FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Quarterly Report Under Section 13 or 15(d)
of the Securities Exchange Act of 1934
For Quarter ended March 31, 2001
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Commission file number 0-15702
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SIERRA PACIFIC INSTITUTIONAL PROPERTIES V
(A LIMITED PARTNERSHIP)
State of California 33-0122424
- ------------------------------- ---------------------------------------
(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
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Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] . No [ ].
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
The following financial statements are submitted in the next pages:
Page
number
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Consolidated Balance Sheets - March 31, 2001 and December 31, 2000 5
Consolidated Statements of Operations - For the Three Months Ended
March 31, 2001 and 2000 6
Consolidated Statement of Changes in Partners' Equity - For the Year
Ended December 31, 2000 and for the Three Months Ended March 31, 2001 7
Consolidated Statements of Cash Flows - For the Three Months Ended
March 31, 2001 and 2000 8
Notes to Consolidated Financial Statements 9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
(a) OVERVIEW
The following discussion should be read in conjunction with Sierra Pacific
Institutional Properties V's (the Partnership) Consolidated Financial Statements
and Notes thereto appearing elsewhere in this Form 10-Q.
The Partnership currently owns a 48.49% interest in the Sorrento II Partnership,
which operates the Sorrento II property (the Property) in San Diego, California.
(b) RESULTS OF OPERATIONS
Rental income for the three months ended March 31, 2001 decreased by
approximately $69,000, or 18%, when compared to the corresponding period in
2000. This decrease was primarily due to lower common area maintenance fees
billed during the period. Supplemental billings were made in the first quarter
of 2000 to recover higher than anticipated prior year common area maintenance
fees. The Property was 100% occupied at March 31, 2001 and 2000.
No interest income was incurred for the quarter ended March 31, 2001. Interest
income of approximately $11,000 associated with the Partnership's prepaid ground
lease balance
2
was recorded during the first quarter of the prior year. As discussed in Item
2(c), the Partnership purchased the Sorrento II land holdings in February 2000
and its ground lease subsequently terminated. The current prepaid ground lease
balance was credited toward the purchase price.
Total operating expenses for the three months ended March 31, 2001 increased by
approximately $37,000, or 30%, in comparison to the same period in the prior
year, primarily due to an increase in maintenance and repair costs. Property
taxes rose as a result of an increase in the assessed value of the Property. In
addition, higher accounting and auditing costs were incurred during the quarter.
No ground lease expense was incurred for the three months ended March 31, 2001.
As discussed in Item 2(c), the Partnership's ground lease terminated upon the
purchase of the Sorrento II land holdings in February 2000.
Depreciation and amortization expenses for the quarter decreased by
approximately $12,000, or 11%, principally as a result of fully depreciated
capitalized tenant improvements.
Net income before Sierra Mira Mesa Partner's (SMMP) share of consolidated joint
venture income was approximately $52,000 for the three months ended March 31,
2001, compared to approximately $128,000 for the same period in the prior year.
In accordance with the Sorrento II partnership agreement, income resulting from
its operations is first allocated to the general partners in proportion to the
relative amounts of net cumulative losses until such allocation of income equals
the previously allocated net cumulative losses. Then, profits are allocated in
proportion to the distributions made to the general partners during the year. As
such, Sorrento II Partners allocated the Partnership 81.09% of its income, and
the other general partner, SMMP, received 18.91% of its income for the quarter
ended March 31, 2001. During the corresponding period in the prior year, the
Partnership's share of income was allocated in proportion to its ownership
interest. Such income was reallocated to the general partners in proportion to
net cumulative losses in the fourth quarter of 2000.
(c) LIQUIDITY AND CAPITAL RESOURCES
The Partnership is in an illiquid position as of March 31, 2001 with cash and
billed receivables of approximately $33,000 and current liabilities of
approximately $51,000. A source of cash is available through contributions from
the minority owner of the property, SMMP. SMMP has adequate resources to make
any necessary contributions during the foreseeable future. During the three
months ended March 31, 2000, SMMP contributed $28,000 to the Partnership and
received distributions of $175,000 from the Partnership.
In February 2000, the Partnership purchased the Sorrento II land holdings from
CGS Real Estate Company, Inc., an affiliate of the general partner, for
$3,500,000 and the ground lease subsequently terminated. The Partnerhip paid
cash of $2,174,255 and was credited its current prepaid balance of $1,325,745.
SMMP contributed the majority of the cash for the land purchase.
3
The Partnership's primary capital requirements will be for construction of new
tenant space. It is anticipated that these requirements and any operating
capital requirements will be funded from the operations of the property and
SMMP.
Inflation:
The Partnership does not expect inflation to be a material factor in its
operations in 2001.
4
SIERRA PACIFIC INSTITUTIONAL PROPERTIES V AND SUBSIDIARY
(A LIMITED PARTNERSHIP)
CONSOLIDATED BALANCE SHEETS
MARCH 31, 2001 AND DECEMBER 31, 2000
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March 31, 2001 December 31, 2000
(Unaudited)
---------------- -------------------
ASSETS
Cash and cash equivalents $ 13,369 $ 4,645
Receivables:
Unbilled rent 344,056 371,476
Billed rent 19,143 9,145
Income-producing property - net of
accumulated depreciation of $2,655,355
and $2,571,655, respectively 5,393,312 5,477,013
Other assets - net of accumulated amortization
of $410,988 and $391,994, respectively 215,970 234,777
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Total Assets $ 5,985,850 $ 6,097,056
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LIABILITIES AND PARTNERS' EQUITY
Accrued and other liabilities $ 57,799 $ 74,083
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Total Liabilities 57,799 74,083
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Minority interest in consolidated
joint venture 3,685,203 3,822,355
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Partners' equity (deficit):
General Partner (51,335) (51,757)
Limited Partners:
140,000 units authorized,
30,777 issued and
outstanding 2,294,183 2,252,375
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Total Partners' equity 2,242,848 2,200,618
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Total Liabilities and Partners' equity $ 5,985,850 $ 6,097,056
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SEE ACCOMPANYING NOTES
5
SIERRA PACIFIC INSTITUTIONAL PROPERTIES V AND SUBSIDIARY
(A LIMITED PARTNERSHIP)
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 2001 AND 2000
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2001 2000
(Unaudited) (Unaudited)
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REVENUES:
Rental income $ 316,806 $ 385,844
Interest income 0 11,205
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Total revenues 316,806 397,049
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EXPENSES:
Operating expenses 162,034 124,762
Ground lease 0 29,441
Depreciation and amortization 102,694 115,186
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Total costs and expenses 264,728 269,389
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INCOME BEFORE MINORITY INTEREST'S SHARE
OF CONSOLIDATED JOINT VENTURE INCOME 52,078 127,660
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MINORITY INTEREST'S SHARE OF
CONSOLIDATED JOINT VENTURE INCOME (9,848) (56,068)
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NET INCOME $ 42,230 $ 71,592
========= =========
Net income per limited partnership unit $ 1.36 $ 2.30
========= =========
SEE ACCOMPANYING NOTES
6
SIERRA PACIFIC INSTITUTIONAL PROPERTIES V AND SUBSIDIARY
(A LIMITED PARTNERSHIP)
CONSOLIDATED STATEMENTS OF CHANGES IN PARTNERS' EQUITY
FOR THE YEAR ENDED DECEMBER 31, 2000 AND
FOR THE THREE MONTHS ENDED MARCH 31, 2001
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Limited Partners Total
-------------------------- General Partners'
Per Unit Total Partner Equity
-------- ------------ ------------- -------------
Proceeds from sale of
partnership units $250.00 $ 7,694,250 $ 7,694,250
Underwriting commissions
and other organization expenses (37.21) (1,145,333) (1,145,333)
Cumulative net loss
(to December 31, 1999) (147.04) (4,525,280) $ 9,193 (4,516,087)
Cumulative distributions
(to December 31, 1999) (2.69) (82,761) (9,193) (91,954)
------- ----------- ----------- -----------
Partners' equity - January 1, 2000 63.06 1,940,876 0 1,940,876
Transfer among general partner and limited partners 1.77 54,354 (54,354) 0
Net income 8.36 257,145 2,597 259,742
------- ----------- ----------- -----------
Partners' equity (deficit) - December 31, 2000 (audited) 73.19 2,252,375 (51,757) 2,200,618
Net income 1.36 41,808 422 42,230
------- ----------- ----------- -----------
Partners' equity (deficit) - March 31, 2001 (unaudited) $ 74.55 $ 2,294,183 $ (51,335) $ 2,242,848
======= =========== =========== ===========
SEE ACCOMPANYING NOTES
7
SIERRA PACIFIC INSTITUTIONAL PROPERTIES V AND SUBSIDIARY
(A LIMITED PARTNERSHIP)
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 2001 AND 2000
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2001 2000
(Unaudited) (Unaudited)
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 42,230 $ 71,592
Adjustments to reconcile net income
to cash provided by operating activities:
Depreciation and amortization 102,694 115,186
Minority interest's share of consolidated
joint venture income 9,848 56,068
Decrease (increase) in rent receivable 17,422 (15,429)
(Increase) decrease in other assets (186) 23,014
Decrease in accrued and other liabilities (16,284) (26,169)
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Net cash provided by operating activities 155,724 224,262
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CASH FLOWS FROM INVESTING ACTIVITIES:
Payments for property additions 0 (1,487)
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Net cash used in investing activities 0 (1,487)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Buyout of ground lease 0 (2,174,255)
Contributions from minority partner 28,000 1,902,000
Distributions to minority partner (175,000) (55,000)
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Net cash used in financing activities (147,000) (327,255)
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NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS 8,724 (104,480)
CASH AND CASH EQUIVALENTS -
Beginning of period 4,645 134,781
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CASH AND CASH EQUIVALENTS -
End of period $ 13,369 $ 30,301
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SEE ACCOMPANYING NOTES
8
SIERRA PACIFIC INSTITUTIONAL PROPERTIES V AND SUBSIDIARY
(A Limited Partnership)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
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1. ORGANIZATION
In October 1993, Sierra Pacific Institutional Properties V (the Partnership)
created a general partnership (Sorrento II Partners (SIIP)) with Sierra Mira
Mesa Partners (SMMP) to facilitate cash contributions by SMMP for the continued
development and operation of the Sorrento II property. The percentage interests
of the Partnership and SMMP are to be adjusted each year on January 1 during the
term of SIIP, beginning January 1, 1995 and ending December 31, 2013 unless
terminated sooner, based upon the relative net contributions and distributions
since inception through the preceding December 31. Accordingly, on January 1,
2001, the Partnership's interest in SIIP was decreased from 56.08% to 48.49% to
reflect 2000 contributions and distributions.
2. BASIS OF FINANCIAL STATEMENTS
The accompanying unaudited consolidated condensed financial statements include
the accounts of the Partnership and SIIP, a majority-owned joint venture at
March 31, 2001. All significant intercompany balances and transactions have been
eliminated in consolidation.
In the opinion of the Partnership's management, these unaudited financial
statements reflect all adjustments necessary for a fair presentation of its
financial position at March 31, 2001 and results of operations and cash flows
for the periods presented. All adjustments included in these statements are of a
normal and recurring nature. These financial statements should be read in
conjunction with the financial statements and notes thereto contained in the
Annual Report of the Partnership for the year ended December 31, 2000.
Certain reclassifications have been made to the March 31, 2000 Consolidated
Statement of Cash Flows to conform to the March 31, 2001 presentation.
3. RELATED PARTY TRANSACTIONS
In February 2000, the Partnership purchased the Sorrento II land holdings from
CGS Real Estate Company, Inc., an affiliate of the general partner, for
$3,500,000 and its ground lease subsequently terminated. The Partnership paid
cash of $2,174,255 and was credited its current prepaid balance of $1,325,745.
9
Sierra Pacific Institutional Properties V and Subsidiary
Notes to Consolidated Financial Statements (Unaudited)
Page two
Included in the financial statements for the three months ended March 31, 2001
and 2000 are other affiliate transactions as follows:
March 31
--------------------------
2001 2000
--------------------------
Management fees $ 20,054 $18,957
Administrative fees 20,709 21,263
4. PARTNERS' EQUITY
Equity and net income (loss) per limited partnership unit is determined by
dividing the limited partner's share of the Partnership's equity and net income
(loss) by the number of limited partnership units outstanding, 30,777.
During 2000, an amount was transferred between the partners' equity accounts
such that 99% of cumulative operating income, gains, losses, deductions and
credits of the Partnership was allocated among the limited partners and 1% was
allocated to the general partner. Management does not believe that the effect of
this transfer was significant.
5. PENDING TRANSACTION
CGS Real Estate Company, Inc. (CGS), an affiliate of the corporate general
partner of the Partnership, 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 in the future 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 Partnership's participation in this plan will require the consent of its
limited partners. ASR filed a registration statement on Form S-4 August 14, 2000
relating to the solicitation of consents with the Securities and Exchange
Commission (SEC). The registration statement was amended February 14, 2001 and
April 24, 2001. The plan and the benefits and risks thereof will be described in
detail in the final prospectus/consent solicitation statement included in the
registration statement filed under the Securities Act of 1933 at the time it is
declared effective by the SEC. Following effectiveness, solicitation materials
will be provided to limited partners in connection with the Sierra solicitation
of the consent of the limited partners. There can be no assurances that the plan
described above will be consummated.
10
Sierra Pacific Institutional Properties V and Subsidiary
Notes to Consolidated Financial Statements (Unaudited)
Page Three
6. 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
adopted the accounting provisions of SFAS No. 133 in 2001. The implementation of
SFAS No. 133 did not have a significant effect on the Partnership's financial
conditions or results of operations.
In December 1999, the 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.
7. SUBSEQUENT EVENT
On April 16, 2001, the combined financial statements of the parent of the
general partner and other affiliates were issued. The independent public
accountant's report on such statements contained an explanatory paragraph
relating to the ability of the combined entity to continue as a going concern.
The combined entities have experienced losses in the periods presented and have
a net capital deficiency. Certain entities in the combined financial statements
have not made debt payments when due and various lenders have placed $10,520,000
of debt in default. Certain entities also need to pay or refinance a significant
amount of debt coming due in the next twelve months. These factors raise
substantial doubt about the ability of the combined entities, including the
general partner, to continue as a going concern.
Management of the combined entities has plans related to these matters, which
include obtaining additional loans from shareholders, obtaining extensions from
lenders or refinancing all debt through the completion of the transaction
discussed in Note 5. In addition, if necessary, management believes it could
sell properties to generate cash to pay debt. The Partnership does not believe
that the affect of the ultimate outcome of the circumstances surrounding the
combined entities will have a material adverse effect on its results of
operations or financial position.
11
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
None
(b) Reports on Form 8-K
None
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report be signed on its behalf by the
undersigned thereunto duly authorized.
SIERRA PACIFIC INSTITUTIONAL PROPERTIES V
a Limited Partnership
S-P PROPERTIES, INC.
General Partner
Date: MAY 14, 2001 /s/ THOMAS N. THURBER
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Thomas N. Thurber
President and Director
Date: MAY 14, 2001 /s/ G. ANTHONY EPPOLITO
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G. Anthony Eppolito
Chief Accountant
12