-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, MvEC9gv+3kJUchHlPeGrygy+Kve4iBUtBcfUYHrkut7T+lyje7SfU437L/vOI96j aRbIzvQ9MF4DN+F/mNGOow== 0000890566-99-000391.txt : 19990402 0000890566-99-000391.hdr.sgml : 19990402 ACCESSION NUMBER: 0000890566-99-000391 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19981231 FILED AS OF DATE: 19990330 FILER: COMPANY DATA: COMPANY CONFORMED NAME: SIERRA PACIFIC DEVELOPMENT FUND CENTRAL INDEX KEY: 0000351698 STANDARD INDUSTRIAL CLASSIFICATION: REAL ESTATE [6500] IRS NUMBER: 953643693 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 000-11068 FILM NUMBER: 99579375 BUSINESS ADDRESS: STREET 1: 5850 SAN FELIPE STREET 2: STE 500 CITY: HOUSTON STATE: TX ZIP: 77057 BUSINESS PHONE: 7137066271 MAIL ADDRESS: STREET 1: 5850 SAN FELIPE STREET 2: STE 500 CITY: HOUSTON STATE: TX ZIP: 77057 10-K 1 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 : 0-11068 SIERRA PACIFIC DEVELOPMENT FUND (A CALIFORNIA LIMITED PARTNERSHIP) State of California 95-3643693 - ------------------------------------- ----------------------------------- (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: 30,000 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 1 PART I ITEM 1. BUSINESS (a.) GENERAL DEVELOPMENT OF BUSINESS. Sierra Pacific Development Fund (the "Partnership") is a California limited partnership that was formed in February 1981 for the purpose of acquiring, developing, and operating commercial real estate. The Partnership's first real estate investment was for the acquisition of land and development of a 41,000 square foot office project in San Bernardino, California known as Sierra Commercenter. On December 31, 1993, the Partnership sold Sierra Commercenter for $3,722,362 and recorded a gain on the sale of $766,068. In 1983, the Partnership acquired land in San Ramon, California as the first step in development of the Sierra Creekside office project (the "Property"), a 47,800 square foot building that was completed in October 1984. In February 1994, the Partnership created a California general partnership (Sierra Creekside Partners) with Sierra Mira Mesa Partners ("SMMP") to facilitate cash contributions by SMMP for the continued development and operation of the Sierra Creekside property. The Partnership contributed the Property (at an agreed value of $2,825,000) and SMMP contributed cash ($290,859, net, through December 31, 1997) in exchange for a 9.33% interest in Sierra Creekside Partners. SMMP made additional contributions of $85,300, and received distributions of $178,000 from Sierra Creekside Partners during 1998. The percentage interests of the Partnership and Sierra Mira Mesa Partners are to be adjusted every January 1st during the term of Sierra Creekside Partners, beginning January 1, 1995. Accordingly, as of January 1, 1999, the Partnership's interest in Sierra Creekside Partners will be increased to 93.45%, and SMMP's interest will be decreased to 6.55%. In June 1995, Sierra Creekside Partners placed a loan on the Property in the amount of $1,850,000 in order to establish operating reserves, fund tenant improvements and leasing commissions, and make structural changes to the Property mandated by the Americans with Disabilities Act ("ADA"). (b.) NARRATIVE DESCRIPTION OF BUSINESS. The Partnership owns and operates Sierra Creekside, an office building in San Ramon, California. Success of the office building is dependent upon the timely payment of rent by three tenants who accounted for approximately 44% of the rental income of the Partnership for the year ended December 31, 1998. There is significant competition in the office building rental market in the Partnership's trade area. A 1994 appraisal identified six buildings in the immediate area that offered space and amenities comparable to Sierra Creekside. (c.) COMPARISON OF CURRENT ACTIVITIES TO THOSE PROPOSED AT THE INITIATION OF THE PARTNERSHIP. In the Partnership's prospectus dated June 25, 1982, the investment objectives were described as follows: "The Partnership was formed to invest in properties which will: (i.) have the potential for long-term capital gains through appreciation in value; (ii.) to the extent consistent with (i.) above, preserve, protect and return the Partnership's invested capital; (iii.) provide distributable Cash Flow from operations; (iv.) provide Federal Income Tax deductions so that all or a portion of any distributable cash from operations may be treated as a return of capital for tax purposes and, therefore, may not represent taxable income to the Limited Partners; and (v.) build up equity through the reduction of mortgage loans on those of the Partnership's properties which have been leveraged. There can be no assurance that such objectives will be achieved." 2 The prospectus also states: "The Partnership expects to commence liquidation of all its properties after approximately the fifth year of Partnership operations. However, the Managing General Partners may exercise their discretion as to whether and when to sell, finance or refinance a property, and the Partnership will have no obligations to sell properties at any particular time." 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 begin liquidation of properties after the fifth year of operations was delayed indefinitely. As of December 31, 1998, the Partnership had paid cash distributions of $166.75 for each $500 unit investment and remaining partners' equity is $49.91 per unit. Thus, if the Partnership were to be liquidated at the end of 1998 at book value, each $500 investment would have returned a total of $216.66. The General Partner's goal is to continue operating the 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. ITEM 2. PROPERTIES During 1998, the Partnership owned (fee simple) a 90.67% interest in Sierra Creekside, a commercial office building located in San Ramon, California. (See Item 1. Business for discussion of changes in ownership percentages). The building consists of 47,800 rentable square feet and is 96% occupied at December 31, 1998. The average effective annual rent per square foot at December 31, 1998 is $18.57. The Property is encumbered by a mortgage lien in favor of Home Federal Savings of San Francisco with a principal balance of $1,720,324 at December 31, 1998. The mortgage bears interest at 3.5% above the 11th District Cost of Funds Index with a minimum of 9% and a maximum of 14% (9% at December 31, 1998). The loan term is 120 months with a maturity date of July 1, 2005. Payments are amortized over a 240 month period with a remaining principal balance of $1,316,055 due at maturity assuming no payment has been made on principal in advance of its due date. This note is subject to prepayment penalties of 1% to 3% if more than 20% of the outstanding balance is prepaid during the first four calendar years of the loan. 3 SUMMARY OF SIGNIFICANT TENANTS/LEASES Four of the Property's 17 tenants occupy ten percent or more of rentable space. The principal businesses of these significant tenants are banking, construction services, insurance and billing/collections services. Details of the leases follow:
PERCENT OF EFFECTIVE EFFECTIVE PERCENT SQUARE RENTABLE RENT PER RENT OF GROSS FEET SQUARE SQUARE PER ANNUAL EXPIRATION TENANTS OCCUPIED FEET FOOT ANNUM RENT OF LEASE - ------------------------ -------------- -------------- -------------- -------------- ----------- -------------- American Savings Bank......... 7,189 15% $ 19.39 $ 139,401 16% June 2002 Perfect Service Builders ..... 4,831 10% 22.80 110,147 13% June 2004 State Farm Mutual ............ 5,071 11% 14.98 75,964 9% September 2000 Pen-Cal Administrators ....... 7,331 15% 16.69 122,355 14% January 2000 Tenants Occupying <10% sq ft . 21,457 45% 18.83 404,011 48% Various -------------- -------------- -------------- -------------- ----------- -------------- Total Rented Space ........... 45,879 96% $ 18.57 $ 851,878 100% Vacancies .................... 1,921 4% -------------- -------------- Total Rentable Space ......... 47,800 100%
SUMMARY OF LEASES BY EXPIRATION One of the 17 tenants is on a month to month lease; the other sixteen are on leases scheduled to expire over the next six years as indicated in the table below.
Year of expiration 1999 2000 2001 2002 2003 2004 Totals -------- -------- -------- -------- -------- -------- -------- Number of tenants ....... 2 5 4 2 2 1 16 Percent of total tenants 12% 29% 23% 12% 12% 6% 94% Total area (square feet) 2,364 16,641 8,356 7,738 3,957 4,831 43,887 Annual rent ............. $ 41,776 $280,939 $162,140 $150,535 $ 81,559 $110,147 $827,096 Percent gross annual rent 5% 33% 19% 18% 10% 13% 98%
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 1.2% of the assessed value or $73,633. INSURANCE In the opinion of management, 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 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 NUMBER OF OF UNITS RECORD HOLDERS -------- --------------- Limited Partners ................ 29,354 1,850 ======== =============== 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 30,000 units at $500.00 per unit. No broker or dealer currently makes a market in the units of the Partnership. Accordingly, there are no published price or trading volume figures available for the units. The units have been transferred on an extremely limited extent from time-to-time since the inception of the Partnership; however, the market for the units is highly restricted and sporadic, especially in view of the investor suitability requirements imposed on new purchasers by the various state blue sky laws and the restrictions on transfer contained in the Partnership Agreement. The Partnership has neither paid nor declared any cash or other distributions to the General or Limited Partners during the two most recent years. There are no contractual or other restrictions on the Partnership's ability to make such distributions. ITEM 6. SELECTED FINANCIAL DATA The Selected Financial Data for the Partnership is filed by reference to the Annual Report to the Limited Partners attached as an Exhibit. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Management's Discussion and Analysis of Financial Condition and Results of Operations includes certain forward looking statements reflecting the Partnership's expectations in the near future; however, many factors which may affect the actual results, especially changing regulations, are difficult to predict. Accordingly, there is no assurance that the Partnership's expectations will be realized. Overview: The following discussion should be read in conjunction with the Selected Financial Data and the Partnership's Consolidated Financial Statements and Notes thereto incorporated by reference to the Annual Report to the Limited Partners attached as an Exhibit. As of December 31, 1998, the Partnership owns a 90.67% interest in the Sierra Creekside Partners, which operates one property, Sierra Creekside (the "Property"). 5 Results of Operations: COMPARISON OF YEAR ENDED DECEMBER 31, 1998 TO YEAR ENDED DECEMBER 31, 1997. Rental income increased by $162,000, or 21%, when compared to the prior year. This increase was primarily attributable to a lease buy-out negotiated in May 1998. The majority of the vacated space was re-leased at a higher rental rate. The weighted-average effective annual rent per square foot, on an accrual basis, increased from $16.16 at December 31, 1997 to $18.57 at December 31, 1998. This increase was partially offset by a decrease in occupancy from 100% at December 31, 1997 to 96% at December 31, 1998. Operating expenses decreased by $46,000, or 5%, principally due to a decrease in depreciation and amortization expenses resulting from certain capitalized tenant improvements and lease costs becoming fully depreciated during 1998. Further, lower maintenance and repair costs were incurred in 1998 when compared to the prior year. The increase was partially offset due to higher management fees resulting from the increased rental income of the property and due to higher property tax expense recorded in 1998. COMPARISON OF YEAR ENDED DECEMBER 31, 1997 TO YEAR ENDED DECEMBER 31, 1996. Rental income increased by $10,000, or 1%, due primarily to an increase in occupancy. The Property, which achieved 99% occupancy at December 31, 1996, maintained a 100% occupancy rate for the majority of 1997. This increase was partially offset as a result of billing credits given to tenants due to common area maintenance fees being lower than anticipated in the prior year. Further, the weighted-average effective annual rent per square foot, on an accrual basis, decreased from $16.45 at December 31, 1996 to $16.16 at December 31, 1997. Operating expenses decreased by $64,000, or 7%, primarily due to a $59,000 decrease in depreciation and amortization expenses resulting from the write off of fully depreciated capitalized tenant improvements. Further, a decrease in utilities and other operating expenses was partially offset by an increase in maintenance and repair costs incurred during the year. Liquidity and Capital Resources: A loan in the amount of $1,850,000 was funded in June 1995. This loan is secured by a trust deed on the Property. The proceeds of this loan were used to pay delinquent property taxes, commissions, and other accrued liabilities. The remainder was used to fund capital improvements and tenant build-outs. A secondary source of cash is available through advances from the minority owner of the Property, Sierra Mira Mesa Partners ("SMMP"). During 1998, the Partnership generated cash flows from operations of $210,000 and paid $173,000 for property additions and lease commissions. SMMP contributed a total of $85,300 to the Partnership and received distributions of $178,000 from the Partnership in 1998. The Partnership is in a liquid position at December 31, 1998 with cash and billed rents of $92,000 and current liabilities of $39,000. The Partnership's primary capital requirements will be for construction of new tenant space. It is anticipated that these requirments will be funded from the operations of the Property and contributions from SMMP. Inflation: The Partnership's long-term leases contain provisions designed to mitigate the adverse impact of inflation on its results from operations. Such provisions may include escalation clauses related to Consumer Price Index increases. 6 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 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 PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF REGISTRANT The Registrant is a California Limited Partnership and has no officers or directors. S-P Properties, Inc., a California corporation, is the General Partner of the Registrant. In December 1994, Finance Factors, Inc., a subsidiary of CGS Real Estate Company, Inc., purchased the common stock of TCP, Inc. TCP, Inc. owns all of the common stock of S-P Properties, Inc. In July 1995, Finance Factors, Inc. merged with Bancor Real Estate Company, Inc., a subsidiary of CGS Real Estate Company, Inc. CGS Real Estate Company, Inc. and its affiliates are engaged in real estate management, leasing, ownership, and sales. The companies own or manage more than ten million square feet of commercial real estate in Texas, Arizona, Colorado, Missouri, California and the Carolinas. The executive officers and directors of S-P Properties, Inc. are: 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 ITEM 11. MANAGEMENT REMUNERATION The Registrant is a California Limited Partnership and has no officers or directors. No options to purchase securities of the Registrant have been granted to any person. In accordance with the terms of the Partnership Agreement, certain affiliates of the General Partner receive real estate brokerage commissions in connection with the leasing of properties by the Partnership and receive from the Partnership certain management and administrative services fees. These amounts are set forth in the Annual Report to the Limited Partners attached as an Exhibit. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT None ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The Partnership may pay a management fee of 6% of the gross rental income collected from the Property to American Spectrum Real Estate Services, Inc. (ASRE), formerly Banc Commercial California. These fees for the year ended December 31, 1998 were $41,516. 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 $38,922 during the year ended December 31, 1998. The Partnership also reimburses ASRE and Bancor for construction supervision costs. The Partnership paid $6,209 to ASRE and Bancor for tenant improvement supervisory costs in 1998. In consideration for services rendered with respect to initial leasing of Partnership properties, ASRE and Bancor are paid initial leasing costs. For the year ended December 31, 1998, a total of $42,738 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. 9 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K A. EXHIBITS 1. Annual Report to the Limited Partners 2. Exhibit Number 27 - Selected Financial Data B. FINANCIAL STATEMENT SCHEDULES The following financial statement schedules and the report of the independent auditors thereon are included herein: 1. Schedule II - Valuation and Qualifying Accounts and Reserves - for the years ended December 31, 1998, 1997 and 1996 2. 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 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 DEVELOPMENT FUND 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 ---------------------------- -------------------------------------- G. Anthony Eppolito Chief Accountant S-P Properties, Inc. 11 INDEPENDENT AUDITORS' REPORT ON FINANCIAL STATEMENT SCHEDULES To the Partners of Sierra Pacific Development Fund We have audited the consolidated financial statements of Sierra Pacific Development Fund, 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 schedules of Sierra Pacific Development Fund, listed in Item 14. These financial statement schedules are the responsibility of the Partnership's management. Our responsibility is to express an opinion based on our audits. In our opinion, such financial statement schedules, when considered in relation to the basic consolidated financial statements taken as a whole, present fairly in all material respects the information set forth therein. DELOITTE & TOUCHE LLP Houston, Texas February 26, 1999 12 SCHEDULE II - FORM 10-K SIERRA PACIFIC DEVELOPMENT FUND VALUATION AND QUALIFYING ACCOUNTS AND RESERVES For the Years Ended December 31, 1998, 1997 and 1996 INCOME - PRODUCING PROPERTIES ---------- Allowance for loss - January 1, 1996 ....................... $1,000,000 Provision charged to costs and expenses (1) ...................................... 0 ---------- Allowance for loss - December 31, 1996 ..................... 1,000,000 Provision charged to costs and expenses (1) ...................................... 0 ---------- Allowance for Loss - December 31, 1997 ..................... 1,000,000 Provision charged to costs and expenses (1) ..................................... 0 ---------- Allowance for loss - December 31, 1998 ..................... $1,000,000 ========== (1) See Notes 1 and 4 to the consolidated financial statements incorporated by reference to the Annual Report to the Limited Partners attached as an Exhibit. 13 SCHEDULE III - FORM 10-K SIERRA PACIFIC DEVELOPMENT FUND REAL ESTATE AND ACCUMULATED DEPRECIATION DECEMBER 31, 1998
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) - --------------------- ----------- ----------- -------- ------------- ---------- ---------- ------------ OFFICE BUILDING- INCOME -PRODUCING: Sierra Creekside (4) San Ramon, California $ 1,720,324 $ 1,555,033 $ 6,042,859 $1,555,033 $4,358,584 $ 5,913,617 ACCUM. DATE DATE DEPREC. DESCRIPTION DEPREC.(6) CONSTRUCTED ACQUIRED LIFE - --------------------- ----------- ----------- -------- -------- OFFICE BUILDING- INCOME -PRODUCING: Sierra Creekside (4) San Ramon, California $ 2,140,905 10/84 03/83 1-30 yrs.
(1) The initial cost represents the original purchase price of the property. (2) The Partnership has capitalized property development costs. (3) Also represents cost for Federal Income Tax purposes. (4) On February 1, 1994, the property was transferred to a joint venture, Sierra Creekside Partners. The Partnership has an equity interest of 90.67% and Sierra Mira Mesa Partners, an affiliate, has a 9.33% equity interest at December 31, 1998. (5) A valuation allowance of $1,000,000 was established as the appraised value of the property declined below book value. See Notes 1 and 4 to the consolidated financial statements incorporated by reference to the Annual Report to the Limited Partners attached as an Exhibit. (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 .................. $ 7,159,858 $ 2,737,823 Additions during the year ............... 204,875 403,582 Deductions: Write off fully depreciated assets .... (60,760) (60,760) -------------- -------------- Balance - December 31, 1996 ................ 7,303,973 3,080,645 Additions during the year ............... 91,878 334,450 Deductions: Write off fully depreciated assets .... (1,458,841) (1,458,841) -------------- -------------- Balance - December 31, 1997 ................ 5,937,010 1,956,254 Additions during the year ............... 78,467 286,511 Deductions: Write off fully depreciated assets .... (101,860) (101,860) -------------- -------------- Balance - December 31, 1998 ................ $ 5,913,617 $ 2,140,905 ============== ============== 14 SIERRA PACIFIC DEVELOPMENT FUND (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 Limited Partners attached as an Exhibit.
1998 1997 1996 1995 1994 ----------- ----------- ----------- ----------- ----------- REVENUES ...................................... $ 919,614 $ 757,755 $ 755,644 $ 592,529 $ 449,965 OPERATING EXPENSES: Total ....................................... 853,225 899,704 964,074 932,506 823,239 Per dollar of revenues ...................... 0.93 1.19 1.28 1.57 1.83 INTEREST EXPENSE: Total ....................................... 156,636 160,359 163,762 69,614 1,375 Per dollar of revenues ...................... 0.17 0.21 0.22 0.12 0.00 NET LOSS: Total ....................................... (81,827) (287,313) (301,960) (312,723) (291,395) General Partner ............................. 0 0 0 0 0 Limited Partners ............................ (81,827) (287,313) (301,960) (312,723) (291,395) Per unit (1) ................................ (2.79) (9.79) (10.29) (10.65) (9.93) CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES ........................ 210,479 19,341 45,678 (587,447) 25,782 CASH USED IN INVESTING ACTIVITIES ........................ (78,467) (91,878) (204,875) (284,946) (218,325) CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES ........................ (135,796) 104,100 (572,443) 1,620,705 231,500 TOTAL ASSETS .................................. 3,267,524 3,436,450 3,709,875 4,554,858 3,617,493 PARTNERS' EQUITY: Total ....................................... 1,465,181 1,547,008 1,834,321 2,136,281 2,449,004 General Partner ............................. 0 0 0 0 0 Limited Partners ............................ 1,465,181 1,547,008 1,834,321 2,136,281 2,449,004 LIMITED PARTNERS' EQUITY - PER UNIT (1) ....... 49.91 52.70 62.49 72.78 83.43 INCOME-PRODUCING PROPERTIES: Number ...................................... 1 1 1 1 1 Cost ........................................ 5,913,617 5,937,010 7,303,973 7,159,858 6,937,726 Less: Accumulated depreciation .............. (2,140,905) (1,956,254) (3,080,645) (2,737,823) (2,435,363) Valuation allowance ................... (1,000,000) (1,000,000) (1,000,000) (1,000,000) (1,000,000) Net book value .............................. 2,772,712 2,980,756 3,223,328 3,422,035 3,502,363 NOTE PAYABLE - related to income- producing property .......................... 1,720,324 1,763,420 1,802,820 1,838,747 N/A MINORITY INTEREST IN CONSOLIDATED JOINT VENTURE ............................... (75,610) 25,510 (102,995) 476,836 791,746 DISTRIBUTIONS PER UNIT (1): ................... 0 0 0 0 0
N/A = Not applicable nor available (1) The net loss, limited partners' equity and distributions per unit are based upon the limited partnership units outstanding at the end of the year, 29,354 in all years. The cumulative cash distributions per limited partnership unit from inception to December 31, 1998 equal $166.75 15 INDEPENDENT AUDITORS' REPORT To the Partners of Sierra Pacific Development Fund We have audited the accompanying consolidated balance sheets of Sierra Pacific Development Fund, 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 Development Fund 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 16 SIERRA PACIFIC DEVELOPMENT FUND (A CALIFORNIA LIMITED PARTNERSHIP) CONSOLIDATED BALANCE SHEETS DECEMBER 31, 1998 AND 1997
DECEMBER 31, 1998 DECEMBER 31, 1997 ----------------- ----------------- ASSETS Cash and cash equivalents .............................................................. $ 83,408 $ 87,192 Rent receivables: Unbilled rent (Notes 1 and 4) ....................................................... 47,993 71,309 Billed rent (Note 1) ................................................................ 8,297 1,653 Due from affiliates (Note 3) ........................................................... 26,916 26,916 Income-producing property - net of accumulated depreciation and valuation allowance of $3,140,905 in 1998 and $2,956,254 in 1997 (Note 4) .............................................. 2,772,712 2,980,756 Other assets (Notes 1, 2 and 3) ........................................................ 252,588 268,624 Excess distributions to minority Partner (Note 4) ...................................... 75,610 0 ----------------- ----------------- Total Assets ........................................................................... $ 3,267,524 $ 3,436,450 ================= ================= LIABILITIES AND PARTNERS' EQUITY Accrued and other liabilities (Note 2) ................................................. $ 82,019 $ 100,512 Note payable (Note 5) .................................................................. 1,720,324 1,763,420 ----------------- ----------------- Total Liabilities ...................................................................... 1,802,343 1,863,932 ----------------- ----------------- Minority interest in consolidated joint venture (Note 4) .............................................................. 0 25,510 ----------------- ----------------- Partners' equity (Notes 1 and 6): General Partner ...................................................................... 0 0 Limited Partners: 30,000 units authorized, 29,354 issued and outstanding ..................................................................... 1,465,181 1,547,008 ----------------- ----------------- Total Partners' equity ................................................................. 1,465,181 1,547,008 ----------------- ----------------- Total Liabilities and Partners' equity ................................................. $ 3,267,524 $ 3,436,450 ================= =================
SEE ACCOMPANYING NOTES 17 SIERRA PACIFIC DEVELOPMENT FUND (A CALIFORNIA LIMITED PARTNERSHIP) CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
1998 1997 1996 ----------- ----------- ----------- REVENUES: Rental income (Note 1) ......................................... $ 919,602 $ 757,716 $ 747,865 Interest income ................................................ 12 39 7,779 ----------- ----------- ----------- Total revenues ............................................ 919,614 757,755 755,644 ----------- ----------- ----------- EXPENSES: Operating expenses: Depreciation and amortization ................................ 370,805 409,297 468,130 Maintenance and repairs ...................................... 109,938 140,098 112,480 Utilities .................................................... 112,428 105,780 131,283 Property taxes and insurance ................................. 91,815 78,394 76,667 Legal and accounting ......................................... 36,215 37,083 43,160 Administrative fees (Note 3) ................................. 29,717 30,750 33,714 General and administrative ................................... 37,185 38,720 40,908 Management fees (Note 3) ..................................... 41,516 33,559 29,075 Salaries and payroll taxes ................................... 14,400 14,400 14,400 Renting expenses ............................................. 0 2,861 2,174 Other operating expenses ..................................... 9,206 8,762 12,083 ----------- ----------- ----------- Total operating expenses .................................. 853,225 899,704 964,074 Interest ......................................................... 156,636 160,359 163,762 ----------- ----------- ----------- Total expenses ............................................ 1,009,861 1,060,063 1,127,836 ----------- ----------- ----------- LOSS BEFORE MINORITY INTEREST'S SHARE OF CONSOLIDATED JOINT VENTURE LOSS ............................. (90,247) (302,308) (372,192) ----------- ----------- ----------- MINORITY INTEREST'S SHARE OF CONSOLIDATED JOINT VENTURE LOSS ................................ 8,420 14,995 70,232 ----------- ----------- ----------- NET LOSS ......................................................... $ (81,827) $ (287,313) $ (301,960) =========== =========== =========== Net loss per limited partnership unit (Note 1) ................... $ (2.79) $ (9.79) $ (10.29) =========== =========== ===========
SEE ACCOMPANYING NOTES 18 SIERRA PACIFIC DEVELOPMENT FUND (A CALIFORNIA LIMITED PARTNERSHIP) CONSOLIDATED STATEMENTS OF CHANGES IN PARTNERS' EQUITY FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
LIMITED PARTNERS TOTAL ------------------------ GENERAL PARTNERS' PER UNIT TOTAL PARTNER EQUITY -------- ----------- ----------- ----------- Partners' equity - January 1, 1996 ..................................... $ 72.78 $ 2,136,281 $ 0 $ 2,136,281 Net loss ............................................................... (10.29) (301,960) (301,960) -------- ----------- ----------- ----------- Partners' equity - December 31, 1996 ................................... 62.49 1,834,321 0 1,834,321 Net loss ............................................................... (9.79) (287,313) (287,313) -------- ----------- ----------- ----------- Partners' equity - December 31, 1997 ................................... 52.70 1,547,008 0 1,547,008 Net loss ............................................................... (2.79) (81,827) (81,827) -------- ----------- ----------- ----------- Partners' equity - December 31, 1998 ................................... $ 49.91 $ 1,465,181 $ 0 $ 1,465,181 ======== =========== =========== ===========
SEE ACCOMPANYING NOTES 19 SIERRA PACIFIC DEVELOPMENT FUND (A CALIFORNIA LIMITED PARTNERSHIP) CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
1998 1997 1996 --------- --------- --------- CASH FLOWS FROM OPERATING ACTIVITIES: Net loss ................................................................ $ (81,827) $(287,313) $(301,960) Adjustments to reconcile net loss to net cash provided by operating activities: Depreciation and amortization ......................................... 370,805 409,297 468,130 Minority interest's share of consolidated joint venture loss .................................................. (8,420) (14,995) (70,232) Decrease (increase) in rent receivable ................................ 16,672 31,202 (30,238) Increase in other assets .............................................. (68,258) (43,633) (92,757) (Decrease) increase in accrued and other liabilities .................. (18,493) (75,217) 72,735 --------- --------- --------- Net cash provided by operating activities ............................. 210,479 19,341 45,678 --------- --------- --------- CASH FLOWS FROM INVESTING ACTIVITIES: Payments for property additions ......................................... (78,467) (91,878) (204,875) --------- --------- --------- Net cash used in investing activities ................................... (78,467) (91,878) (204,875) --------- --------- --------- CASH FLOWS FROM FINANCING ACTIVITIES: Contributions from minority investor ................................... 85,300 168,500 31,400 Distributions to minority investor ..................................... (178,000) (25,000) (541,000) Principal payments on note payable ..................................... (43,096) (39,400) (35,927) Payments to affiliates ................................................. 0 0 (26,916) --------- --------- --------- Net cash (used in) provided by financing activities ..................... (135,796) 104,100 (572,443) --------- --------- --------- NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS ................................................... (3,784) 31,563 (731,640) CASH AND CASH EQUIVALENTS - Beginning of year ............................. 87,192 55,629 787,269 --------- --------- --------- CASH AND CASH EQUIVALENTS - End of year ................................... $ 83,408 $ 87,192 $ 55,629 ========= ========= ========= SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Cash paid during the year for interest .................................. $ 156,959 $ 160,655 $ 164,031 ========= ========= =========
SEE ACCOMPANYING NOTES 20 SIERRA PACIFIC DEVELOPMENT FUND (A CALIFORNIA LIMITED PARTNERSHIP) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES ORGANIZATION Sierra Pacific Development Fund (the "Partnership") was organized on February 13, 1981 in accordance with the provisions of the California Uniform Limited Partnership Act to acquire, develop and operate certain real properties. S-P Properties, Inc. is the General Partner and manager of the Partnership. On December 30, 1994, all of the outstanding stock of TCP, Inc. was sold to Finance Factors, Inc. TCP, Inc. owns all of the common stock of S-P Properties, Inc. Finance Factors, Inc. was a subsidiary of CGS Real Estate Company, Inc., a national real estate company. In July 1995, Finance Factors, Inc. merged with Bancor Real Estate Company, Inc., another subsidiary of CGS Real Estate Company, Inc. The Partnership's first real estate investment was for the acquisition of land and development of a 41,000 square foot office project in San Bernardino, California known as Sierra Commercenter. This property was subsequently sold by the Partnership. In 1983, the Partnership acquired land in San Ramon, California as the first step in development of the Sierra Creekside office project (the "Property"), a 47,800 square foot building that was completed in October 1984. In February 1994, the Partnership created a California general partnership (Sierra Creekside Partners) with Sierra Mira Mesa Partners ("SMMP") to facilitate cash contributions by SMMP for the continued development and operation of the Sierra Creekside property. The Partnership contributed the Property and SMMP contributed cash to this newly formed California general partnership. At December 31, 1998, the Partnership's remaining real estate asset is a 90.67% interest in Sierra Creekside Partners. 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 Sierra Creekside Partners, a majority owned California general partnership (see Note 4). All significant intercompany balances and transactions have been eliminated in consolidation. CASH AND CASH EQUIVALENTS Cash and cash equivalents include highly liquid, short-term investments with original maturities of three months or less. 21 Sierra Pacific Development Fund Notes to Consolidated Financial Statements Page two 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, accounts payable and note payable. The fair value of cash and cash equivalents, receivables, and accounts payable approximates the carrying value due to the short term nature of these items. In the opinion of management, the fair value of the note payable approximates the carrying value based on market rates at December 31, 1998. 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 one to thirty years. Tenant improvements incurred at the initial leasing of the properties are depreciated over ten years and tenant improvements incurred at the re-leasing of the properties are depreciated over the life of the related lease. Expenditures for repairs and maintenance are charged against income as incurred. Improvements and major renewals are capitalized. Costs and the related accumulated depreciation of assets sold or retired are removed from the accounts in the year of disposal or when fully depreciated and any resulting gain or loss is reflected in income. 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 impairments have 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. Deferred loan costs represent costs incurred to obtain financing and are amortized over the life of the related loan using the straight line method of accounting. 22 Sierra Pacific Development Fund Notes to Consolidated Financial Statements Page three RENTAL INCOME AND RENT RECEIVABLE Rental income is recognized on the straight-line method over the term of the related operating lease in accordance with the provisions of Statement of Financial Accounting Standards No. 13, "Accounting for Leases". Rent receivable consists of (a) unbilled rent - the difference between rent recognized on the straight-line method and actual cash due; and (b) billed rent rent due but not yet received. CALCULATION OF EQUITY AND NET INCOME (LOSS) PER LIMITED PARTNERSHIP UNIT Equity and net income (loss) per limited partnership unit are determined by dividing the Limited Partners' equity and net income (loss) by the number of limited partnership units outstanding, 29,354. 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 ................................ $ 14,196 $ 40,875 Deferred loan costs, net of accumulated amortization of $28,122 in 1998 and $19,880 in 1997 ....................... 54,263 62,505 Deferred leasing costs, net of accumulated amortization of $175,256 in 1998 and $147,529 in 1997 ................... 184,129 165,244 -------- -------- $252,588 $268,624 ======== ======== Accrued and other liabilities: Accounts payable ................................ $ 7,488 $ 40,686 Accrued expenses ................................ 16,603 8,400 Security deposits ............................... 42,986 24,124 Interest payable ................................ 12,902 13,225 Other ........................................... 2,040 14,077 -------- -------- $ 82,019 $100,512 ======== ======== 23 Sierra Pacific Development Fund 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 $41,516, $33,559 and $29,075, 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 $38,922, $34,870 and $33,714 for such services for the years ended December 31, 1998, 1997 and 1996, respectively. Additionally, the Partnership reimbursed affiliates for construction supervision costs incurred by the affiliates. For the years ended December 31, 1998, 1997 and 1996 the affiliates received $6,209, $12,358 and $9,657, respectively, for tenant improvements supervisory costs. In consideration for services rendered with respect to initial leasing of Partnership properties, affiliates of the General Partner are paid initial leasing costs. For the years ended December 31, 1998, 1997 and 1996 these fees amounted to $42,738, $19,097 and $38,277, respectively, and were recorded as deferred leasing costs. During 1996, the Partnership made a non-interest bearing loan to an affiliate in the amount of $26,916. 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 ................................... $ 1,555,033 $ 1,555,033 Building and improvements ........................... 4,358,584 4,381,977 ----------- ----------- Total ......................... 5,913,617 5,937,010 Accumulated depreciation ............... (2,140,905) (1,956,254) Valuation allowance .................... (1,000,000) (1,000,000) ----------- ----------- Net ........................... $ 2,772,712 $ 2,980,756 =========== =========== During 1998 and 1997, the Partnership removed $101,860 and $1,458,841, respectively, from its buildings and improvements and related accumulated depreciation accounts for fully depreciated property. 24 Sierra Pacific Development Fund Notes to Consolidated Financial Statements Page five On February 1, 1994, the Partnership formed a California general partnership with Sierra Mira Mesa Partners ("SMMP"), an affiliate. The joint venture, known as Sierra Creekside Partners ("SCP"), was formed to develop and operate the Sierra Creekside property. The Partnership had a 79.2% equity interest with its contribution of Sierra Creekside. Such interest was computed based upon the estimated fair value of SCP's net assets at the date of formation of the joint venture. SMMP was allocated a 20.8% initial equity interest in SCP in exchange for its $745,000 cash contribution ($656,959, net, through December 31, 1995). SMMP made additional cash contributions amounting to $31,400, $168,500 and $85,300 and received distributions amounting to $541,000, $25,000 and $178,000 during 1996, 1997 and 1998, respectively. The percentage interests of the Partnership and Sierra Mira Mesa Partners are to be adjusted every January 1st during the term of Sierra Creekside Partners, beginning January 1, 1995. Accordingly, as of January 1, 1996, 1997 and 1998, the Partnership's interest in SCP was changed to 81.13%, 95.04% and 90.67%, respectively. On January 1, 1999, the Partnership's interest will be increased to 93.45% and SMMP's interest will be decreased to 6.55% to reflect the 1998 contributions and distributions. Under the terms of the SCP joint venture agreement, SMMP will receive preferential cash distributions of available "Distributable Funds" from the operation of SCP 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. The excess of cash distributions to SMMP over cash contributions from SMMP and income or loss allocated to SMMP is reported as an asset in the Partnership's balance sheet. Future minimum base rental income, under the existing operating leases for the Sierra Creekside 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........... $ 833,514 $ 832,071 2000........... 681,506 692,378 2001........... 483,874 499,729 2002........... 320,429 337,912 2003........... 112,812 118,003 Thereafter...... 1,997 2,032 ------------- ------------ Total......... $ 2,434,132 $ 2,482,125 ============= ============ The Partnership relied on three tenants to generate 44% of total 1998 rental income. The breakdown for these three tenants' industry segments and rental income contribution is as follows: 16% for a tenant in the mortgage industry; 13% billing and collection services, and 15% banking. 5. NOTE PAYABLE At December 31, 1998, note payable consisted of one loan with a bank with an original principal balance of $1,850,000. The note bears interest at 3.5% above the 11th District Cost of Funds Index with a minimum of 9% and a maximum of 14% (9% at December 1998). The maturity date of the note payable is July 1, 2005. The note is subject to prepayment penalties of 1% to 3% if more than 20% of the outstanding balance is prepaid during the first four calendar years of the loan. The note is secured by substantially all of the assets of the Partnership. Annual maturities of note payable as of December 31, 1998, are: $47,138 in 1999; $51,560 in 2000; $56,397 in 2001; $61,687 in 2002; $67,474 in 2003 and $1,436,068 thereafter. The Partnership is exposed to interest rate fluctuations on $1,720,324 of variable rate debt at December 31, 1998. 25 Sierra Pacific Development Fund Notes to Consolidated Financial Statements Page six 6. PARTNERS' EQUITY Accrual basis profits and losses resulting from operations of the Partnership are allocated 99% to the Limited Partners and 1% to the General Partner. Currently, the Partnership does not meet the criteria for distributing cash to the General Partner, and it cannot reasonably predict when the criteria will be met. Accordingly, no accrual basis profits and losses from operations were allocated to the General Partner. Upon any sale, refinancing or other dispositions of the Partnership's real property, allocations and distributions are made after each Limited Partner has received 100% of his Adjusted Capital Contributions plus a 15% per annum cumulative return on such invested capital. Any remaining proceeds shall be distributed 80% to the Limited Partners and 20% to the General Partner. 26 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. 27 EX-27 2
5 THE FINANCIAL DATA SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM SIERRA PACIFIC DEVELOPMENT FUND DECEMBER 31, 1998 FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 12-MOS DEC-31-1998 DEC-31-1998 83,408 0 56,290 0 0 118,621 5,913,617 3,140,905 3,267,524 39,033 1,720,324 0 0 0 1,465,181 3,267,524 919,602 919,614 0 482,420 370,805 0 156,636 (81,827) 0 (81,827) 0 0 0 (81,827) (2.79) (2.79)
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