not materially affect the
Partnership's results.
The Partnership's contingency plan should systems fail due to the Year 2000 date
change is to temporarily convert to a manual system. The Partnership believes it
could temporarily operate on a manual system without adversely impacting
operations.
The preceding Year 2000 discussion contains various forward-looking statements
which represent the Partnership's beliefs or expectations regarding future
events. All forward-looking statements involve a number of risks and
uncertainties that could cause the actual results to differ materially from
projected results.
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, 1998 and 1997
3. Consolidated Statements of Operations - for the years ended December 31,
1998, 1997 and 1996
4. Consolidated Statements of Changes in Partners' Equity - for the years
ended December 31, 1998, 1997 and 1996
5. Consolidated Statements of Cash Flows - for the years ended December 31,
1998, 1997 and 1996
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, Missouri, 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 48 4 years
Dawson L. Davenport Vice President 43 4 years
Steven M. Speier Secretary/Treasurer and 48 4 years
Director
William J. Carden Assistant Secretary/ 54 4 years
Treasurer and Director
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,
1998 were $49,919. 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 $77,844 during the year ended December
31, 1998. The Partnership also reimbursed ASRE for construction supervision
costs. These fees for the year ended December 31, 1998 were $22,511. In
consideration for services rendered with respect to initial leasing of
Partnership properties, ASRE is paid initial leasing costs. For the year ended
December 31, 1998, a total of $74,504 was paid for initial leasing costs. 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 were 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, 1998, the Partnership paid
$198,000 to CGS Real Estate Company, Inc. and $162,000 was applied against the
prepaid balance. The prepaid balance as of December 31, 1998 was $683,000.
9
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Future minimum basic rent required under the ground lease is as follows:
MINIMUM
YEAR ENDING DECEMBER 31, BASIC RENT
- ------------------------- -----------
1999........... $ 330,000
2000........... 330,000
2001........... 330,000
2002........... 330,000
2003........... 330,000
Thereafter...... 8,850,000
-----------
Total......... $10,500,000
===========
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 - Selected Financial Data
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,
1998
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, 1999 /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, 1999 /S/THOMAS N. THURBER
---------------------------- --------------------------------------
Thomas N. Thurber
President and Director
S-P Properties, Inc.
Date: March 19, 1999 /S/WILLIAM J. CARDEN
---------------------------- --------------------------------------
William J. Carden
Assistant Secretary/Treasurer and Director
S-P Properties, Inc.
Date: March 19, 1999 /S/G. ANTHONY EPPOLITO
---------------------------- --------------------------------------
Anthony Eppolito
Chief Accountant
S-P Properties, Inc.
11
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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, 1998 and 1997, and for each of the three years
in the period ended December 31, 1998 and have issued our report thereon dated
February 26, 1999. Such consolidated financial statements and report are
included in your 1998 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
February 26, 1999
12
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SCHEDULE III - FORM 10-K
SIERRA PACIFIC INSTITUTIONAL PROPERTIES V
REAL ESTATE AND ACCUMULATED DEPRECIATION
DECEMBER 31, 1998
<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>
OFFICE BUILDING-
INCOME -PRODUCING:
Sierra Sorrento II (3)
San Diego, California $ 3,000,000 $ 2,420,186 $ 0 $ 5,790,463 $2,569,815 $5,761,800 $8,331,615
<CAPTION>
ACCUM. DATE DATE DEPREC.
DESCRIPTION DEPREC.(5) CONSTRUCTED ACQUIRED LIFE
- --------------------- ----------- ----------- -------- --------
<S> <C> <C> <C> <C>
OFFICE BUILDING-
INCOME -PRODUCING:
Sierra Sorrento II (3)
San Diego, California $ 2,760,889 (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 66.45% and Sierra Mira
Mesa Partners, an affiliate, has a 33.55% interest at December 31, 1998.
(4) For Federal Income Tax purposes, the total cost of the Property (net of
the ground lessor's equity) is $5,331,615.
(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") 58,573 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, 1998 is as follows:
TOTAL REAL ESTATE ACCUMULATED
CARRYING VALUE DEPRECIATION
----------------- ------------
Balance - January 1, 1996 .................. $ 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
Additions during the year .............. 340,376 399,246
Deductions:
Write off fully depreciated assets ... (28,663) (28,663)
----------------- ------------
Balance - December 31, 1998 ................ $ 8,331,615 $ 2,760,889
================= ============
13
<PAGE>
SIERRA PACIFIC INSTITUTIONAL PROPERTIES V
(A CALIFORNIA LIMITED PARTNERSHIP)
SELECTED FINANCIAL DATA
For the Years Ended December 31, 1998, 1997, 1996, 1995, and 1994
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, 1998 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>
1998 1997 1996 1995 1994
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
REVENUES ...................................... $ 814,801 $ 979,052 $ 990,901 $ 923,375 $ 671,486
OPERATING EXPENSES:
Total ....................................... 1,241,780 1,216,169 1,220,966 1,181,440 1,138,026
Per dollar of revenues ...................... 1.52 1.24 1.23 1.28 1.69
NET LOSS:
Total ....................................... (283,728) (178,051) (168,132) (206,168) (389,176)
General Partner ............................. 0 0 0 0 0
Limited Partners ............................ (283,728) (178,051) (168,132) (206,168) (389,176)
Per Unit (1) ................................ (9.22) (5.79) (5.46) (6.70) (12.64)
CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES ........................ 177,057 (647,186) 158,517 (96,063) (534,943)
CASH USED IN
INVESTING ACTIVITIES ........................ (340,376) (29,313) (51,877) (305,219) (324,502)
CASH PROVIDED BY (USED IN)
FINANCING ACTIVITIES ........................ 143,043 691,400 (164,995) 465,400 845,000
TOTAL ASSETS .................................. 7,147,241 7,212,994 6,785,833 7,130,169 6,856,102
PARTNERS' EQUITY:
Total ....................................... 1,997,525 2,281,253 2,459,304 2,627,436 2,833,604
General Partner ............................. 0 0 0 0 0
Limited Partners ............................ 1,997,525 2,281,253 2,459,304 2,627,436 2,833,604
LIMITED PARTNERS' EQUITY - PER UNIT (1) ....... 64.90 74.12 79.91 85.37 92.07
INCOME-PRODUCING PROPERTIES:
Number ...................................... 1 1 1 1 1
Cost ........................................ 8,331,615 8,019,902 7,990,589 7,938,712 7,633,493
Less: Accumulated depreciation .............. (2,760,889) (2,390,306) (1,998,154) (1,606,003) (1,237,998)
Net book value .............................. 5,570,726 5,629,596 5,992,435 6,332,709 6,395,495
MINORITY INTEREST IN
CONSOLIDATED JOINT VENTURE ................. 1,711,089 1,711,297 1,078,963 1,286,896 873,393
DISTRIBUTIONS PER UNIT (1): ................... 0 0 0 0 0
</TABLE>
(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, 1998 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, 1998 and 1997, 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, 1998. 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, 1998 and 1997, and the results of
its operations and its cash flows for each of the three years in the period
ended December 31, 1998 in conformity with generally accepted accounting
principles.
DELOITTE & TOUCHE LLP
Houston, Texas
February 26, 1999
15
<PAGE>
SIERRA PACIFIC INSTITUTIONAL PROPERTIES V
(A CALIFORNIA LIMITED PARTNERSHIP)
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
DECEMBER 31, 1998 DECEMBER 31, 1997
----------------- -----------------
<S> <C> <C>
ASSETS
Cash and cash equivalents .............................................................. $ 3,203 $ 23,479
Receivables:
Unbilled rent (Notes 1 and 4) ........................................................ 486,238 476,278
Due from affiliates (Note 3) ........................................................... 18,995 18,995
Prepaid ground lease (Note 3) .......................................................... 683,000 845,000
Income-producing property - net of
accumulated depreciation of
$2,760,889 in 1998 and $2,390,306
in 1997 (Note 4) ..................................................................... 5,570,726 5,629,596
Other assets (Notes 1, 2 and 3) ........................................................ 385,079 219,646
----------------- -----------------
Total Assets ........................................................................... $ 7,147,241 $ 7,212,994
================= =================
LIABILITIES AND PARTNERS' EQUITY
Accrued and other liabilities (Note 2) ................................................. $ 252,764 $ 48,386
Ground lease payable (Note 1) .......................................................... 185,863 172,058
----------------- -----------------
Total Liabilities ...................................................................... 438,627 220,444
----------------- -----------------
Ground lessor's equity in income-
producing property (Note 3) .......................................................... 3,000,000 3,000,000
----------------- -----------------
Minority interest in consolidated
joint venture (Note 4) .............................................................. 1,711,089 1,711,297
----------------- -----------------
Partners' equity (Notes 1 and 5):
General Partner ...................................................................... 0 0
Limited Partners:
140,000 units authorized,
30,777 issued and
outstanding ........................................................................ 1,997,525 2,281,253
----------------- -----------------
Total Partners' equity ................................................................. 1,997,525 2,281,253
----------------- -----------------
Total Liabilities and Partners' equity ................................................. $ 7,147,241 $ 7,212,994
================= =================
</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, 1998, 1997 AND 1996
<TABLE>
<CAPTION>
1998 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
REVENUES:
Rental income (Note 1) ......................................... $ 814,801 $ 979,052 $ 990,901
----------- ----------- -----------
Total revenues ............................................ 814,801 979,052 990,901
----------- ----------- -----------
EXPENSES:
Operating expenses:
Depreciation and amortization ................................ 458,276 447,453 447,452
Ground lease (Note 3) ........................................ 373,805 381,826 382,733
Property taxes and insurance ................................. 104,621 89,444 90,530
Maintenance and repairs ...................................... 80,758 66,599 84,287
Administrative fees (Note 3) ................................. 74,059 65,163 67,428
Management fees (Note 3) ..................................... 49,919 59,515 54,102
Legal and accounting ......................................... 29,742 61,781 33,070
General and administrative ................................... 15,055 13,655 25,316
Utilities .................................................... 26,250 22,029 20,193
Renting expenses ............................................. 0 1,981 1,940
Other operating expenses ..................................... 29,295 6,723 13,915
----------- ----------- -----------
Total operating expenses ......................................... 1,241,780 1,216,169 1,220,966
----------- ----------- -----------
LOSS BEFORE MINORITY INTEREST'S SHARE
OF CONSOLIDATED JOINT VENTURE LOSS ............................. (426,979) (237,117) (230,065)
----------- ----------- -----------
MINORITY INTEREST'S SHARE OF
CONSOLIDATED JOINT VENTURE LOSS ................................ 143,251 59,066 61,933
----------- ----------- -----------
NET LOSS ......................................................... $ (283,728) $ (178,051) $ (168,132)
=========== =========== ===========
Net loss per limited partnership unit (Note 1) ................... $ (9.22) $ (5.79) $ (5.46)
=========== =========== ===========
</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, 1998, 1997 AND 1996
<TABLE>
<CAPTION>
LIMITED PARTNERS TOTAL
-------------------------- GENERAL PARTNERS'
PER UNIT TOTAL PARTNER EQUITY
-------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Partners' equity - January 1, 1996 ............................. $ 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
Net loss ....................................................... (9.22) (283,728) (283,728)
-------- ----------- ----------- -----------
Partners' equity - December 31, 1998 ........................... $ 64.90 $ 1,997,525 $ 0 $ 1,997,525
======== =========== =========== ===========
</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, 1998, 1997 AND 1996
<TABLE>
<CAPTION>
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss ................................................................ $(283,728) $(178,051) $(168,132)
Adjustments to reconcile net loss to cash
provided by (used in) operating activities:
Depreciation and amortization ......................................... 458,276 447,453 447,452
Minority interest's share of unconsolidated
joint venture loss .................................................. (143,251) (59,066) (61,933)
(Increase) decrease in rent receivable ................................ (9,960) 13,687 (88,632)
Increase in other assets .............................................. (62,463) (844,087) (1,967)
Increase (decrease) in accrued and other liabilities .................. 218,183 (27,122) 31,729
--------- --------- ---------
Net cash provided by (used in) operating activities ................... 177,057 (647,186) 158,517
--------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Payments for property additions ......................................... (340,376) (29,313) (51,877)
--------- --------- ---------
Net cash used in investing activities ................................... (340,376) (29,313) (51,877)
--------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments to affiliates .................................................. 0 0 (18,995)
Distributions to minority investor ...................................... (85,657) (262,000) (190,500)
Contributions from minority investor .................................... 228,700 953,400 44,500
--------- --------- ---------
Net cash provided by (used in) financing activities ..................... 143,043 691,400 (164,995)
--------- --------- ---------
NET (DECREASE) INCREASE IN CASH
AND CASH EQUIVALENTS ................................................. (20,276) 14,901 (58,355)
CASH AND CASH EQUIVALENTS - Beginning of year ............................. 23,479 8,578 66,933
--------- --------- ---------
CASH AND CASH EQUIVALENTS - End of year .................................. $ 3,203 $ 23,479 $ 8,578
========= ========= =========
</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 88,073
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 58,573 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, 1998, the Partnership's remaining asset is a 66.45%
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, 1998 and 1997
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 amounts due from affiliates are not fair valued due to the
related party nature of these receivables.
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.
Prior to 1995, the Partnership assessed impairment of income-producing
properties based upon appraised values and established provisions for impairment
where appraisals indicated other than temporary declines in value. 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 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, 1998. The cash flows used to determine fair
value and net realizable value are based on good faith estimates and assumptions
developed by management. Unanticipated events and circumstances may occur and
some assumptions may not materialize; therefore actual results may vary from the
estimates and the variances may be material. The Partnership may provide
additional write-downs which could be material in subsequent years if real
estate markets or local economic conditions change.
OTHER ASSETS
Deferred 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.
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".
21
<PAGE>
Sierra Pacific Institutional Properties V
Notes to Consolidated Financial Statements
Page three
Unbilled rent receivable represents the difference between rent recognized on
the straight-line method and actual cash due.
GROUND LEASE PAYABLE
Ground lease payable 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.
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.
2. DETAILS OF CERTAIN BALANCE SHEET ACCOUNTS
Additional information regarding certain balance sheet accounts, at December 31,
1998 and 1997, is as follows:
1998 1997
-------- --------
Other assets:
Prepaid expenses ............................ $ 45,741 $ 37,106
Deferred leasing costs, net of
accumulated amortization of $225,616
in 1998 and $204,574 in 1997 .............. 339,338 182,540
-------- --------
$385,079 $219,646
======== ========
Accrued and other liabilities:
Accounts payable ............................ $ 83,801 $ 40,319
Unearned rental income ...................... 152,150 0
Security deposits ........................... 7,249 7,249
Other ....................................... 9,564 818
-------- --------
$252,764 $ 48,386
======== ========
22
<PAGE>
Sierra Pacific Institutional Properties V
Notes to Consolidated Financial Statements
Page four
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 paid to
affiliates for the years ended December 31, 1998, 1997 and 1996 were $49,919,
$59,515 and $54,102, 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 $77,844, $69,720 and $67,428 for such services for the years ended
December 31, 1998, 1997, and 1996, respectively. In consideration for services
rendered with respect to initial leasing of Partnership properties, an affiliate
is paid initial leasing costs. For the year ended December 31, 1998, a total of
$74,504 was paid for initial leasing costs. No such costs were incurred in 1997
and 1996. Additionally, the Partnership reimbursed the affiliate for
construction supervision costs incurred by the affiliate. For the years ended
December 31, 1998 and 1997, the affiliate received $22,511 and $1,998,
respectively, for tenant improvements supervisory costs. No such costs were
incurred in 1996.
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 were 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 years ended December 31, 1998 and 1997, the Partnership
paid $198,000 and $35,000, respectively, to CGS Real Estate Company, Inc. and
$162,000 and $55,000, respectively, was applied against the prepaid balance.
Hence, at December 31, 1998 the prepaid balance was $683,000.
Future minimum basic rent required under the ground lease is as follows:
MINIMUM
YEAR ENDING DECEMBER 31, BASIC RENT
------------------------ -----------
1999........... $ 330,000
2000........... 330,000
2001........... 330,000
2002........... 330,000
2003........... 330,000
Thereafter...... 8,850,000
-----------
Total......... $10,500,000
===========
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 1999.
4. INCOME-PRODUCING PROPERTY
At December 31, 1998 and 1997 the total cost and accumulated depreciation of the
property are as follows:
1998 1997
----------- -----------
Land ................................... $ 2,569,815 $ 2,569,815
Building and improvements .............. 5,761,800 5,450,087
----------- -----------
Total ......................... 8,331,615 8,019,902
Accumulated depreciation ............... (2,760,889) (2,390,306)
----------- -----------
Net ........................... $ 5,570,726 $ 5,629,596
=========== ===========
Sierra Sorrento II experienced a 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 ($1,470,400, net, through December
31, 1995). SMMP made additional cash contributions amounting to $44,500,
$953,400 and $228,700, and received distributions amounting to $190,500,
$262,000 and $85,657 during 1996, 1997 and 1998, 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, 1996, 1997 and 1998, the Partnership's interest in SIIP was changed to
73.08%, 75.09% and 66.45%, respectively, and SMMP's interest was changed to
26.92%, 24.91% and 33.55%, respectively. On January 1, 1999, the Partnership's
interest will be decreased to 64.90% and SMMP's interest will be increased to
35.10% to reflect the 1998 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
------------------------ ------------- ------------
1999........... $ 964,485 $ 1,004,441
2000........... 964,485 1,050,272
2001........... 964,485 1,081,755
2002........... 964,485 1,110,726
2003........... 443,200 486,301
Thereafter...... 561,738 615,621
------------- ------------
Total......... $ 4,862,878 $ 5,349,116
============= ============
In 1998, the Partnership relied on two tenants to generate all rental income;
82% was from an electronics manufacturer and the remaining 18% was from a media
and marketing company. In 1997 and 1996, two tenants generated all rental
income; 65% from the electronics manufacturer and 35% from a healthcare
administrator.
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.
26
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE FINANCIAL DATA SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM SIERRA PACIFIC INSTITUTIONAL PROPERTIES V DECEMBER 31, 1998 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-31-1998
<PERIOD-END> DEC-31-1998
<CASH> 3,203
<SECURITIES> 0
<RECEIVABLES> 486,238
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 22,198
<PP&E> 8,331,615
<DEPRECIATION> 2,760,889
<TOTAL-ASSETS> 7,147,241
<CURRENT-LIABILITIES> 245,515
<BONDS> 3,000,000
0
0
<COMMON> 0
<OTHER-SE> 1,997,525
<TOTAL-LIABILITY-AND-EQUITY> 7,147,241
<SALES> 814,801
<TOTAL-REVENUES> 814,801
<CGS> 0
<TOTAL-COSTS> 783,504
<OTHER-EXPENSES> 458,276
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (283,728)
<INCOME-TAX> 0
<INCOME-CONTINUING> (283,728)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (283,728)
<EPS-PRIMARY> (9.22)
<EPS-DILUTED> (9.22)
</TABLE>
