-----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, Ctv39fqZ+BIbRA4tzJD59JlqwlPnaEaXJ79AW3a4v07kXTypHXTpwQeXZptgAYSt a8ugjiwgIsWCXcxRxxelWA== 0000890566-00-000415.txt : 20000331 0000890566-00-000415.hdr.sgml : 20000331 ACCESSION NUMBER: 0000890566-00-000415 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19991231 FILED AS OF DATE: 20000330 FILER: COMPANY DATA: COMPANY CONFORMED NAME: SIERRA PACIFIC INSTITUTIONAL PROPERTIES V CENTRAL INDEX KEY: 0000780052 STANDARD INDUSTRIAL CLASSIFICATION: REAL ESTATE [6500] IRS NUMBER: 330122424 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 000-15702 FILM NUMBER: 585859 BUSINESS ADDRESS: STREET 1: 5850 SAN FELIPE STE 500 CITY: HOUSTON STATE: TX ZIP: 77057 BUSINESS PHONE: 7139776171 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, 1999 Commission file number : 0-15702 SIERRA PACIFIC INSTITUTIONAL PROPERTIES V (A CALIFORNIA LIMITED PARTNERSHIP) State of California 33-0122424 - ------------------------------------- -------------------------------------- (State or other jurisdiction of (I.R.S. Employer Identification incorporation or organization) Number) 5850 San Felipe, Suite 450 Houston, Texas 77057 - ------------------------------------- -------------------------------------- (Address of principal executive (Zip Code) offices) Registrant's telephone number, including area code: (713) 706-6271 ----------------------------------------------- 5850 San Felipe, Suite 500 Houston, Texas 77057 ----------------------------------------------------------- (Former name or former address, if changed since last report) Securities registered pursuant to Section 12 (b) of the Act: TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED - ------------------------------------- ----------------------------------------- None None Securities registered pursuant to Section 12 (g) of the Act: 140,000 LIMITED PARTNERSHIP UNITS --------------------------------- Title of class Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X]. No[ ]. DOCUMENTS INCORPORATED BY REFERENCE Annual Report to Limited Partners for the Year Ended December 31, 1999 is incorporated by reference into Parts II and III PART I ITEM 1. BUSINESS (a.) GENERAL DEVELOPMENT OF BUSINESS. Sierra Pacific Institutional Properties V (the "Partnership") is a California limited partnership that was formed in October 1985 for the purpose of acquiring, developing, and operating commercial and industrial real estate. The Partnership acquired land in August 1987 for the development of an 88,073 square foot office property in San Diego, California known as Sierra Sorrento II. This development consists of two separate buildings; a two-story building consisting of 29,500 usable square feet that was completed in November 1988 and a two-story building consisting of 58,573 usable square feet that was completed in May 1989. The Partnership sold the Sierra Sorrento II land holdings to Lincoln National Life Insurance Company for $3,000,000 on February 1, 1989. Upon ownership transfer, the Partnership entered into a 40 year ground lease with the insurance company. The Sierra Sorrento II land lease requires initial minimum payments of $25,000 per month commencing February 1989. The terms of the ground lease require scheduled rent increases over the lease term and additional ground rent. Subject to the provisions of the ground lease, the Partnership has the right to sell the property (land and buildings) to a third party. Upon ownership transfer the ground lease will terminate. Upon sale, the Ground Lessor is entitled to remuneration of the $3,000,000 investment prior to distribution of proceeds to the Partnership. The Ground Lessor will also participate in the appreciation of the property (upon sale) based on a formula contained in the ground lease agreement. On July 8, 1997, the land was purchased by CGS Real Estate Company, Inc., an affiliate of the General Partner. On September 24, 1997, all rights, title and interest in the ground lease were transferred and assigned to CGS Real Estate Company, Inc. ("Ground Lessor"). On February 1, 2000, the Partnership purchased the land holdings from CGS Real Estate Company, Inc. for $3,500,000 and the ground lease subsequently terminated. The Partnership paid cash of $2,174,255 and was credited its current prepaid balance of $1,325,745. On October 1, 1993, the Partnership created a California general partnership (Sorrento II Partners or "SIIP") with Sierra Mira Mesa Partners ("SMMP"), an affiliate, to facilitate cash contributions by SMMP for the continued development and operation of the Sorrento II property. The Partnership contributed the Sierra Sorrento II property and $115,000 in cash and SMMP contributed cash ($2,158,843, net, through December 31, 1998) in exchange for a 35.10% interest in Sorrento II Partners. Such interest was computed based upon the estimated fair value of SIIP's net assets at the date of formation of the joint venture. SMMP made additional cash contributions amounting to $971,420 and received distributions amounting to $4,000 during 1999. The percentage interests of the Partnership and Sierra Mira Mesa Partners are to be adjusted every January 1st during the term of Sorrento II Partners, beginning January 1, 1995. Accordingly, as of January 1, 2000, the Partnership's interest in SIIP will be decreased to 56.08%, and SMMP's interest will be increased to 43.92%. (b.) NARRATIVE DESCRIPTION OF BUSINESS. The Partnership owns and operates Sierra Sorrento II, an office project in San Diego, California. Success of the office building is dependent upon the timely payment of rent by two tenants which occupied 100% of the building at December 31, 1999. The Sierra Sorrento II property consists of two adjacent office buildings. There is significant competition in the rental market in the Partnership's trade area. A 1994 appraisal identified just over seven million square feet of competing research and development space in the property's market area. 2 (c.) COMPARISON OF CURRENT ACTIVITIES TO THOSE PROPOSED AT THE INITIATION OF THE PARTNERSHIP. In the Partnership's prospectus dated January 6, 1986, the investment objectives were described as follows: "The Partnership has been formed to acquire and operate on an all-cash basis commercial and industrial real properties, including both properties which are to be developed by the Partnership or are under development or construction ("development properties") and properties which are newly-constructed or have operating histories ("existing properties"). A minimum of 75% of the cash invested in properties by the Partnership will be invested in properties which are in the development or lease-up stage. The properties in which the Partnership will invest will be located in areas in the western and southwestern United States which are expected to experience high population and/or economic growth levels during the Partnership's period of operations. The principal investment objectives of the Partnership are to: (i) preserve, protect and return the Partnership's invested capital; (ii) generate sufficient cash from operations to provide for distributions of Available Cash to the Limited Partners, a portion of which will be tax-sheltered to the holders of Taxable Entity Units; (iii) obtain maximum long-term appreciation in the value of the Partnership's real estate investments; and (iv) sell the Partnership's real estate investments for cash after an approximate three to five year holding period. There can be no assurance that such objectives will be attained." Operations of the Partnership through 1999 have been consistent with the intent of the original prospectus in that the Partnership has invested in real estate projects that had the potential for capital gains, preservation of capital, and providing distributable cash flow partially sheltered from Federal Income Tax. However, the Partnership and its real estate have been adversely affected by the Tax Reform Act of 1986, aggressive lending by banks that resulted in commercial real estate overbuilding, and subsequent severe recessions. The original intention to sell its real estate investments after a five year holding period was delayed indefinitely. As of December 31, 1999, the Partnership had paid cash distributions of $2.69 for each $250 unit investment and remaining partners' equity was computed at $63.06 per unit. Thus, if the Partnership were to be liquidated at the end of 1999 at book value, each $250 investment would have returned a total of $65.75. The General Partner's goal is to continue operating the Sierra Sorrento II property until such time as rental rates return to the level necessary to support new office building development. At that time, the property may be sold at a price substantially greater than current book value. 3 ITEM 2. PROPERTY During 1999, the Partnership owned a 64.90% interest in Sierra Sorrento II, an office property located in San Diego, California. (See Item 1. Business for discussion of percentage ownership changes.) The property includes two separate buildings comprising 88,073 rentable square feet and is 100% occupied at December 31, 1999. There are no material liens or encumbrances against the property at December 31, 1999. The average effective annual rent per square foot at December 31, 1999 is $11.04. The property has only two tenants whose principal businesses are electronics manufacturing and media and marketing. Details of these significant tenants and their leases follow. SUMMARY OF TENANTS/LEASES
SQUARE PRECENT OF EFFECTIVE EFFECTIVE PRECENT OF FEET RENTABLE RENT PER RENT PER GROSS ANNUAL EXPIRATION TENANTS OCCUPIED SQUARE FEET SQUARE FOOT ANNUM RENT OF LEASE ------- ------------- ------------- ------------- ------------- ------------- -------------- Insight Electronics. 58,923 67% $ 9.00 $ 530,502 55% February 2003 Ziff-Davis, Inc. ... 22,150 25% 16.02 354,783 36% July 2005 Ziff-Davis, Inc. ... 7,000 8% 12.41 86,898 9% July 2005 ------------- ------------- ------------- ------------- ------------- ------------- Total Rented Space . 88,073 100% $ 11.04 $ 972,183 100% Vacancies .......... 0% ------------- ------------- Total Rentable Space 88,073 100% ============= =============
DEPRECIABLE PROPERTY Reference is made to Schedule III of the Form 10-K. REAL ESTATE TAXES The real estate tax obligation for 1999 is approximately 1.12% of the assessed value or $88,975. INSURANCE It is the opinion of management that the property is adequately covered by insurance. ITEM 3. LEGAL PROCEEDINGS The Partnership is not involved in any material legal proceedings. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None 4 PART II ITEM 5. MARKET FOR THE REGISTRANT'S PARTNERS' EQUITY AND RELATED MATTERS As of December 31, 1999, the number of security holders is as follows: NUMBER OF NUMBER RECORD OF UNITS HOLDERS ----------- ---------- Limited Partners 30,777 1,452 =========== ========== These securities are all of the same class, namely, limited partnership interests (units) and were sold pursuant to a registration statement filed under the Securities Act of 1933, as amended. The total offering was 140,000 units at $250.00 per unit. No broker or dealer currently makes a market in the units of the Partnership. Accordingly, there are no published price or trading volume figures available for the units. The units have been transferred on an extremely limited extent from time-to-time since the inception of the Partnership; however, the market for the units is highly restricted and sporadic, especially in view of the investor suitability requirements imposed on new purchasers by the various state blue sky laws and the restrictions on transfer contained in the Partnership Agreement. The Partnership has neither paid nor declared any cash or other distributions to the General or Limited Partners during the three most recent years. There are no contractual or other restrictions on the Partnership's ability to make such distributions. ITEM 6. SELECTED FINANCIAL DATA The Selected Financial Data for the Partnership is filed by reference to the Annual Report to the Limited Partners attached as an Exhibit. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Management's Discussion and Analysis of Financial Condition and Results of Operations includes certain forward looking statements reflecting the Partnership's expectations in the near future; however, many factors which may affect the actual results, especially changing regulations, are difficult to predict. Accordingly, there is no assurance that the Partnership's expectations will be realized. Overview: The following discussion should be read in conjunction with the Selected Financial Data and the Partnership's Consolidated Financial Statements and Notes thereto incorporated by reference to the Annual Report to the Limited Partners attached as an Exhibit. As of December 31, 1999, the Partnership owned a 64.90% interest in Sierra Sorrento II, an industrial property located in San Diego, California. 5 Results of Operations: COMPARISON OF YEAR ENDED DECEMBER 31, 1999 TO YEAR ENDED DECEMBER 31, 1998. Rental income increased by $378,000, or 46%, principally as a result of 100% occupancy for the entire year. During the first seven months of 1998, 29,150 square feet of the Property was vacant. A single tenant leased 22,150 square feet in August 1998 and the remaining 7,000 square feet in December 1998. The weighted-average annual rent per square foot, on an accrual basis, was $11.04 at December 31, 1999 compared to $10.95 at December 31, 1998. The Partnership made additional ground lease prepayments totaling $825,000 in 1999. Effective October 1999, all minimum base rent amounts becoming payable under the terms of the lease were to be applied against the prepaid balance until such time that the prepaid balance is extinguished plus interest at the rate of 10% per annum. Interest income of $35,000 was recorded in 1999 as a result. Total operating expenses increased by $73,000, or 6%, in comparison to the prior year, primarily due to an increase in ground lease expense, management fees and administrative costs. Additionally, a loan made to an affiliate in 1996 was deemed uncollectible and written-off to bad debt expense in 1999. Ground lease expense rose as a result of higher additional rents becoming due effective January 1999 in accordance with the lease agreement. The increase in management fees is attributable to the higher rental income. The increase in total operating expenses was partially offset by a decrease in depreciation and amortization, and by lower maintenance and repair costs incurred in 1999. COMPARISON OF YEAR ENDED DECEMBER 31, 1998 TO YEAR ENDED DECEMBER 31, 1997. Rental income decreased by $164,000, or 17%, primarily due to lower occupancy during the first seven months of 1998. One tenant, whose lease accounted for 22,150 square feet of the Property, expired December 31, 1997. This vacant space was re-leased to a tenant in the second quarter of 1998 and rent commenced in late August. This same tenant began leasing an additional 7,000 square feet in December 1998. The Property was 100% occupied at December 31, 1998. The weighted-average annual rent per square foot, on an accrual basis, increased from $10.12 at December 31, 1997 to $10.95 at December 31, 1998 as a result of higher rental rates. Total operating expenses increased by $26,000, or 2%, when compared to 1997. Depreciation and amortization, maintenance and repairs, and other operating expenses increased due to costs associated with the new tenant. Further, property taxes were higher due to an increase in the assessed value of the Property. The increase in total operating expenses was partially offset due to a decrease in management fees and legal fees. Management fees were lower as a result of the decrease in rental income. Legal fees were higher in 1997 due to professional fees associated with the property's ground lease. Liquidity and Capital Resources: On October 1, 1993, the Partnership created a California general partnership (Sorrento II Partners) with Sierra Mira Mesa Partners ("SMMP"), an affiliate, to facilitate cash contributions by SMMP for the continued development and operation of the Sorrento II property. SMMP has adequate resources to make the necessary advances during the foreseeable future. During 1999, SMMP contributed a total of $971,420 to the Partnership and received distributions of $4,000 from the Partnership. The Partnership used cash in operations of $493,000 and paid $343,000 for building and tenant improvements in 1999. At December 31, 1999, the Partnership is in a liquid position with cash and billed rents of $211,000 and current liabilities of $84,000. In February 2000, the Partnership purchased the Sorrento II land holdings from CGS Real Estate, Inc. for $3,500,000 and the ground lease subsequently terminated. The Partnership paid cash of $2,174,255 and was credited its current prepaid balance of $1,325,745. SMMP contributed the majority of the cash for the land purchase. 6 The Partnership's primary capital requirements will be for construction of new tenant space. It is anticipated that these requirements and any operating capital requirements will be funded from operations of the Property and SMMP. Inflation: The Partnership's long-term leases contain provisions designed to mitigate the adverse impact of inflation on its results from operations. Such provisions may include escalation clauses related to Consumer Price Index increases. YEAR 2000 COMPLIANCE The Year 2000 Compliance issue is the result of computer programs being written using two digits rather than four to define the applicable year. Any of the Partnership's computer programs that have time-sensitive software may recognize a date using "00" as the year 1900 rather than the year 2000. This could result in a system failure or miscalculations causing disruptions of operations, including, among other things, a temporary inability to process transactions, send invoices, or engage in similar normal business activities. As a result, many companies' software and computer systems may need to be upgraded or replaced in order to comply with Year 2000 requirements. The Partnership did not experience any major system failures or disruptions in operations over the year 2000 transition. All systems have continued to operate as normal. The Partnership did not separately track internal costs related to the Year 2000 issue and Partnership management believes these amounts did not have a material impact on the Partnership's financial position or results of operations. The Partnership employs a property management company to manage, operate and lease the property. The management company did not experience any major systems failures or disruptions in operations at the property. The Partnership remains confident that no Year 2000 issues with the property management company or other third parties will arise in the future although no guarantees can be made to that effect. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The following financial statements and independent auditors' report are incorporated by reference to the Annual Report to the Limited Partners attached as an Exhibit. 1. Independent Auditors' Report 2. Consolidated Balance Sheets - December 31, 1999 and 1998 3. Consolidated Statements of Operations - for the years ended December 31, 1999, 1998 and 1997 4. Consolidated Statements of Changes in Partners' Equity - for the years ended December 31, 1999, 1998 and 1997 5. Consolidated Statements of Cash Flows - for the years ended December 31, 1999, 1998 and 1997 6. Notes to Consolidated Financial Statements ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURES None 7 PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF REGISTRANT The Registrant is a California Limited Partnership and has no officers or directors. S-P Properties, Inc., a California corporation, is the General Partner of the Registrant. In December 1994, Finance Factors, Inc., a subsidiary of CGS Real Estate Company, Inc., purchased the common stock TCP, Inc. TCP, Inc. owns all of the common stock of S-P Properties, Inc. In July 1995, Finance Factors, Inc. merged with Bancor Real Estate Company, Inc., a subsidiary of CGS Real Estate Company, Inc. CGS Real Estate Company, Inc. and its affiliates are engaged in real estate management, leasing, ownership, and sales. The companies own or manage more than ten million square feet of commercial real estate in Texas, Arizona, Colorado, Missouri, California and the Carolinas. The executive officers and directors of S-P Properties, Inc. are:
APPROXIMATE NAME POSITION AGE TIME IN OFFICE - ---- -------- --- -------------- Thomas N. Thurber President and Director 49 5 years Gregory J. Nooney, Jr. Vice President 68 2 years Patricia A. Nooney Vice President 43 2 years William J. Carden Assistant Secretary/Treasurer and Director 55 5 years Morris S. Cohen Director 62 1 year
Thomas N. Thurber - President and Director, S-P Properties, Inc. Mr. Thurber is a Certified Public Accountant who began his career with Arthur Andersen & Co. in 1972. In 1979, he joined a major publicly traded real estate development firm (Daon) where he became Controller for U.S. Operations. Subsequently, Mr. Thurber served as Director of Real Estate for a developer of retail properties, and Chief Financial Officer of a trust with significant investments in commercial real estate. Mr. Thurber also serves as a director of Property Secured Investments, Inc. Mr. Thurber holds a bachelors degree in accounting from Florida State University. Gregory J. Nooney, Jr. - Vice President, S-P Properties, Inc. He also has served as Chairman of the Board and Chief Executive Officer of Brooklyn Street Properties, Inc. since May 1983. Mr. Nooney joined Brooklyn Street Properties, Inc. in 1954 and served as President from 1969 to May 1983. Brooklyn Street Properties, Inc., which was founded in 1945, is a real estate investment company. In addition, Mr. Nooney was chairman and Chief Executive Officer of Nooney Realty Trust from 1984 February 1998 and then served as Vice Chairman from February 1998 through November 1999. Mr. Nooney is currently Chairman of Coldwell Banker Commercial American Spectrum. Partricia A. Nooney - Vice President, S-P Properties, Inc. Patricia A Nooney is President of Coldwell Banker Commercial American Spectrum, a wholly-owned subsidiary of CGS Real Estate Company. Ms. Nooney joined Brooklyn Street Properties, Inc., in 1981 and has served as an officer since 1985. From 1990 to November 1999, Ms. Nooney was President and Secretary of Nooney Realty Trust, Inc. William J. Carden - Assistant Secretary/Treasurer and Director, S-P Properties, Inc. Mr. Carden is the founder and President of CGS Real Estate Company, Inc., which owns over one million square feet of commercial real estate. Mr. Carden founded DVM Properties, Inc. in 1974 which concentrated on rehabilitation of retail, office, industrial, and commercial real estate. Mr. Carden is a former Director of Bay Financial, a New York Stock Exchange company, and currently serves as a director of Property Secured Investments, Inc. and IDM Corporation. Morris S. Cohen - Director, S-P Properties, Inc. Mr. Cohen's extensive real estate background includes negotiation of joint venture partnerships for property acquisitions, production of syndication packages and direct responsibilities for operations, finance, sales, leasing and property management. Mr. Cohen was a senior level officer with major public and pivately held real estate companies and served as President of IDM Participating Income Corporation from April 1995 to October 1996. Mr. Cohen is a graduate of Queens College. There have been no events under any bankruptcy act, no criminal proceedings, and no judgements or injunctions material to the evaluation of the ability and integrity of any director during the past five years. 8 ITEM 11. MANAGEMENT REMUNERATION The Registrant is a California Limited Partnership and has no officers or directors. No options to purchase securities of the Registrant have been granted to any person. In accordance with the terms of the Partnership Agreement, certain affiliates of the General Partner receive real estate brokerage commissions in connection with the leasing of properties by the Partnership and receive from the Partnership certain management and administrative services fees. These amounts are set forth in the Annual Report to the Limited Partners attached as an Exhibit. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT None ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The Partnership pays a management fee of 6% of the gross rental income (as defined in the partnership agreement) collected from the property to American Spectrum Real Estate Services, Inc. (ASRE), formerly Banc Commercial California. These fees for the year ended December 31, 1999 were $69,072. Bancor Real Estate Company, Inc. (Bancor) provides services to the Partnership such as accounting, legal, data processing and similar services and is entitled to reimbursement for expenses incurred to provide such services. Amounts so reimbursed totaled $89,275 during the year ended December 31, 1999. In consideration for services rendered with respect to initial leasing of Partnership properties, ASRE is paid initial leasing costs. For the year ended December 31, 1999, a total of $16,293 was paid for initial leasing costs. Bancor and ASRE are both wholly owned subsidiaries of CGS Real Estate Company, Inc. William J. Carden, an officer and director of S-P Properties, Inc., the general partner of the Partnership, controls 50% of CGS Real Estate Company, Inc. The Partnership sold the Sierra Sorrento II land holdings to Lincoln National Life Insurance Company for $3,000,000 on February 1, 1989. Upon ownership transfer, the Partnership entered into a 40 year ground lease with the insurance company. The Sierra Sorrento II land lease requires initial minimum payments of $25,000 per month commencing February 1989. The terms of the ground lease require scheduled rent increases over the lease term and additional ground rent. Subject to the provisions of the ground lease, the Partnership has the right to sell the property (land and buildings) to a third party. Upon ownership transfer the ground lease will terminate. Upon sale, the Ground Lessor is entitled to remuneration of its $3,000,000 investment prior to distribution of proceeds to the Partnership. The Ground Lessor will also participate in the appreciation of the property (upon sale) based on a formula contained in the ground lease agreement. On July 8, 1997, the land was purchased by CGS Real Estate Company, Inc., an affiliate of the General Partner. On September 24, 1997, all rights, title and interest in the ground lease were transferred and assigned to CGS Real Estate Company, Inc. ("Ground Lessor"). In October 1997, the Partnership prepaid $900,000 of the ground lease to CGS Real Estate Company, Inc. in exchange for an amendment reducing the minimium rent required under the lease from $360,000 to $330,000 per year from 1999 to 2008. The minimum basic rent effective January 1, 2009 through December 31, 2028 remained unchanged at $360,000 per year. The November 1997, December 1997, and January 1998 rent amounts payable under the terms of the lease were applied against the prepaid balance. Effective February 1998, rent amounts were paid at the rate of $18,000 per month until such time that the prepaid balance was extinguished. In 1999, the Partnership made additional ground lease prepayments totaling $825,000. Effective October 1999, all minimum base rent amounts becoming payable were to be applied against the prepaid balance until such time that the prepaid balance is extinguished plus interest at the rate of 10% per annum. Interest income of $34,540 was recorded in 1999 as a result. The prepaid balance at December 31, 1999 was $1,344,540. On February 1, 2000, the Partnership purchased the land holdings from CGS Real Estate Company, Inc. for $3,500,000 and the ground lease subsequently terminated. The Partnership paid cash of $2,174,255 and was credited its current prepaid balance of $1,325,745. 9 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K A. EXHIBITS 1. Annual Report to the Limited Partners 2. Exhibit Number 27 - Selected Financial Data B. FINANCIAL STATEMENT SCHEDULES The following financial statement schedule and the report of the independent auditors thereon are included herein: 1. Schedule III - Real Estate and Accumulated Depreciation - December 31, 1999 All other schedules are omitted as they either are not required or are not applicable, or the required information is set forth in the financial statements and notes thereto. C. REPORTS ON FORM 8-K None 10 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. SIERRA PACIFIC INSTITUTIONAL PROPERTIES V a California Limited Partnership S-P PROPERTIES, INC. General Partner Date: March 19, 2000 /s/ THOMAS N. THURBER ---------------------------- -------------------------------------- Thomas N. Thurber President and Director Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. Date: March 19, 2000 /s/ THOMAS N. THURBER ---------------------------- -------------------------------------- Thomas N. Thurber President and Director S-P Properties, Inc. Date: March 19, 2000 /s/ WILLIAM J. CARDEN ---------------------------- -------------------------------------- William J. Carden Assistant Secretary/Treasurer and Director S-P Properties, Inc. Date: March 19, 2000 /s/ G. ANTHONY EPPOLITO ---------------------------- -------------------------------------- Anthony Eppolito Chief Accountant S-P Properties, Inc. 11 INDEPENDENT AUDITORS' REPORT ON FINANCIAL STATEMENT SCHEDULE To the Partners of Sierra Pacific Institutional Properties V We have audited the consolidated financial statements of Sierra Pacific Institutional Properties V, a California limited partnership, (the "Partnership") as of December 31, 1999 and 1998, and for each of the three years in the period ended December 31, 1999 and have issued our report thereon dated February 25, 2000. Such consolidated financial statements and report are included in your 1999 Annual Report to the Limited Partners and are incorporated herein by reference. Our audits also included the financial statement schedule of Sierra Pacific Institutional Properties V, listed in Item 14. This financial statement schedule is the responsibility of the Partnership's management. Our responsibility is to express an opinion based on our audits. In our opinion, such financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly in all material respects the information set forth therein. DELOITTE & TOUCHE LLP Houston, Texas February 25, 2000 12 SCHEDULE III - FORM 10-K SIERRA PACIFIC INSTITUTIONAL PROPERTIES V REAL ESTATE AND ACCUMULATED DEPRECIATION DECEMBER 31, 1999 - --------------------------------------------------------------------------------
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 Sorrento II (3) San Diego, California $3,000,000 $ 2,420,186 $ 0 $ 6,133,211 $2,569,815 $ 5,178,562 $ 7,748,377 ACCUM. DATE DATE DEPREC. DESCRIPTION DEPREC. (5) CONSTRUCTED ACQUIRED LIFE ----------- ----------- ----------- ----------- --------- OFFICE BUILDING- INCOME -PRODUCING: $ 2,195,937 (5) 8/87 3-30 yrs.
(1) The initial cost represents the original purchase price of the property. (2) The Partnership has capitalized property development costs. (3) On February 1, 1989, the Sierra Sorrento II land was sold for $3,000,000 and leased back from the buyer. Sales and Leaseback costs of $149,629 were capitalized. Because the sale and leaseback transaction contains many characteristics of a joint venture, the Partnership accounts for this arragement under the method of accounting described in Note 4 to the consolidated financial statements incorporated by reference to the Annual Report to the Limited Partners attached as an Exhibit. On October 1, 1993, the property was transferred to a general partnership, Sorrento II Partners. The Partnership has an equity interest of 64.90% and Sierra Mira Mesa Partners, an affiliate, has a 35.10% interest at December 31, 1999. (4) For Federal Income Tax purposes, the total cost of the Property (net of the ground lessor's equity) is $4,748,377. (5) Construction on a two-story building ("Building B"), 29,500 usable square footage, was completed in November 1988. Construction on a two-story building ("Building A") 58,573 usable square footage, was completed in May 1989. (6) Reconciliation of total real estate carrying value and accumulated depreciation for the three years ended December 31, 1999 is as follows: TOTAL REAL ESTATE ACCUMULATED CARRYING VALUE DEPRECIATION ----------- ----------- Balance - January 1, 1997 .................... $ 7,990,589 $ 1,998,154 Additions during the year ................. 29,313 392,152 ----------- ----------- Balance - December 31, 1997 .................. 8,019,902 2,390,306 Additions during the year ................ 340,376 399,246 Deductions: Write off fully depreciated assets ..... (28,663) (28,663) ----------- ----------- Balance - December 31, 1998 .................. 8,331,615 2,760,889 Additions during the year ................ 342,748 361,033 Deductions: Write off fully depreciated assets ..... (925,986) (925,986) ----------- ----------- Balance - December 31, 1999 .................. $ 7,748,377 $ 2,195,937 =========== =========== 13 SIERRA PACIFIC INSTITUTIONAL PROPERTIES V (A CALIFORNIA LIMITED PARTNERSHIP) --------------------------------- SELECTED FINANCIAL DATA For the Years Ended December 31, 1999, 1998, 1997, 1996, and 1995 The following table sets forth certain selected historical financial data of the Partnership. The selected operating and financial position data as of and for each of the five years ended December 31, 1999 have been derived from the audited consolidated financial statements of the Partnership. This information should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the Consolidated Financial Statements and Notes thereto which are incorporated by reference to the Annual Report to the Limited Partners attached as an Exhibit. - --------------------------------------------------------------------------------
1999 1998 1997 1996 1995 ----------- ----------- ----------- ----------- ----------- REVENUES .............................. $ 1,227,622 $ 814,801 $ 979,052 $ 990,901 $ 923,375 OPERATING EXPENSES: Total ............................... 1,314,908 1,241,780 1,216,169 1,220,966 1,181,440 Per dollar of revenues .............. 1.07 1.52 1.24 1.23 1.28 NET LOSS: Total ............................... (56,649) (283,728) (178,051) (168,132) (206,168) General Partner ..................... 0 0 0 0 0 Limited Partners .................... (56,649) (283,728) (178,051) (168,132) (206,168) Per Unit (1) ........................ (1.84) (9.22) (5.79) (5.46) (6.70) CASH (USED IN) PROVIDED BY OPERATING ACTIVITIES ................ (493,094) 177,057 (647,186) 158,517 (96,063) CASH USED IN INVESTING ACTIVITIES .......................... (342,748) (340,376) (29,313) (51,877) (305,219) CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES ................ 967,420 143,043 691,400 (164,995) 465,400 TOTAL ASSETS .......................... 7,874,195 7,147,241 7,212,994 6,785,833 7,130,169 PARTNERS' EQUITY: Total ............................... 1,940,876 1,997,525 2,281,253 2,459,304 2,627,436 General Partner ..................... 0 0 0 0 0 Limited Partners .................... 1,940,876 1,997,525 2,281,253 2,459,304 2,627,436 LIMITED PARTNERS' EQUITY - PER UNIT (1) 63.06 64.90 74.12 79.91 85.37 INCOME-PRODUCING PROPERTIES: Number .............................. 1 1 1 1 1 Cost ................................ 7,748,377 8,331,615 8,019,902 7,990,589 7,938,712 Less: Accumulated depreciation ...... (2,195,937) (2,760,889) (2,390,306) (1,998,154) (1,606,003) Net book value ...................... 5,552,440 5,570,726 5,629,596 5,992,435 6,332,709 MINORITY INTEREST IN CONSOLIDATED JOINT VENTURE ......... 2,647,872 1,711,089 1,711,297 1,078,963 1,286,896 DISTRIBUTIONS PER UNIT (1): ........... 0 0 0 0 0
(1) The net loss, limited partners' equity and distributions per unit are based upon the limited partnership units outstanding at the end of the year, 30,777 in all years. The cumulative distributions per limited partnership unit from inception to December 31, 1999 equal $2.69. 14 INDEPENDENT AUDITORS' REPORT To the Partners of Sierra Pacific Institutional Properties V We have audited the accompanying consolidated balance sheets of Sierra Pacific Institutional Properties V, a California limited partnership, (the "Partnership") as of December 31, 1999 and 1998, and the related consolidated statements of operations, changes in partners' equity and cash flows for each of the three years in the period ended December 31, 1999. These financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Sierra Pacific Institutional Properties V as of December 31, 1999 and 1998, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 1999 in conformity with generally accepted accounting principles. DELOITTE & TOUCHE LLP Houston, Texas February 25, 2000 15 SIERRA PACIFIC INSTITUTIONAL PROPERTIES V (A CALIFORNIA LIMITED PARTNERSHIP) CONSOLIDATED BALANCE SHEETS DECEMBER 31, 1999 AND 1998 - --------------------------------------------------------------------------------
DECEMBER 31, 1999 DECEMBER 31, 1998 ----------------- ----------------- ASSETS Cash and cash equivalents ...................................................... $ 134,781 $ 3,203 Receivables: Unbilled rent (Notes 1 and 4) ................................................ 451,414 486,238 Billed rent (Note 1) ......................................................... 76,707 0 Due from affiliates (Note 3) ................................................... 0 18,995 Prepaid ground lease (Note 3) .................................................. 1,344,540 683,000 Income-producing property - net of accumulated depreciation of $2,195,937 in 1999 and $2,760,889 in 1998 (Note 4) ............................................................. 5,552,440 5,570,726 Other assets (Notes 1, 2 and 3) ................................................ 314,313 385,079 ----------------- ----------------- Total Assets ................................................................... $ 7,874,195 $ 7,147,241 ================= ================= LIABILITIES AND PARTNERS' EQUITY Accrued and other liabilities (Note 2) ......................................... $ 90,908 $ 252,764 Ground lease payable (Note 1) .................................................. 194,539 185,863 ----------------- ----------------- Total Liabilities .............................................................. 285,447 438,627 ----------------- ----------------- Ground lessor's equity in income- producing property (Note 3) .................................................. 3,000,000 3,000,000 ----------------- ----------------- Minority interest in consolidated joint venture (Note 4) ...................................................... 2,647,872 1,711,089 ----------------- ----------------- Partners' equity (Notes 1 and 5): General Partner .............................................................. 0 0 Limited Partners: 140,000 units authorized, 30,777 issued and outstanding ................................................................ 1,940,876 1,997,525 ----------------- ----------------- Total Partners' equity ......................................................... 1,940,876 1,997,525 ----------------- ----------------- Total Liabilities and Partners' equity ......................................... $ 7,874,195 $ 7,147,241 ================= =================
SEE ACCOMPANYING NOTES. 16 SIERRA PACIFIC INSTITUTIONAL PROPERTIES V (A CALIFORNIA LIMITED PARTNERSHIP) CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997 - --------------------------------------------------------------------------------
1999 1998 1997 ----------- ----------- ----------- REVENUES: Rental income (Note 1) ..................... $ 1,193,082 $ 814,801 $ 979,052 Interest income (Note 3) ................... 34,540 0 0 ----------- ----------- ----------- Total revenues ....................... 1,227,622 814,801 979,052 ----------- ----------- ----------- EXPENSES: Operating expenses: Depreciation and amortization ............ 442,093 458,276 447,453 Ground lease (Note 3) .................... 409,607 373,805 381,826 Property taxes and insurance ............. 111,292 104,621 89,444 Maintenance and repairs .................. 67,996 80,758 66,599 Administrative fees (Note 3) ............. 87,110 74,059 65,163 Management fees (Note 3) ................. 69,072 49,919 59,515 Legal and accounting ..................... 29,722 29,742 61,781 General and administrative ............... 17,661 15,055 13,655 Utilities ................................ 23,211 26,250 22,029 Renting expenses ......................... 0 0 1,981 Bad debt expense (Note 3) ................ 18,995 0 0 Other operating expenses ................. 38,149 29,295 6,723 ----------- ----------- ----------- Total operating expenses ............... 1,314,908 1,241,780 1,216,169 ----------- ----------- ----------- LOSS BEFORE MINORITY INTEREST'S SHARE OF CONSOLIDATED JOINT VENTURE LOSS ......... (87,286) (426,979) (237,117) ----------- ----------- ----------- MINORITY INTEREST'S SHARE OF CONSOLIDATED JOINT VENTURE LOSS ............ 30,637 143,251 59,066 ----------- ----------- ----------- NET LOSS ..................................... $ (56,649) $ (283,728) $ (178,051) =========== =========== =========== Net loss per limited partnership unit (Note 1) $ (1.84) $ (9.22) $ (5.79) =========== =========== ===========
SEE ACCOMPANYING NOTES. 17 SIERRA PACIFIC INSTITUTIONAL PROPERTIES V (A CALIFORNIA LIMITED PARTNERSHIP) CONSOLIDATED STATEMENTS OF CHANGES IN PARTNERS' EQUITY FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997 - --------------------------------------------------------------------------------
LIMITED PARTNERS TOTAL --------------------------- GENERAL PARTNERS' PER UNIT TOTAL PARTNER EQUITY ----------- ----------- ----------- ----------- Partners' equity - January 1, 1997 . $ 79.91 $ 2,459,304 $ 0 $ 2,459,304 Net loss ........................... (5.79) (178,051) (178,051) ----------- ----------- ----------- ----------- Partners' equity - December 31, 1997 74.12 2,281,253 0 2,281,253 Net loss ........................... (9.22) (283,728) (283,728) ----------- ----------- ----------- ----------- Partners' equity - December 31, 1998 64.90 1,997,525 0 1,997,525 Net loss ........................... (1.84) (56,649) (56,649) ----------- ----------- ----------- ----------- Partners' equity - December 31, 1999 $ 63.06 $ 1,940,876 $ 0 $ 1,940,876 =========== =========== =========== ===========
SEE ACCOMPANYING NOTES. 18 SIERRA PACIFIC INSTITUTIONAL PROPERTIES V (A CALIFORNIA LIMITED PARTNERSHIP) CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997 - --------------------------------------------------------------------------------
1999 1998 1997 --------- --------- --------- CASH FLOWS FROM OPERATING ACTIVITIES: Net loss ............................................. $ (56,649) $(283,728) $ (178,051) Adjustments to reconcile net loss to cash (used in) provided by operating activities: Depreciation and amortization ...................... 442,093 458,276 447,453 Minority interest's share of unconsolidated joint venture loss ............................... (30,637) (143,251) (59,066) Bad debt expense ................................... 18,995 0 0 (Increase) decrease in rent receivable ............. (41,883) (9,960) 13,687 Increase in prepaids and other assets .............. (671,833) (62,463) (844,087) (Decrease) increase in accrued and other liabilities (153,180) 218,183 (27,122) --------- --------- --------- Net cash (used in) provided by operating activities (493,094) 177,057 (647,186) --------- --------- --------- CASH FLOWS FROM INVESTING ACTIVITIES: Payments for property additions ...................... (342,748) (340,376) (29,313) --------- --------- --------- Net cash used in investing activities ................ (342,748) (340,376) (29,313) --------- --------- --------- CASH FLOWS FROM FINANCING ACTIVITIES: Distributions to minority investor ................... (4,000) (85,657) (262,000) Contributions from minority investor ................. 971,420 228,700 953,400 --------- --------- --------- Net cash provided by financing activities ............ 967,420 143,043 691,400 --------- --------- --------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS .............................. 131,578 (20,276) 14,901 CASH AND CASH EQUIVALENTS - Beginning of year .......... 3,203 23,479 8,578 --------- --------- --------- CASH AND CASH EQUIVALENTS - End of year ............... $ 134,781 $ 3,203 $ 23,479 ========= ========= =========
SEE ACCOMPANYING NOTES. 19 SIERRA PACIFIC INSTITUTIONAL PROPERTIES V (A CALIFORNIA LIMITED PARTNERSHIP) -------------------------------- NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- 1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES ORGANIZATION Sierra Pacific Institutional Properties V (the "Partnership") was organized on October 8, 1985 in accordance with the provisions of the California Uniform Limited Partnership Act to acquire and operate commercial and industrial real properties. S-P Properties, Inc. is the General Partner and manager of the Partnership. On December 30, 1994, all of the outstanding stock of TCP, Inc. was sold to Finance Factors, Inc. TCP, Inc. owns all of the common stock of S-P Properties, Inc. Finance Factors was a subsidiary of CGS Real Estate Company, Inc., a national real estate company. In July 1995, Finance Factors, Inc. merged with Bancor Real Estate Company, Inc., another subsidiary of CGS Real Estate Company, Inc. The Partnership acquired land in August 1987 for the development of an 88,073 square foot office property in San Diego, California known as Sierra Sorrento II. This development consists of two separate buildings; a two-story building consisting of 29,500 usable square feet that was completed in November 1988 and a two-story building consisting of 58,573 usable square feet that was completed in May 1989. On October 1, 1993, the Partnership created a California general partnership (Sorrento II Partners) with Sierra Mira Mesa Partners ("SMMP"), an affiliate, to facilitate cash contributions by SMMP for the continued development and operation of the Sorrento II property. The Partnership contributed the Sierra Sorrento II property and cash and SMMP contributed cash to the newly formed partnership. At December 31, 1999, the Partnership's remaining asset is a 64.90% interest in Sorrento II Partners. On July 8, 1997, the Sorrento II land was purchased from Lincoln National Life Insurance Company by CGS Real Estate Company, Inc., an affiliate of the General Partner. On September 24, 1997, all rights, title and interest in the ground lease were transferred and assigned to CGS Real Estate Company, Inc. ("Ground Lessor") (See Note 3). On February 1, 2000, the Partnership purchased the land holdings from CGS Real Estate Company, Inc. for $3,500,000 and the ground lease was subsequently terminated. The Partnership paid cash of $2,174,255 and was credited its current prepaid balance of $1,325,745. BASIS OF FINANCIAL STATEMENTS The Partnership maintains its books and prepares its financial statements in accordance with generally accepted accounting principles. However, the Partnership prepares its tax returns on the accrual basis of accounting as defined by the Internal Revenue Code with adjustments to reconcile book and taxable income (loss) for differences in the treatment of certain income and expense items. The accompanying financial statements do not reflect any provision for federal or state income taxes since such taxes are the obligation of the individual partners. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reported period. Actual results could differ from those estimates. The consolidated financial statements include the accounts of the Partnership and Sorrento II Partners, a majority owned California general partnership (see Note 4). All significant intercompany balances and transactions have been eliminated in consolidation. 20 Sierra Pacific Institutional Properties V Notes to Consolidated Financial Statements Page two CASH AND CASH EQUIVALENTS Cash and cash equivalents include highly liquid, short-term investments with original maturities of three months or less. FAIR VALUE OF FINANCIAL INSTRUMENTS The financial instruments of the Partnership at December 31, 1999 and 1998 consist of cash and cash equivalents, receivables, due from affiliates, and accounts payable. The fair value of cash and cash equivalents, receivables, and accounts payable approximates the carrying value due to the short term nature of these items. The amounts due from affiliates are not fair valued due to the related party nature of this receivable. INCOME-PRODUCING PROPERTY Property and tenant improvements are carried at cost and depreciated on the straight-line method over the estimated lives of the related assets, ranging from three to thirty years. Tenant improvements incurred at the initial leasing of the property are depreciated over the lessor of ten years or the lease term and tenant improvements incurred at the re-leasing of the property are depreciated over the life of the related lease. Expenditures for repairs and maintenance are charged against income as incurred. Improvements and major renewals are capitalized. Costs and the related accumulated depreciation of assets sold or retired are removed from the accounts in the year of disposal or when fully depreciated and any resulting gain or loss is reflected in income. The Partnership regularly evaluates long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable. Future cash flows are estimated and compared to the carrying amount of the asset to determine if an impairment has occurred. If the sum of the expected future cash flows is less than the carrying amount of the asset, the Partnership shall recognize an impairment loss. No such impairment has been recognized by the Partnership. Because the determination of fair value is based upon projections of future economic events such as property occupancy rates, rental rates, operating cost inflation and market capitalization rates which are inherently subjective, the amounts ultimately realized at disposition may differ materially from the net carrying value as of December 31, 1999. The cash flows used to determine fair value and net realizable value are based on good faith estimates and assumptions developed by management. Unanticipated events and circumstances may occur and some assumptions may not materialize; therefore actual results may vary from the estimates and the variances may be material. The Partnership may provide additional write-downs which could be material in subsequent years if real estate markets or local economic conditions change. OTHER ASSETS Deferred leasing costs represent costs incurred to lease properties and are amortized over the life of the related lease using the straight line method of accounting. RENTAL INCOME AND RENT RECEIVABLE Rental income is recognized on the straight-line method over the term of the related operating lease in accordance with the provisions of Statement of Financial Accounting Standards No. 13, "Accounting for Leases". Unbilled rent receivable represents the difference between rent recognized on the straight-line method and actual cash due. 21 Sierra Pacific Institutional Properties V Notes to Consolidated Financial Statements Page three GROUND LEASE PAYABLE Ground lease payable represents the difference between rent recognized on the straight-line method in accordance with the provisions of Statement of Financial Accounting Standards No. 13, "Accounting for Leases" and actual cash due and paid by that date. CALCULATION OF EQUITY AND NET INCOME (LOSS) PER LIMITED PARTNERSHIP UNIT Equity and net income (loss) per limited partnership unit are determined by dividing the Limited Partners' equity and net income (loss) by 30,777, the number of limited partnership units outstanding for all periods. RECENT ACCOUNTING PRONOUNCEMENTS The Financial Accounting Standards Board has issued Statement of Financial Accounting Standards ("SFAS") No. 130, "Reporting Comprehensive Income" and SFAS No. 131, "Disclosures About Segments of an Enterprise and Related Information." These SFAS's, which were effective for the Partnership's fiscal year ending December 31, 1998, establish additional disclosure requirements but do not affect the measurement of the results of operations. During the periods presented, the Partnership did not have any items of comprehensive income. The adoption of SFAS No. 131 had no effect on the Partnership's financial statements as the Partnership operates in only one segment, the acquisition, development and operation of commercial real estate. 2. DETAILS OF CERTAIN BALANCE SHEET ACCOUNTS Additional information regarding certain balance sheet accounts, at December 31, 1998 and 1997, is as follows: 1999 1998 -------- -------- Other assets: Prepaid expenses ................................ $ 5,626 $ 45,741 Deferred leasing costs, net of accumulated amortization of $306,675 in 1999 and $225,616 in 1998 ....................... 308,687 339,338 -------- -------- $314,313 $385,079 ======== ======== Accrued and other liabilities: Accounts payable ................................ $ 43,980 $ 83,801 Unearned rental income .......................... 23,800 152,150 Security deposits ............................... 7,249 7,249 Other ........................................... 15,879 9,564 -------- -------- $ 90,908 $252,764 ======== ======== 22 Sierra Pacific Institutional Properties V Notes to Consolidated Financial Statements Page four 3. GENERAL PARTNER AND RELATED PARTY TRANSACTIONS An affiliate of the General Partner may receive a management fee of 6% of the gross rental income (as defined in the partnership agreement) collected from the properties. Management fees paid to affiliates for the years ended December 31, 1999, 1998 and 1997 were $69,072, $49,919 and $59,515, respectively. An affiliate of the General Partner is entitled to reimbursement for expenses incurred by the affiliate for services provided to the Partnership such as accounting, legal, data processing and similar services. The affiliate was reimbursed $89,275, $77,844 and $69,720 for such services for the years ended December 31, 1999, 1998, and 1997, respectively. In consideration for services rendered with respect to initial leasing of Partnership properties, an affiliate is paid initial leasing costs. For the years ended December 31, 1999 and 1998, a total of $16,293 and $74,504, respectively, was paid for initial leasing costs. No such costs were incurred in 1997. Additionally, the Partnership reimbursed the affiliate for construction supervision costs incurred by the affiliate. For the years ended December 31, 1999, 1998, and 1997, the affiliate received $0, $22,511, and $1,998, respectively, for tenant improvements supervisory costs. The Partnership sold the Sierra Sorrento II land holdings to Lincoln National Life Insurance Company for $3,000,000 on February 1, 1989. Upon ownership transfer, the Partnership entered into a 40 year ground lease with the insurance company. The Sierra Sorrento II land lease requires initial minimum payments of $25,000 per month commencing February 1989. The terms of the ground lease require scheduled rent increases over the lease term and additional ground rent. Subject to the provisions of the ground lease, the Partnership has the right to sell the property (land and buildings) to a third party. Upon ownership transfer the ground lease will terminate. Upon sale, the Ground Lessor is entitled to remuneration of the prior $3,000,000 investment prior to distribution of proceeds to the Partnership. The Ground Lessor will also participate in the appreciation of the property (upon sale) based on a formula contained in the ground lease agreement. On July 8, 1997, the land was purchased from Lincoln National Life Insurance Company by CGS Real Estate Company, Inc., an affiliate of the General Partner. On September 24, 1997, all rights, title and interest in the ground lease were transferred and assigned to CGS Real Estate Company, Inc. ("Ground Lessor"). In October 1997, the Partnership prepaid $900,000 of the ground lease to CGS Real Estate Company, Inc. in exchange of an amendment reducing the minimum rent required under the lease from $360,000 to $330,000 per year from 1999 to 2008. The minimum basic rent effective January 1, 2009 through December 31, 2028 remained unchanged at $360,000 per year. The November 1997, December 1997, and January 1998 rent amounts payable under the terms of the lease were applied against the prepaid balance. Effective February 1998, rent amounts were to be paid at the rate of $18,000 per month until such time that the prepaid balance was extinguished. In 1999, the Partnership made additional ground lease prepayments totaling $825,000. Effective October 1999, all minimum base rent amounts becoming payable were to be applied against the prepaid balance until such time that the prepaid balance is extinguished plus interest at the rate of 10% per annum. Interest income of $34,540 was recorded in 1999 as a result. The prepaid balance at December 31, 1999 was $1,344,540. On February 1, 2000, the Partnership purchased the land holdings from CGS Real Estate Company, Inc. for $3,500,000 and the ground lease subsequently terminated. The Partnership paid cash of $2,174,255 and was credited its current prepaid balance of $1,325,745. During 1996, the Partnership made a non-interest bearing loan to an affiliate in the amount of $18,995. The loan was deemed uncollectible and subsequently written off to bad debt expense in 1999. 23 Sierra Pacific Institutional Properties V Notes to Consolidated Financial Statements Page five 4. INCOME-PRODUCING PROPERTY At December 31, 1999 and 1998 the total cost and accumulated depreciation of the property are as follows: 1999 1998 ----------- ----------- Land ................................. $ 2,569,815 $ 2,569,815 Building and improvements ............ 5,178,562 5,761,800 ----------- ----------- Total ....................... 7,748,377 8,331,615 Accumulated depreciation ............. (2,195,937) (2,760,889) ----------- ----------- Net ......................... $ 5,552,440 $ 5,570,726 =========== =========== During 1999 and 1998, the Partnership removed $925,986 and $28,663, respectively, from its buildings and improvements and related depreciation accounts for fully depreciated property. Sierra Sorrento II experienced a land ownership transfer in February 2000 (See Note 3). On October 1, 1993, the Partnership formed a joint venture with SMMP, an affiliate. The joint venture, known as Sorrento II Partners ("SIIP"), was formed as a California general partnership to develop and operate the Sierra Sorrento II property. The Partnership had an 83.2% equity interest with its contribution of Sierra Sorrento II and $115,000 in cash. Such interest was computed based upon the estimated fair value of SIIP's net assets at the date of formation of the joint venture. SMMP was allocated a 16.8% initial equity interest in SIIP in exchange for its $710,000 cash contribution ($1,324,400, net, through December 31, 1996). SMMP made additional cash contributions amounting to $953,400, $228,700, and $971,420, and received distributions amounting to $262,000, $85,657 and $4,000 during 1997, 1998 and 1999, respectively. The percentage interests of the Partnership and SMMP are to be adjusted every January 1st during the term of SIIP, beginning January 1, 1995. Accordingly, as of January 1, 1997, 1998 and 1999, the Partnership's interest in SIIP was changed to 75.09%, 66.45% and 64.90%, respectively, and SMMP's interest was changed to 24.91%, 33.55% and 35.10%, respectively. On January 1, 2000, the Partnership's interest will be decreased to 56.08% and SMMP's interest will be increased to 43.92% to reflect the 1999 contributions and distributions. Under the terms of the SIIP joint venture agreement, SMMP will receive preferential cash distributions of available "Distributable Funds" from the operation of SIIP or sale of its property to the extent of its capital contributions. Additional Distributable Funds are allocable to the Partnership to the extent of the deemed fair value of its property contribution, and the remainder to the Partnership and SMMP in proportion to their respective equity interests. 24 Sierra Pacific Institutional Properties V Notes to Consolidated Financial Statements Page six Future minimum base rental income, under the existing operating leases for the Sierra Sorrento II property, to be recognized on a straight-line basis and amounts to be received on a cash basis are as follows: STRAIGHT-LINE CASH YEAR ENDING DECEMBER 31, BASIS BASIS ------------------------ ------------ ------------ 2000 $ 972,183 $ 1,052,120 2001 972,183 1,086,440 2002 972,183 1,118,346 2003 530,098 576,160 2004 441,680 479,230 Thereafter 257,645 285,090 ------------ ------------ Total $ 4,145,972 $ 4,597,386 ============ ============ In 1999, 56% of rental income was generated from an electronics manufacturer and 44% was from a media and marketing company. In 1998, the electronics manufacturer generated 82% of rental income and the remaining 18% was from the media and marketing company. In 1997, 65% of all rental income was from the electronics manufacturer and 35% was from a tenant in the healthcare sector. 5. PARTNERS' EQUITY Accrual basis profits and losses resulting from operations of the Partnership are allocated 99% to the Limited Partners and 1% to the General Partner. Currently, the Partnership does not meet the criteria for distributing cash to the General Partner, and it cannot reasonably predict when the criteria will be met. Accordingly, no accrual basis profits and losses from operations were allocated to the General Partner. Upon any sale or other disposition of the Partnership's real properties, distributions will be made to the Limited Partners until they have received distributions from sales proceeds in an amount equal to 100% of their unreturned capital. Thereafter, distributions generally will be divided 1% to the General Partner and 99% to the Limited Partners until the Limited Partners have received distributions from all sources equal to the sum of their respective priority distributions (an amount equal to not less than 12% per annum cumulative, but not compounded, on each Limited Partners' unreturned capital). Thereafter, the General Partner will be entitled to receive incentive distributions which, when aggregated with the 1% distributions to the General Partner described above, are equal to 10% of the total net sale proceeds available for distribution to the Partners. Any remaining sale proceeds will be distributed to the Limited Partners. 25 EXECUTIVE OFFICERS OF THE GENERAL PARTNER The Executive Officers of S-P Properties, Inc., the General Partner are as follows: NAME POSITION - ---- -------- Thomas N. Thurber President and Director Gregory J. Nooney, Jr. Vice President Patricia A. Nooney Vice President William J. Carden Assistant Secretary/Treasurer and Director The 10-K Report sent to the Securities and Exchange Commission contains additional information on the Partnership's operations and is available to Limited Partners upon request. 26 EX-27 2
5 THE FINANCIAL DATA SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM SIERRA PACIFIC INSTITUTIONAL PROPERTIES V DECEMBER 31, 1999 FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 12-MOS DEC-31-1999 DEC-31-1999 134,781 0 528,121 0 0 211,488 7,748,377 2,195,937 7,874,195 83,659 3,000,000 0 0 0 1,940,876 7,874,195 1,193,082 1,227,622 0 872,815 442,093 0 0 (56,649) 0 (56,649) 0 0 0 (56,649) (1.84) (1.84)
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