FORM 10-Q
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Six Months ended June 30, 1995 Commission File
Number: 2-96042
CAPITAL BUILDERS DEVELOPMENT PROPERTIES,
A CALIFORNIA LIMITED PARTNERSHIP
(Exact name of registrant as specified in its
charter)
State or other jurisdiction of organization:
CALIFORNIA
I.R.S. Employer Identification No.: 77-0049671
Address of Principal executive offices:
4700 ROSEVILLE ROAD, SUITE 206, NORTH HIGHLANDS,
CALIFORNIA 95660
Telephone number, including area code: (916) 331-
8080
Former name, former address and former fiscal year,
if changed since last year:
4700 ROSEVILLE ROAD, SUITE 101, NORTH HIGHLANDS,
CALIFORNIA 95660
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 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 ___
<PAGE>
<TABLE>
PART 1 - FINANCIAL INFORMATION
Capital Builders Development Properties
(A California Limited Partnership)
BALANCE SHEETS
<CAPTION>
June 30 December 31
1995 1994
<S> <C> <C>
ASSETS
Cash and cash equivalents $27,184 $4,899
Accounts receivable, net 189,384 195,973
Investment property, at cost,
net of accumulated depreciation
and amortization of $2,040,398
and $2,029,925 at June 30, 1995
and December 31, 1994, respec-
tively, and a valuation allowance
of $742,000 7,684,263 7,944,599
Lease commissions, net of accumulated 99,888 113,694
amortization of $68,308 and $89,681 at
June 30, 1995 and December 31,
1994, respectively
Other assets, net of accumulated
amortization of $64,626 and
$53,668 at June 30, 1995 and
December 31, 1994, respectively 60,603 69,139
Minority Interest 387,291 290,314
Total assets $8,448,613 $8,618,618
LIABILITIES AND PARTNERS' EQUITY
Loan payable to affiliate $1,140,298 $1,010,405
Notes payable 6,695,995 6,699,864
Accounts payable and accrued liabilities 96,227 117,530
Tenant deposits 100,148 106,309
Total liabilities 8,032,668 7,934,108
Partners' Equity:
General partner (53,665) (50,979)
Limited partners 469,610 735,489
Total partners' equity 415,945 684,510
Commitments and contingencies
Total liabilities and
partners' equity $8,448,613 $8,618,618
</TABLE>
<PAGE>
<TABLE>
STATEMENTS OF OPERATIONS FOR THE MONTHS
ENDED JUNE 30,
<CAPTION>
1995 1995 1994 1994
Three Six Three Six
Months Months Months Months
Ended Ended Ended Ended
<S> <C> <C> <C> <C>
Revenues
Rental and other income $319,201 $641,175 $305,097 $591,421
Interest income 594 1,186 154 466
Total revenues 319,795 642,361 305,251 591,887
Expenses
Operating expenses 57,877 115,696 56,898 120,475
Repairs and maintenance 37,076 67,588 33,024 65,560
Property taxes 24,194 48,388 23,919 47,839
Interest 202,209 399,935 164,402 313,550
General and administrative 18,591 53,260 21,664 56,650
Depreciation and
amortization 140,514 298,636 200,884 417,963
Total expenses 480,461 983,503 500,791 1,022,037
Loss before minority
interest (160,666) (341,142) (195,540) (430,150)
Minority interest in joint
venture (37,137) (72,577) (30,340) (61,948)
Net loss (123,529) (268,565) (165,200) (368,202)
Allocated to general
partners (1,235) (2,685) (1,652) (3,682)
Allocated to limited
partners ($122,294) ($265,880) ($163,548) ($364,520)
Net loss per limited
partnership unit ($8.87) ($19.29) ($11.86) ($26.43)
Average units outstanding 13,787 13,787 13,787 13,787
</TABLE>
<PAGE>
<TABLE>
STATEMENTS OF CASH FLOWS FOR THE MONTHS ENDED JUNE 30,
<CAPTION>
1995 1995 1994 1994
Three Six Three Six
Months Months Months Months
Ended Ended Ended Ended
<S> <C> <C> <C> <C>
Cash flows from operating
activities:
Net loss ($123,528) ($268,565) ($165,200) ($368,202)
Adjustments to reconcile
net loss to cash flow
used in operating
activities:
Depreciation and
amortization 140,514 298,636 200,884 417,963
Minority interest in
joint venture (37,137) (72,577) (30,340) (61,948)
Changes in assets and
liabilities
(Increase)/Decrease in
accounts receivable (7,741) 6,589 (28,467) (5,278)
Increase in leasing
commissions (5,630) (6,612) (10,027) (32,165)
(Decrease)/Increase in
other assets 1,261 (2,422) (36,672) (42,191)
Increase/(Decrease) in
accounts payable and accrued
liabilities 19,683 (21,303) (42,289) (1,997)
Increase/(Decrease) in
tenant deposits 677 (6,161) 4,102 1,761
Net cash (used in)
provided by operating
activities (11,901) (72,415) (108,009) (92,057)
Cash flows from investing
activities:
Improvements to investment
properties (2,861) (6,924) (35,907) (134,781)
Distribution to minority
interest (4,400) (24,400) (20,000) (25,600)
Net cash used in investing
activities (7,261) (31,324) (55,907) (160,381)
Cash flows from financing activities:
(Payments)/Proceeds from
notes payable, net (5,786) (3,869) 81,723 168,903
Proceeds on loans payable
to affiliate 29,337 129,893 92,495 97,782
Net cash provided by
financing activities 23,551 126,024 174,218 266,685
Net increase in cash 4,389 22,285 10,302 14,247
Cash, beginning of period 22,795 4,899 29,164 25,219
Cash, end of period $27,184 $27,184 $39,466 $39,466
</TABLE>
<PAGE>
NOTES TO FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
AND ORGANIZATION
A summary of the significant accounting policies
applied in the preparation of the accompanying
financial statements follows:
Basis of Accounting
The financial statements of Capital Builders
Development Properties (The "Partnership") are
prepared on the accrual basis and therefore revenue
is recorded as earned and costs and expenses are
recorded as incurred. Certain prior year amounts
have been reclassified to conform to current year
classifications.
Principles of Consolidation
The consolidated financial statements include the
accounts of the company and its majority-owned
subsidiary (60 percent), Capital Builders Roseville
Venture. The remaining 40 percent is owned by
Capital Builders Development Properties II, a
California Limited Partnership and affiliate of the
Partnership as they have the same General Partner.
All significant intercompany accounts and
transactions have been eliminated.
Organization
Capital Builders Development Properties, a
California Limited Partnership, is owned under the
laws of the State of California. The Managing
General Partner is Capital Builders, Inc., a
California corporation (CB). The Associate General
Partners are: 1) the sole shareholder, President
and Director of CB, 2) four founders of CB, two of
which are members of the Board of Directors.
The Partnership is in the business of acquiring land
for developing commercial properties for lease and
eventual sale.
Investment Properties
The Partnership's investment property account
consists of commercial land and buildings that are
carried at the lower of cost, net of accumulated
depreciation and amortization, or their net
realizable value. Net realizable value is based
upon an appraisal of the property by an independent
appraiser and management's assessment of current
market conditions. Depreciation is provided for in
amounts sufficient to relate the cost of depreciable
assets to operations over their estimated service
lives of three to forty years. The straight-line
method of depreciation is followed for financial
reporting purposes.
Other Assets
Included in other assets are loan fees. Loan fees
are amortized over the life of the related notes.
Lease Commissions
Lease commissions are being amortized over the
related lease terms.
Income Taxes
The Partnership has no provision for income taxes
since all income or losses are reported separately
on the individual partners' tax returns.
Net Loss per Limited Partnership Unit
The net loss per limited partnership unit is
computed based on the weighted average number of
units outstanding during the year of 13,787 in 1995
and 1994.
Statement of Cash Flows
For purposes of statement of cash flows, the
Partnership considers all short-term investments
with a maturity, at date of purchase, of three
months or less to be cash equivalents.
NOTE 2 - RELATED PARTY EXPENSE REIMBURSEMENT AND FEE
ARRANGEMENT
The Managing General Partner (Capital Builders,
Inc.) and the Associate General Partners are
entitled to reimbursement of expenses incurred on
behalf of the Partnership and certain fees from the
Partnership. These fees include: a portion of the
sales commissions payable by the partnership with
respect to the sale of the Partnership units; an
acquisition fee of up to 12.5 percent of gross
proceeds from the sale of the Partnership units; a
property management fee up to 6 percent of gross
revenues realized by the Partnership with respect to
its properties; a subordinated real estate
commission of up to 3 percent of the gross sales
price of the properties; and a subordinated 25
percent share of the Partnership's distributions of
cash from sales or refinancing. The property
management fee currently being charged is 5 percent
of gross revenues collected.
All acquisition fees and expenses, all underwriting
commissions, and all offering and organizational
expenses which can be paid are limited to 20 percent
of the gross proceeds from sales of partnership
units provided the Partnership incurs no borrowing
to develop its properties. However, these fees may
increase to a maximum of 33 percent of the gross
offering proceeds based upon the total acquisition
and development costs, including borrowing. Since
the formation of the partnership, 27.5% of these
fees were paid to the partnership's related parties,
leaving a remaining maximum of 5.5% ($379,143) of
the gross offering proceeds. The ultimate amount of
these costs will be determined once the properties
are fully developed and leveraged.
The total management fees paid to the Managing
General Partner were $29,131 and $27,787 for the six
months ending June 30, 1995 and 1994, respectively,
while total reimbursement of expenses were $45,152
and $54,588, respectively.
NOTE 3 - INVESTMENT PROPERTIES
The components of the investment property account at
June 30, 1995 and December 31, 1994 are as follows:
<TABLE>
<CAPTION>
June 30, December 31,
1995 1994
<S> <C> <C>
Land $ 2,641,557 $ 2,641,557
Building and Improvements 6,311,958 6,308,700
Tenant Improvements 1,513,146 1,766,267
Investment properties, at cost 10,466,661 10,716,524
Less: accumulated depreciation
and amortization (2,040,398) (2,029,925)
valuation allowance (742,000) (742,000)
Investment property, net $ 7,684,263 $ 7,944,599
</TABLE>
NOTE 4 - LOAN PAYABLE TO AFFILIATE
The loan payable represents funds advanced to the
Roseville Joint Venture from Capital Builders
Development Properties II, a related partnership
which has the same General Partner. The loan bears
interest, which is paid monthly, at approximately
the same rate charged to it by a bank for similar
borrowing, which was 10.5 and 8.75 percent June 30,
1995 and 1994, respectively. Interest expense
incurred on the loan was $54,893 and $34,132 in 1995
and 1994, respectively. The loan is unsecured and
is due and payable on demand.
<TABLE>
<CAPTION>
June 30, December 31,
1995 1994
<S> <C> <C>
Construction loan of $3,300,000 with
interest at prime plus 2 percent which
was modified effective April 1, 1992 as a
new mini-permanent loan of $3,440,000 due
April 1, 1997. The note bears interest
at bank commercial lending rate
(8.5 percent at June 30, 1995)
plus 2.0 percent with a floor of
8.5 percent and a ceiling of 10.75% for
the remaining life of the loan. The note provides
for additional cash draws as additional
lease up of the project is obtained and
certain expense ratios are maintained. The
note is collateralized by a first deed of
trust on the land, buildings and improvements
and is guaranteed by the General Partner. $3,320,840 $3,314,188
Mini-permanent loan of $3,400,000 has
been modified effective June 23, 1994 as
a new mini-permanent loan of $3,400,000,
due June 25, 1999. The note requires
monthly principal and interest payments
and bears interest at bank prime (9.0
percent at June 30, 1995) plus 1.5
percent with a floor of 6.75 percent. The
note is collateralized by a first deed of trust
on the land, buildings and improvements,
and is guaranteed by the General Partner. 3,375,155 3,385,676
Total notes payable $6,695,995 $6,699,864
</TABLE>
NOTE 6 - RENTAL LEASES
The Partnership leases its properties under long-
term non-cancelable operating leases to various
tenants. The facilities are leased through
agreements for rents based on the square footage
leased. Minimum annual base rental payments under
theses leases for the years ending December 31 are
as follows:
1996 $ 1,203,233
1997 986,523
1998 640,640
1999 464,399
2000 and thereafter 608,094
Total $ 3,902,889
========
NOTE 7 - COMMITMENTS AND CONTINGENCIES
The Partnership is involved in litigation primarily
arising in the normal course of its business. In
the opinion of management, the Partnership's
recovery or liability, if any, under any pending
litigation would not materially affect its financial
condition or operations.
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Liquidity and Capital Resources
The Partnership commenced operations on September
19, 1985 upon the sale of the minimum number of
Limited Partnership Units. The Partnership's
initial source of cash has been from the sale of
Limited Partnership Units. Through the offering of
Units, the Partnership has raised $6,893,500
(represented by 13,787 Limited Partnership Units).
Cash generated from the sale of Limited Partnership
Units has been used to acquire land for the
development of an office/industrial project and 60
percent interest in the development of an office
project.
The Partnership's primary current sources of cash
are from property rental income, additional draws on
its $3,440,000 mini-permanent loan and loans from
affiliate. As of June 30, 1995, $3,345,000 had been
drawn on the loan, leaving a remaining line of
$95,000. The terms of such financing are described
in Note 5 of the Partnership's Financial Statements.
It is the Partnership's investment goal to utilize
existing capital resources for the continued lease
up (tenant improvements and leasing commissions) and
the further development of its investment
properties. Funds for these commitments are
obtained from property income, additional advances
on the mini-permanent loan, loans from affiliate or
existing cash reserves. The Partnership is expected
to incur $95,000 in lease up and improvement costs
which will be funded by additional draws on the mini-
permanent loan. The Partnership's financial
resources appear to be adequate to meet current year
obligations, but due to the increase in interest
costs and the loss of a major office tenant at Plaza
De Oro (discussed further in MDA's Results of
Operations section), there is the possibility of
adverse change in the Partnership's liquidity. In
order to improve and stabilize the Partnership's
financial position management is aggressively
marketing Plaza's vacant space and attempting to
refinance existing debt.
Results of Operations
The Partnership's total revenues increased by
$50,474 (8.5%) for the six months ended June 30,
1995 as compared to June 30, 1994. Total expenses
net of depreciation also increased by $80,793
(13.3%) mainly due to an increase in interest costs,
while depreciation expense decreased by $119,327
(28.5%) for the six months ended June 30, 1995 as
compared to June 30, 1994. In addition, the
minority interest in net loss has decreased by
$10,629 (17%) in 1995 compared to 1994, all
resulting in a decrease in net loss of $99,637 (27%)
for the six months ended June 30, 1995 as compared
to June 30, 1994.
The increase in revenues is due to an increase in
occupancy at Plaza de Oro. During the first six
months of 1994 Plaza De Oro experienced an average
occupancy of 77%, while in 1995 Plaza's occupancy
consisted of 98%. The increase in occupancy was
mainly due to the lease up of 12,085 square feet of
industrial space during the first quarter of 1995.
Subsequent to June 30, 1995, a major tenant in the
office building, who occupied approximately 7,193 of
rentable space, prematurely terminated their lease,
reducing Plaza's occupancy to 88%.
Expenses net of depreciation increased for the six
months ended June 30, 1995 as compared to June 30,
1994 due to the net effect of:
a) $4,779 (4%) decrease in operating expenses due
to continual cost cutting programs, b) $3,390 (6%)
decrease in general administrative expenses due to
improved efficiencies. (see Note 2 for reduction in
reimbursed expenses to Managing General Partner),
c) $86,385 (27.5%) increase in interest expense due
to interest rate increases (see Notes 4 and 5) on
the affiliate loan and mini-permanent loans. The
increase in interest also is the result of
additional draws on the affiliate loan and mini-
permanent loans. Management is in the process of
attempting to refinance the mini-permanent loans to
take advantage of lower fixed rate financing
currently available.
Total expenses including depreciation decreased by
$38,534 for the six months ended June 30, 1995 as
compared to June 30, 1994. The decrease was
primarily due to a decrease in depreciation expense
of $119,327 (28.5%). The reduction of depreciation
was the result of tenant improvement costs that were
amortized during the first two quarters of 1994
became fully amortized in the third quarter of 1994.
Many of the suites who's improvements were fully
amortized were either leased or their leases renewed
without requiring any major tenant improvement
buildout, therefore a minimal amount of depreciation
was incurred for these suites in 1995.
<PAGE>
PART II - OTHER INFORMATION
Item 1- Legal Proceeding
The Partnership is not a party to, nor is the
Partnership's property the subject of, any
material pending legal proceedings.
Item 2 Not applicable
Item 3 Not applicable
Item 4 Not applicable
Item 5 Not applicable
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 dully caused this report to
be signed on its behalf by the
undersigned, hereunto dully authorized.
CAPITAL BUILDERS DEVELOPMENT PROPERTIES
a California Limited Partnership
By: Capital Builders, Inc.
Its Corporate General Partner
Date: August 11, 1995
By: Michael J. Metzger
President
Date: August 11, 1995
By: Kenneth L. Buckler
Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> JUN-30-1995
<CASH> 27,184
<SECURITIES> 0
<RECEIVABLES> 189,384
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 216,568
<PP&E> 9,724,661
<DEPRECIATION> 2,040,398
<TOTAL-ASSETS> 8,448,613
<CURRENT-LIABILITIES> 96,227
<BONDS> 0
<COMMON> 0
0
0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 8,448,613
<SALES> 0
<TOTAL-REVENUES> 642,361
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 583,568
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 399,935
<INCOME-PRETAX> (268,565)
<INCOME-TAX> 0
<INCOME-CONTINUING> (268,565)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (268,565)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
