SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Form 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1999 Commission file number : 0-15702
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 (Zip Code)
offices)
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, 1999 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 February 1, 2000, the Partnership purchased the land holdings from CGS Real
Estate Company, Inc. for $3,500,000 and the ground lease subsequently
terminated. The Partnership paid cash of $2,174,255 and was credited its current
prepaid balance of $1,325,745.
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 ($2,158,843, net, through December 31, 1998) in exchange for a
35.10% 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 $971,420 and
received distributions amounting to $4,000 during 1999. 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, 2000, the Partnership's interest in SIIP will be
decreased to 56.08%, and SMMP's interest will be increased to 43.92%.
(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, 1999.
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 1999 have been consistent with the intent
of the original prospectus in that the Partnership has invested in real estate
projects that had the potential for capital gains, preservation of capital, and
providing 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, 1999, the Partnership had paid cash
distributions of $2.69 for each $250 unit investment and remaining partners'
equity was computed at $63.06 per unit. Thus, if the Partnership were to be
liquidated at the end of 1999 at book value, each $250 investment would have
returned a total of $65.75.
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 1999, the Partnership owned a 64.90% 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, 1999. There are no material liens or encumbrances against the
property at December 31, 1999. The average effective annual rent per square foot
at December 31, 1999 is $11.04. 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>
SQUARE PRECENT OF EFFECTIVE EFFECTIVE PRECENT OF
FEET RENTABLE RENT PER RENT PER GROSS ANNUAL EXPIRATION
TENANTS OCCUPIED SQUARE FEET SQUARE 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 36% July 2005
Ziff-Davis, Inc. ... 7,000 8% 12.41 86,898 9% July 2005
------------- ------------- ------------- ------------- ------------- -------------
Total Rented Space . 88,073 100% $ 11.04 $ 972,183 100%
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 1999 is approximately
1.12% of the assessed value or $88,975.
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, 1999, the number of security holders is as follows:
NUMBER
OF
NUMBER RECORD
OF UNITS HOLDERS
----------- ----------
Limited Partners 30,777 1,452
=========== ==========
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, 1999, the Partnership owned a 64.90%
interest in Sierra Sorrento II, an industrial property located in San Diego,
California.
5
<PAGE>
Results of Operations:
COMPARISON OF YEAR ENDED DECEMBER 31, 1999 TO YEAR ENDED DECEMBER 31, 1998.
Rental income increased by $378,000, or 46%, principally as a result of 100%
occupancy for the entire year. During the first seven months of 1998, 29,150
square feet of the Property was vacant. A single tenant leased 22,150 square
feet in August 1998 and the remaining 7,000 square feet in December 1998. The
weighted-average annual rent per square foot, on an accrual basis, was $11.04 at
December 31, 1999 compared to $10.95 at December 31, 1998.
The Partnership made additional ground lease prepayments totaling $825,000 in
1999. Effective October 1999, all minimum base rent amounts becoming payable
under the terms of the lease were to be applied against the prepaid balance
until such time that the prepaid balance is extinguished plus interest at the
rate of 10% per annum. Interest income of $35,000 was recorded in 1999 as a
result.
Total operating expenses increased by $73,000, or 6%, in comparison to the prior
year, primarily due to an increase in ground lease expense, management fees and
administrative costs. Additionally, a loan made to an affiliate in 1996 was
deemed uncollectible and written-off to bad debt expense in 1999. Ground lease
expense rose as a result of higher additional rents becoming due effective
January 1999 in accordance with the lease agreement. The increase in management
fees is attributable to the higher rental income. The increase in total
operating expenses was partially offset by a decrease in depreciation and
amortization, and by lower maintenance and repair costs incurred in 1999.
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 1997.
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.
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. During 1999, SMMP contributed
a total of $971,420 to the Partnership and received distributions of $4,000 from
the Partnership.
The Partnership used cash in operations of $493,000 and paid $343,000 for
building and tenant improvements in 1999. At December 31, 1999, the Partnership
is in a liquid position with cash and billed rents of $211,000 and current
liabilities of $84,000.
In February 2000, the Partnership purchased the Sorrento II land holdings from
CGS Real Estate, Inc. for $3,500,000 and the ground lease subsequently
terminated. The Partnership paid cash of $2,174,255 and was credited its current
prepaid balance of $1,325,745. SMMP contributed the majority of the cash for the
land purchase.
6
<PAGE>
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,
including, among other things, a temporary inability to process transactions,
send invoices, or engage in similar normal business activities. As a result,
many companies' software and computer systems may need to be upgraded or
replaced in order to comply with Year 2000 requirements.
The Partnership did not experience any major system failures or disruptions in
operations over the year 2000 transition. All systems have continued to operate
as normal.
The Partnership did not separately track internal costs related to the Year 2000
issue and Partnership management believes these amounts did not have a material
impact on the Partnership's financial position or results of operations.
The Partnership employs a property management company to manage, operate and
lease the property. The management company did not experience any major systems
failures or disruptions in operations at the property. The Partnership remains
confident that no Year 2000 issues with the property management company or other
third parties will arise in the future although no guarantees can be made to
that effect.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The following financial statements and independent auditors' report are
incorporated by reference to the Annual Report to the Limited Partners attached
as an Exhibit.
1. Independent Auditors' Report
2. Consolidated Balance Sheets - December 31, 1999 and 1998
3. Consolidated Statements of Operations - for the years ended December
31, 1999, 1998 and 1997
4. Consolidated Statements of Changes in Partners' Equity - for the
years ended December 31, 1999, 1998 and 1997
5. Consolidated Statements of Cash Flows - for the years ended December
31, 1999, 1998 and 1997
6. Notes to Consolidated Financial Statements
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:
<TABLE>
<CAPTION>
APPROXIMATE
NAME POSITION AGE TIME IN OFFICE
- ---- -------- --- --------------
<S> <C> <C> <C>
Thomas N. Thurber President and Director 49 5 years
Gregory J. Nooney, Jr. Vice President 68 2 years
Patricia A. Nooney Vice President 43 2 years
William J. Carden Assistant Secretary/Treasurer and Director 55 5 years
Morris S. Cohen Director 62 1 year
</TABLE>
Thomas N. Thurber - President and Director, S-P Properties, Inc. Mr. Thurber is
a Certified Public Accountant who began his career with Arthur Andersen & Co. in
1972. In 1979, he joined a major publicly traded real estate development firm
(Daon) where he became Controller for U.S. Operations. Subsequently, Mr. Thurber
served as Director of Real Estate for a developer of retail properties, and
Chief Financial Officer of a trust with significant investments in commercial
real estate. Mr. Thurber also serves as a director of Property Secured
Investments, Inc. Mr. Thurber holds a bachelors degree in accounting from
Florida State University.
Gregory J. Nooney, Jr. - Vice President, S-P Properties, Inc. He also has served
as Chairman of the Board and Chief Executive Officer of Brooklyn Street
Properties, Inc. since May 1983. Mr. Nooney joined Brooklyn Street Properties,
Inc. in 1954 and served as President from 1969 to May 1983. Brooklyn Street
Properties, Inc., which was founded in 1945, is a real estate investment
company. In addition, Mr. Nooney was chairman and Chief Executive Officer of
Nooney Realty Trust from 1984 February 1998 and then served as Vice Chairman
from February 1998 through November 1999. Mr. Nooney is currently Chairman of
Coldwell Banker Commercial American Spectrum.
Partricia A. Nooney - Vice President, S-P Properties, Inc. Patricia A Nooney is
President of Coldwell Banker Commercial American Spectrum, a wholly-owned
subsidiary of CGS Real Estate Company. Ms. Nooney joined Brooklyn Street
Properties, Inc., in 1981 and has served as an officer since 1985. From 1990 to
November 1999, Ms. Nooney was President and Secretary of Nooney Realty Trust,
Inc.
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.
Morris S. Cohen - Director, S-P Properties, Inc. Mr. Cohen's extensive real
estate background includes negotiation of joint venture partnerships for
property acquisitions, production of syndication packages and direct
responsibilities for operations, finance, sales, leasing and property
management. Mr. Cohen was a senior level officer with major public and pivately
held real estate companies and served as President of IDM Participating Income
Corporation from April 1995 to October 1996. Mr. Cohen is a graduate of Queens
College.
There have been no events under any bankruptcy act, no criminal proceedings, and
no judgements or injunctions material to the evaluation of the ability and
integrity of any director during the past five years.
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 (as
defined in the partnership agreement) collected from the property to American
Spectrum Real Estate Services, Inc. (ASRE), formerly Banc Commercial California.
These fees for the year ended December 31, 1999 were $69,072. 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
$89,275 during the year ended December 31, 1999. 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, 1999, a total of $16,293
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,
controls 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 were paid at
the rate of $18,000 per month until such time that the prepaid balance was
extinguished.
In 1999, the Partnership made additional ground lease prepayments totaling
$825,000. Effective October 1999, all minimum base rent amounts becoming payable
were to be applied against the prepaid balance until such time that the prepaid
balance is extinguished plus interest at the rate of 10% per annum. Interest
income of $34,540 was recorded in 1999 as a result. The prepaid balance at
December 31, 1999 was $1,344,540.
On February 1, 2000, the Partnership purchased the land holdings from CGS Real
Estate Company, Inc. for $3,500,000 and the ground lease subsequently
terminated. The Partnership paid cash of $2,174,255 and was credited its current
prepaid balance of $1,325,745.
9
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
A. EXHIBITS
1. Annual Report to the Limited Partners
2. Exhibit Number 27 - Selected Financial Data
B. FINANCIAL STATEMENT SCHEDULES
The following financial statement schedule and the report of the
independent auditors thereon are included herein:
1. Schedule III - Real Estate and Accumulated Depreciation -
December 31, 1999
All other schedules are omitted as they either are not required or are not
applicable, or the required information is set forth in the financial
statements and notes thereto.
C. REPORTS ON FORM 8-K
None
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, 2000 /s/ THOMAS N. THURBER
---------------------------- --------------------------------------
Thomas N. Thurber
President and Director
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.
Date: March 19, 2000 /s/ THOMAS N. THURBER
---------------------------- --------------------------------------
Thomas N. Thurber
President and Director
S-P Properties, Inc.
Date: March 19, 2000 /s/ WILLIAM J. CARDEN
---------------------------- --------------------------------------
William J. Carden
Assistant Secretary/Treasurer and Director
S-P Properties, Inc.
Date: March 19, 2000 /s/ G. ANTHONY EPPOLITO
---------------------------- --------------------------------------
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, 1999 and 1998, and for each of the three years
in the period ended December 31, 1999 and have issued our report thereon dated
February 25, 2000. Such consolidated financial statements and report are
included in your 1999 Annual Report to the Limited Partners and are incorporated
herein by reference. Our audits also included the financial statement 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 25, 2000
12
<PAGE>
SCHEDULE III - FORM 10-K
SIERRA PACIFIC INSTITUTIONAL PROPERTIES V
REAL ESTATE AND ACCUMULATED DEPRECIATION
DECEMBER 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INITIAL COST GROSS AMOUNT AT
TO PARTNERSHIP (1) IMPROVEMENTS WHICH CARRIED AT CLOSE OF PERIOD
-------------------------- CAPITALIZED -----------------------------------------
ENCUMB- IMPROVE- AFTER ACQUIS- IMPROVE- TOTAL
DESCRIPTION RANCES LAND MENTS ITION (2) LAND MENTS (3)(4)(5)(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 $ 6,133,211 $2,569,815 $ 5,178,562 $ 7,748,377
<CAPTION>
ACCUM. DATE DATE DEPREC.
DESCRIPTION DEPREC. (5) CONSTRUCTED ACQUIRED LIFE
----------- ----------- ----------- ----------- ---------
OFFICE BUILDING-
INCOME -PRODUCING: $ 2,195,937 (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 64.90% and
Sierra Mira Mesa Partners, an affiliate, has a 35.10% interest at
December 31, 1999.
(4) For Federal Income Tax purposes, the total cost of the Property (net
of the ground lessor's equity) is $4,748,377.
(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, 1999 is as
follows:
TOTAL REAL ESTATE ACCUMULATED
CARRYING VALUE DEPRECIATION
----------- -----------
Balance - January 1, 1997 .................... $ 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
Additions during the year ................ 342,748 361,033
Deductions:
Write off fully depreciated assets ..... (925,986) (925,986)
----------- -----------
Balance - December 31, 1999 .................. $ 7,748,377 $ 2,195,937
=========== ===========
13
<PAGE>
SIERRA PACIFIC INSTITUTIONAL PROPERTIES V
(A CALIFORNIA LIMITED PARTNERSHIP)
---------------------------------
SELECTED FINANCIAL DATA
For the Years Ended December 31, 1999, 1998, 1997, 1996, and 1995
The following table sets forth certain selected historical financial data of the
Partnership. The selected operating and financial position data as of and for
each of the five years ended December 31, 1999 have been derived from the
audited 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>
1999 1998 1997 1996 1995
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
REVENUES .............................. $ 1,227,622 $ 814,801 $ 979,052 $ 990,901 $ 923,375
OPERATING EXPENSES:
Total ............................... 1,314,908 1,241,780 1,216,169 1,220,966 1,181,440
Per dollar of revenues .............. 1.07 1.52 1.24 1.23 1.28
NET LOSS:
Total ............................... (56,649) (283,728) (178,051) (168,132) (206,168)
General Partner ..................... 0 0 0 0 0
Limited Partners .................... (56,649) (283,728) (178,051) (168,132) (206,168)
Per Unit (1) ........................ (1.84) (9.22) (5.79) (5.46) (6.70)
CASH (USED IN) PROVIDED BY
OPERATING ACTIVITIES ................ (493,094) 177,057 (647,186) 158,517 (96,063)
CASH USED IN INVESTING
ACTIVITIES .......................... (342,748) (340,376) (29,313) (51,877) (305,219)
CASH PROVIDED BY (USED IN)
FINANCING ACTIVITIES ................ 967,420 143,043 691,400 (164,995) 465,400
TOTAL ASSETS .......................... 7,874,195 7,147,241 7,212,994 6,785,833 7,130,169
PARTNERS' EQUITY:
Total ............................... 1,940,876 1,997,525 2,281,253 2,459,304 2,627,436
General Partner ..................... 0 0 0 0 0
Limited Partners .................... 1,940,876 1,997,525 2,281,253 2,459,304 2,627,436
LIMITED PARTNERS' EQUITY - PER UNIT (1) 63.06 64.90 74.12 79.91 85.37
INCOME-PRODUCING PROPERTIES:
Number .............................. 1 1 1 1 1
Cost ................................ 7,748,377 8,331,615 8,019,902 7,990,589 7,938,712
Less: Accumulated depreciation ...... (2,195,937) (2,760,889) (2,390,306) (1,998,154) (1,606,003)
Net book value ...................... 5,552,440 5,570,726 5,629,596 5,992,435 6,332,709
MINORITY INTEREST IN
CONSOLIDATED JOINT VENTURE ......... 2,647,872 1,711,089 1,711,297 1,078,963 1,286,896
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, 1999 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, 1999 and 1998, and the related consolidated
statements of operations, changes in partners' equity and cash flows for each of
the three years in the period ended December 31, 1999. These financial
statements are the responsibility of the Partnership's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Sierra Pacific
Institutional Properties V as of December 31, 1999 and 1998, and the results of
its operations and its cash flows for each of the three years in the period
ended December 31, 1999 in conformity with generally accepted accounting
principles.
DELOITTE & TOUCHE LLP
Houston, Texas
February 25, 2000
15
<PAGE>
SIERRA PACIFIC INSTITUTIONAL PROPERTIES V
(A CALIFORNIA LIMITED PARTNERSHIP)
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1999 AND 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
DECEMBER 31, 1999 DECEMBER 31, 1998
----------------- -----------------
<S> <C> <C>
ASSETS
Cash and cash equivalents ...................................................... $ 134,781 $ 3,203
Receivables:
Unbilled rent (Notes 1 and 4) ................................................ 451,414 486,238
Billed rent (Note 1) ......................................................... 76,707 0
Due from affiliates (Note 3) ................................................... 0 18,995
Prepaid ground lease (Note 3) .................................................. 1,344,540 683,000
Income-producing property - net of
accumulated depreciation of
$2,195,937 in 1999 and $2,760,889
in 1998 (Note 4) ............................................................. 5,552,440 5,570,726
Other assets (Notes 1, 2 and 3) ................................................ 314,313 385,079
----------------- -----------------
Total Assets ................................................................... $ 7,874,195 $ 7,147,241
================= =================
LIABILITIES AND PARTNERS' EQUITY
Accrued and other liabilities (Note 2) ......................................... $ 90,908 $ 252,764
Ground lease payable (Note 1) .................................................. 194,539 185,863
----------------- -----------------
Total Liabilities .............................................................. 285,447 438,627
----------------- -----------------
Ground lessor's equity in income-
producing property (Note 3) .................................................. 3,000,000 3,000,000
----------------- -----------------
Minority interest in consolidated
joint venture (Note 4) ...................................................... 2,647,872 1,711,089
----------------- -----------------
Partners' equity (Notes 1 and 5):
General Partner .............................................................. 0 0
Limited Partners:
140,000 units authorized,
30,777 issued and
outstanding ................................................................ 1,940,876 1,997,525
----------------- -----------------
Total Partners' equity ......................................................... 1,940,876 1,997,525
----------------- -----------------
Total Liabilities and Partners' equity ......................................... $ 7,874,195 $ 7,147,241
================= =================
</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, 1999, 1998 AND 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
REVENUES:
Rental income (Note 1) ..................... $ 1,193,082 $ 814,801 $ 979,052
Interest income (Note 3) ................... 34,540 0 0
----------- ----------- -----------
Total revenues ....................... 1,227,622 814,801 979,052
----------- ----------- -----------
EXPENSES:
Operating expenses:
Depreciation and amortization ............ 442,093 458,276 447,453
Ground lease (Note 3) .................... 409,607 373,805 381,826
Property taxes and insurance ............. 111,292 104,621 89,444
Maintenance and repairs .................. 67,996 80,758 66,599
Administrative fees (Note 3) ............. 87,110 74,059 65,163
Management fees (Note 3) ................. 69,072 49,919 59,515
Legal and accounting ..................... 29,722 29,742 61,781
General and administrative ............... 17,661 15,055 13,655
Utilities ................................ 23,211 26,250 22,029
Renting expenses ......................... 0 0 1,981
Bad debt expense (Note 3) ................ 18,995 0 0
Other operating expenses ................. 38,149 29,295 6,723
----------- ----------- -----------
Total operating expenses ............... 1,314,908 1,241,780 1,216,169
----------- ----------- -----------
LOSS BEFORE MINORITY INTEREST'S SHARE
OF CONSOLIDATED JOINT VENTURE LOSS ......... (87,286) (426,979) (237,117)
----------- ----------- -----------
MINORITY INTEREST'S SHARE OF
CONSOLIDATED JOINT VENTURE LOSS ............ 30,637 143,251 59,066
----------- ----------- -----------
NET LOSS ..................................... $ (56,649) $ (283,728) $ (178,051)
=========== =========== ===========
Net loss per limited partnership unit (Note 1) $ (1.84) $ (9.22) $ (5.79)
=========== =========== ===========
</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, 1999, 1998 AND 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
LIMITED PARTNERS TOTAL
--------------------------- GENERAL PARTNERS'
PER UNIT TOTAL PARTNER EQUITY
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Partners' equity - January 1, 1997 . $ 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
Net loss ........................... (1.84) (56,649) (56,649)
----------- ----------- ----------- -----------
Partners' equity - December 31, 1999 $ 63.06 $ 1,940,876 $ 0 $ 1,940,876
=========== =========== =========== ===========
</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, 1999, 1998 AND 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1999 1998 1997
--------- --------- ---------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss ............................................. $ (56,649) $(283,728) $ (178,051)
Adjustments to reconcile net loss to cash
(used in) provided by operating activities:
Depreciation and amortization ...................... 442,093 458,276 447,453
Minority interest's share of unconsolidated
joint venture loss ............................... (30,637) (143,251) (59,066)
Bad debt expense ................................... 18,995 0 0
(Increase) decrease in rent receivable ............. (41,883) (9,960) 13,687
Increase in prepaids and other assets .............. (671,833) (62,463) (844,087)
(Decrease) increase in accrued and other liabilities (153,180) 218,183 (27,122)
--------- --------- ---------
Net cash (used in) provided by operating activities (493,094) 177,057 (647,186)
--------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Payments for property additions ...................... (342,748) (340,376) (29,313)
--------- --------- ---------
Net cash used in investing activities ................ (342,748) (340,376) (29,313)
--------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Distributions to minority investor ................... (4,000) (85,657) (262,000)
Contributions from minority investor ................. 971,420 228,700 953,400
--------- --------- ---------
Net cash provided by financing activities ............ 967,420 143,043 691,400
--------- --------- ---------
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS .............................. 131,578 (20,276) 14,901
CASH AND CASH EQUIVALENTS - Beginning of year .......... 3,203 23,479 8,578
--------- --------- ---------
CASH AND CASH EQUIVALENTS - End of year ............... $ 134,781 $ 3,203 $ 23,479
========= ========= =========
</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, 1999, the Partnership's remaining asset is a 64.90%
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).
On February 1, 2000, the Partnership purchased the land holdings from CGS Real
Estate Company, Inc. for $3,500,000 and the ground lease was subsequently
terminated. The Partnership paid cash of $2,174,255 and was credited its current
prepaid balance of $1,325,745.
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, 1999 and 1998
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 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 the lessor of ten years or the lease term
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.
The Partnership regularly evaluates long-lived assets for impairment whenever
events or changes in circumstances indicate that the carrying amount of the
asset may not be recoverable. Future cash flows are estimated and compared to
the carrying amount of the asset to determine if an impairment has occurred. If
the sum of the expected future cash flows is less than the carrying amount of
the asset, the Partnership shall recognize an impairment loss. No such
impairment has been recognized by the Partnership.
Because the determination of fair value is based upon projections of future
economic events such as property occupancy rates, rental rates, operating cost
inflation and market capitalization rates which are inherently subjective, the
amounts ultimately realized at disposition may differ materially from the net
carrying value as of December 31, 1999. The cash flows used to determine fair
value and net realizable value are based on good faith estimates and assumptions
developed by management. Unanticipated events and circumstances may occur and
some assumptions may not materialize; therefore actual results may vary from the
estimates and the variances may be material. The Partnership may provide
additional write-downs which could be material in subsequent years if real
estate markets or local economic conditions change.
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".
Unbilled rent receivable represents the difference between rent recognized on
the straight-line method and actual cash due.
21
<PAGE>
Sierra Pacific Institutional Properties V
Notes to Consolidated Financial Statements
Page three
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 for all periods.
RECENT ACCOUNTING PRONOUNCEMENTS
The Financial Accounting Standards Board has issued Statement of Financial
Accounting Standards ("SFAS") No. 130, "Reporting Comprehensive Income" and SFAS
No. 131, "Disclosures About Segments of an Enterprise and Related Information."
These SFAS's, which were 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:
1999 1998
-------- --------
Other assets:
Prepaid expenses ................................ $ 5,626 $ 45,741
Deferred leasing costs, net of accumulated
amortization of $306,675 in 1999
and $225,616 in 1998 ....................... 308,687 339,338
-------- --------
$314,313 $385,079
======== ========
Accrued and other liabilities:
Accounts payable ................................ $ 43,980 $ 83,801
Unearned rental income .......................... 23,800 152,150
Security deposits ............................... 7,249 7,249
Other ........................................... 15,879 9,564
-------- --------
$ 90,908 $252,764
======== ========
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 (as defined in the partnership agreement) collected from the
properties. Management fees paid to affiliates for the years ended December 31,
1999, 1998 and 1997 were $69,072, $49,919 and $59,515, 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 $89,275, $77,844 and $69,720 for such services for the years ended
December 31, 1999, 1998, and 1997, respectively. In consideration for services
rendered with respect to initial leasing of Partnership properties, an affiliate
is paid initial leasing costs. For the years ended December 31, 1999 and 1998, a
total of $16,293 and $74,504, respectively, was paid for initial leasing costs.
No such costs were incurred in 1997. Additionally, the Partnership reimbursed
the affiliate for construction supervision costs incurred by the affiliate. For
the years ended December 31, 1999, 1998, and 1997, the affiliate received $0,
$22,511, and $1,998, 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 were applied
against the prepaid balance. Effective February 1998, rent amounts were to be
paid at the rate of $18,000 per month until such time that the prepaid balance
was extinguished.
In 1999, the Partnership made additional ground lease prepayments totaling
$825,000. Effective October 1999, all minimum base rent amounts becoming payable
were to be applied against the prepaid balance until such time that the prepaid
balance is extinguished plus interest at the rate of 10% per annum. Interest
income of $34,540 was recorded in 1999 as a result. The prepaid balance at
December 31, 1999 was $1,344,540.
On February 1, 2000, the Partnership purchased the land holdings from CGS Real
Estate Company, Inc. for $3,500,000 and the ground lease subsequently
terminated. The Partnership paid cash of $2,174,255 and was credited its current
prepaid balance of $1,325,745.
During 1996, the Partnership made a non-interest bearing loan to an affiliate in
the amount of $18,995. The loan was deemed uncollectible and subsequently
written off to bad debt expense in 1999.
23
<PAGE>
Sierra Pacific Institutional Properties V
Notes to Consolidated Financial Statements
Page five
4. INCOME-PRODUCING PROPERTY
At December 31, 1999 and 1998 the total cost and accumulated depreciation of the
property are as follows:
1999 1998
----------- -----------
Land ................................. $ 2,569,815 $ 2,569,815
Building and improvements ............ 5,178,562 5,761,800
----------- -----------
Total ....................... 7,748,377 8,331,615
Accumulated depreciation ............. (2,195,937) (2,760,889)
----------- -----------
Net ......................... $ 5,552,440 $ 5,570,726
=========== ===========
During 1999 and 1998, the Partnership removed $925,986 and $28,663,
respectively, from its buildings and improvements and related depreciation
accounts for fully depreciated property.
Sierra Sorrento II experienced a land ownership transfer in February 2000 (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 ($1,324,400, net, through December
31, 1996). SMMP made additional cash contributions amounting to $953,400,
$228,700, and $971,420, and received distributions amounting to $262,000,
$85,657 and $4,000 during 1997, 1998 and 1999, 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, 1997, 1998 and 1999, the Partnership's interest in SIIP was changed to
75.09%, 66.45% and 64.90%, respectively, and SMMP's interest was changed to
24.91%, 33.55% and 35.10%, respectively. On January 1, 2000, the Partnership's
interest will be decreased to 56.08% and SMMP's interest will be increased to
43.92% to reflect the 1999 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
------------------------ ------------ ------------
2000 $ 972,183 $ 1,052,120
2001 972,183 1,086,440
2002 972,183 1,118,346
2003 530,098 576,160
2004 441,680 479,230
Thereafter 257,645 285,090
------------ ------------
Total $ 4,145,972 $ 4,597,386
============ ============
In 1999, 56% of rental income was generated from an electronics manufacturer and
44% was from a media and marketing company. In 1998, the electronics
manufacturer generated 82% of rental income and the remaining 18% was from the
media and marketing company. In 1997, 65% of all rental income was from the
electronics manufacturer and 35% was from a tenant in the healthcare sector.
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
Gregory J. Nooney, Jr. Vice President
Patricia A. Nooney Vice President
William J. Carden Assistant Secretary/Treasurer and Director
The 10-K Report sent to the Securities and Exchange Commission contains
additional information on the Partnership's operations and is available to
Limited Partners upon request.
26
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE FINANCIAL DATA SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM SIERRA PACIFIC INSTITUTIONAL PROPERTIES V DECEMBER 31, 1999 FINANCIAL
STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> DEC-31-1999
<CASH> 134,781
<SECURITIES> 0
<RECEIVABLES> 528,121
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 211,488
<PP&E> 7,748,377
<DEPRECIATION> 2,195,937
<TOTAL-ASSETS> 7,874,195
<CURRENT-LIABILITIES> 83,659
<BONDS> 3,000,000
0
0
<COMMON> 0
<OTHER-SE> 1,940,876
<TOTAL-LIABILITY-AND-EQUITY> 7,874,195
<SALES> 1,193,082
<TOTAL-REVENUES> 1,227,622
<CGS> 0
<TOTAL-COSTS> 872,815
<OTHER-EXPENSES> 442,093
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (56,649)
<INCOME-TAX> 0
<INCOME-CONTINUING> (56,649)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (56,649)
<EPS-BASIC> (1.84)
<EPS-DILUTED> (1.84)
</TABLE>
