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: 0-14269
SIERRA PACIFIC PENSION INVESTORS '84
(A California Limited Partnership)
State of California 33-0043952
- ------------------------------------- ---------------------------------------
(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 offices) (Zip Code)
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:
80,000 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 Pension Investors '84 (the
"Partnership") is a California limited partnership that was formed in June 1984
for the purpose of acquiring, developing, and operating commercial and
industrial real estate.
The Partnership's activities during the preceding five years have involved the
ownership and operation of two real estate projects in Arizona:
Rentable
Square
Project name, location Type of real estate Footage
---------------------- ------------------- -------
Sierra Spectrum, Phoenix (A) Office 70,532
Sierra Valencia, Tucson Industrial/office 82,520
(A) Sold December, 1994.
On March 7, 1997 Sierra Valencia LLC ("SVLLC") was formed with the Partnership
being the sole member. This company was formed solely to engage in the following
activities: a) to acquire from Sierra Pacific Pension Investors '84 the property
known as Sierra Valencia, b) to own, hold, sell, assign, transfer, operate,
lease, mortgage, pledge and otherwise deal with the Property, c) to exercise all
powers enumerated in the Delaware Limited Liability Company Act necessary or
convenient to the conduct, promotion or attainment of the business or purposes
otherwise set forth. The Sierra Valencia property was transferred at no cost
from the Partnership to SVLLC. The accounts of SVLLC are consolidated into
the financial statements of the Partnership and all intercompany transactions
are eliminated in consolidation. All entities in which the Partnership has a
controlling equity interest are consolidated in the financial statements.
In December 1994, the Partnership sold Sierra Spectrum for $4,000,000. The sale
proceeds were received in cash and a note receivable from the buyer. A gain of
$91,823 was recorded in 1994 with an additional gain of $367,296 deferred to
subsequent years when the note receivable is collected. A principal paydown of
$1,318,000 was received in 1995 and $151,510 of this deferred gain was
recognized. In 1999, the Partnership received a principal paydown of $943,413
and recognized an additional $83,315 of the deferred gain.
In 1985 Sierra Mira Mesa Partners ("SMMP"), a California general partnership,
was formed between the Partnership and Sierra Pacific Development Fund II
("SPDFII"). SMMP was initially created to develop and operate the office
building known as Sierra Mira Mesa in San Diego, California. The Partnership's
initial ownership interest in SMMP was 49%; the remaining 51% was owned by
SPDFII. Effective December 31, 1996, the general partners amended the
partnership agreement to allow for adjustments in the sharing ratio each year on
January 1 based upon the relative net contributions and distributions since
inception of each general partner. In conjunction with this amendment, the
general partners forgave the December 31, 1996 balances of advances due from
SMMP and included these amounts as adjustments to their respective equity
accounts. As a result, the sharing ratio in effect for 1998, 1999 and 2000 was
66.26%, 66.99% and 69.83%, respectively, for the Partnership and 33.74%, 33.01%
and 30.17%, respectively, for SPDFII. During 2000, SMMP made net distributions
of $563,993 to the Partnership and $1,506,795 to SPDFII. The net distributions
received from SMMP were in large part used by the Partnership as a source for
advances made to an affiliate of the General Partner in connection with the
pending consolidation transaction described in Item 1(c.). Accordingly, on
January 1, 2001, the sharing ratio will be increased to 80.32% for the
Partnership and decreased to 19.68% for SPDFII to reflect the 2000 contributions
and distributions.
SMMP also holds an 83.24% interest in Sorrento I Partners (a California general
partnership with Sierra Pacific Development Fund III formed in 1993), a 43.92%
interest in Sorrento II Partners (a California general partnership with Sierra
Pacific Institutional Properties V formed in 1993), a 5.08% interest in Sierra
Creekside Partners (a California general partnership with Sierra Pacific
Development Fund formed in 1994), and a 33.36% interest in Sierra Vista Partners
(a California general partnership with Sierra Pacific Development Fund III
formed in 1994).
Audited financial statements of Sierra Mira Mesa Partners are included in the
Annual Report to the Limited Partners attached as an Exhibit.
(b.) NARRATIVE DESCRIPTION OF BUSINESS. During 2000, the Partnership owned and
operated one real estate project in Tucson, Arizona as described above. Success
of the project is dependent upon timely payment of rent by three
2
tenants who accounted for approximately 55% of the rental income of the
Partnership for the year ended December 31, 2000.
There is significant competition in the industrial/office building rental market
in the Partnership's trade area. An appraisal performed at the end of 1994
identified numerous projects near the Partnership's property that offered
similar amenities at comparable rental rates.
(c.) COMPARISON OF CURRENT ACTIVITIES TO THOSE PROPOSED AT THE INITIATION OF THE
PARTNERSHIP. In the Partnership's prospectus dated September 4, 1984, 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 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 50% of the cash
invested in properties by the Partnership will be invested in development
properties. The primary investment objectives of the Partnership are to: (i)
preserve, protect, and return the Partnership's invested capital; (ii) generate
sufficient cash from operations to make distributions of Available Cash to the
Limited Partners; (iii) attempt to maximize long-term appreciation in the value
of the Partnership's real estate investments; (iv) attempt to sell the
Partnership's real estate investments for cash after an approximate three to
five year holding period; (v) exclude from the assets of the Limited Partners,
for purposes of the Employee Retirement Income Security Act of 1974, as amended
("ERISA"), the assets of the Partnership; and (vi) exclude from unrelated
business taxable income the entire amount of any allocations to the Limited
Partners. There is no assurance that such objectives will be attained."
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 distributions of Available Cash to the limited partners. The ERISA and
unrelated business tax objectives have been met. 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
the Partnership's real estate investments after the five year holding period has
been delayed indefinitely. As of December 31, 2000, the Partnership had paid
cash distributions of $21.43 for each $250 unit investment and remaining
partners' equity was computed at $127.21 per unit. Thus, if the Partnership were
to be liquidated at the end of 2000 at book value, each $250 investment would
have returned a total of $148.64.
CGS Real Estate Company, Inc. ("CGS"), an affiliate of the general partner, is
continuing the development of a plan which will combine the Partnership's
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.
The Partnership has advanced more than its proportionate share of the costs
relating to the transaction. To the extent that expenses advanced by the
Partnership exceed its proportionate share, the Partnership will receive a
credit for any excess portion in determining the shares issued to the limited
partners in the Partnership. If the transaction is not consummated, or if the
partnership does not participate, the general partner of the Partnership will
reimburse the Partnership for expenses incurred in connection with the
transaction. At December 31, 2000, these advances totaled $936,752 and are
included as a receivable due from an affiliate on the balance sheet.
ITEM 2. PROPERTIES
The Partnership owns Sierra Valencia (the "Property"), an industrial property
located in Tucson, Arizona. The Property includes one building comprising 82,560
rentable square feet and was 93% occupied at December 31, 2000. The
weighted-average effective annual rent per square foot at December 31, 2000 was
$7.52. The principal
3
businesses carried on from the building are varied and include healthcare sales
and administration, electronics manufacturing, telecommunications manufacturing
and machine shop.
The Partnership also owns a 69.83% interest in SMMP which owns Sierra Mira Mesa,
an office building in San Diego, California. Through its ownership interest in
SMMP, the Partnership also has an indirect 58.12% interest in an industrial
property known as Sorrento I in San Diego, California. Ownership interest is
subject to adjustment yearly based upon the relative contributions of the
partners.
Sierra Valencia - Tucson, Arizona
Summary of Significant Tenants
At December 31, 2000, five of the Property's eight tenants occupy more than ten
percent of the rentable square footage of the building as follows:
Tenants Square Percent of Effective Effective Percent of Expiration of Lease
Feet Rentable Rent Per Rent Per Gross
Occupied Square Feet Square Foot Annum Annual Rent
- ----------------------------------------------------------------------------------------------------------------------
Southwest Precision Tools 9,116 11% $ 7.78 $ 70,937 12% November, 2004
InnerStep 20,759 25% 5.65 117,373 20% April, 2005
Avaya Communications 9,721 12% 9.97 96,948 17% May, 2001
Wick Communictions 10,021 12% 5.23 52,364 9% September, 2001
SHC of Arizona, L.C. 13,586 16% 9.16 124,471 22% June, 2002
Tenant Occupying < 10% sq ft 13,880 17% 8.47 117,629 20% Various
------------------------------------------------------------
Total Rented Space 77,083 93% $ 7.52 579,722 100%
Vacancies 5,477 7%
------------------
Total Rentable Space 82,560 100%
==================
Summary of Leases by Expiration
At December 31, 2000, there was one month to month lease and eight term leases
that are scheduled to expire over the next five years as indicated in the table
below.
Year of expiration 2001 2002 2003 2004 2005 Totals
Number of leases 2 1 2 2 1 8
Percent of total leases 25% 12% 25% 25% 13% 100%
Total area (square feet) 19,742 13,586 8,164 12,332 20,759 74,583
Annual rent $ 149,311 $ 124,471 $64,405 $ 109,162 $ 117,373 $564,722
Percent gross annual rent 26% 21% 11% 19% 20% 97%
Depreciable Property
Reference is made to Schedule III of the Form 10-K.
Real Estate Taxes
The real estate tax obligation for 2000 was approximately 4.8% of assessed
value. The annual real estate taxes for 2000 were $112,479.
Insurance
In the opinion of management, the property is adequately covered by insurance.
Encumbrances
On March 27, 1997, Sierra Valencia LLC entered into a loan agreement with First
Union Bank of North Carolina in the amount of $1,404,000. This loan, which is
secured by a first lien on the Sierra Valencia property, bears interest at 9.25%
per annum and calls for monthly principal and interest payments of $12,024 on
the first day of each month. Such payments shall continue until April 2007, when
the indebtedness is due in full. There is a 1% premium for prepayment of this
note. As of December 31, 2000 the loan balance was $1,349,748.
4
On April 15, 1997, the Partnership entered into a loan agreement with IDM
Participating Income Company II, an affiliate of the general partner, in the
amount of $200,000. This loan was secured by a second lien on the Sierra
Valencia property. This note bore a variable interest rate determined by the
Federal Reserve of San Francisco's discount rate prevailing on the 25th day of
the month preceding the payment due date plus a 3% premium. The interest rate
could be adjusted the last day of March, June, September and December of each
year until note agreement was fulfilled. The minimum rate was 12.12%. The
maximum rate was 15.15%. The current interest rate paid was 12.12%. Monthly
payments of $6,659, consisting of both interest and principal, commenced on May
15, 1997 and continued until April 15, 2000, when the indebtedness was paid in
full.
Sierra Mira Mesa - San Diego, California
Sierra Mira Mesa office building consists of 89,560 rentable square feet and was
100% occupied at December 31, 2000. The principal business carried on from the
building is insurance. The average effective annual rent per square foot at
December 31, 2000 was $20.26.
Summary of Significant Tenants
One tenant whose principal business is insurance, occupies ten percent or more
of the rentable square footage of the building. Details of this significant
tenant and its lease follow:
Tenants Square Percent of Effective Effective Percent of Expiration of Lease
Feet Rentable Rent Per Rent Per Gross
Occupied Square Feet Square Foot Annum Annual Rent
- ---------------------------------------------------------------------------------------------------------------------
State Comp. Insurance Fund 74,567 83% $ 19.79 $1,475,948 81% February, 2003
Tenants Occupying < 10% sq ft 14,888 17% 22.59 336,254 19% Various
--------------------------------------------------------------------------------------
Total Rented Space 89,455 100% $ 20.26 $1,812,201 100%
Vacancies 105 0%
----------------------
Total Rentable Space 89,560 100%
======================
Summary of Leases by Expiration
The Property's five tenants have leases scheduled to expire over the next eight
years as scheduled below.
Year of expiration 2001 2002 2003 2004 2005 2006 2007 2008 Totals
Number of leases 1 0 2 1 0 0 0 1 5
Percent of tot. leases 20% 0% 40% 20% 0% 0% 0% 20% 100%
Tot. area (square ft.) 762 0 77,218 4,762 0 0 0 6,713 89,455
Annual rent $12,000 $0 $1,545,453 $100,002 $0 $0 $0 $154,746 $1,812,201
Per. gross annual rent 1% 0% 85% 5% 0% 0% 0% 9% 100%
5
Depreciable Property
Sierra Mira Mesa, San Diego, California
Office Building - Income-Producing Property
Tenant
Land Buildings Improvements Total
Historical Cost & Tax Basis $ 2,480,940 $ 6,311,388 $ 486,113 $ 9,278,441
Accumulated Depreciation (2,852,576) (217,921) (3,070,497)
--------------------------------------------------------
Net Carrying Value
at December 31, 2000 $ 2,480,940 $ 3,458,812 $ 268,192 $ 6,207,944
========================================================
Depreciation Method Not Applicable Straight-line Straight-line
Depreciable Life Not Applicable 5-30 Years 1-10 Years
Real Estate Taxes
The real estate tax obligation for 2000 was approximately 1.12% of the assessed
value or $73,884.
Insurance
In the opinion of management, the property is adequately covered by insurance.
Encumbrances
The property is encumbered by a mortgage lien in favor of Lincoln National Life
Insurance Company with a principal balance of $4,265,067 at December 31, 2000.
The mortgage bears interest at 7.74%. Monthly principal and interest payments of
$51,739 are due through maturity at October 2010. The note is subject to
prepayment penalties of approximately 1% of the outstanding principal balance
between months 25 and 177 of the loan term.
Sorrento I - San Diego, California
Sorrento I, an industrial building, contains 43,100 square feet of rentable
space. Since 1996, one tenant has leased 100% of the rentable square feet of
Sorrento I. Rental income of $23,636 per month is recognized under this lease,
which expires in April 2003. The effective annual rent per square foot at
December 31, 2000 was $6.58. The tenant's principal business is research and
development in the communications sector.
Depreciable Property
Sorrento I, San Diego, California
Office Building - Income-Producing Property
Tenant
Land Buildings Improvements Total
Historical Cost & Tax Basis $ 1,305,518 $ 1,347,961 $ 329,299 $ 2,982,778
Accumulated Depreciation (632,721) (211,530) (844,251)
--------------------------------------------------------
Net Carrying Value
at December 31, 2000 $ 1,305,518 $ 715,240 $ 117,769 $ 2,138,527
========================================================
Depreciation Method Not Applicable Straight-line Straight-line
Depreciable Life Not Applicable 10-30 Years 7-10 Years
6
Real Estate Taxes
The real estate tax obligation for the year ended December 31, 2000 was
approximately 1.11% of the assessed value or $30,253, which was the obligation
of the tenant.
Insurance
In the opinion of management, the property is adequately covered by insurance.
Encumbrances
In August 1999, Sorrento I Partners ("SIP") paid its mortgage note due to CGS
with an outstanding balance of $607,693. On the same date, SIP entered into a
new loan agreement with Finova Realty Capital, Inc. in the amount of $1,637,500.
This loan, which is secured by the Sorrento I property, bears interest at 8.75%
per annum. Principal and interest payments of $12,882 are due and payable
monthly until the loan matures in September 2009. The note balance as of
December 31, 2000 was $1,625,540.
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
7
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 77,000 2,652
======= =======
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 80,000 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 fiscal 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 include 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 Sierra
Valencia, ("The Property") an industrial office building in Tucson, Arizona. The
Partnership also owns a 69.83% interest in Sierra Mira Mesa Partners ("SMMP").
SMMP owns an office building - Sierra Mira Mesa in San Diego, California.
8
Results of Operations:
Comparison of year ended December 31, 2000 to year ended December 31, 1999.
Rental income decreased approximately $40,000, or 6%, principally due to
occupancy fluctuations and lower common area maintenance fees billed between
years. Occupancy fluctuated between 74% and 97% in 2000, as two tenants vacated
during the year. Available lease space was subsequently re-leased at higher
rental rates. As such, the weighted-average effective rent per square foot, on
an accrual basis, increased from $7.19 at December 31, 1999 to $7.52 at December
31, 2000. The decrease in rental income was also attributable to lower common
area maintenance fees billed between years. Supplemental billings were made in
1999 to recover higher than anticipated prior year common area maintenance fees.
The Property was 93% occupied at December 31, 2000
Total operating expenses decreased approximately $107,000, or 15%, in comparison
to 1999, primarily due to a decrease in depreciation and amortization expenses
associated with the write-off of fully depreciated tenant improvements and lease
costs. Lower administrative costs incurred in 2000 also attributed to the
decrease in total operating expenses.
In 1999, the Partnership received a principal pay-down of $943,000 on its note
receivable from affiliate and recognized $83,000 of its deferred gain associated
with the note. No such activity was incurred in 2000.
The Partnership's share of income from investment in SMMP increased
approximately $4,000, or 1%. This increase was primarily due to an increase in
the Partnership's ownership interest in SMMP from 66.99% in 1999 to 69.83% in
2000.
Comparison of year ended December 31, 1999 to year ended December 31, 1998.
Rental income increased approximately $119,000, or 24%, principally due to
higher rental rates and common area maintenance charges. One tenant, whose lease
accounted for 19,255 square feet, vacated in 1998. This space was re-leased to
two new tenants at higher rental rates. The weighted-average effective rent per
square foot, on an accrual basis, increased from $6.99 at December 31, 1998 to
$7.19 at December 31, 1999. The Property was 86% occupied at December 31, 1999.
Total operating expenses increased approximately $73,000, or 11%, when compared
to the prior year. This increase was partially attributable to the write-off of
a loan made to an affiliate in 1996. The loan was deemed uncollectible and
subsequently written-off to bad debt expense in 1999. In addition, higher
administrative costs incurred in 1999 attributed to the increase in total
operating expenses. This increase was partially offset by a decrease in
depreciation and amortization expenses associated with the write-off of fully
depreciated building and tenant improvements.
In 1999, the Partnership received a principal pay-down of $943,000 on its note
receivable from affiliate and recognized $83,000 of its deferred gain associated
with the note.
The Partnership's share of income from investment in SMMP increased
approximately $127,000, primarily due to improved operations of SMMP's rental
properties and its joint ventures.
Liquidity and Capital Resources:
The Partnership used cash of approximately $30,000 in its operating activities
and paid $179,000 for property additions and lease costs in 2000. The
Partnership is in an illiquid position at December 31, 2000 with cash and billed
rents of approximately $103,000 and current liabilities of approximately
$216,000. The Partnership anticipates cash required to meet debt obligations,
operating expenses and costs for construction of new tenant space will be funded
from the operations of the Property and distributions from SMMP.
Inflation:
The Partnership's long-term leases contain provisions designed to mitigate the
adverse impact of inflation on its results from operations. Such provisions may
include escalation clauses related to Consumer Price Index increases.
9
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
7. Consolidated Balance Sheets of Sierra Mira Mesa Partners as of
December 31, 2000 and 1999 and Statements of Operations, Changes in
General Partners' Equity and Cash Flows for each of the three years
in the period ended December 31, 2000 and Independent Auditors'
Report.
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.
10
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF REGISTRANT
Sierra Pacific Pension Investors '84 (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 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 office since 1985. From 1990 to
November 1999, Ms. Nooney was President and Secretary of Nooney Realty Trust,
Inc.
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.
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.
11
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 $51,126 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 of 6% of the gross rental
income collected from the property or $600, whichever is greater, to American
Spectrum Real Estate Services, Inc. ("ASRE"). These fees for the year ended
December 31, 2000 were $17,216. 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 $75,486 during the year
ended December 31, 2000. Bancor and ASRE are both wholly owned subsidiaries of
CGS. William J. Carden, an officer and director of S-P Properties, Inc., the
General Partner of the Partnership, controls 50% of CGS.
On December 30, 1994, the Sierra Spectrum property with a historical cost basis
of $2,993,134 was sold for $4,000,000 ($800,000 cash down-payment and $3,200,000
trust deed note) to No.-So., Inc. This note calls for monthly interest only
payments and bears interest of 10% per annum. In 1999, the Partnership received
a principal pay-down of $943,413. In 2000, 1999, and 1998, interest receivable
of $159,161, $91,610, and $222,128, respectively, was added to the principal
balance of the note. At December 31, 2000, the note balance was $1,750,771. The
note matures December 31, 2001. In each of the three years ended December 31,
2000, maturity has been extended for additional one-year terms. All other terms
of the original note remain unchanged. CGS owns 33.33% of No.-So., Inc.
Reference is made to Item 2 for additional information concerning related party
transactions.
12
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
13
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 PENSION INVESTORS '84
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.
14
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ON FINANCIAL STATEMENT SCHEDULES
To the Partners of
Sierra Pacific Pension Investors '84
We have audited the consolidated financial statements of Sierra Pacific Pension
Investors '84 and subsidiary, 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 Pension Investors '84, 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
15
INDEPENDENT AUDITORS' REPORT ON FINANCIAL STATEMENT SCHEDULES
To the Partners of
Sierra Pacific Pension Investors '84
We have audited the consolidated financial statements of Sierra Pacific Pension
Investors '84 and subsidiary, 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 Pension Investors '84, 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
16
SCHEDULE II - FORM 10-K
SIERRA PACIFIC PENSION INVESTORS '84 AND SUBSIDIARY
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 $1,880,000
Provision charged to costs
and expenses (1) 0
----------
Allowance for loss - December 31, 1998 1,880,000
Provision charged to costs
and expenses (1) 0
----------
Allowance for Loss - December 31, 1999 1,880,000
Provision charged to costs
and expenses (1) 0
----------
Allowance for loss - December 31, 2000 $1,880,000
==========
(1) See Notes 1 and 4 to consolidated financial statements incorporated by
reference to the Annual Report to the Limited Partners attached as an
Exhibit.
17
SCHEDULE III - FORM 10-K
SIERRA PACIFIC PENSION INVESTORS '84 AND SUBSIDIARY
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 Accum.
Description rances Land ments ition (2) Land ments (3)(4)(5) Deprec. (5)
- ----------- ------ ---- ----- --------- ---- ----- --------- -----------
OFFICE BUILDING-
INCOME -PRODUCING:
Sierra Valencia
Tucson, AZ $1,349,748 $977,677 4,329,823 $977,677 3,092,087 4,069,764 981,598
Date Date Deprec.
Description Constructed Acquired Life
- ----------- ----------- -------- ----
OFFICE BUILDING-
INCOME -PRODUCING:
Sierra Valencia
Tucson, AZ 11/87 9/85 3-30 yrs.
(1) The initial cost represents the original purchase price of the property.
(2) The Partnership has capitalized property development costs.
(3) Also represents costs for Federal Income Tax purposes.
(4) A valuation allowance of $1,880,000 was established in 1989 as the
appraised value of the properties declined below book value. See Notes 1
and 4 to the financial statements incorporated by reference to the Annual
Report to the Limited Partners attached as an exhibit.
(5) 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 $ 4,929,987 $ 1,677,364
Additions during the year 42,614 203,222
Write off fully depreciated assets (18,649) (18,649)
----------- -----------
Balance - December 31, 1998 4,953,952 1,861,937
Additions during the year 147,606 185,382
Write off fully depreciated assets (1,062,956) (1,062,956)
----------- -----------
Balance - December 31, 1999 4,038,602 984,363
Additions during the year 127,986 94,059
Write off fully depreciated assets (96,824) (96,824)
----------- -----------
Balance - December 31, 2000 $ 4,069,764 $ 981,598
=========== ===========
18
SIERRA PACIFIC PENSION INVESTORS '84 AND SUBSIDIARY
(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 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 $ 741,987 $ 809,929 $ 726,154 $ 670,986 $ 668,706
OPERATING EXPENSES:
Total 615,547 722,204 649,550 608,721 626,646
Per dollar of revenues 0.83 0.89 0.89 0.91 0.94
INTEREST EXPENSE:
Total 128,664 137,091 147,712 114,696 0
Per dollar of revenues 0.17 0.17 0.20 0.17 0.00
NET INCOME (LOSS) FROM
CONTINUING OPERATIONS:
Total 325,286 357,351 124,886 (559,320) (137,422)
General Partner 3,253 0 0 0 0
Limited Partnership 322,033 357,351 124,886 (559,320) (137,422)
Per Limited Partnership Unit (1) 4.18 4.64 1.62 (7.26) (1.78)
CASH (USED IN) PROVIDED BY
OPERATING ACTIVITIES (29,586) 1,077,981 (66,517) (96,708) 133,115
CASH PROVIDED BY (USED IN)
INVESTING ACTIVITIES 436,007 (388,890) 126,636 (1,430,332) (94,057)
CASH (USED IN) PROVIDED BY
FINANCING ACTIVITIES (404,336) (667,651) (77,151) 1,512,134 (251,766)
TOTAL ASSETS 11,210,201 10,808,318 10,558,178 10,475,000 9,510,493
PARTNERS' EQUITY:
Total 9,612,345 9,287,059 8,929,708 8,804,822 9,414,142
General Partner (183,103) 0 0 0 0
Limited Partners 9,795,448 9,287,059 8,929,708 8,804,822 9,414,142
LIMITED PARTNERS' EQUITY - PER UNIT (1) 127.21 120.61 115.97 114.35 122.26
NOTE RECEIVABLE 1,618,300 1,459,139 2,227,627 2,005,498 1,697,739
INCOME-PRODUCING PROPERTIES:
Number 1 1 1 1 1
Cost 4,069,764 4,038,602 4,953,952 4,929,987 4,803,698
Less: Accumulated depreciation (981,598) (984,363) (1,861,937) (1,677,364) (1,494,933)
Valuation allowance (1,880,000) (1,880,000) (1,880,000) (1,880,000) (1,880,000)
Net book value 1,208,166 1,174,239 1,212,015 1,372,623 1,428,765
INVESTMENT IN UNCONSOLIDATED
JOINT VENTURE 7,063,438 7,303,940 6,743,274 6,720,551 4,616,117
NOTES PAYABLE - Related to income-
producing property 1,349,748 1,398,368 1,484,983 1,562,134 0
DISTRIBUTIONS PER UNIT (1): 0 0 0 0.65 2.60
(1) The net income (loss), limited partners' equity and distributions per unit
are based upon the limited partnership units outstanding at the end of the
year, 77,000 in all years. The cumulative distributions per limited
partnership unit from inception to December 31, 2000 equal $21.43.
19
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Partners of
Sierra Pacific Pension Investors '84
We have audited the accompanying consolidated balance sheet of Sierra Pacific
Pension Investors '84, 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 Pension Investors '84 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
20
INDEPENDENT AUDITORS' REPORT
To the Partners of
Sierra Pacific Pension Investors '84
We have audited the accompanying consolidated balance sheets of Sierra Pacific
Pension Investors '84 and subsidiary, 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
Pension Investors '84 and subsidiary 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
21
SIERRA PACIFIC PENSION INVESTORS '84 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 $ 33,647 $ 31,562
Receivables:
Note, net of deferred gain of $132,471 (Notes 3 and 4) 1,618,300 1,459,139
Unbilled rent (Notes 1 and 4) 48,713 44,708
Billed rent (Note 1) 69,118 2,762
Due from affiliate (Note 9) 936,752 581,036
Income-producing property - net of accumulated
depreciation and valuation allowance of $2,861,598
and $2,864,363 (Notes 4 and 6) 1,208,166 1,174,239
Investment in unconsolidated joint venture (Notes 1 and 5) 7,063,438 7,303,940
Other assets - net of accumulated amortization of
$197,100 and $172,144 (Notes 1, 2, 3 and 8) 232,067 210,932
--------------- ---------------
Total Assets $ 11,210,201 $ 10,808,318
=============== ===============
LIABILITIES AND PARTNERS' EQUITY
Accrued and other liabilities (Note 2) $ 248,108 $ 122,891
Notes payable (Note 6) 1,349,748 1,398,368
--------------- ---------------
Total Liabilities 1,597,856 1,521,259
--------------- ---------------
COMMITMENTS AND CONTINGENT LIABILITIES (Note 8)
Partners' equity (deficit) (Notes 1 and 7):
General Partner (183,103) 0
Limited Partners:
80,000 units authorized,
77,000 issued and outstanding 9,795,448 9,287,059
--------------- ---------------
Total Partners' equity 9,612,345 9,287,059
--------------- ---------------
Total Liabilities and Partners' equity $ 11,210,201 $ 10,808,318
=============== ===============
The accompanying notes are an integral part of
these consolidated financial statements.
22
SIERRA PACIFIC PENSION INVESTORS '84 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) $ 582,815 $ 622,524 $ 504,016
Interest income (Note 3) 159,172 187,405 222,138
--------- --------- ---------
Total revenues 741,987 809,929 726,154
--------- --------- ---------
EXPENSES:
Operating expenses:
Depreciation and amortization 151,430 249,067 258,718
Property taxes and insurance 145,551 141,531 139,225
General and administrative 35,543 39,848 33,353
Legal and accounting 61,635 60,322 62,651
Administrative fees (Note 3) 65,430 84,970 51,699
Maintenance and repairs 33,968 40,182 40,688
Management fees (Note 3) 32,275 36,373 33,341
Utilities 20,005 16,272 15,526
Bad debt expense 63,848 46,342 0
Other operating expenses 5,862 7,297 14,349
--------- --------- ---------
Total operating expenses 615,547 722,204 649,550
--------- --------- ---------
Interest 128,664 137,091 147,712
--------- --------- ---------
Total expenses 744,211 859,295 797,262
--------- --------- ---------
LOSS BEFORE GAIN FROM PROPERTY
DISPOSITION (2,224) (49,366) (71,108)
GAIN FROM PROPERTY DISPOSITION (Note 4) 0 83,315 0
--------- --------- ---------
(LOSS) INCOME BEFORE PARTNERSHIP'S
SHARE OF UNCONSOLIDATED JOINT
VENTURE INCOME (2,224) 33,949 (71,108)
--------- --------- ---------
PARTNERSHIP'S SHARE OF UNCONSOLIDATED
JOINT VENTURE INCOME (Note 5) 327,510 323,402 195,994
--------- --------- ---------
NET INCOME $ 325,286 $ 357,351 $ 124,886
========= ========= =========
Net income per limited partnership unit (Note 1) $ 4.18 $ 4.64 $ 1.62
========= ========= =========
The accompanying notes are an integral part of
these consolidated financial statements.
23
SIERRA PACIFIC PENSION INVESTORS '84 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 $ 114.35 $ 8,804,822 $ 0 $ 8,804,822
Net income 1.62 124,886 124,886
--------------- --------------- --------------- ---------------
Partners' equity December 31, 1998 115.97 8,929,708 0 8,929,708
Net income 4.64 357,351 357,351
--------------- --------------- --------------- ---------------
Partners' equity December 31, 1999 120.61 9,287,059 0 9,287,059
Transfer among general partner and limited partners 2.42 186,356 (186,356) 0
Net income 4.18 322,033 3,253 325,286
--------------- --------------- --------------- ---------------
Partners' equity - December 31, 2000 $ 127.21 $ 9,795,448 $ (183,103) $ 9,612,345
=============== =============== =============== ===============
The accompanying notes are an integral part of
these consolidated financial statements.
24
SIERRA PACIFIC PENSION INVESTORS '84 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 income $ 325,286 $ 357,351 $ 124,886
Adjustments to reconcile net income to cash
(used in) provided by operating activities:
Depreciation and amortization 151,430 249,067 258,718
Gain from property disposition 0 (83,315) 0
Undistributed income of unconsolidated
joint venture (327,510) (323,402) (195,994)
Bad debt expense 63,848 46,342 0
(Increase) decrease in rent receivable (134,209) (4,177) 6,739
(Increase) decrease in note receivable (159,161) 851,803 (222,128)
(Increase) decrease in other assets (74,487) 3,784 (74,181)
Increase (decrease) in accrued and other liabilities 125,217 (19,472) 35,443
--------- ----------- ---------
Net cash (used in) provided by operating activities (29,586) 1,077,981 (66,517)
--------- ----------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Payments for property additions (127,986) (147,606) (42,614)
Capital contributions to
unconsolidated joint venture (53,900) (539,784) (42,000)
Distributions from unconsolidated
joint venture 617,893 298,500 211,250
--------- ----------- ---------
Net cash provided by (used in) investing activities 436,007 (388,890) 126,636
--------- ----------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Loan to affiliate (355,716) (581,036) 0
Principal payments on notes payable (48,620) (86,615) (77,151)
--------- ----------- ---------
Net cash used in financing activities (404,336) (667,651) (77,151)
--------- ----------- ---------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS 2,085 21,440 (17,032)
CASH AND CASH EQUIVALENTS - Beginning of year 31,562 10,122 27,154
--------- ----------- ---------
CASH AND CASH EQUIVALENTS - End of year $ 33,647 $ 31,562 $ 10,122
========= =========== =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash paid during the year for real estate taxes $ 112,563 $ 106,720 $ 96,407
========= =========== =========
Cash paid during the year for interest $ 128,956 $ 137,574 $ 148,142
========= =========== =========
In 2000, 1999 and 1998, interest receivable of $159,161, $91,610 and $222,128
was added to the principal balance of the related note receivable. These
transactions are noncash items not reflected in the above statements of cash
flows.
The accompanying notes are an integral part of
these consolidated financial statements.
25
SIERRA PACIFIC PENSION INVESTORS '84 AND SUBSIDIARY
(A California Limited Partnership)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization
Sierra Pacific Pension Investors '84 (the "Partnership") was organized on June
5, 1984 in accordance with the provisions of the California Uniform Limited
Partnership Act to acquire, develop and operate certain real properties. S-P
Properties, Inc. ("S-P") is the General Partner and manager of the Partnership.
The Partnership's activities have involved the ownership and operation of two
real estate projects in Arizona: Sierra Spectrum in Phoenix, Arizona and Sierra
Valencia in Tucson, Arizona. In December 1994, the Partnership sold Sierra
Spectrum.
On March 7, 1997 Sierra Valencia LLC ("SVLLC") was formed with the Partnership
being the sole member. This company was formed solely to engage in the following
activities: a) to acquire from Sierra Pacific Pension Investors '84 the property
known as Sierra Valencia, b) to own, hold, sell, assign, transfer, operate,
lease, mortgage, pledge and otherwise deal with the Property, c) to exercise all
powers enumerated in the Delaware Limited Liability Company Act necessary or
convenient to the conduct, promotion or attainment of the business or purposes
otherwise set forth. Title to the Sierra Valencia property was transferred from
the Partnership to SVLLC. The accounts of SVLLC are consolidated into the
financial statements of the Partnership since the date of formation and all
significant intercompany transactions are eliminated in consolidation.
In 1985 Sierra Mira Mesa Partners ("SMMP"), a California general partnership was
formed between the Partnership and Sierra Pacific Development Fund II
("SPDFII"). SMMP was initially created to develop and operate the office
building known as Sierra Mira Mesa in San Diego, California. The Partnership's
initial ownership interest in SMMP was 49%; the remaining 51% was owned by
SPDFII. Effective December 31, 1996, the general partners amended the
partnership agreement to allow for adjustments in the sharing ratio each year on
January 1 based upon the relative net contributions and distributions since
inception of each general partner. In conjunction with this amendment, the
general partners forgave the December 31, 1996 balances of advances due from
SMMP and included these amounts as adjustments to their respective equity
accounts. As a result, the sharing ratio in effect for 1998, 1999 and 2000 was
66.26%, 66.99% and 69.83%, respectively, for the Partnership and 33.74%, 33.01%
and 30.17%, respectively, for SPDFII. During 2000, SMMP made net distributions
of $563,993 to the Partnership and $1,506,795 to SPDFII. Accordingly, on January
1, 2001, the sharing ratio will be increased to 80.32% for the Partnership and
decreased to 19.68% for SPDFII to reflect the 2000 contributions and
distributions.
As of December 31, 2000, SMMP also holds an 83.24% interest in Sorrento I
Partners (a California general partnership with Sierra Pacific Development Fund
III formed in 1993), a 43.92% interest in Sorrento II Partners (a California
general partnership with Sierra Pacific Institutional Properties V formed in
1993), a 5.08% interest in Sierra Creekside Partners (a California general
partnership with Sierra Pacific Development Fund formed in 1994), and a 33.36%
interest in Sierra Vista Partners (a California general partnership with Sierra
Pacific Development Fund III formed in 1994).
26
Sierra Pacific Pension Investors '84 and subsidiary
Notes to Consolidated Financial Statements
Page two
Basis of Financial Statements
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.
The consolidated financial statements include the accounts of the Partnership
and its subsidiary. The Partnership consolidates all subsidiaries in which it
has a controlling equity interest. All significant intercompany transactions
and balances have been eliminated.
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, 2000 and 1999
consist of cash and cash equivalents, receivables, due from affiliate, note
receivables, accounts payable and notes 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 on management, the
fair value of the notes payable approximates the carrying value based on market
rates at December 31, 2000 and 1999. The note receivable and due from affiliate
are not fair valued due to their related party nature.
Income-Producing Properties
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.
The Partnership regularly evaluates long-lived assets for impairment in
accordance with 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") 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
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. An impairment of $1,880,000
was recognized prior to 1995 as appraisals indicated an other than temporary
decline in value. No such impairments have been recognized by the partnership
since 1995.
27
Sierra Pacific Pension Investors '84 and subsidiary
Notes to Consolidated Financial Statements
Page three
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
write-downs which could be material in subsequent years if real estate markets
or local economic conditions change.
Reclassifications
Certain reclassifications have been made in the 1999 financial statements to
conform to the 2000 presentation.
Investment in Unconsolidated Joint Venture
The investment in the unconsolidated joint venture is stated at cost and is
adjusted for the Partnership's share in earnings or losses and cash
contributions to or distributions from the joint venture (equity method).
Other Assets
Deferred leasing costs represent costs incurred to lease the property 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.
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 reviews 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 Income Per Limited Partnership Unit
Equity and net income per limited partnership unit are determined by dividing
the Limited Partners' equity and net income by 77,000, the number of limited
partnership units outstanding for all periods.
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), 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.
28
Sierra Pacific Pension Investors '84 and subsidiary
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 $ 10,868 $ 3,501
Tax and insurance impounds 46,499 35,645
Tenant improvements reserves 27,676 22,736
Deferred loan costs, net of accumulated
amortization of $34,238 and $25,051 57,420 66,608
Deferred leasing costs, net of accumulated
amortization of $162,862 and 147,093 89,604 82,442
-------- --------
$232,067 $210,932
======== ========
Accrued and other liabilities:
Accounts payable $114,698 $ 34,558
Accrued expenses 100,945 67,368
Security deposits 32,465 20,965
-------- --------
$248,108 $122,891
======== ========
3. GENERAL PARTNER AND RELATED PARTY TRANSACTIONS
Affiliates of the General Partner receive a monthly management fee totaling
6% of the gross rental income collected from the properties or $600,
whichever is greater. Management fees to the affiliates for the years ended
December 31, 2000, 1999 and 1998 were $17,216, $21,105, and $20,103,
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 $75,486, $91,885 and $72,284 for such services for the years ended
December 31, 2000, 1999 and 1998, respectively. Additionally, the Partnership
reimbursed the affiliates for construction supervision costs incurred by the
affiliates. For the years ended December 31, 2000, 1999, and 1998, the
affiliates received $0, $2,131 and $0, respectively, for tenant improvement
supervisory costs.
During 1996, the Partnership made a non-interest bearing advance to an affiliate
in the amount of $47,466. This advance was deemed uncollectible and subsequently
written off to bad debt expense in 1999.
Reference is made to Note 9.
29
Sierra Pacific Pension Investors '84 and subsidiary
Notes to Consolidated Financial Statements
Page five
As further described in Note 4, in 1994 the Partnership sold a property to an
affiliate of the General Partner for cash of $800,000 and a $3,200,000 trust
deed note dated December 31, 1994. This note calls for monthly interest only
payments and bears interest of 10% per annum. In 1999 and 2000, interest
receivable of $91,610 and $159,161 respectively, was added to the principal
balance of the note and maturity was extended for additional one-year terms. All
other terms of the original note remained unchanged. Interest income related to
this note of $159,161, $187,227, and $222,128 was recognized during the years
ended December 31, 2000, 1999, and 1998, respectively. The December 31, 2000
balance of the note was $1,750,771, which includes a deferred gain of $132,471,
and was secured by a second lien on the property. The note matures December 31,
2001. Management believes the collateral has sufficient value to recover the
Partnership's net investment in the note after satisfaction of the first lien
holder.
4. INCOME-PRODUCING PROPERTIES
At December 31, 2000 and 1999 the total cost and accumulated depreciation of the
property are as follows:
2000 1999
----------- -----------
Land $ 977,677 $ 977,677
Building and improvements 3,092,087 3,060,925
----------- -----------
Total 4,069,764 4,038,602
Accumulated depreciation (981,598) (984,363)
Valuation allowance (Note 1) (1,880,000) (1,880,000)
----------- -----------
Net $ 1,208,166 $ 1,174,239
=========== ===========
In 2000 and 1999, the Partnership removed $96,824 and $1,062,956, respectively,
from its building and improvements and related accumulated depreciation accounts
for fully depreciated property.
On December 30, 1994, the Sierra Spectrum property, with a historical cost basis
of $2,993,134, was sold for $4,000,000 ($800,000 cash down-payment and a
$3,200,000 trust deed note) to an affiliate of Finance Factors, Inc. The gain on
sale was recorded using the installment method and the Partnership recorded a
deferred gain of $367,296 at December 31, 1994, which will be recognized as
principal payments on the trust deed note are received. During the year ended
December 31, 1995, the Partnership received principal payments of $1,317,928 on
the trust deed note and recognized $151,510 of the deferred gain related to this
transaction. In 1999, the Partnership received a principal payment of $943,413
and recognized an additional $83,315 of the deferred gain. As of December 31,
2000 the remaining deferred gain was $132,471.
30
Sierra Pacific Pension Investors '84 and subsidiary
Notes to Consolidated Financial Statements
Page six
Future minimum base rental income, under the existing operating leases for the
Sierra Valencia 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 $ 493,928 $ 492,273
2002 353,175 357,532
2003 274,738 288,636
2004 211,066 235,441
2005 39,122 46,860
---------- ----------
Total $1,372,029 $1,420,742
========== ==========
During the year ended December 31, 2000, the Partnership relied on three tenants
to generate approximately 55% of total rental revenues. The breakdown of these
three tenants' industry segments and rental income contribution is as follows:
17% - electronics manufacturer; 16% - telecommunications manufacturing; and 21%
- - healthcare administration.
During the year ended December 31, 1999, the Partnership relied on three tenants
to generate approximately 51% of total rental revenues. The breakdown of these
three tenants' industry segments and rental income contribution is as follows:
16% - optics research and development; 15% - telecommunications manufacturing;
and 20% - healthcare administration.
5. INVESTMENT IN UNCONSOLIDATED JOINT VENTURE
Sierra Mira Mesa Partners ("SMMP"), a California general partnership, was formed
in 1985 between the Partnership and Sierra Pacific Development Fund II, an
affiliate, to develop and operate the real property known as Sierra Mira Mesa,
an office building, located in San Diego, California. The property contains
89,560 square feet and was 100% leased at December 31, 2000. At December 31,
2000 the Partnership's interest in SMMP was 69.83%; the remaining 30.17%
interest was owned by Sierra Pacific Development Fund II.
The Partnership's investment in SMMP as of December 31, 2000 and 1999 is
comprised of the following:
2000 1999
---------- ----------
Equity interest $6,959,561 $7,196,044
Other investment
fees, less accumulated
amortization of $149,702 and
$145,683 103,877 107,896
---------- ----------
Investment in unconsolidated
joint venture $7,063,438 $7,303,940
========== ==========
31
Sierra Pacific Pension Investors '84 and subsidiary
Notes to Consolidated Financial Statements
Page seven
The consolidated financial statements of SMMP include the accounts of SMMP and
Sorrento I Partners, a majority owned California general partnership for the
years ended December 31, 2000 and 1999. The condensed balance sheets at December
31, 2000 and 1999, and the condensed statements of operations for the years
ended December 31, 2000, 1999 and 1998 for SMMP follow:
Condensed Consolidated Balance Sheets
December 31, December 31,
2000 1999
------------ ------------
Assets
Cash and cash equivalents $ 51,660 $ 319,400
Rent receivable 932,011 1,198,515
Due from affiliates 2,696,350 2,451,227
Income-producing property,
net of accumulated depreciation 8,346,471 8,723,396
Investment in unconsolidated
joint ventures 1,295,403 2,526,875
Other assets, net of accumulated
amortization 787,724 793,658
------------ ------------
Total Assets $ 14,109,619 $ 16,013,071
============ ============
Liabilities and General Partners' Equity
Accrued and other liabilities $ 104,558 $ 101,104
Notes payable 5,890,607 6,179,038
------------ ------------
Total Liabilities 5,995,165 6,280,142
------------ ------------
Minority interest in joint venture (357,312) (340,614)
------------ ------------
General Partners' equity 8,471,766 10,073,543
------------ ------------
Total Liabilities and General Partners' equity $ 14,109,619 $ 16,013,071
============ ============
32
Sierra Pacific Pension Investors '84 and subsidiary
Notes to Consolidated Financial Statements
Page eight
Condensed Consolidated Statements of Operations
For the Year Ended December 31,
-------------------------------
2000 1999 1998
---------- ----------- -----------
Revenues:
Rental income $2,151,930 $ 2,126,106 $ 1,883,630
Other income 249,827 224,308 205,781
---------- ----------- -----------
Total revenues 2,401,757 2,350,414 2,089,411
---------- ----------- -----------
Expenses:
Operating expenses 936,177 800,654 754,978
Depreciation and amortization 571,117 587,070 581,956
Interest 485,730 450,177 438,711
---------- ----------- -----------
Total expenses 1,993,024 1,837,901 1,775,645
---------- ----------- -----------
Income before Partnership's share of
unconsolidated joint venture income (losses) 408,733 512,513 313,766
Partnership's share of unconsolidated
joint venture income (losses) 43,580 (36,405) (131,897)
---------- ----------- -----------
Income before minority interest's
share of consolidated joint venture
loss (income) 452,313 476,108 181,869
---------- ----------- -----------
Minority interest's share of consolidated
joint venture loss (income) 16,698 7,618 (787)
---------- ----------- -----------
Net income $ 469,011 $ 483,726 $ 181,082
========== =========== ===========
As of December 31, 2000, SMMP holds a 43.92% interest in Sorrento II Partners
(a California general partnership with Sierra Pacific Institutional
Properties V formed in 1993), a 5.08% interest in Sierra Creekside Partners
("SCP") (a California general partnership with Sierra Pacific Development
Fund formed in 1994), and a 33.36% interest in Sierra Vista Partners (a
California general partnership with Sierra Pacific Development Fund III
formed in 1994). Under the terms of the SCP joint venture agreement, SMMP
would be obligated to contribute any negative balance outstanding in its
capital account upon liquidation of the partnership. Such balance was
$2,540,963 and $128,513 at December 31, 2000 and 1999, respectively.
SMMP has a note receivable from an affiliate of S-P with a principal balance
outstanding at December 31, 2000 of $2,696,350. The loan is guaranteed by the
owners of CGS Real Estate Company, Inc. ("CGS"). The note receivable was
involved in a lawsuit in which SPDFII was the defendant. In connection with
the settlement of the lawsuit by SPDFII, SMMP would call a portion of the
note receivable. The portion called would be that percentage of the loan that
is equal to SPDFII's ownership interest in SMMP, in any event no less than
30%. Such funds would have been distributed to SPDFII in accordance with the
lawsuit settlement. As of March 26, 2001, the note has not been called, the
settlement has been declared null and void, and a supplemental complaint
alleging new allegations has been filed.
Management anticipates settlement of the SMMP note receivable upon completion
of the consolidation transaction (See Note 9). However, there can be no
assurance such transaction will be executed. Should the partnerships be unable
to settle the notes receivable subject to the litigation, a principal
shareholder of S-P has unconditionally guaranteed their payment.
S-P has denied and continues to deny that it has committed any violations of
law. Management believes the ultimate outcome of this litigation will not
have a material adverse effect on the Partnership.
33
Sierra Pacific Pension Investors '84 and subsidiary
Notes to Consolidated Financial Statements
Page nine
The following is a summary of aggregated financial information for all
investments owned by SMMP which are accounted for under the equity method:
Condensed Combined Balance Sheets
December 31, December 31,
2000 1999
------------ ------------
Assets
Cash and cash equivalents $ 53,567 $ 272,657
Rent receivable 449,743 588,742
Income-producing property,
net of accumulated depreciation 7,831,381 8,109,927
Other assets, net of accumulated
amortization 538,029 1,897,050
---------- -----------
Total Assets $8,872,720 $10,868,376
========== ===========
Liabilities and General Partners' Equity
Accrued and other liabilities $ 215,570 $ 350,272
Note payable 4,025,544 1,673,186
---------- -----------
Total Liabilities 4,241,544 2,023,458
---------- -----------
Ground lessors' equity in income producing property 0 3,000,000
---------- -----------
General Partners' equity 4,631,606 5,844,918
---------- -----------
Total Liabilities and General Partners' equity $8,872,720 $10,868,376
========== ===========
34
Sierra Pacific Pension Investors '84 and subsidiary
Notes to Consolidated Financial Statements
Page ten
Condensed Combined Statements of Operations
For the Year Ended December 31,
-------------------------------
2000 1999 1998
----------- ----------- -----------
Revenues:
Rental income $ 2,363,463 $ 2,112,254 $ 1,734,403
Interest income 11,218 34,540 0
Other income 0 15,151 93,668
----------- ----------- -----------
Total revenues 2,374,681 2,161,945 1,828,071
----------- ----------- -----------
Expenses:
Operating expenses 1,048,507 1,407,262 1,302,968
Depreciation and amortization 857,613 779,142 829,081
Interest 360,801 152,563 156,636
----------- ----------- -----------
Total expenses 2,266,921 2,338,967 2,288,685
----------- ----------- -----------
Income (loss) before extraordinary loss 107,760 (177,022) (460,614)
Extraordinary loss from write-off of
deferred loan costs (46,020) 0 0
----------- ----------- -----------
Net income (loss) $ 61,740 $ (177,022) $ (460,614)
=========== =========== ===========
Reference is made to the audited financial statements of Sierra Mira Mesa
Partners included herein.
35
Sierra Pacific Pension Investors '84 and subsidiary
Notes to Consolidated Financial Statements
Page eleven
6. NOTES PAYABLE
On March 27, 1997, Sierra Valencia LLC entered into a loan agreement with First
Union Bank of North Carolina in the amount of $1,404,000. This loan, which is
secured by a first lien on the Sierra Valencia property, bears interest at 9.25%
per annum and calls for monthly principal and interest payments of $12,024 on
the first day of each month. Such payments shall continue until April 2007, when
the indebtedness is due in full. There is a 1% premium for prepayment of this
note. As of December 31, 2000 the loan balance was $1,349,748.
On April 15, 1997, the Partnership entered into a loan agreement with IDM
Participating Income Company II, an affiliate of the general partner, in the
amount of $200,000. This loan was secured by a second lien on the Sierra
Valencia property. This note bore a variable interest rate determined by the
Federal Reserve of San Francisco's discount rate prevailing on the 25th day of
the month preceding the payment due date plus a 3% premium. The interest rate
could be adjusted the last day of March, June, September and December of each
year until note agreement was fulfilled. The minimum and maximum rates were
12.12% and 15.15%, respectively. The current interest rate paid was 12.12%.
Monthly payments of $6,659, consisting of both interest and principal, commenced
on May 15, 1997 and continued until April 15, 2000, when the indebtedness was
paid in full.
Annual maturities of the First Union Bank of North Carolina note payable as of
December 31, 2000 are $20,277 in 2001, $22,234 in 2002, $24,380 in 2003, $26,733
in 2004, $29,314 in 2005, and $1,226,810 thereafter.
7. PARTNERS' EQUITY
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
partner's equity balances.
Upon any sale, refinancing or other disposition of the Partnership's real
property, distributions will be made to the Limited Partners until they have
received distributions from the sale or financing 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 equal to 15% per annum cumulative
on each Limited Partner's unreturned capital. However, after the Limited
Partners have received distributions from the sale or financing proceeds equal
to their unreturned capital plus distributions from all sources equal to a
cumulative but not compounded return of 6% per annum on their unreturned
capital, the General Partner may be entitled to special distributions not to
exceed 3% of the gross sales prices of property sold by the Partnership.
Thereafter, the General Partner will be entitled to receive incentive
distributions which, when aggregated with the 1% distributions to the General
Partner described in the preceding sentence, will equal 10% of the total net
sale or financing proceeds available for distribution to the Partners. Any
remaining sale or financing proceeds will be distributed to the Limited
Partners.
36
Sierra Pacific Pension Investors '84 and subsidiary
Notes to Consolidated Financial Statements
Page twelve
8. 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.
9. PENDING TRANSACTION
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.
The Partnership has advanced more than its proportionate share of the costs
relating to the transaction. To the extent that expenses advanced by the
Partnership exceed its proportionate share, the Partnership will receive a
credit for any excess portion in determining the shares issued to the limited
partners in the Partnership. If the transaction is not consummated, or if the
Partnership does not participate, the general partner of the Partnership will
reimburse the Partnership for expenses incurred in connection with the
transaction. At December 31, 2000, these advances to ASR totaled $936,752 and
are included as an affiliate receivable on the balance sheet.
37
Sierra Mira Mesa Partners and Subsidiary
(A California General Partnership)
Consolidated balance sheets as of December 31, 2000 and 1999 and statements of
operations, changes in general partners' equity and cash flows for each
of the three years in the period ended December 31, 2000 and Report of
Independent Public Accountants
38
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Partners of
Sierra Mira Mesa Partners
We have audited the accompanying consolidated balance sheet of Sierra Mira Mesa
Partners, a California general 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 Mira Mesa
Partners 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
39
INDEPENDENT AUDITORS' REPORT
To the Partners of
Sierra Mira Mesa Partners
We have audited the accompanying consolidated balance sheet of Sierra Mira Mesa
Partners and subsidiary, a California general 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 Mira Mesa
Partners and subsidiary as of December 31, 1999 and the results of its
operations and 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
40
SIERRA MIRA MESA PARTNERS AND SUBSIDIARY
(A California General Partnership)
CONSOLIDATED BALANCE SHEETS
December 31, 2000 and 1999
- --------------------------------------------------------------------------------
December 31, December 31,
2000 1999
------------ ------------
ASSETS
Cash and cash equivalents $ 51,660 $ 319,400
Receivables:
Unbilled rent (Notes 1 and 4) 898,542 1,114,598
Billed rent (Note 1) 33,469 83,917
Due from affiliates, net (Note 3) 2,696,350 2,451,227
Income-producing property - net of accumulated
depreciation of $3,914,748 and $3,564,380
(Notes 1, 4 and 6) 8,346,471 8,723,396
Investment in unconsolidated
joint ventures (Notes 1 and 5) 1,295,403 2,526,875
Other assets - net of accumulated amortization
of $581,788 and $721,525 (Notes 1, 2 and 3) 787,724 793,658
------------ ------------
Total Assets $ 14,109,619 $ 16,013,071
============ ============
LIABILITIES AND GENERAL PARTNERS' EQUITY
Accrued and other liabilities (Note 2) $ 104,558 $ 101,104
Notes payable (Note 6) 5,890,607 6,179,038
------------ ------------
Total Liabilities 5,995,165 6,280,142
------------ ------------
COMMITMENTS AND CONTINGENT LIABILITIES (Note 7)
Minority interest in consolidated
joint venture (Note 1) (357,312) (340,614)
General Partners' equity (Note 1) 8,471,766 10,073,543
------------ ------------
Total Liabilities and General Partners' equity $ 14,109,619 $ 16,013,071
============ ============
The accompanying notes are an integral part of
these consolidated financial statements.
41
SIERRA MIRA MESA PARTNERS AND SUBSIDIARY
(A California General Partnership)
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Years Ended December 31, 2000, 1999 and 1998
- --------------------------------------------------------------------------------
2000 1999 1998
---------- ----------- -----------
Revenues:
Rental income (Note 1) $2,151,930 $ 2,126,106 $ 1,883,630
Interest income 249,827 224,308 205,781
---------- ----------- -----------
Total revenues 2,401,757 2,350,414 2,089,411
---------- ----------- -----------
Expenses:
Operating expenses:
Depreciation and amortization 571,117 587,070 581,956
Property taxes and insurance 102,883 98,611 97,781
Administrative fees (Note 3) 115,621 121,889 111,206
Maintenance and repairs 246,460 233,615 240,965
Management fees (Note 3) 134,447 119,166 109,725
Utilities 194,507 135,301 135,077
Legal and accounting 35,239 24,767 27,657
General and administrative 19,937 16,122 7,443
Bad debt expense 67,673 4,770 0
Other operating expenses 19,410 46,413 25,124
---------- ----------- -----------
Total operating expenses 1,507,294 1,387,724 1,336,934
Interest 485,730 450,177 438,711
---------- ----------- -----------
Total expenses 1,993,024 1,837,901 1,775,645
---------- ----------- -----------
INCOME BEFORE PARTNERSHIP'S SHARE OF
UNCONSOLIDATED JOINT VENTURE
INCOME (LOSSES) 408,733 512,513 313,766
---------- ----------- -----------
PARTNERSHIP'S SHARE OF UNCONSOLIDATED
JOINT VENTURE INCOME (LOSSES) (Note 5) 43,580 (36,405) (131,897)
---------- ----------- -----------
INCOME BEFORE MINORITY INTEREST'S
SHARE OF CONSOLIDATED JOINT VENTURE
LOSS (INCOME) 452,313 476,108 181,869
---------- ----------- -----------
MINORITY INTEREST'S SHARE OF CONSOLIDATED
JOINT VENTURE LOSS (INCOME) 16,698 7,618 (787)
---------- ----------- -----------
NET INCOME $ 469,011 $ 483,726 $ 181,082
========== =========== ===========
The accompanying notes are an integral part of
these consolidated financial statements.
42
SIERRA MIRA MESA PARTNERS AND SUBSIDIARY
(A California General Partnership)
CONSOLIDATED STATEMENTS OF CHANGES IN GENERAL PARTNERS' EQUITY
For the Years Ended December 31, 2000, 1999 and 1998
- --------------------------------------------------------------------------------
General Partners
---------------------------------------------
Sierra Pacific Sierra Pacific
Development Pension
Fund II Investors '84 Total
-------------- -------------- ------------
General Partners' equity - January 1, 1998 $ 3,261,917 $ 6,603,968 $ 9,865,885
Net (loss) income (14,912) 195,994 181,082
Contributions 8,490 42,000 50,490
Distributions (211,490) (211,250) (422,740)
----------- ----------- ------------
General Partners' equity - December 31, 1998 3,044,005 6,630,712 9,674,717
Net income 159,678 324,048 483,726
Contributions 44,000 539,784 583,784
Distributions (370,184) (298,500) (668,684)
----------- ----------- ------------
General Partners' equity - December 31, 1999 2,877,499 7,196,044 10,073,543
Net income 141,501 327,510 469,011
Contributions 119,678 53,900 173,578
Distributions (1,626,473) (617,893) (2,244,366)
----------- ----------- ------------
General Partners' equity - December 31, 2000 $ 1,512,205 $ 6,959,561 $ 8,471,766
=========== =========== ============
The accompanying notes are an integral part of
these consolidated financial statements.
43
SIERRA MIRA MESA PARTNERS AND SUBSIDIARY
(A California General 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 income $ 469,011 $ 483,726 $ 181,082
Adjustments to reconcile net income
to cash provided by operating activities:
Depreciation and amortization 571,117 587,070 581,956
Undistributed (income) losses of
unconsolidated joint ventures (43,580) 36,405 131,897
Minority interest in consolidated
joint venture (loss) income (16,698) (7,618) 787
Bad debt expense 67,673 4,770 0
Decrease in rent receivable 198,831 27,641 60,853
Increase in due from affiliates (245,123) (222,839) (202,581)
Increase in other assets (143,525) (45,022) (215,974)
Increase (decrease) in accrued and other liabilities 3,454 (150,886) 183,225
----------- ----------- ---------
Net cash provided by operating activities 861,160 713,247 721,245
----------- ----------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Payments for property additions (44,733) (160,815) (346,113)
Capital contributions to unconsolidated
joint ventures (2,090,088) (1,027,820) (350,900)
Distributions received from unconsolidated
joint ventures 3,365,140 105,000 372,312
----------- ----------- ---------
Net cash provided by (used in) investing activities 1,230,319 (1,083,635) (324,701)
----------- ----------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Capital contributions from General Partners 173,578 583,784 50,490
Cash distributions to General Partners (2,244,366) (668,684) (422,740)
Proceeds from note payable secured by property 0 1,637,500 0
Principal payments on notes payable (288,431) (876,876) (254,638)
----------- ----------- ---------
Net cash (used in) provided by financing activities (2,359,219) 675,724 (626,888)
----------- ----------- ---------
NET (DECREASE) INCREASE IN CASH
AND CASH EQUIVALENTS (267,740) 305,336 (230,344)
CASH AND CASH EQUIVALENTS - Beginning of year 319,400 14,064 244,408
----------- ----------- ---------
CASH AND CASH EQUIVALENTS - End of year $ 51,660 $ 319,400 $ 14,064
=========== =========== =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash paid during the year for real estate taxes $ 73,176 $ 72,469 $ 71,184
=========== =========== =========
Cash paid during the year for interest $ 487,020 $ 439,792 $ 439,756
=========== =========== =========
In 2000, 1999, and 1998 interest receivable of $245,123, $222,839, and $202,581,
respectively, was added to the principal balance of the related note receivable
from affiliate. These transactions are noncash items not reflected in the above
statement of cash flows.
The accompanying notes are an integral part of
these consolidated financial statements.
44
SIERRA MIRA MESA PARTNERS AND SUBSIDIARY
(A California General Partnership)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization
Sierra Mira Mesa Partners ("SMMP"), a California general partnership, was formed
in 1985 between Sierra Pacific Development Fund II ("SPDFII") and Sierra Pacific
Pension Investors '84 ("SPPI'84") to develop and operate the real property known
as Sierra Mira Mesa, an office building, located in San Diego, California. The
property contains 89,560 square feet and was 100% leased at December 31, 2000.
Per the terms of the partnership agreement, SPDFII and SPPI'84 shared in
earnings, contributions and distributions in a ratio of 51% to 49%,
respectively. Effective December 31, 1996, the general partners amended the
partnership agreement to allow for adjustments in the sharing ratio each year
based upon the relative net contributions and distributions since inception of
each general partner. In conjunction with this amendment, the general partners
forgave the December 31, 1996 balances of advances due from SMMP and included
these amounts as adjustments to their respective equity accounts. The sharing
ratio in effect for 1998, 1999 and 2000 was 33.74%, 33.01% and 30.17%,
respectively, for SPDFII and 66.26%, 66.99% and 69.83%, respectively, for
SPPI'84. On January 1, 2001, the sharing ratio will be decreased to 19.68% for
SPDFII and increased to 80.32% for SPPI'84 to reflect the 2000 contributions and
distributions.
S-P Properties, Inc. is the General Partner and manager of SPDFII and SPPI'84.
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. ("CGS"),
a national real estate company. In July 1995, Finance Factors, Inc. merged with
Bancor Real Estate Company, Inc., another subsidiary of CGS.
SMMP also holds investments in other industrial/commercial properties through
its investments in unconsolidated joint ventures. Refer to Note 5 for additional
information.
Basis of Financial Statements
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.
The consolidated financial statements of SMMP include the accounts of SMMP and
Sorrento I Partners ("SIP"), a majority owned joint venture as of December 31,
2000. SMMP consolidates all subsidiaries in which it has a controlling equity
interest. All significant intercompany balances and transactions have been
eliminated in consolidation.
45
Sierra Mira Mesa Partners
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, 2000 and 1999
consist of cash and cash equivalents, receivables, due from affiliates,
accounts payable and notes payable. The fair value of cash and cash
equivalents, receivables and accounts payable approximate the carrying value
due to the short term nature of these items. In the opinion of management,
the fair value of the notes payable approximates the carrying value based on
market rates at December 31, 2000 and 1999. Management does not fair value
the amounts due from affiliates due to the related party nature of this
receivable.
Income-Producing Properties
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.
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 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"). Future cash flows
are estimated and compared to the carrying amount of the asset to determine if
an impairment has occurred. If the sum of the expected future cash flows is less
than the carrying amount of the asset, the Partnership shall recognize an
impairment loss in accordance with the Statement. No such impairment has been
recognized by the Partnership at December 31, 2000.
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.
Investment in Unconsolidated Joint Ventures
The investment in unconsolidated joint ventures is stated at cost and is
adjusted for the Partnership's share in earnings or losses and cash
contributions to or distributions from the joint ventures (equity method).
46
Sierra Mira Mesa Partners
Notes to Consolidated Financial Statements
Page three
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.
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 reviews its outstanding receivables for
uncollectibility and provides a provision for bad debts for those accounts it
believes it may not collect in full.
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), 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.
47
Sierra Mira Mesa Partners
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 $ 13,067 $ 7,383
Deferred loan costs, net of accumulated
amortization of $65,972 and $49,842 152,096 168,225
Deferred leasing costs, net of accumulated
amortization of $655,553 and $531,945 384,097 507,000
Deposits 25,000 0
Tax impounds and insurance impounds 34,491 26,831
Tenant improvement reserves 178,973 84,219
-------- --------
$787,724 $793,658
======== ========
Accrued and other liabilities:
Accounts payable $ 29,964 $ 51,008
Security deposits 32,573 17,922
Accrued expenses 11,138 0
Interest payable 30,883 32,174
-------- --------
$104,558 $101,104
======== ========
3. GENERAL PARTNER AND RELATED PARTY TRANSACTIONS
Affiliates of S-P Properties, Inc. receive a monthly management fee totaling
5.5% of the gross rental income collected from the properties or $600,
whichever is greater. This fee amounted to $134,447, $119,166, and $109,725
respectively, for the years ended December 31, 2000, 1999, and 1998. This fee
was recorded as part of the operating expenses of the properties.
SMMP reimburses an affiliate of S-P Properties, Inc. for expenses incurred by
the affiliate for services provided to SMMP such as accounting, data processing
and similar services. The affiliate was reimbursed $115,621, $122,239, and
$111,206 respectively, for such services for the years ended December 31, 2000,
1999, and 1998. Additionally, SMMP reimbursed an affiliate for construction
supervision costs incurred by the affiliate. For the years ended December 31,
2000, 1999, and 1998, the affiliate received $0, $28,201, and $1,327
respectively, for tenant improvements supervisory costs.
In consideration for services rendered with respect to initial leasing of SMMP's
property, an affiliate of S-P Properties, Inc. is paid initial leasing costs.
For the years ended December 31, 2000, 1999, and 1998, these fees amounted to
$0, $0, and $63,492 respectively, and were recorded as deferred leasing costs.
During 1993, SMMP loaned funds to a former affiliate of S-P Properties, Inc. in
the form of a demand note. The liability was assumed by Finance Factors, Inc.
which acquired S-P Properties, Inc. as of December 30, 1994. In July 1995,
Finance Factors, Inc. merged with Bancor Real Estate Company, Inc. who has
assumed the note. The annual interest rate of the loan was variable at bank
prime plus 2 1/4% - 3% with a minimum rate of 9%. The loan totaled $2,360,000 at
December 31, 1993 and was reduced to $1,687,787 at December 31, 1994. This loan
was amended effective January 1, 1995 fixing the interest rate at 10%. On
December 31, 2000, 1999, 1998 and 1997, interest receivable of $245,123,
$222,839, $202,581 and $338,020, respectively, was added to the principle
balance of the loan. No interest related to this loan was due to the Partnership
at December 31, 2000 and 1999. The principal balance outstanding at December 31,
2000 was $2,696,350. The loan is guaranteed by the owners of CGS Real Estate
Company, Inc. ("CGS").
The note receivable was involved in a lawsuit in which SPDFII was the
defendant. In connection with the settlement of the lawsuit by SPDFII, the
Partnership would call a portion of the note receivable from Bancor Real
Estate Company, Inc. The portion called would be that percentage of the loan
that is equal to SPDFII's ownership interest in the Partnership, in any event
no less than 30%. Such funds would have been distributed to SPDFII in
accordance with the lawsuit settlement. As of March 26, 2001, the note has
not been called, the settlement has been declared null and void, and a
supplemental complaint alleging new allegation has been filed.
Management anticipates settlement of the SMMP note receivable upon completion
of the consolidation transaction (See Note 8). However, there can be no
assurance such transaction will be executed. Should the partnerships be
unable to settle the notes receivable subject to the litigation, a principal
shareholder of S-P Properties, Inc. has unconditionally guaranteed their
payment.
S-P Properties, Inc. has denied and continues to deny that it has committed
any violations of law. Management believes the ultimate outcome of this
litigation will not have a material adverse effect on the Partnership.
48
Sierra Mira Mesa Partners
Notes to Consolidated Financial Statements
Page five
During 1996, the Partnership made a non-interest bearing advance to an affiliate
in the amount of $4,770. The advance was deemed uncollectible and subsequently
written off to bad debt expense in 1999.
See Note 6 for note payable transactions with related parties.
4. INCOME-PRODUCING PROPERTIES
At December 31, 2000 and 1999 the total cost and accumulated depreciation of the
properties are as follows:
2000 1999
------------ ------------
Land $ 3,786,458 $ 3,786,458
Building and improvements 8,474,761 8,501,318
------------ ------------
Total 12,261,219 12,287,776
Accumulated depreciation (3,914,748) (3,564,380)
------------ ------------
Net $ 8,346,471 $ 8,723,396
============ ============
During 2000 and 1999, the Partnership removed $71,290 and $147,303,
respectively, from its building and improvements and related accumulated
depreciation accounts for fully depreciated property.
Future minimum base rental income, under the existing operating leases for the
Sierra Mira Mesa and Sorrento I properties, to be recognized on a straight-line
basis and amounts to be received on a cash basis are as follows:
Year Ending Straight-line Cash
December 31, Basis Basis
- ------------ ------------- ----------
2001 $2,092,837 $2,407,018
2002 2,083,837 2,507,237
2003 653,201 737,422
2004 179,747 184,288
2005 154,746 164,174
Thereafter 438,415 501,186
---------- ----------
Total $5,602,783 $6,501,325
========== ==========
In each of the three years in the period ending December 31, 2000, two tenants
accounted for the majority of the Partnership's rental income. A state
governmental agency associated with workers compensation insurance accounted for
69% of rental income in 2000 and 1999, and 78% in 1998; a tenant in the
communications sector accounted for 13% of rental income in 2000, 1999 and 1998.
49
Sierra Mira Mesa Partners
Notes to Consolidated Financial Statements
Page six
5. INVESTMENT IN UNCONSOLIDATED JOINT VENTURES
SMMP holds the following investments accounted for under the equity method at
December 31, 2000:
o a 43.92% equity interest in Sorrento II Partners ("SIIP"), a joint venture
formed on October 1, 1993 with Sierra Pacific Institutional Properties V,
an affiliate, to develop and operate Sierra Sorrento II, an industrial
building located in San Diego, California. SMMP's investment in SIIP as of
December 31, 2000 and 1999 is $3,822,355 and $2,647,872, respectively.
SMMP's share of the net income (loss) of SIIP for the three years ended
December 31, 2000, 1999 and 1998 is $60,583, $(30,637) and $(143,251),
respectively;
o a 5.08% equity interest in Sierra Creekside Partners ("SCP"), a joint
venture formed on February 1, 1994 with Sierra Pacific Development Fund,
an affiliate, to develop and operate Sierra Creekside, a commercial office
building in San Ramon, California. SMMP's investment in SCP as of December
31, 2000 and 1999 was $(2,540,963) and $(128,513), respectively. SMMP's
share of the net loss of SCP for the three years ended December 31, 2000,
1999 and 1998 was $(12,441), $(5,903) and $(8,420), respectively;
o a 33.36% equity interest in Sierra Vista Partners ("SVP"), a joint venture
formed on February 1, 1994 with Sierra Pacific Development Fund III, an
affiliate, to develop and operate Sierra Vista, an industrial building in
Anaheim, California. SMMP's investment in SVP as of December 31, 2000 and
1999 was $14,011 and $7,516, respectively. SMMP's share of the net (loss)
income of SVP for the three years ended December 31, 2000, 1999 and 1998
was $(4,562), $135 and $19,774, respectively. The Sierra Vista property
was sold in October 1997.
50
Sierra Mira Mesa Partners
Notes to Consolidated Financial Statements
Page seven
The following is a summary of aggregated financial information for all
investments owned by SMMP which are accounted for under the equity method:
Condensed Combined Balance Sheets
December 31, December 31,
2000 1999
---------- -----------
Assets
Cash and cash equivalents $ 53,567 $ 272,657
Rent receivable 449,743 588,742
Income-producing property,
net of accumulated depreciation 7,831,381 8,109,927
Other assets, net of accumulated
amortization 538,029 1,897,050
---------- -----------
Total Assets $8,872,720 $10,868,376
========== ===========
Liabilities and General Partners' Equity
Accrued and other liabilities $ 215,570 $ 350,272
Note payable 4,025,544 1,673,186
---------- -----------
Total Liabilities 4,241,544 2,023,458
---------- -----------
Ground lessors' equity in income-producing property 0 3,000,000
---------- -----------
General Partners' equity 4,631,606 5,844,918
---------- -----------
Total Liabilities and General Partners' equity $8,872,720 $10,868,376
========== ===========
51
Sierra Mira Mesa Partners
Notes to Consolidated Financial Statements
Page eight
Condensed Combined Statements of Operations
For the Year Ended December 31,
-------------------------------------------
2000 1999 1998
----------- ----------- -----------
Revenues:
Rental income $ 2,363,463 $ 2,112,254 $ 1,734,403
Interest income 11,218 34,540 0
Other income 0 15,151 93,668
----------- ----------- -----------
Total revenues 2,374,681 2,161,945 1,828,071
----------- ----------- -----------
Expenses:
Operating expenses 1,048,507 1,407,262 1,302,968
Depreciation and amortization 857,613 779,142 829,081
Interest 360,801 152,563 156,636
----------- ----------- -----------
Total expenses 2,266,921 2,338,967 2,288,685
----------- ----------- -----------
Income (loss) before extraordinary 107,760 (177,022) (460,614)
loss
Extraordinary loss from write-off of
deferred loan costs (46,020) 0 0
----------- ----------- -----------
Net income (loss) $ 61,740 $ (177,022) $ (460,614)
=========== =========== ===========
6. NOTES PAYABLE
2000 1999
---------- ----------
Mortgage note payable, due in monthly installments with interest at 7.74% per
annum, collateralized by the real property known as Sierra
Mira Mesa. This note matures in October 2010 $4,265,067 $4,543,984
Mortgage note payable, due in monthly installments with interest at
8.75% per annum, collateralized by the Sorrento I property. The note
matures in September 2009 1,625,540 1,635,054
---------- ----------
$5,890,607 $6,179,038
========== ==========
In August 1999, SIP paid its mortgage note due to CGS, an affiliate of the
General Partner, with an outstanding balance of $607,693. On the same date, SIP
entered into a new loan agreement with Finova Realty Capital, Inc. in the amount
of $1,637,500. This loan, which is secured by the Sorrento I property, bears
interest at 8.75% per annum. Principal and interest payments of $12,882 are due
monthly until maturity in September 2009. In connection with the repayment of
the CGS note, SIP paid $29,528 to CGS related to late fees which were included
in other operating expenses in the statement of operations for 1999. The note
balance as of December 31, 2000 was $1,625,540.
As of December 31, 2000, annual maturities on notes payable were: $314,146 in
2001; $339,483 in 2002; $366,864 in 2003; $396,456 in 2004; $428,435 in 2005;
and $4,045,223 thereafter.
52
Sierra Mira Mesa Partners
Notes to Consolidated Financial Statements
Page nine
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.
Under the terms of the Sierra Creekside Partners ("SCP"), joint venture
agreement, SMMP would be obligated to contribute any
negative balance outstanding in its capital account upon liquidation of the
Partnership. Such balance was $2,540,963 and $128,513 at December 31, 2000
and 1999, respectively.
8. PENDING TRANSACTION
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 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. 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.
53
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.
54