10-Q 1 0001.txt FORM 10-Q SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 Quarterly Report Under Section 13 or 15(d) of the Securities Exchange Act of 1934 For Quarter ended June 30, 2000 ---------------------------------------------------- Commission file number 0-11068 ---------------------------------------------------- SIERRA PACIFIC DEVELOPMENT FUND (A 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 (Zip Code) offices) Registrant's telephone number, including area code: (713) 706-6271 ----------------------------------------------- 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 [ ]. PART I - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS The following financial statements are submitted in the next pages: PAGE NUMBER Consolidated Balance Sheets - June 30, 2000 and December 31, 1999 4 Consolidated Statements of Operations - For the Six Months Ended June 30, 2000 and 1999 and for the Three Months Ended June 30, 2000 and 1999 5 Consolidated Statements of Changes in Partners' Equity - For the Year Ended December 31, 1999 and for the Six Months Ended June 30, 2000 6 Consolidated Statements of Cash Flows - For the Six Months Ended June 30, 2000 and 1999 7 Notes to Consolidated Financial Statements 8 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (a) OVERVIEW The following discussion should be read in conjunction with the Sierra Pacific Development Fund's (the Partnership) Consolidated Financial Statements and Notes thereto appearing elsewhere in this Form 10-Q. The Partnership currently owns a 94.92% interest in the Sierra Creekside Partnership, which operates the Sierra Creekside property (the Property) in San Diego, CA. (b) RESULTS OF OPERATIONS Rental income for the six months ended June 30, 2000 increased by approximately $42,000, or 9%, when compared to the corresponding period in the prior year, primarily due to higher rental rates. One tenant, who leases approximately 7,000 square feet of the Property, extended his lease for an additional five-year term in March 2000 at a higher rate. Rental income for the quarter ended June 30, 2000 increased by approximately $27,000, or 12%, principally as a result of the lease extension. The Property was 100% occupied at June 30, 2000 and 1999. 2 Operating expenses for the six months ended June 30, 2000 increased by approximately $22,000, or 9%, in comparison to the same period in 1999. This increase was principally due to higher utilities and maintenance and repair costs. This increase was partially offset by a decrease in administrative costs incurred during the period. Operating expenses for the three months ended June 30, 2000 decreased by approximately $6,000 or 5%, primarily as a result of the lower administrative costs. Depreciation and amortization expenses for the six months and three months ended June 30, 2000 decreased by approximately $14,000, or 8%, and by approximately $9,000, or 10%, respectively, principally due to fully depreciated capitalized tenant improvements and fully amortized lease costs. Interest expense for the six months and three months ended June 30, 2000, increased by approximately $88,000 and $53,000, respectively, when compared to the same periods in the prior year. As stated below, the Partnership refinanced its mortgage loan on the Property in January 2000. An extraordinary loss of approximately $46,000 was recorded in the first quarter due to the write-off of deferred loan costs associated with the payoff of the mortgage loan with Home Federal Savings. (c) LIQUIDITY AND CAPITAL RESOURCES In January 2000, the Partnership paid its loan balance of $1,669,000 to Home Federal Savings and entered into a loan agreement with General Electric Capital Corporation (GECC) in the amount of $4,250,000. The lender funded $4,050,000 at closing and held back $200,000 to be drawn upon to help finance future tenant improvements and leasing costs. The Partnership received net proceeds of $2,222,000 as a result of the new loan. The loan is secured by the Property and bears interest at 2.75% above the GECC Composite Commercial Paper Rate. Principal and interest payments are due monthly based on a 30-year amortization. The loan matures January 31, 2005. The majority of the loan proceeds were distributed to the minority owner of the property, Sierra Mira Mesa Partners (SMMP). During the six months ended June 30, 2000, SMMP received distributions totaling approximately $2,433,000 from the Partnership and made contributions totaling approximately $78,000 to the Partnership. The Partnership is in a liquid position at June 30, 2000 with cash and billed receivables of approximately $124,000 and accrued and other liabilities of approximately $108,000. A secondary source of cash is available through contributions from SMMP. The Partnership's primary capital requirements are for the construction of new tenant space and debt obligations. It is anticipated that these requirements will be funded from the operations of the Property, the $200,000 tenant improvement/lease commission holdback and contributions from SMMP. Inflation: The Partnership does not expect inflation to be a material factor in its operations in 2000. 3 SIERRA PACIFIC DEVELOPMENT FUND (A LIMITED PARTNERSHIP) CONSOLIDATED BALANCE SHEETS JUNE 30, 2000 AND DECEMBER 31, 1999 --------------------------------------------------------------------------------
JUNE 30, 2000 (UNAUDITED) DECEMBER 31, 1999 ------------------ ------------------ ASSETS Cash and cash equivalents ........................................................... $ 108,848 $ 134,154 Receivables: Unbilled rent .................................................................... 52,726 51,981 Billed rent ...................................................................... 14,992 8,640 Income-producing property - net of accumulated depreciation and valuation allowance of $3,231,848 and $3,289,481, respectively ...................................................................... 2,442,996 2,557,487 Other assets - net of accumulated amortization of $187,078 and $263,977, respectively ............................................ 277,408 238,197 Excess distributions to minority Partner ............................................ 2,490,568 128,513 ------------------ ------------------ Total Assets ........................................................................ $ 5,387,538 $ 3,118,972 ================== ================== LIABILITIES AND PARTNERS' EQUITY Accrued and other liabilities ....................................................... $ 108,346 $ 64,825 Notes payable ....................................................................... 4,040,218 1,673,186 ------------------ ------------------ Total Liabilities ................................................................... 4,148,564 1,738,011 ------------------ ------------------ Partners' equity (deficit): General Partner ................................................................... (82,191) 0 Limited Partners: 30,000 units authorized, 29,354 issued and outstanding .................................................................. 1,321,165 1,380,961 ------------------ ------------------ Total Partners' equity .............................................................. 1,238,974 1,380,961 ------------------ ------------------ Total Liabilities and Partners' equity .............................................. $ 5,387,538 $ 3,118,972 ================== ==================
SEE ACCOMPANYING NOTES 4 SIERRA PACIFIC DEVELOPMENT FUND (A LIMITED PARTNERSHIP) CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 2000 AND 1999 AND FOR THE THREE MONTHS ENDED JUNE 30, 2000 AND 1999 --------------------------------------------------------------------------------
SIX MONTHS ENDED THREE MONTHS ENDED JUNE 30, JUNE 30, ----------------------------- ----------------------------- 2000 1999 2000 1999 (UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED) ------------ ------------ ------------ ------------ REVENUES: Rental income ................................................ $ 489,777 $ 448,066 $ 260,337 $ 233,294 ------------ ------------ ------------ ------------ Total revenues ....................................... 489,777 448,066 260,337 233,294 ------------ ------------ ------------ ------------ EXPENSES: Operating expenses ........................................... 268,936 247,077 114,756 120,726 Depreciation and amortization ................................ 160,035 174,227 78,993 87,922 Interest ..................................................... 164,372 76,814 91,491 38,277 ------------ ------------ ------------ ------------ Total costs and expenses ............................. 593,343 498,118 285,240 246,925 ------------ ------------ ------------ ------------ LOSS BEFORE EXTRAORDINARY LOSS ................................. (103,566) (50,052) (24,903) (13,631) EXTRAORDINARY LOSS FROM WRITE-OFF OF DEFERRED LOAN COSTS ....................................... (46,020) 0 0 0 ------------ ------------ ------------ ------------ LOSS BEFORE MINORITY INTEREST'S SHARE OF CONSOLIDATED JOINT VENTURE LOSS ........................... (149,586) (50,052) (24,903) (13,631) ------------ ------------ ------------ ------------ MINORITY INTEREST'S SHARE OF CONSOLIDATED JOINT VENTURE LOSS .............................. 7,599 3,279 1,265 893 ------------ ------------ ------------ ------------ NET LOSS ....................................................... $ (141,987) $ (46,773) $ (23,638) $ (12,738) ============ ============ ============ ============ Per limited partnership unit: Loss before extraordinary loss ............................... $ (3.24) $ (1.59) $ (0.80) $ (0.43) Extraordinary loss ........................................... (1.55) 0 0 0 ------------ ------------ ------------ ------------ Net loss per limited partnership unit .......................... $ (4.79) $ (1.59) $ (0.80) $ (0.43) ============ ============ ============ ============
SEE ACCOMPANYING NOTES 5 SIERRA PACIFIC DEVELOPMENT FUND (A LIMITED PARTNERSHIP) CONSOLIDATED STATEMENTS OF CHANGES IN PARTNERS' EQUITY FOR THE YEAR ENDED DECEMBER 31, 1999 AND FOR THE SIX MONTHS ENDED JUNE 30, 2000 --------------------------------------------------------------------------------
LIMITED PARTNERS TOTAL ---------------------------- GENERAL PARTNERS' PER UNIT TOTAL PARTNER EQUITY ------------ ------------ ------------ ------------ Proceeds from sale of partnership units ................................................ $ 500.00 $ 14,677,000 $ 14,677,000 Underwriting commissions and other organization expenses .................................. (60.29) (1,769,862) (1,769,862) Cumulative net income (loss) (to December 31, 1998) ........................................... (223.05) (6,547,484) $ 14,600 (6,532,884) Cumulative distributions (to December 31, 1998) ........................................... (166.75) (4,894,473) (14,600) (4,909,073) ------------ ------------ ------------ ------------ Partners' equity - January 1, 1999 ................................. 49.91 1,465,181 0 1,465,181 Net loss ........................................................... (2.87) (84,220) (84,220) ------------ ------------ ------------ ------------ Partners' equity - January 1, 2000 (audited) ....................... 47.04 1,380,961 0 1,380,961 Transfer among general partner and limited partners................. 2.26 80,771 (80,771) 0 Net loss (unaudited) ............................................... (4.79) (140,567) (1,420) (141,987) ------------ ------------ ------------ ------------ Partners' equity (deficit) - June 30, 2000 (unaudited) ............. $ 44.51 $ 1,321,165 $ (82,191) $ 1,238,974 ============ ============ ============ ============
SEE ACCOMPANYING NOTES 6 SIERRA PACIFIC DEVELOPMENT FUND (A LIMITED PARTNERSHIP) CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE SIX MONTHS ENDED JUNE 30, 2000 AND 1999 --------------------------------------------------------------------------------
2000 1999 (UNAUDITED) (UNAUDITED) ------------ ------------ CASH FLOWS FROM OPERATING ACTIVITIES: Net loss ................................................................................. $ (141,987) $ (46,773) Adjustments to reconcile net loss to cash provided by operating activities: Depreciation and amortization .......................................................... 160,035 174,227 Extraordinary loss from write-off of deferred loan costs ........................................................................... 46,020 0 Minority interest's share of consolidated joint venture loss ................................................................... (7,599) (3,279) (Increase) decrease in receivables ..................................................... (7,097) 4,186 Increase in other assets ............................................................... (18,339) (17,138) Increase (decrease) in accrued and other liabilities ................................... 43,521 (13,463) ------------ ------------ Net cash provided by operating activities .............................................. 74,554 97,760 ------------ ------------ CASH FLOWS FROM INVESTING ACTIVITIES: Payments for property additions ........................................................ 0 (9,642) ------------ ------------ Net cash used in investing activities .................................................. 0 (9,642) ------------ ------------ CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from note payable secured by property ......................................... 4,050,000 0 Principal payments on notes payable .................................................... (1,682,968) (23,041) Payments on deferred loan costs ........................................................ (112,436) 0 Contributions from minority partner .................................................... 78,091 0 Distributions to minority partner ...................................................... (2,432,547) 0 Loan to affiliate ...................................................................... 0 (47,000) ------------ ------------ Net cash used in financing activities .................................................. (99,860) (70,041) ------------ ------------ NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS .................................................................... (25,306) 18,077 CASH AND CASH EQUIVALENTS Beginning of period .................................................................... 134,154 83,408 ------------ ------------ CASH AND CASH EQUIVALENTS End of period .......................................................................... $ 108,848 $ 101,485 ============ ============ SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Cash paid during the period for real estate taxes ....................................... $ 36,473 $ 36,816 ============ ============ Cash paid during the period for interest ................................................ $ 146,360 $ 76,986 ============ ============
SEE ACCOMPANYING NOTES 7 SIERRA PACIFIC DEVELOPMENT FUND (A LIMITED PARTNERSHIP) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) -------------------------------------------------------------------------------- 1. ORGANIZATION In February 1994, Sierra Pacific Development Fund (the Partnership) created a 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 Property). The Partnership Agreement of Sierra Creekside Partners (the Agreement) was amended effective January 1, 1995 to consider both contributions and distributions when calculating each partners' percentage interest at January 1 of each year. Accordingly, on January 1, 2000, the Partnership's interest in Sierra Creekside Partners was increased from 93.45% to 94.92% to reflect 1999 contributions and distributions. 2. BASIS OF FINANCIAL STATEMENTS The accompanying unaudited consolidated condensed financial statements include the accounts of the Partnership and Sierra Creekside Partners at June 30, 2000. All significant intercompany balances and transactions have been eliminated in consolidation. In the opinion of the Partnership's management, these unaudited financial statements reflect all adjustments which are necessary for a fair presentation of its financial position at June 30, 2000 and results of operations and cash flows for the periods presented. All adjustments included in these statements are of a normal and recurring nature. These financial statements should be read in conjunction with the financial statements and notes thereto contained in the Annual Report of the Partnership for the year ended December 31, 1999. 3. RELATED PARTY TRANSACTIONS Included in the financial statements for the six months ended June 30, 2000 and 1999 are affiliate transactions as follows: June 30 ----------------------- 2000 1999 ----------------------- Management fees $ 21,235 $ 20,245 Administrative fees 20,398 30,739 8 Sierra Pacific Development Fund Notes to Consolidated Financial Statements (Unaudited) Page two 4. PARTNERS' EQUITY Equity and net loss per limited partnership unit is determined by dividing the limited partners' share of the Partnership's equity and net loss by the number of limited partnership units outstanding, 29,354. During the quarter ended March 31, 2000, an amount was transferred between the partners' equity accounts such that 99% of cumulative operating income, gains, losses, deductions and credits of the Partnership is allocated among the limited partners and 1% is allocated to the general partner. Management does not believe that the effect of this transfer is significant. 5. PENDING TRANSACTION CGS Real Estate Company, Inc. (CGS), an affiliate of the general partner, is in the process of developing a plan pursuant to which the property owned by the Partnership would be combined with the properties of other real estate partnerships managed by CGS and its affiliates. These limited partnerships own office properties, industrial properties, shopping centers, and residential apartment properties. It is expected that the acquirer would in the future qualify as a real estate investment trust. Limited partners would receive shares of common stock in the acquirer, which would be listed on a national securities exchange or the NASDAQ national market system. 9 PART II - OTHER INFORMATION ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits The following Exhibits are filed herewith pursuant to Rule 601 of Regulation S-K. EXHIBIT NUMBER DESCRIPTION OF EXHIBIT ----------- ----------------------------- 27 Financial Data Schedule (b) Reports on Form 8-K A Form 8-K was filed in April 2000 reporting a change in the Partnership's Certifying Accountant. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report be signed on its behalf by the undersigned thereunto duly authorized. SIERRA PACIFIC DEVELOPMENT FUND a Limited Partnership S-P PROPERTIES, INC. General Partner Date: AUGUST 14, 2000 /s/ THOMAS N. THURBER --------------- ----------------------------------------------- Thomas N. Thurber President and Director Date: AUGUST 14, 2000 /s/ G. ANTHONY EPPOLITO --------------- ----------------------------------------------- G. Anthony Eppolito Chief Accountant 10