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, 2000 Commission file number: 0-11068
SIERRA PACIFIC DEVELOPMENT FUND
(A California Limited Partnership)
State of California 95-3643693
- -------------------------------------- ---------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification Number)
incorporation or organization)
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
-----------------------------------------------
- --------------------------------------------------------------------------------
(Former name or former address, if changed since last report)
Securities registered pursuant to Section 12 (b) of the Act:
Title of each class Name of each exchange on which registered
------------------- -----------------------------------------
None None
Securities registered pursuant to Section 12 (g) of the Act:
30,000 Limited Partnership Units
Title of class
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes |X| No |_|.
DOCUMENTS INCORPORATED BY REFERENCE
Annual Report to Limited Partners for the Year Ended December 31,
2000 is incorporated by reference into Parts II and III
1
PART I
ITEM 1. BUSINESS
(a.) GENERAL DEVELOPMENT OF BUSINESS. Sierra Pacific Development Fund (the
"Partnership") is a California limited partnership that was formed in February
1981 for the purpose of acquiring, developing, and operating commercial real
estate.
The Partnership's first real estate investment was for the acquisition of land
and development of a 41,000 square foot office project in San Bernardino,
California known as Sierra Commercenter. On December 31, 1993, the Partnership
sold Sierra Commercenter for $3,722,362 and recorded a gain on the sale of
$766,068.
In 1983, the Partnership acquired land in San Ramon, California as the first
step in development of the Sierra Creekside office project (the "Property"), a
47,800 square foot building that was completed in October 1984.
In February 1994, the Partnership created a California general partnership,
Sierra Creekside Partners ("SCP"), with Sierra Mira Mesa Partners ("SMMP") to
facilitate cash contributions by SMMP for the continued development and
operation of the Sierra Creekside property. The Partnership contributed the
Property (at an agreed value of $2,825,000) and SMMP contributed cash. Through
December 31, 1999, SMMP's net cash contributions were $151, 159 which resulted
in a 5.08% interest in SCP. In 2000, SMMP received net distributions of
$2,400,009 from SCP. SMMP primary use of these net distributions was to provide
its joint venture partners with an additional source of capital. The percentage
interests of the Partnership and SMMP are to be adjusted each year on January 1
during the term of SCP, beginning January 1, 1995 and ending December 31, 2013
unless terminated sooner, based upon the relative net contributions and
distributions since inception through the preceding December 31. Accordingly, as
of January 1, 2001, the Partnership's interest in SCP will be increased to 100%,
and SMMP's interest will be decreased to zero. The excess net cash distributions
of $2,248,850 made to SMMP and cumulative loss allocated to SMMP is reported as
an asset in the Partnership's balance sheet. Under the terms of the SCP joint
venture agreement, SMMP would be obligated to contribute to the Partnership any
negative balance standing in its capital account upon liquidation of the
Partnership.
(b.) NARRATIVE DESCRIPTION OF BUSINESS. The Partnership owns and operates Sierra
Creekside, an office building in San Ramon, California. Success of the office
building is dependent upon the timely payment of rent by three tenants who
accounted for approximately 46% of the rental income of the Partnership for the
year ended December 31, 2000.
There is significant competition in the office building rental market in the
Partnership's trade area. A 1994 appraisal identified six buildings in the
immediate area that offered space and amenities comparable to Sierra Creekside.
(c.) COMPARISON OF CURRENT ACTIVITIES TO THOSE PROPOSED AT THE INITIATION OF THE
PARTNERSHIP. In the Partnership's prospectus dated June 25, 1982, the investment
objectives were described as follows:
"The Partnership was formed to invest in properties which will: (i.) have the
potential for long-term capital gains through appreciation in value; (ii.) to
the extent consistent with (i.) above, preserve, protect and return the
Partnership's invested capital; (iii.) provide distributable Cash Flow from
operations; (iv.) provide Federal Income Tax deductions so that all or a portion
of any distributable cash from operations may be treated as a return of capital
for tax purposes and, therefore, may not represent taxable income to the Limited
Partners; and (v.) build up equity through the reduction of mortgage loans on
those of the Partnership's properties which have been leveraged. There can be no
assurance that such objectives will be achieved."
2
The prospectus also states: "The Partnership expects to commence liquidation of
all its properties after approximately the fifth year of Partnership operations.
However, the Managing General Partners may exercise their discretion as to
whether and when to sell, finance or refinance a property, and the Partnership
will have no obligations to sell properties at any particular time."
Operations of the Partnership through 2000 have been consistent with the intent
of the original prospectus in that the Partnership has invested in real estate
projects that had the potential for capital gains, preservation of capital and
providing distributable cash flow partially sheltered from Federal Income Tax.
However, the Partnership and its real estate have been adversely affected by the
Tax Reform Act of 1986, aggressive lending by banks that resulted in commercial
real estate overbuilding, and subsequent severe recessions. The original
intention to begin liquidation of properties after the fifth year of operations
was delayed indefinitely. As of December 31, 2000, the Partnership had paid cash
distributions of $166.75 for each $500 unit investment and remaining partners'
equity is $41.95 per unit. Thus, if the Partnership were to be liquidated at the
end of 2000 at book value, each $500 investment would have returned a total of
$208.70.
CGS Real Estate Company, Inc. ("CGS"), an affiliate of the general partner, is
continuing the process of developing a plan pursuant to which the property owned
by the Partnership would be combined with the properties of other real estate
partnerships managed by CGS and its affiliates. These limited partnerships own
office properties, industrial properties, shopping centers, and residential
apartment properties. It is expected that the acquirer, American Spectrum
Realty, Inc. ("ASR"), would in the future qualify as a real estate investment
trust. Limited partners would receive shares of common stock in ASR, which would
be listed on a national securities exchange. The transaction is subject to
approval of the limited partners of the partnerships. ASR filed a Registration
Statement on Form S-4 August 14, 2000 relating to the solicitation of consents
with the Securities and Exchange Commission. The Registration Statement was
amended February 14, 2001.
ITEM 2. PROPERTIES
During 2000, the Partnership owned (fee simple) a 94.92% interest in Sierra
Creekside, a commercial office building located in San Ramon, California. (See
Item 1. Business for discussion of changes in ownership percentages). The
building consists of 47,800 rentable square feet and was 96% occupied at
December 31, 2000. The average effective annual rent per square foot at December
31, 2000 was $23.71.
The Property was encumbered by a mortgage lien in favor of Home Federal Savings
of San Francisco with a principal balance of $1,673,186 at December 31, 1999.
The mortgage bore interest at 3.5% above the 11th District Cost of Funds Index
with a minimum of 9% and a maximum of 14% (9% at December 31, 1999). The loan
term was 120 months with a maturity date of July 1, 2005. Payments were
amortized over a 240 month period with a remaining principal balance of
$1,316,055 due at maturity assuming no payment had been made on principal in
advance of its due date.
On January 25, 2000, the Home Federal Savings note was repaid. On the same date,
the Partnership entered into a new loan agreement with General Electric Capital
Corporation ("GECC") in the amount of $4,250,000. The lender funded $4,050,000
at closing and held back $200,000 to be drawn upon to help finance future tenant
improvements and leasing costs. Proceeds from the loan were used to pay the loan
balance due to Home Federal Savings and as a source for contributions to the
minority owner of the Sierra Creekside Property, SMMP. This loan, which is
secured by the Sierra Creekside property, bears interest at 2.75% above the GECC
Composite Commercial Paper Rate (9.49% at December 31, 2000). Principal and
interest payments are due monthly based on a 30-year amortization. The loan
matures January 31, 2005. At December 31, 2000, the loan balance was $4,025,544.
3
Summary of Significant Tenants/Leases
At December 31, 2000, three of the Property's 16 tenants occupy ten percent or
more of rentable space. The principal businesses of these significant tenants
are banking, construction services and billing/collections services. Details of
the leases follow:
Tenants Square Percent of Effective Effective Percent of Expiration of Lease
Feet Rentable Rent Per Rent Per Gross Annual
Occupied Square Feet Square Foot Annum Rent
- ------------------------------------------------------------------------------------------------------------------------
Washington Mutual Bank 7,189 15% $ 19.39 $ 139,401 13% June, 2002
Washington Mutual Bank 1,921 4% 33.12 63,624 6% November, 2003
Perfect Service Builders 4,831 10% 22.80 110,147 10% June, 2003
Pen-Cal Administrators 7,331 15% 25.80 189,140 17% February, 2005
Tenants Occupying < 10% sq ft 24,536 52% 23.80 583,868 54% Various
--------------------------------------------------------------------
Total Rented Space 45,808 96% $ 23.71 1,086,179
Vacancies 1,992 4%
-----------------------
Total Rentable Space 47,800 100%
Summary of Leases by Expiration
The Property's 16 tenants have leases scheduled to expire over the next five
years as indicated in the table below. One tenant has two leases.
Year of expiration 2001 2002 2003 2004 2005 Totals
Number of leases 3 3 8 1 2 17
Percent of total leases 18% 17% 47% 6% 12% 100%
Total area (square feet) 6,478 9,996 15,653 2,841 10,840 45,808
Annual rent $122,396 $194,654 $403,389 $80,175 $285,565 $1,086,179
Percent gross annual rent 12% 18% 37% 7% 26% 100%
Depreciable Property Reference is made to Schedule III of the Form 10-K.
Real Estate Taxes The real estate tax obligation for 2000 is
approximately 1.1% of the assessed value or $83,732.
Insurance In the opinion of management, the property is adequately
covered by insurance.
ITEM 3. LEGAL PROCEEDINGS
The Partnership is not involved in any material legal proceedings.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
4
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S PARTNERS' EQUITY AND RELATED MATTERS
As of December 31, 2000, the number of security holders is as follows:
Number Number of
of Units Record Holders
-------- --------------
Limited Partners 29,354 1,564
====== =====
These securities are all of the same class, namely, limited partnership
interests (units), and were sold pursuant to a registration statement filed
under the Securities Act of 1933, as amended. The total offering was 30,000
units at $500.00 per unit.
No broker or dealer currently makes a market in the units of the Partnership.
Accordingly, there are no published price or trading volume figures available
for the units. The units have been transferred on an extremely limited extent
from time-to-time since the inception of the Partnership; however, the market
for the units is highly restricted and sporadic, especially in view of the
investor suitability requirements imposed on new purchasers by the various state
blue sky laws and the restrictions on transfer contained in the Partnership
Agreement.
The Partnership has neither paid nor declared cash or other distributions to the
General or Limited Partners during the two most recent years. There are no
contractual or other restrictions on the Partnership's ability to make such
distributions.
ITEM 6. SELECTED FINANCIAL DATA
The Selected Financial Data for the Partnership is filed by reference to the
Annual Report to the Limited Partners attached as an Exhibit.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Management's Discussion and Analysis of Financial Condition and Results of
Operations includes certain forward looking statements reflecting the
Partnership's expectations in the near future; however, many factors which may
affect the actual results, especially changing regulations, are difficult to
predict. Accordingly, there is no assurance that the Partnership's expectations
will be realized.
Overview:
The following discussion should be read in conjunction with the Selected
Financial Data and the Partnership's Consolidated Financial Statements and Notes
thereto incorporated by reference to the Annual Report to the Limited Partners
attached as an Exhibit. As of December 31, 2000, the Partnership owns a 94.92%
interest in the Sierra Creekside Partners, which operates one property, Sierra
Creekside (the "Property").
5
Results of Operations:
Comparison of year ended December 31, 2000 to year ended December 31, 1999.
Rental income for the year ended December 31, 2000 increased approximately
$115,000, or 13%, when compared to the prior year, primarily due to an increase
in rental rates. One tenant, who leases 7,331 square feet of the Property,
extended his lease for an additional five-year term in March 2000 at a higher
rate. Several other tenants renewed or extended their leases in 2000 at higher
rates as well. Although occupancy decreased from 100% at December 31, 1999 to
96% at December 31, 2000, the weighted-average effective annual rent per square
foot, on an accrual basis, increased from $19.52 at December 31, 1999 to $23.71
at December 31, 2000.
Total operating expenses increased approximately $16,000, or 2%. This increase
was in large part due to an increase in utilities associated with higher energy
costs. Further, legal and accounting costs increased in 2000 principally due to
required quarterly reviews by independent auditors. Other operating expenses
rose as a result of higher renting and space planning costs associated with
tenant turnover and lease extensions at the Property. The increase in total
operating expenses was partially offset by a decrease in depreciation and
amortization expenses, due to fully depreciated capitalized tenant improvements
and fully amortized lease costs.
Interest expense increased approximately $208,000 or 136%, in comparison to the
prior year. As stated below, the Partnership refinanced its mortgage loan on the
Property in January 2000.
An extraordinary loss of approximately $46,000 was recorded in 2000 due to the
write-off of deferred loan costs associated with the pay-off the Partnership's
mortgage loan with Federal Home Savings.
Comparison of year ended December 31, 1999 to year ended December 31, 1998.
Rental income for the year ended December 31, 1999 remained virtually unchanged
in comparison to the prior year, despite an increase in rental rates and
occupancy. In 1998, rental income included a lease buy-out negotiated with a
former tenant. The weighted-average effective annual rent per square foot, on an
accrual basis, increased from $18.57 at December 31, 1998 to $19.52 at December
31, 1999. Occupancy rose from 96% at December 31, 1998 to 100% at December 31,
1999.
Operating expenses remained relatively unchanged, increasing approximately
$4,000, when compared to 1998. Bad debt expense of approximately $27,000 was
recorded as a result of a receivable write-off from an affiliate. Further,
property taxes and insurance, and administrative costs rose during the period.
This increase was primarily offset by a decrease in depreciation and
amortization expenses. Depreciation expense decreased principally as a result of
fully depreciated tenant improvements.
Liquidity and Capital Resources:
In January 2000, the Partnership paid its loan balance due to Home Federal
Savings and entered into a new loan agreement with General Electric Capital
Corporation ("GECC") for $4,250,000. The lender funded $4,050,000 at closing and
held back $200,000 to be drawn upon to help finance future tenant improvements
and leasing costs. The loan is secured by a trust deed on the Property and bears
interest at 2.75% above the GECC Composite Commercial Paper Rate. Principal and
interest payments are due monthly based on a 30-year amortization. The loan
matures January 31, 2005. The Partnership received net proceeds of $2,222,000 as
a result of the new loan. The proceeds were primarily used as a source for
contributions to the minority owner of the Property, SMMP.
During 2000, the Partnership generated cash flows from operations of
approximately $92,000 and paid $86,000 for property additions and lease
commissions. SMMP received net distributions of $2,400,000 from the Partnership
in 2000.
The Partnership is in a liquid position at December 31, 2000 with cash and
billed rents of approximately $71,000 and current liabilities of approximately
$66,000.
The Partnership's primary capital requirements will be for construction of new
tenant space and debt obligations. It is anticipated that these requirements
will be funded from the operations of the Property, the $200,000 tenant
6
improvement/lease commission holdback and contributions from SMMP. SMMP has
adequate resources to make any necessary contributions to the Partnership in the
foreseeable future.
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.
The Partnership considered the provision of Financial Reporting Release No.
48 A Disclosure of Accounting Policies for Derivative Financial Instruments
and Derivative Commodity Instruments, and Disclosure of Quantitative and
Qualitative Information about Market Risk Inherent in Derivative Financial
Instruments, Other Financial Instruments and Derivative Commodity
Instruments. The Partnership had no holdings of derivative financial or
commodity instruments at December 31, 2000. A review of the Partnership's
other financial instruments and risk exposures at that date revealed that the
Partnership had minor exposure to interest rate risk due to the floating rate
note payable of $4,025,544. The Partnership utilized sensitivity analyses to
assess the potential effect of this risk and concluded that near-term changes
in interest rates should not materially adversely affect the Partnership's
financial position, results of operations or cash flows.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The following financial statements and reports of independent public
accountants are incorporated by reference to the Annual Report to the Limited
Partners attached as an Exhibit.
1. Reports of Independent Public Accountants
2. Consolidated Balance Sheets - December 31, 2000 and 1999
3. Consolidated Statements of Operations - for the years ended December
31, 2000, 1999 and 1998
4. Consolidated Statements of Changes in Partners' Equity - for the
years ended December 31, 2000, 1999 and 1998
5. Consolidated Statements of Cash Flows - for the years ended December
31, 2000, 1999 and 1998
6. Notes to Consolidated Financial Statements
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURES
On April 11, 2000, the Partnership dismissed Deloitte & Touche LLP ("D&T") as
its independent auditors. The reports of D&T on the Partnership's financial
statements of the fiscal years ended December 31, 1999 and 1998 did not contain
an adverse opinion, or disclaimer of opinion and were not qualified or modified
as to audit scope or accounting principles. The Partnership's managing general
partner approved the decision to change accountants. During the Partnership's
two most recent fiscal years and subsequent interim periods, there were no
disagreements with D&T on any matter of accounting principles or practices,
financial statement disclosure or auditing scope or procedures, which
disagreements, if not resolved to the satisfaction of D&T would have caused it
to make reference to such disagreement in its reports.
The Partnership engaged Arthur Andersen LLP ("AA") to act as its independent
public accountants, effective April 11, 2000. During the two most recent fiscal
years and subsequent interim periods, the Partnership has not consulted AA on
items which (1) involved the application of accounting principles to a specified
transaction, either completed or proposed, or involved the type of audit opinion
that might be rendered on the Partnership's financial statements, or (2)
concerned the subject matter of a disagreement or a reportable event with the
Partnership's former accountant.
7
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF REGISTRANT
Sierra Pacific Development Fund (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. 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 50 6 years
Gregory J. Nooney, Jr. Vice President 69 3 years
Patricia A. Nooney Vice President 44 3 years
William J. Carden Assistant Secretary/Treasurer and Director 56 6 years
Morris S. Cohen Director 63 2 years
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. Mr. Nooney also
has served as Chairman of the Board and Chief Executive Office of Brooklyn
Street Properties, Inc. since May 1983. He 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, Inc. from 1984 through 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.
Patricia A. Nooney - Vice President, S-P Properties, Inc. Ms. Nooney is
President of Coldwell Banker Commercial American Spectrum, a wholly-owned
subsidiary of CGS Real Estate Company, Inc. She 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. He 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 privately
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.
8
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.
SUMMARY OF 2000 AUDIT FIRM FEES
During 2000, the Partnership engaged Andersen as its principal auditors to
provide audit services. Audit fees of $36,589 represent services provided in
connection with the audit of the Partnership's consolidated and subsidiary
financial statements for the year ended December 31, 2000 and review of
interim financial information included in the Partnership's quarterly reports
on Form 10-Q during the year.
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 monthly management fee totaling 6% of the gross rental
income collected from the property or $600, whichever is greater, to American
Spectrum Real Estate Services, Inc. ("ASRE"), formerly Banc Commercial
California. These fees for the year ended December 31, 2000 were $48,832. 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 $40,485 during the year ended December 31, 2000. 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.
9
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
A. Exhibits
1. Annual Report to the Limited Partners
2. Exhibit Number 27 - Selected Financial Data
B. Financial Statement Schedules
The following financial statement schedules and the reports of the
independent public accountants thereon are included herein:
1. Report of Independent Public Accountants on Financial Statement
Schedules as of December 31, 2000 dated March 26, 2001
2. Independent Auditors' Report on Financial Statement Schedules as of
December 31, 1999 and 1998 dated February 25, 2000
3. Schedule II - Valuation and Qualifying Accounts and Reserves - for
the years ended December 31, 2000, 1999 and 1998
4. Schedule III - Real Estate and Accumulated Depreciation - December
31, 2000
All other schedules are omitted as they either are not required or are not
applicable, or the required information is set forth in the financial
statements and notes thereto.
C. Reports on Form 8-K
None
10
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
SIERRA PACIFIC DEVELOPMENT FUND
a California Limited Partnership
S-P PROPERTIES, INC.
General Partner
Date: April 5, 2001 /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: April 5, 2001 /s/ Thomas N. Thurber
------------------------------- ----------------------------------------
Thomas N. Thurber
President and Director
S-P Properties, Inc.
Date: April 5, 2001 /s/ William J. Carden
------------------------------- ----------------------------------------
William J. Carden
Assistant Secretary/Treasurer and
Director
S-P Properties, Inc.
Date: April 5, 2001 /s/ G. Anthony Eppolito
------------------------------- ----------------------------------------
G. Anthony Eppolito
Chief Accountant
S-P Properties, Inc.
11
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ON FINANCIAL STATEMENT SCHEDULES
To the Partners of
Sierra Pacific Development Fund
We have audited the consolidated financial statements of Sierra Pacific
Development Fund, a California limited partnership, and subsidiary, (the
"Partnership") as of and for the year ended December 31, 2000 and have issued
our report thereon dated March 26, 2001. Such consolidated financial statements
and report are included in your 2000 Annual Report to the Limited Partners and
are incorporated herein by reference. Our audit also included the financial
statement schedules of Sierra Pacific Development Fund, listed in Item 14. These
financial statement schedules are the responsibility of the Partnership's
management. Our responsibility is to express an opinion based on our audit. In
our opinion, such financial statement schedules, when considered in relation to
the basic consolidated financial statements taken as a whole, present fairly in
all material respects the information set forth therein.
ARTHUR ANDERSEN LLP
Houston, Texas
March 26, 2001
12
INDEPENDENT AUDITORS' REPORT ON FINANCIAL STATEMENT SCHEDULES
To the Partners of
Sierra Pacific Development Fund
We have audited the consolidated financial statements of Sierra Pacific
Development Fund, a California limited partnership, (the "Partnership") as of
December 31, 1999 and 1998 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 schedules of Sierra
Pacific Development Fund, listed in Item 14. These financial statement schedules
are the responsibility of the Partnership's management. Our responsibility is to
express an opinion based on our audits. In our opinion, such financial statement
schedules, when considered in relation to the basic consolidated financial
statements taken as a whole, present fairly in all material respects the
information set forth therein.
DELOITTE & TOUCHE LLP
Houston, Texas
February 25, 2000
13
SCHEDULE II - FORM 10-K
SIERRA PACIFIC DEVELOPMENT FUND
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
For the Years Ended December 31, 2000, 1999 and 1998
- --------------------------------------------------------------------------------
Income -
Producing
Properties
-----------
Allowance for loss - January 1, 1998 $ 1,000,000
Provision charged to costs
and expenses (1) 0
-----------
Allowance for loss - December 31, 1998 1,000,000
Provision charged to costs
and expenses (1) 0
-----------
Allowance for Loss - December 31, 1999 1,000,000
Provision charged to costs
and expenses (1) 0
-----------
Allowance for loss - December 31, 2000 $ 1,000,000
===========
(1) See Note 1 to the consolidated financial statements incorporated by
reference to the Annual Report to the Limited Partners attached as an
Exhibit.
14
SCHEDULE III - FORM 10-K
SIERRA PACIFIC DEVELOPMENT FUND
REAL ESTATE AND ACCUMULATED DEPRECIATION
DECEMBER 31, 2000
- --------------------------------------------------------------------------------
Initial Cost Gross Amount at
to Partnership (1) Improvements Which carried at close of period
----------------------- Capitalized ----------------------------------------
Encumb- Improve- After Acquis- Improve- Total
Description rances Land ments ition (2) Land ments (3)(4)(5)(6)
- ----------- ------ ---- ----- -------------------- ---- ----- ------------
OFFICE BUILDING-
INCOME-PRODUCING:
Sierra Creekside (4)
San Ramon, California $4,025,544 $1,555,033 $6,098,224 $1,555,033 $4,121,155 $5,676,188
Accum. Date Date Deprec.
Description Deprec. (6) Constructed Acquired Life
- ----------- ----------- ----------- -------- ----
OFFICE BUILDING-
INCOME-PRODUCING:
Sierra Creekside (4)
San Ramon, California $2,321,820 10/84 03/83 1-30 yrs.
(1) The initial cost represents the original purchase price of the property.
(2) The Partnership has capitalized property development costs.
(3) Also represents cost for Federal Income Tax purposes.
(4) On February 1, 1994, the property was transferred to a joint venture,
Sierra Creekside Partners. The Partnership has an equity interest of
94.92% and Sierra Mira Mesa Partners, an affiliate, has a 5.08% equity
interest at December 31, 2000.
(5) A valuation allowance of $1,000,000 was established in 1990 as the
appraised value of the property declined below book value. See Notes 1 and
4 to the consolidated financial statements incorporated by reference to
the Annual Report to the Limited Partners attached as an Exhibit.
(6) Reconciliation of total real estate carrying value and accumulated
depreciation for the three years ended December 31, 2000 is as follows:
Total Real Estate Accumulated
Carrying Value Depreciation
Balance - January 1, 1998 $ 5,937,010 $ 1,956,254
Additions during the year 78,467 286,511
Deductions:
Write off fully depreciated assets (101,860) (101,860)
----------- -----------
Balance - December 31, 1998 5,913,617 2,140,905
Additions during the year 36,680 251,905
Deductions:
Write off fully depreciated assets (103,329) (103,329)
----------- -----------
Balance - December 31, 1999 5,846,968 2,289,481
Additions during the year 18,685 221,804
Deductions:
Write off fully depreciated assets (189,465) (189,465)
----------- -----------
Balance - December 31, 2000 $ 5,676,188 $ 2,321,820
=========== ===========
15
SIERRA PACIFIC DEVELOPMENT FUND
(A California Limited Partnership)
SELECTED FINANCIAL DATA
For the Years Ended December 31, 2000, 1999, 1998, 1997, and 1996
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, 2000 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.
- --------------------------------------------------------------------------------
2000 1999 1998 1997 1996
----------- ----------- ----------- ----------- -----------
REVENUES $ 1,034,498 $ 919,184 $ 919,614 $ 757,755 $ 755,644
OPERATING EXPENSES:
Total 872,583 856,744 853,225 899,704 964,074
Per dollar of revenues 0.84 0.93 0.93 1.19 1.28
INTEREST EXPENSE:
Total 360,801 152,563 156,636 160,359 163,762
Per dollar of revenues 0.35 0.17 0.17 0.21 0.22
NET LOSS:
Total (232,465) (84,220) (81,827) (287,313) (301,960)
General Partner (2,325) 0 0 0 0
Limited Partners (230,140) (84,220) (81,827) (287,313) (301,960)
Per unit (1) (7.84) (2.87) (2.79) (9.79) (10.29)
CASH PROVIDED BY
OPERATING ACTIVITIES 92,440 181,564 210,479 19,341 45,678
CASH USED IN INVESTING
ACTIVITIES (18,685) (36,680) (78,467) (91,878) (204,875)
CASH (USED IN) PROVIDED BY
FINANCING ACTIVITIES (160,087) (94,138) (135,796) 104,100 (572,443)
TOTAL ASSETS 5,315,527 3,118,972 3,267,524 3,436,450 3,709,875
PARTNERS' EQUITY:
Total 1,148,496 1,380,961 1,465,181 1,547,008 1,834,321
General Partner (83,096) 0 0 0 0
Limited Partners 1,231,592 1,380,961 1,465,181 1,547,008 1,834,321
LIMITED PARTNERS' EQUITY - PER UNIT (1) 41.95 47.04 49.91 52.70 62.49
INCOME-PRODUCING PROPERTIES:
Number 1 1 1 1 1
Cost 5,676,188 5,846,968 5,913,617 5,937,010 7,303,973
Less: Accumulated depreciation (2,321,820) (2,289,481) (2,140,905) (1,956,254) (3,080,645)
Valuation allowance (1,000,000) (1,000,000) (1,000,000) (1,000,000) (1,000,000)
Net book value 2,354,368 2,557,487 2,772,712 2,980,756 3,223,328
NOTE PAYABLE - related to income-
producing property 4,025,544 1,673,186 1,720,324 1,763,420 1,802,820
MINORITY INTEREST IN CONSOLIDATED
JOINT VENTURE (2,540,963) (128,513) (75,610) 25,510 (102,995)
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, 29,354 in all years. The cumulative cash distributions per limited
partnership unit from inception to December 31, 2000 equal $166.75
16
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Partners of
Sierra Pacific Development Fund
We have audited the accompanying consolidated balance sheet of Sierra Pacific
Development Fund, a California limited partnership, and subsidiary, (the
"Partnership") as of December 31, 2000 and the related consolidated statements
of operations, changes in partners' equity and cash flows for the year then
ended. 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 audit.
We conducted our audit in accordance with auditing standards generally accepted
in the United States. 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 audit provides a reasonable basis for our
opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Sierra
Pacific Development Fund and subsidiary as of December 31, 2000, and the
results of their operations and their cash flows for the year then ended in
conformity with accounting principles generally accepted in the United States.
ARTHUR ANDERSEN LLP
Houston, Texas
March 26, 2001
17
INDEPENDENT AUDITORS' REPORT
To the Partners of
Sierra Pacific Development Fund
We have audited the accompanying consolidated balance sheet of Sierra Pacific
Development Fund, a California limited partnership, (the "Partnership") as of
December 31, 1999 and the related consolidated statements of operations, changes
in partners' equity and cash flows for the years ended December 31, 1999 and
1998. These financial statements are the responsibility of the Partnership's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Sierra Pacific
Development Fund as of December 31, 1999 and the results of its operations and
its cash flows for the years ended December 31, 1999 and 1998 in conformity with
accounting principles generally accepted in the United States of America.
DELOITTE & TOUCHE LLP
Houston, Texas
February 25, 2000
18
SIERRA PACIFIC DEVELOPMENT FUND AND SUBSIDIARY
(A California Limited Partnership)
CONSOLIDATED BALANCE SHEETS
December 31, 2000 and 1999
- --------------------------------------------------------------------------------
December 31, 2000 December 31, 1999
----------------- -----------------
ASSETS
Cash and cash equivalents $ 47,822 $ 134,154
Rent receivables:
Unbilled rent (Notes 1 and 4) 45,968 51,981
Billed rent (Note 1) 23,154 8,640
Income-producing property - net of accumulated
depreciation and valuation allowance of $3,321,820
and $3,289,481 (Note 4) 2,354,368 2,557,487
Other assets - net of accumulated amortization of
$188,798 and $263,977 (Notes 1, 2 and 3) 303,252 238,197
Excess distributions to minority partner (Note 4) 2,540,963 128,513
----------- -----------
Total Assets $ 5,315,527 $ 3,118,972
=========== ===========
LIABILITIES AND PARTNERS' EQUITY
Accrued and other liabilities (Note 2) $ 141,487 $ 64,825
Notes payable (Note 5) 4,025,544 1,673,186
----------- -----------
Total Liabilities 4,167,031 1,738,011
----------- -----------
COMMITMENTS AND CONTINGENT LIABILITIES (Note 7)
Partners' equity (deficit) (Notes 1 and 6):
General Partner (83,096) 0
Limited Partners:
30,000 units authorized,
29,354 issued and
outstanding 1,231,592 1,380,961
----------- -----------
Total Partners' equity 1,148,496 1,380,961
----------- -----------
Total Liabilities and Partners' equity $ 5,315,527 $ 3,118,972
=========== ===========
The accompanying notes are an integral part of these consolidated financial
statements.
19
SIERRA PACIFIC DEVELOPMENT FUND AND SUBSIDIARY
(A California Limited Partnership)
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Years Ended December 31, 2000, 1999 and 1998
- --------------------------------------------------------------------------------
2000 1999 1998
----------- ----------- -----------
REVENUES:
Rental income (Note 1) $ 1,034,485 $ 919,172 $ 919,602
Interest income 13 12 12
----------- ----------- -----------
Total revenues 1,034,498 919,184 919,614
----------- ----------- -----------
EXPENSES:
Operating expenses:
Depreciation and amortization 314,794 337,049 370,805
Maintenance and repairs 113,446 113,003 109,938
Utilities 121,314 97,821 112,428
Property taxes and insurance 110,298 102,316 91,815
Legal and accounting 47,106 36,786 36,215
Administrative fees (Note 3) 37,650 48,023 29,717
General and administrative 40,214 35,876 37,185
Management fees (Note 3) 48,832 39,654 41,516
Salaries and payroll taxes 14,400 14,014 14,400
Bad debt expense (Note 3) 0 26,916 0
Other operating expenses 24,529 5,286 9,206
----------- ----------- -----------
Total operating expenses 872,583 856,744 853,225
Interest 360,801 152,563 156,636
----------- ----------- -----------
Total expenses 1,233,384 1,009,307 1,009,861
----------- ----------- -----------
LOSS BEFORE EXTRAORDINARY LOSS (198,886) (90,123) (90,247)
EXTRAORDINARY LOSS FROM WRITE-OFF
OF DEFERRED LOAN COSTS (46,020) 0 0
----------- ----------- -----------
LOSS BEFORE MINORITY INTEREST'S SHARE
OF CONSOLIDATED JOINT VENTURE LOSS (244,906) (90,123) (90,247)
----------- ----------- -----------
MINORITY INTEREST'S SHARE OF
CONSOLIDATED JOINT VENTURE LOSS 12,441 5,903 8,420
----------- ----------- -----------
NET LOSS $ (232,465) $ (84,220) $ (81,827)
=========== =========== ===========
Per limited partnership unit:
Loss before extraordinary loss $ (6.29) $ (2.87) $ (2.79)
Extraordinary loss (1.55) 0 0
----------- ----------- -----------
Net loss per limited partnership unit $ (7.84) $ (2.87) $ (2.79)
=========== =========== ===========
The accompanying notes are an integral part of these consolidated financial
statements.
20
SIERRA PACIFIC DEVELOPMENT FUND AND SUBSIDIARY
(A California Limited Partnership)
CONSOLIDATED STATEMENTS OF CHANGES IN PARTNERS' EQUITY
For the Years Ended December 31, 2000, 1999 and 1998
- --------------------------------------------------------------------------------
Limited Partners Total
----------------------------- General Partners'
Per Unit Total Partner Equity
----------- ----------- ----------- -----------
Partners' equity - January 1, 1998 $ 52.70 $ 1,547,008 $ 0 $ 1,547,008
Net loss (2.79) (81,827) (81,827)
----------- ----------- ----------- -----------
Partners' equity - December 31, 1998 49.91 1,465,181 0 1,465,181
Net loss (2.87) (84,220) (84,220)
----------- ----------- ----------- -----------
Partners' equity - December 31, 1999 47.04 1,380,961 0 1,380,961
Transfer among general partner and limited partners 2.75 80,771 (80,771) 0
Net loss (7.84) (230,140) (2,325) (232,465)
----------- ----------- ----------- -----------
Partners' equity (deficit) - December 31, 2000 $ 41.95 $ 1,231,592 $ (83,096) $ 1,148,496
=========== =========== =========== ===========
The accompanying notes are an integral part of these consolidated financial
statements.
21
SIERRA PACIFIC DEVELOPMENT FUND AND SUBSIDIARY
(A California Limited Partnership)
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended December 31, 2000, 1999 and 1998
- --------------------------------------------------------------------------------
2000 1999 1998
----------- ----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (232,465) $ (84,220) $ (81,827)
Adjustments to reconcile net loss
to net cash provided by operating activities:
Depreciation and amortization 314,794 337,049 370,805
Extraordinary loss from write-off of deferred
loan costs 46,020 0 0
Minority interest's share of consolidated
joint venture loss (12,441) (5,903) (8,420)
Bad debt expense 0 26,916 0
(Increase) decrease in rent receivable (8,501) (4,331) 16,672
Increase in other assets (91,629) (70,753) (68,258)
Increase (decrease) in accrued and other liabilities 76,662 (17,194) (18,493)
----------- ----------- -----------
Net cash provided by operating activities 92,440 181,564 210,479
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Payments for property additions (18,685) (36,680) (78,467)
----------- ----------- -----------
Net cash used in investing activities (18,685) (36,680) (78,467)
----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on deferred loan costs (112,436) 0 0
Contributions from minority investor 143,288 40,000 85,300
Distributions to minority investor (2,543,297) (87,000) (178,000)
Proceeds from note payable secured by property 4,050,000 0 0
Principal payments on note payable (1,697,642) (47,138) (43,096)
----------- ----------- -----------
Net cash used in financing activities (160,087) (94,138) (135,796)
----------- ----------- -----------
NET (DECREASE) INCREASE IN CASH
AND CASH EQUIVALENTS (86,332) 50,746 (3,784)
CASH AND CASH EQUIVALENTS - Beginning of year 134,154 83,408 87,192
----------- ----------- -----------
CASH AND CASH EQUIVALENTS - End of year $ 47,822 $ 134,154 $ 83,408
=========== =========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash paid during the year for real estate taxes $ 78,339 $ 72,946 $ 73,633
=========== =========== ===========
Cash paid during the year for interest $ 340,663 $ 152,916 $ 156,959
=========== =========== ===========
The accompanying notes are an integral part of these consolidated financial
statements.
22
SIERRA PACIFIC DEVELOPMENT FUND AND SUBSIDIARY
(A California Limited Partnership)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization
Sierra Pacific Development Fund (the "Partnership") was organized on February
13, 1981 in accordance with the provisions of the California Uniform Limited
Partnership Act to acquire, develop and operate certain real properties. S-P
Properties, Inc. is the General Partner and manager of the Partnership.
The Partnership's first real estate investment was for the acquisition of land
and development of a 41,000 square foot office project in San Bernardino,
California known as Sierra Commercenter. This property was subsequently sold by
the Partnership. In 1983, the Partnership acquired land in San Ramon, California
as the first step in development of the Sierra Creekside office project (the
"Property"), a 47,800 square foot building that was completed in October 1984.
In February 1994, the Partnership created a California general partnership
(Sierra Creekside Partners) with Sierra Mira Mesa Partners ("SMMP") to
facilitate cash contributions by SMMP for the continued development and
operation of the Sierra Creekside property. The Partnership contributed the
Property and SMMP contributed cash to this newly formed California general
partnership. At December 31, 2000, the Partnership's remaining real estate asset
was a 94.92% interest in Sierra Creekside Partners.
Basis of Financial Statements
The consolidated financial statements include the accounts of the Partnership
and Sierra Creekside Partners, a majority owned California general partnership
(see Note 4). All significant intercompany balances and transactions have been
eliminated in consolidation.
The Partnership maintains its books and prepares its financial statements in
accordance with accounting principles generally accepted in the United States.
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 accounting principles
generally accepted in the United States 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.
Cash and Cash Equivalents
Cash and cash equivalents include highly liquid, short-term investments with
original maturities of three months or less.
23
Sierra Pacific Development Fund
Notes to Consolidated Financial Statements
Page two
Fair Value of Financial Instruments
The financial instruments of the Partnership at December 31, 2000 and 1999
consist of cash and cash equivalents, receivables, accounts payable and note
payable. The fair value of cash and cash equivalents, receivables, and accounts
payable approximates the carrying value due to the short term nature of these
items. In the opinion of management, the fair value of the note payable
approximates the carrying value at December 31, 2000 as the interest rate is
based on a floating index.
Income-Producing Property
Property is 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 are carried at cost and depreciated on the straight-line
method over the life of the related lease.
Expenditures for repairs and maintenance are charged against income as incurred.
Improvements and major renewals are capitalized. Costs and the related
accumulated depreciation of assets sold or retired are removed from the accounts
in the year of disposal or when fully depreciated and any resulting gain or loss
is reflected in income.
Prior to 1995, the Partnership assessed impairment of income-producing
properties based upon appraised values and established provisions for impairment
where appraisals indicated other than temporary declines in value. Effective
January 1, 1995, the Partnership implemented Statement of Financial Accounting
Standards No. 121, "Accounting for Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of" (the "Statement"). The Partnership
regularly evaluates long-lived assets for impairment whenever events or changes
in circumstances indicate that the carrying amount of the asset may not be
recoverable in accordance with the Statement. Future cash flows are estimated
and compared to the carrying amount of the asset to determine if an impairment
has occurred. If the sum of the expected future cash flows is less than the
carrying amount of the asset, the Partnership shall recognize an impairment loss
in accordance with the Statement. Impairments totaling $1,000,000 were
recognized prior to 1995 as appraisals indicated other than temporary declines
in value. No such impairments have been recognized by the Partnership since
1995.
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, 2000. The cash flows used to determine fair
value and net realizable value are based on good faith estimates and assumptions
developed by management. Unanticipated events and circumstances may occur and
some assumptions may not materialize; therefore, actual results may vary from
the estimates and the variances may be material. The Partnership may provide
additional write-downs which could be material in subsequent years if real
estate markets or local economic conditions change.
Other Assets
Deferred leasing costs represent costs incurred to lease properties and are
amortized over the life of the related lease using the straight line method of
accounting.
Deferred loan costs represent costs incurred to obtain financing and are
amortized over the life of the related loan using the straight line method of
accounting.
24
Sierra Pacific Development Fund
Notes to Consolidated Financial Statements
Page three
Rental Income and Rent Receivable
Rental income is recognized on the straight-line method over the term of the
related operating lease in accordance with the provisions of Statement of
Financial Accounting Standards No. 13, "Accounting for Leases".
Rent receivable consists of (a) unbilled rent - the difference between rent
recognized on the straight-line method and actual cash due; and (b) billed rent
- - rent due but not yet received.
The Partnership periodically reveiws its outstanding receivables for
uncollectibility and provides a provision for bad debts for those accounts it
believes it may not collect in full.
Calculation of Equity and Net Loss Per Limited Partnership Unit
Equity and net loss per limited partnership unit are determined by dividing the
Limited Partners' equity and net loss by 29,354, the number of limited
partnership units outstanding for all periods presented.
Recent Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities". SFAS No. 133
requires a company to recognize all derivative instruments (including certain
derivative instruments embedded in other contracts) as assets or liabilities in
its balance sheet and measure them at fair value. The statement requires that
changes in the derivative's fair value be recognized currently in earnings
unless specific hedge accounting criteria are met. SFAS No. 133, as amended, is
effective for fiscal years beginning after June 15, 2000. The Partnership has
evaluated SFAS No. 133 and the impact on existing accounting policies and
financial reporting disclosures. The Partnership believes the adoption of SFAS
No. 133 will not have a material effect on its financial statements.
In December 1999, the Securities and Exchange Commission ("SEC") issued Staff
Accounting Bulletin No. 101 (SAB 101), on 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 adopted the accounting provisions of SAB 101 in
2000. The implementation of SAB 101 did not have a significant effect on the
Partnership's financial condition or results of operations.
25
Sierra Pacific Development Fund
Notes to Consolidated Financial Statements
Page four
2. DETAILS OF CERTAIN BALANCE SHEET ACCOUNTS
Additional information regarding certain balance sheet accounts, at December 31,
2000 and 1999, is as follows:
2000 1999
-------- --------
Other assets:
Prepaid expenses $ 22,782 $ 14,906
Tax impound 16,632 0
Deferred loan costs, net of accumulated
amortization of $26,739 and $36,365 125,697 86,020
Deferred leasing costs, net of accumulated
amortization of $162,059 and $227,612 138,141 137,271
-------- --------
$303,252 $238,197
======== ========
Accrued and other liabilities:
Accounts payable $ 20,413 $ 2,684
Accrued expenses 9,338 0
Security deposits 74,998 49,592
Interest payable 32,899 12,549
Unearned rental income 3,839 0
-------- --------
$141,487 $ 64,825
======== ========
26
Sierra Pacific Development Fund
Notes to Consolidated Financial Statements
Page five
3. GENERAL PARTNER AND RELATED PARTY TRANSACTIONS
Affiliates of the General Partner receive a monthly management fee totaling 6%
of the gross rental income (as defined in the partnership agreement) collected
from the property or $600, whichever is greater. Management fees paid to the
affiliate for the years ended December 31, 2000, 1999 and 1998 were $48,832,
$39,654 and $41,516, 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 $40,485, $50,428 and $38,922 for such services for the years ended
December 31, 2000, 1999 and 1998, respectively. Additionally, the Partnership
reimbursed affiliates for construction supervision costs incurred by the
affiliates. For the years ended December 31, 2000, 1999 and 1998 the affiliates
received $0, $0 and $6,209, respectively, for tenant improvements supervisory
costs.
In consideration for services rendered with respect to initial leasing of
Partnership properties, affiliates of the General Partner are paid initial
leasing costs. For the years ended December 31, 2000, 1999 and 1998 these fees
amounted to $0, $2,875 and $42,738, respectively, and were recorded as deferred
leasing costs.
During 1996, the Partnership made a non-interest bearing loan to an affiliate in
the amount of $26,916. This loan was uncollectible and subsequently written off
to bad debt expense in 1999.
4. INCOME-PRODUCING PROPERTY
At December 31, 2000 and 1999, the total cost and accumulated depreciation of
the property are as follows:
2000 1999
----------- -----------
Land $ 1,555,033 $ 1,555,033
Building and improvements 4,121,155 4,291,935
----------- -----------
Total 5,676,188 5,846,968
Accumulated depreciation (2,321,820) (2,289,481)
Valuation allowance (Note 1) (1,000,000) (1,000,000)
----------- -----------
Net $ 2,354,368 $ 2,557,487
=========== ===========
During 2000 and 1999, the Partnership removed $189,465 and $103,329,
respectively, from its buildings and improvements and related accumulated
depreciation accounts for fully depreciated property.
27
Sierra Pacific Development Fund
Notes to Consolidated Financial Statements
Page six
On February 1, 1994, the Partnership formed a California general partnership
with Sierra Mira Mesa Partners ("SMMP"), an affiliate. The joint venture, known
as Sierra Creekside Partners ("SCP"), was formed to develop and operate the
Sierra Creekside property. The Partnership had a 79.2% equity interest in SCP
with its contribution of Sierra Creekside. Such interest was computed based upon
the estimated fair value of SCP's net assets at the date of formation of the
joint venture. SMMP was allocated a 20.8% initial equity interest in SCP in
exchange for its $745,000 cash contribution ($290,859, net, through December 31,
1997). SMMP made additional cash contributions of $85,300, $40,000 and $143,288
and received distributions of $178,000, $87,000 and $2,543,297 during 1998, 1999
and 2000, respectively. The percentage interests of the Partnership and SMMP are
to be adjusted each year on January 1 during the term of SCP, beginning January
1, 1995 and ending December 31, 2013 unless terminated sooner, based upon the
relative net contributions and distributions since inception through the
preceding December 31. Accordingly, as of January 1, 1998, 1999 and 2000, the
Partnership's interest in SCP was changed to 90.67%, 93.45% and 94.92%,
respectively. On January 1, 2001, the Partnership's interest will be increased
to 100% and SMMP's interest will be decreased to 0% to reflect the 2000
contributions and distributions. The excess of cash distributions to SMMP over
cash contributions from SMMP and cumulative loss allocated to SMMP is reported
as an asset in the Partnership's balance sheet. Under the terms of the SCP joint
venture agreement, SMMP would be obligated to contribute to the Partnership any
negative balance outstanding in its capital account upon liquidation of the
Partnership.
Future minimum base rental income, under the existing operating leases for the
Sierra Creekside property, to be recognized on a straight-line basis and amounts
to be received on a cash basis are as follows:
Straight-line Cash
Year Ending December 31, Basis Basis
---------- ----------
2001 $1,011,775 $1,010,878
2002 849,895 866,281
2003 610,484 627,474
2004 312,290 322,417
2005 103,843 107,205
---------- ----------
Total $2,888,287 $2,934,255
========== ==========
During the year ended December 31, 2000, the Partnership relied on three tenants
to generate 46% of total rental income. The breakdown for these three tenants'
industry segments and rental income contribution is as follows: 15% for a
construction industry tenant, 17% for a billing and collection services tenant,
and 14% for a banking tenant.
During the year ended December 31, 1999, the Partnership relied on three tenants
to generate 44% of total rental income. The breakdown for these three tenants'
industry segments and rental income contribution is as follows: 16% for a tenant
in the construction industry, 13% billing and collection services, and 15%
banking.
5. NOTES PAYABLE
At December 31, 1999, note payable consisted of one loan with a bank with an
original principal balance of $1,850,000. The note bore interest at 3.5% above
the 11th District Cost of Funds Index with a minimum of 9% and a maximum of 14%
(9% at December 31, 1999). The note was secured by substantially all of the
assets of the Partnership. The maturity date of the note was July 1, 2005.
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Sierra Pacific Development Fund
Notes to Consolidated Financial Statements
Page seven
On January 25, 2000, the bank note was repaid. On the same date, the Partnership
entered into a new loan agreement with General Electric Capital Corporation
("GECC") in the amount of $4,250,000. The lender funded $4,050,000 at closing
and held back $200,000 to be drawn upon to help finance future tenant
improvements and leasing costs. This loan, which is secured by the Sierra
Creekside property, bears interest at 2.75% above the GECC Composite Commercial
Paper Rate (9.49% at December 31, 2000). Principal and interest payments are due
monthly based on a 30-year amortization. The loan matures January 31, 2005. At
December 31, 2000, the loan balance was $4,025,544.
Annual maturities on the GECC loan are: $29,347 in 2001; $29,347 in 2002;
$29,347 in 2003; $29,347 in 2004; and $3,908,156 in 2005. The Partnership is
exposed to interest rate fluctuations associated with the loan.
6. PARTNERS' EQUITY
The partners' equity accounts have been adjusted to reflect an allocation of
cumulative net loss to the partners in accordance with the agreement of limited
partnership. This agreement provides that 99% of operating income, gains,
losses, deductions and credits of the Partnership shall be allocated among the
Limited Partners and 1% shall be allocated to the General Partner.
Prior year balances have not been adjusted because management does not believe
that the effects of these adjustments are significant to the prior year
partners' equity balances.
Upon any sale, refinancing or other dispositions of the Partnership's real
property, allocations of the proceeds are distributed to the Limited Partners
until each has received 100% of his Adjusted Capital Contributions plus a 15%
per annum cumulative return on such invested capital. Any remaining proceeds
shall be distributed 80% to the Limited Partners and 20% to the General Partner.
7. COMMITMENTS AND CONTINGENT LIABILITIES
In the normal course of business, the Partnership occasionally becomes party to
litigation. In the opinion of management, pending or threatened litigation
involving the Partnership will not have a material adverse effect on its
financial condition.
8. PENDING TRANSACTION
CGS Real Estate Company, Inc. ("CGS") is continuing the development of a plan
which will combine the Partnership's property 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 acquiror,
American Spectrum Realty, Inc. ("ASR"), would qualify as a real estate
investment trust. Limited partners would receive shares of common stock in
ASR, which would be listed on a national securities exchange. The transaction
is subject to the approval of the limited partners of the partnerships. ASR
filed a Registration Statement on Form S-4 August 14, 2000 relating to the
solicitation of consents with the Securities and Exchange Commission. The
Registration Statement was amended February 14, 2001.
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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.
30