SIERRA PACIFIC DEVELOPMENT FUND
SUPPLEMENT DATED NOVEMBER 17, 1997
TO
OFFER TO PURCHASE FOR CASH
ANY AND ALL LIMITED PARTNERSHIP UNITS
AT $27.50 NET PER UNIT
BY
JOHN N. GALARDI
The following information is intended to supplement the information set
forth in the Offer to Purchase dated October 27, 1997. In determining whether to
tender Units pursuant to the Offer to Purchase or to withdraw any Units
previously tendered, Limited Partners should carefully consider the following
information:
1. The Offeror is the owner of 50% of the outstanding stock of the
corporation which owns 100% of the outstanding stock of the general
partner of the Partnership. Accordingly, the Offeror is an affiliate
of the Partnership.
2. The Offeror is making the Offer because he believes that the purchase
of Units at this time pursuant to the Offer is economically attractive
to him. His desire to purchase Units at a price he deems attractive
may be deemed to conflict with the desire of Limited Partners to
realize a higher value for their Units. Accordingly, the interests of
the Offeror, an affiliate of the Partnership, may be deemed to be in
conflict with the interests of the Limited Partners. However, neither
the Offeror nor the Partnership is making any recommendation to
Limited Partners to tender Units or any representation to Limited
Partners with respect to the adequacy or fairness of the price of
$27.50 per Unit.
3. The amount of $27.50 per Unit is lower than the Limited Partners'
equity per Unit of $55.97 reported in the Partnership's Quarterly
Report on Form 10-Q for the Quarter Ended June 30, 1997 and lower than
secondary market prices paid for Units during the last four months of
1996, as disclosed in Section 9 of the Offer to Purchase.
4. The Limited Partners' equity in the Partnership of $55.97 per Unit is
based on book value and not on a currently realizable value for the
Partnership's property. The Offeror has not had an appraisal of the
property performed, has no knowledge of any current appraisals and has
not formed any conclusion as to the current net realizable value of
the property. The Offeror does, however, believe that the price of
$27.50 per Unit represents an attractive investment to him compared to
the value he expects the Units to have in the future.
5. The price of $27.50 per Unit was determined by the Offeror as the
price which he believed represented an attractive price for him
economically. In determining this price, he considered the following
factors:
(a) the current offer to purchase Units at $21.00 per Unit by KM
Investments, LLC;
(b) that there is not a liquid market for the Units;
(c) that the Offeror may have to hold the Units for a lengthy
period of time;
(d) that the Partnership is not currently making any distributions
and there is no assurance that the Partnership will resume
making any distributions;
(e) that the publicly reported prices for sales of the Units has
been declining; and
(f) the Offeror's personal expectations that the value of the
Partnership's property will increase in the future.
The Offeror did not obtain any appraisals or valuations in
connection with his determination of the Purchase Price.
6. Certain historical financial information regarding the Partnership and
certain information regarding its property is set forth on Schedules A
and B hereto. This information has been derived from publicly
available reports of the Partnership filed with the Securities and
Exchange Commission.
7. The scheduled termination date for the Partnership is December 31,
2030, although it was initially expected to terminate upon the sale of
all of its properties, and those sales were expected to commence after
approximately five years. The Offeror understands that the General
Partner, however, has elected not to sell the remaining property at
this time because it does not believe that the value it could obtain
for the property at this time is attractive and has not determined
when it may do so. Limited Partners have the right under the
Partnership's partnership agreement to remove the General Partner by a
majority vote.
8. The Offer will have no effect on the compensation of the General
Partner.
9. The Offeror has not considered any transaction other than the Offer
with respect to any purchase of the Partnership or its assets.
10. The Partnership is not currently making any cash distributions because
it does not have any cash available for distribution in excess of its
operating requirements. Neither the Offeror nor any other person is
obligated to contribute funds to the Partnership to enable it to make
distributions.
11. The Offeror will be obligated to purchase any Units validly tendered
and not withdrawn if the conditions set forth in Item 8 of the Offer
to Purchase are satisfied as of the Expiration Date of the Offer, as
it may be extended. The standard which will be employed by the Offeror
in determining whether the conditions are satisfied or shall be waived
in his reasonable judgment.
If you wish to tender Units, please complete, sign and return the Letter of
Transmittal.
SCHEDULE A
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SUMMARY OF CERTAIN FINANCIAL INFORMATION
The following sets forth certain summarized financial information for
the Partnership. This information should be read in conjunction with the
Partnership's annual, quarterly reports and other filed with the Securities and
Exchange Commission.
OPERATING DATA:
For the Year Ended December 31,
--------------------------------------------------------
1996 1995 1994
----------- ----------- ----------
Revenues $ 755,644 $ 552,529 $ 449,965
Net income (loss) (301,960) (312,723) (291,395)
General partners' share of net
income 0 0 0
Limited partners' share of net
income (loss) per Unit (10.29) (10.65) (9.93)
Net income (loss) .45 (1.09) (3.34)
Cash distributions 0 0 0
BALANCE SHEET DATA:
As of December 31,
--------------------------------------------------------
1996 1995
----------- -----------
Cash and cash equivalents $ 55,629 $ 787,265
Total assets 3,709,875 4,554,858
SCHEDULE B
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THE PROPERTY
DESCRIPTION OF THE PROPERTY
- ---------------------------
The Partnership owns, in fee simple, a 81.13% interest in Sierra Creekside, a
commercial office building located in San Ramon, California. The building
consists of 47,800 rentable square feet and was 99% occupied at December 31,
1996. The average effective annual rent per square foot at December 31, 1996 was
$16.45.
The Property is encumbered by a mortgage lien in favor of Home Federal Savings
of San Francisco with a principal balance of $1,802,820 at December 31, 1996.
The mortgage bears interest at 3.5% above the 11th District Cost of Funds Index
with a minimum of 9% and a maximum of 14% (9% at December 31, 1996). The loan
term has a term of 120 months with a maturity date of July 1, 2005. Payments are
amortized over a 240 month period with a remaining principal balance of
$1,325,058 due at maturity assuming no payment has been made on principal in
advance of its due date. The note is subject to prepayment penalties of 1% to 3%
if more than 20% of the outstanding balance is prepaid during the first four
calendar years of the loan.
The real estate tax obligation for 1996 was approximately 2% of the assessed
value, or $47,529.
SUMMARY OF SIGNIFICANT TENANTS/LEASES
- -------------------------------------
Four of the Property's 16 tenants occupy ten percent or more of rentable space.
The principal businesses of these significant tenants are banking, mortgage
administration, insurance and billing/collections services. Details of the
leases are as follow:
PERCENT OF EFFECTIVE EFFECTIVE PERCENT OF
SQUARE FEET RENTABLE RENT PER RENT PER GROSS EXPIRATION
TENANT OCCUPIED SQUARE FEET SQUARE FOOT ANNUM ANNUAL RENT OF LEASE
------ -------- ----------- ----------- ----- ----------- ----------
American Savings October
Bank 5,526 12% 18.89 $ 104,360 13% 2001
California February
Bancshares, Inc 8,588 18% 15.04 129,141 17% 2000
State Farm Mutual 5,071 11% 14.98 75,964 10% September
2000
Pen-Cal January
Administrators 7,331 15% 16.69 122,355 16% 2000
Tenants Occupying
less than 10% sq ft 20,735 43% 16.67 345,590 44% Various
Total Rented Space 47,251 99% $ 16.45 $ 777,410 100%
The California Bancshares, Inc. lease is renewable for an additional three year
period upon expiration in February 2000.
SUMMARY OF LEASES BY EXPIRATION
- -------------------------------
One of the 16 tenants is on a month to month lease; the other fifteen are on
leases scheduled to expire over the next five years as indicated in the table
below.
Year of | 1997 | 1998 | 1999 | 2000 | 2001 | Totals
expiration | | | | | |
- -------------------------------------------------------------------------------------------------------------
Number of | 3 | 4 | 3 | 3 | 2 | 15
tenants | | | | | |
- -------------------------------------------------------------------------------------------------------------
Percent of | 19% | 25% | 19% | 19% | 12% | 94%
total | | | | | |
tenants | | | | | |
- -------------------------------------------------------------------------------------------------------------
Total area | 3,644 | 5,737 | 4,616 | 20,990 | 10,006 | 44,993
(sq. ft.) | | | | | |
- -------------------------------------------------------------------------------------------------------------
Annual | $54,699 | $85,452 | $76,907 | $327,460 | $180,054 | $724,572
rent | | | | | |
- -------------------------------------------------------------------------------------------------------------
Percent | 7% | 11% | 10% | 42% | 23% | 93%
gross | | | | | |
annual rent | | | | | |