-----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, RkumHVA/LZtyqVHvdxbdjsbMZ8USptk7zlf1TmmFE21Vw1m6yq0ZyytelzLBnv6o QflUrf39OkbtVhtDWkJmsg== /in/edgar/work/0000890566-00-001593/0000890566-00-001593.txt : 20001115 0000890566-00-001593.hdr.sgml : 20001115 ACCESSION NUMBER: 0000890566-00-001593 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20000930 FILED AS OF DATE: 20001114 FILER: COMPANY DATA: COMPANY CONFORMED NAME: SIERRA PACIFIC DEVELOPMENT FUND II CENTRAL INDEX KEY: 0000719606 STANDARD INDUSTRIAL CLASSIFICATION: [6500 ] IRS NUMBER: 953856271 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-12036 FILM NUMBER: 763783 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-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 September 30, 2000 ---------------------------------------------------- Commission file number 0-12036 ---------------------------------------------------- SIERRA PACIFIC DEVELOPMENT FUND II (A LIMITED PARTNERSHIP) State of California 95-3856271 - -------------------------------------- ----------------------------------- (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 Balance Sheets - September 30, 2000 and December 31, 1999 5 Statements of Operations - For the Nine Months and Three Months Ended September 30, 2000 and 1999 6 Statements of Changes in Partners' Equity - For the Year Ended December 31, 1999 and for the Nine Months Ended September 30, 2000 7 Statements of Cash Flows - For the Nine Months Ended September 30, 2000 and 1999 8 Notes to Financial Statements 9 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 Sierra Pacific Development Fund II's (the Partnership) Financial Statements and Notes thereto appearing elsewhere in this Form 10-Q. The Partnership currently owns three properties; 5850 San Felipe, Sierra Westlakes, and Sierra Southwest Pointe. In addition, the Partnership holds a 30.17% interest in Sierra Mira Mesa Partners (SMMP). (b) RESULTS OF OPERATIONS Rental income for the nine months ended September 30, 2000 increased by approximately $90,000, or 5%, in comparison to the same period in 1999, primarily due to an increase in common area maintenance fees recovery revenue at 5850 San Felipe. Supplemental billings were made in 2000 to recover higher than anticipated prior year common area maintenance fees. The increase in rental income is also attributable to higher rental rates and occupancy. Occupancy at Sierra Southwest Point rose from 85% at September 30, 1999 to 95% at September 30, 2000. At 5850 San Felipe, occupancy rose slightly from 98% to 99% between the same periods. Sierra Westlakes remained 75% occupied. 2 Rental income for the quarter ended September 30, 2000 increased by approximately $17,000, or 3%, principally due to the higher rental rates and occupancy. This increase was partially offset by lower common area maintenance fee recovery revenue at Sierra Westlakes, as supplemental billings were made in the third quarter of 1999 to recover higher than anticipated common area maintenance fees from a prior period. Operating expenses for the nine months ended September 30, 2000 increased by approximately $143,000, or 13%, when compared to the corresponding period in 1999, largely due to an increase in legal fees associated with the settlement of a lawsuit against the Partnership (see discussion below). In addition, maintenance and repairs costs and accounting and auditing fees rose during the period. Operating expenses for the three months ended September 30, 2000 increased by approximately $50,000, or 15%, primarily due to, among other factors, higher maintenance and repairs, utilities, administrative costs and accounting and auditing fees incurred during the quarter. The Partnership's share of unconsolidated joint venture income increased by approximately $12,000 for the nine months ended September 30, 2000 when compared to the corresponding period in the prior year. This increase in income generated by SMMP was in large part attributable to its share of Sorrento II Partners' (SIIP) income. SIIP, which SMMP accounts for as an unconsolidated joint venture investment on the equity method, recorded an increase in income due to, among other factors, higher common area maintenance fees recovery revenue and a decrease in ground lease expense during the nine months ended September 30, 2000. (c) LIQUIDITY AND CAPITAL RESOURCES In December 1999, a lawsuit was settled against the Partnership that provided for a complete release of the Partnership, general partners and all affiliates. The suit related to three loans made to affiliates, two by the Partnership and one by SMMP. As part of the material terms of the Settlement, S-P Properties, the general partner of the Partnership, on or before December 31, 2000, will call and collect the two demand notes with balances of $1,012,698 and $4,642,334, respectively, on September 30, 2000 and a portion of the SMMP loan (the date of collection being referred to herein as the "Payment Date"). In the case of the SMMP loan, the amount due is equal to that percentage of the loan corresponding to the Partnership's interest in SMMP, which in any event is no less than thirty percent (30%). The loan proceeds received by the Partnership will be distributed on a per-unit basis to the limited partners and assignees of the Partnership of record as of the Payment Date. The collection and distribution of the two demand notes held by the Partnership will result in a reduction of equity and notes receivable. The collection and distribution of the note receivable held by SMMP will ultimately result in a reduction in equity and investment in unconsolidated joint venture of approximately $735,000 (30% of SMMP's note receivable balance of $2,451,227). 3 The Partnership also agreed to pay plaintiff's attorneys' fees of $1,000,000. In the first quarter of 2000, the Partnership made scheduled payments totaling $500,000. The remaining $500,000 is due by December 31, 2000. The Partnership is in an illiquid position as of September 30, 2000 with cash and billed rents of approximately $293,000 and current liabilities of approximately $910,000, which includes the remaining legal liability of $500,000. The Partnership's primary capital requirement is the remaining legal obligation. It is anticipated this liability will be contributed to the real estate investment trust (REIT) currently being organized by CGS Real Estate Company Inc., an affiliate of the general partner (See Note 5). In the event the REIT is not formed in time, it is anticipated this obligation would be funded from the operations of the properties and distributions from SMMP. Inflation: The Partnership does not expect inflation to be a material factor in its operations in 2000. 4 SIERRA PACIFIC DEVELOPMENT FUND II (A LIMITED PARTNERSHIP) BALANCE SHEETS SEPTEMBER 30, 2000 AND DECEMBER 31, 1999 - --------------------------------------------------------------------------------
SEPTEMBER 30, 2000 DECEMBER 31, 1999 (UNAUDITED) -------------------- -------------------- ASSETS Cash and cash equivalents ......................................................... $ 68,211 $ 260,963 Receivables: Note, net of deferred gain of $736,271 .......................................... 3,906,063 3,062,629 Unbilled rent ................................................................... 230,726 239,271 Billed rent ..................................................................... 224,494 140,211 Due from affiliates ............................................................. 1,013,698 1,013,698 Interest ........................................................................ 362,278 0 Income-producing properties - net of accumulated depreciation and valuation allowance of $4,172,957 and $3,728,719, respectively .................................................................... 10,182,993 10,590,651 Investment in unconsolidated joint venture ........................................ 1,842,371 3,023,177 Other assets - net of accumulated amortization of $473,788 and $393,674, respectively .......................................... 903,228 873,728 -------------------- -------------------- Total Assets ...................................................................... $ 18,734,062 $ 19,204,328 ==================== ==================== LIABILITIES AND PARTNERS' EQUITY Accrued and other liabilities ..................................................... $ 909,868 $ 1,452,577 Notes payable ..................................................................... 6,361,069 6,397,116 -------------------- -------------------- Total Liabilities ................................................................. 7,270,937 7,849,693 -------------------- -------------------- Partners' equity (deficit): General Partner ................................................................. (62,920) 0 Limited Partners: Class A Limited Partners: 60,000 units authorized, 56,674 issued and outstanding ............................................... 7,538,443 7,426,335 Class B Limited Partners: 60,000 units authorized, 29,979 issued and outstanding ............................................... 3,987,602 3,928,300 -------------------- -------------------- Total Partners' equity ............................................................ 11,463,125 11,354,635 -------------------- -------------------- Total Liabilities and Partners' equity ............................................ $ 18,734,062 $ 19,204,328 ==================== ====================
SEE ACCOMPANYING NOTES 5 SIERRA PACIFIC DEVELOPMENT FUND II (A LIMITED PARTNERSHIP) STATEMENTS OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999 AND FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999 - --------------------------------------------------------------------------------
NINE MONTHS ENDED THREE MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, ----------------------------- ---------------------------- 2000 1999 2000 1999 (UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED) ------------ ------------ ------------ ------------ REVENUES: Rental income .................................................. $ 1,887,364 $ 1,797,273 $ 620,422 $ 603,248 Interest income ................................................ 363,153 307,543 126,209 102,775 ------------ ------------ ------------ ------------ Total revenues .............................. 2,250,517 2,104,816 746,631 706,023 ------------ ------------ ------------ ------------ EXPENSES: Operating expenses ............................................. 1,273,003 1,130,210 387,253 336,784 Depreciation and amortization .................................. 666,602 652,328 225,720 217,823 Interest ....................................................... 334,854 324,986 111,584 110,664 ------------ ------------ ------------ ------------ Total costs and expenses .................... 2,274,459 2,107,524 724,557 665,271 ------------ ------------ ------------ ------------ (LOSS) INCOME BEFORE PARTNERSHIP'S SHARE OF UNCONSOLIDATED JOINT VENTURE INCOME ................................................ (23,942) (2,708) 22,074 40,752 ------------ ------------ ------------ ------------ PARTNERSHIP'S SHARE OF UNCONSOLIDATED JOINT VENTURE INCOME .......................................... 132,432 120,675 31,676 30,906 ------------ ------------ ------------ ------------ NET INCOME ....................................................... $ 108,490 $ 117,967 $ 53,750 $ 71,658 ============ ============ ============ ============ Net income per limited partnership unit .......................... $ 1.24 $ 1.36 $ 0.61 $ 0.83 ============ ============ ============ ============
SEE ACCOMPANYING NOTES 6 SIERRA PACIFIC DEVELOPMENT FUND II (A LIMITED PARTNERSHIP) STATEMENTS OF CHANGES IN PARTNERS' EQUITY FOR THE YEAR ENDED DECEMBER 31, 1999 AND FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000 - -------------------------------------------------------------------------------
LIMITED PARTNERS TOTAL ---------------------------- GENERAL PARTNERS' PER UNIT CLASS A CLASS B TOTAL PARTNER EQUITY ------------ ------------ ------------ ------------ ------------ ------------ Proceeds from sale of partnership units ................ $ 250.00 $ 14,392,000 $ 7,579,000 $ 21,971,000 $ 21,971,000 Underwriting commissions and other organization expenses .. (33.68) (1,939,045) (1,021,124) (2,960,169) (2,960,169) Repurchase of 1,231 partnership units ........................... 0.06 (177,934) (66,167) (244,101) (244,101) Cumulative net income (loss) (to December 31, 1998) ........... (6.96) (393,677) (208,839) (602,516) $ 46,674 (555,842) Cumulative distributions (to December 31, 1998) ........... (64.80) (3,685,045) (1,947,280) (5,632,325) (46,674) (5,678,999) ------------ ------------ ------------ ------------ ------------ ------------ Partners' equity - January 1, 1999 . 144.62 8,196,299 4,335,590 12,531,889 0 12,531,889 Net loss ........................... (13.59) (769,964) (407,290) (1,177,254) (1,177,254) ------------ ------------ ------------ ------------ ------------ ------------ Partners' equity - January 1, 2000 (audited) ........ 131.03 7,426,335 3,928,300 11,354,635 0 11,354,635 Transfer among general partner and limited partners ................. 0.74 41,861 22,144 64,005 (64,005) 0 Net income (unaudited) ............. 1.24 70,247 37,158 107,405 1,085 108,490 ------------ ------------ ------------ ------------ ------------ ------------ Partners' equity (deficit) - September 30, 2000 (unaudited) .. $ 133.01 $ 7,538,443 $ 3,987,602 $ 11,526,045 $ (62,920) $ 11,463,125 ============ ============ ============ ============ ============ ============
SEE ACCOMPANYING NOTES 7 SIERRA PACIFIC DEVELOPMENT FUND II (A LIMITED PARTNERSHIP) STATEMENTS OF CASH FLOWS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999 - --------------------------------------------------------------------------------
2000 1999 (Unaudited) (Unaudited) --------------- --------------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income ............................................................................. $ 108,490 $ 117,967 Adjustments to reconcile net income to cash used in operating activities: Depreciation and amortization ........................................................ 666,602 652,328 Partnership's share of unconsolidated joint venture income ............................................................... (132,432) (120,675) Increase in rent receivable .......................................................... (75,738) (67,700) Increase in interest receivable ...................................................... (362,278) (306,049) Decrease in other receivables ........................................................ 0 7,946 (Increase) decrease in other assets .................................................. (154,053) 28,916 Decrease in accrued and other liabilities ............................................ (542,709) (225,466) --------------- --------------- Net cash used in operating activities ................................................ (492,118) 87,267 --------------- --------------- CASH FLOWS FROM INVESTING ACTIVITIES: Loan to affiliate of the general partner ............................................. (843,434) 0 Payments for property additions ...................................................... (130,748) (199,555) --------------- --------------- Net cash used in investing activities ................................................ (974,182) (199,555) --------------- --------------- CASH FLOWS FROM FINANCING ACTIVITIES: Funding of note payable secured by property .......................................... 0 1,500,000 Principal payments on notes payable .................................................. (36,047) (1,318,890) Contributions to unconsolidated joint venture ........................................ (101,878) 0 Distributions from unconsolidated joint venture ...................................... 1,411,473 0 Borrowings from affiliate ............................................................ 0 306,184 --------------- --------------- Net cash provided by financing activities ............................................ 1,273,548 487,294 --------------- --------------- NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS ................................................................. (192,752) 375,006 CASH AND CASH EQUIVALENTS - Beginning of period .......................................... 260,963 71,180 --------------- --------------- CASH AND CASH EQUIVALENTS - End of period ................................................ $ 68,211 $ 446,186 =============== =============== SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Cash paid during the period for property taxes ....................................... $ 223,178 $ 210,731 =============== =============== Cash paid during the period for interest ............................................. $ 334,354 $ 300,206 =============== ===============
SEE ACCOMPANYING NOTES 8 SIERRA PACIFIC DEVELOPMENT FUND II (A LIMITED PARTNERSHIP) --------------------- NOTES TO FINANCIAL STATEMENTS (Unaudited) ------------------------------------------------------------------------ 1. BASIS OF FINANCIAL STATEMENTS In the opinion of Sierra Pacific Development Fund II's (the Partnership) management, these unaudited financial statements reflect all adjustments necessary for a fair presentation of financial position on September 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. 2. RELATED-PARTY TRANSACTIONS Included in the financial statements for the nine months ended September 30, 2000 and 1999 are affiliate transactions as follows: September 30 ----------------------- 2000 1999 ---------- --------- Management fees $ 94,311 $ 83,323 Administrative fees 208,429 216,879 Leasing fees 60,232 29,957 3. INVESTMENT IN UNCONSOLIDATED JOINT VENTURE Sierra Mira Mesa Partners (SMMP) was formed in 1985 between the Partnership and Sierra Pacific Pension Investors '84 (SPPI'84), an affiliate, to develop and operate the real property known as Sierra Mira Mesa, an office building located in San Diego, California. The Partnership's initial ownership interest in SMMP was 51%; the remaining 49% was owned by SPPI'84. Effective December 31, 1996, the general partners amended the partnership agreement to allow for adjustments in the sharing ratio each year based upon the relative net contributions and distributions since inception of each general partner. As of September 30, 2000 the Partnership's interest in SMMP is 30.17%; the remaining 69.83% interest is owned by SPPI'84. The consolidated financial statements of SMMP include the accounts of SMMP and Sorrento I Partners, a majority-owned California general partnership. Summarized income statement information for SMMP for the nine months ended September 30, 2000 and 1999 is as follows: 9 Sierra Pacific Development Fund II Notes to Financial Statements (Unaudited) Page two September 30 ------------------------ 2000 1999 ----------- ----------- Rental income $ 1,608,103 $1,581,014 Total revenues 1,794,537 1,748,607 Operating expenses 692,164 546,496 Share of unconsolidated joint venture income (loss) 116,068 (50,092) Net income 425,648 358,835 As of September 30, 2000, SMMP held a 43.92% interest in Sorrento II Partners (SIIP), a California general partnership with Sierra Pacific Institutional Properties V formed in 1993, a 5.08% interest in Sierra Creekside Partners (SCP), a California general partnership with Sierra Pacific Development Fund formed in 1994, and a 33.36% interest in Sierra Vista Partners (SVP), a California general partnership with Sierra Pacific Development Fund III formed in 1994. Summarized income statement information for these Partnerships, which are accounted for by SMMP under the equity method, for the nine months ended September 30, 2000 and 1999 is as follows: SCP SVP SIIP ------------------ --------------- -------------------- September 30 September 30 September 30 ------------------ --------------- -------------------- 2000 1999 2000 1999 2000 1999 --------- -------- ------ ------ ---------- -------- Rental income $744,330 $682,407 $ 0 $ 0 $1,013,425 $831,944 Total revenues 744,330 682,407 0 11,907 1,024,630 831,944 Operating expenses 404,520 376,008 13,735 14,577 351,062 338,169 Extraordinary loss (46,020) 0 0 0 0 0 Net (loss) income (206,327) (66,373) (13,735) (2,670) 298,569 (127,792) 10 Sierra Pacific Development Fund II Notes to Financial Statements (Unaudited) Page three 4. PARTNERS' EQUITY Equity and net income (loss) per limited partnership unit is determined by dividing the limited partners' share of the Partnership's equity and net income (loss) by the number of limited partnership units outstanding, 56,674 Class A and 29,979 Class B. 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 was allocated among the limited partners and 1% was 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 continuing the development of a plan which will combine the Partnership's properties 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 qualify as a real estate investment trust. Limited partners would receive shares of common stock from the acquirer, which would be listed on a national securities exchange. This transaction is subject to the approval of the limited partners of the Partnership and portions of the other partnerships. CGS's management filed a Registration Statement on Form S-4 August 14, 2000 relating to the solicitation of consents with the Securities and Exchange Commission. 6. RECENT ACCOUNTING PRONOUNCEMENT In December 1999, the Securities and Exchange Commission (SEC) issued Staff Accounting Bulletin No. 101 (SAB 101), Revenue Recognition in Financial Statements, which summarizes certain of the SEC staff's views on applying generally accepted accounting principles to revenue recognition in financial statements. The Partnership will adopt the accounting provisions of SAB 101 in the fourth quarter of 2000. Management believes that the implementation of SAB 101 will not have a significant effect on the Partnership's financial condition or results of operations. 11 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 II a Limited Partnership S-P PROPERTIES, INC. General Partner Date: NOVEMBER 14, 2000 /s/ THOMAS N. THURBER ----------------------------------------------- Thomas N. Thurber President and Director Date: NOVEMBER 14, 2000 /s/ G. ANTHONY EPPOLITO ----------------------------------------------- G. Anthony Eppolito Chief Accountant 12 EX-27 2 0002.txt
5 THE FINANCIAL DATA SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM SIERRA PACIFIC DEVELOPMENT FUND II SEPTEMBER 30, 2000 FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 9-MOS DEC-31-2000 SEP-30-2000 68,211 0 817,498 0 0 654,983 14,355,950 4,172,957 18,734,062 909,868 6,361,069 0 0 0 11,463,125 18,734,062 1,887,364 2,250,517 0 1,273,003 666,602 0 334,854 108,490 0 108,490 0 0 0 108,490 1.24 1.24
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