16
FORM 10-Q
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Nine Months ended September 30, 1996 Commission File Number 2-96042
CAPITAL BUILDERS DEVELOPMENT PROPERTIES,
A CALIFORNIA LIMITED PARTNERSHIP
(Exact name of registrant as specified in its charter)
California 77-0049671
State or other jurisdiction of I.R.S. Employer
organization Identification No.
4700 Roseville Road, Suite 206, North Highlands, California 95660
(Address of Principal executive offices) (Zip Code)
Registrant's 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
<TABLE>
PART 1 - FINANCIAL INFORMATION
Capital Builders Development Properties
(A California Limited Partnership)
CONSOLIDATED BALANCE SHEET
<CAPTION>
September December
30 31
1996 1995
<S> <C> <C>
ASSETS
Cash and cash equivalents 10,343 90,399
Accounts receivable, net 143,115 138,421
Investment property, at cost,
net of accumulated depreciation
and amortization of $2,134,051
and $2,097,079 at September 30,
1996 and December 31, 1995,
respectively, and a valuation
allowance of $742,000 7,279,073 7,485,195
Lease commissions, net of accumulated
amortization of $93,517 and $82,403
at September 30, 1996, and December 31,
1995, respectively 121,865 92,202
Other assets, net of accumulated
amortization of $84,589 and
$104,133 at September 30, 1996, and
December 31, 1995, respectively 71,927 91,323
Minority Interest 651,801 487,968
Total assets 8,278,124 8,385,508
LIABILITIES AND PARTNERS' EQUITY
Loan payable to affiliate 1,429,883 1,231,089
Notes payable 6,816,100 6,871,227
Accounts payable and accrued liabilities 165,860 84,266
Tenant deposits 112,567 108,845
Total liabilities 8,524,410 8,295,427
Commitments and contingencies
Partners' Equity:
General partner (60,286) (56,923)
Limited partners (186,000) 147,004
Total partners' equity (246,286) 90,081
Total liabilities and partner's equity 8,278,124 8,385,508
See accompanying notes to the financial
statements
</TABLE>
<TABLE>
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE MONTHS ENDED SEPTEMBER 30,
<CAPTION>
1996 1996 1995 1995
Three Nine Three Nine
Months Months Months Months
Ended Ended Ended Ended
<S> <C> <C> <C> <C>
Revenues
Rental and other income $329,277 $958,500 $304,978 $946,153
Interest income 322 1,079 340 1,526
Total revenues 329,599 959,579 305,318 947,679
Expenses
Operating expenses 67,865 193,804 66,970 182,666
Repairs and maintenance 28,665 99,922 43,021 110,609
Property taxes 24,372 73,116 18,555 66,943
Interest 187,836 557,229 203,204 603,139
General and administrative 19,299 81,709 22,205 75,465
Depreciation and amortization 113,494 355,516 139,851 438,487
Total expenses 441,531 1,361,296 493,806 1,477,309
Loss before minority interest (111,932) (401,717) (188,488) (529,630)
Minority interest in joint venture (19,120) (65,355) (40,862) (113,439)
Net loss (92,812) (336,362) (147,626) (416,191)
Allocated to general partners (929) (3,364) (1,477) (4,162)
Allocated to limited partners ($91,883) ($332,998 ($146,149 ($412,029)
) )
Net loss per limited partnership unit ($6.65) ($24.15) ($10.60) ($29.88)
Average units outstanding 13,787 13,787 13,787 13,787
See accompanying notes to the
financial statements
</TABLE>
<TABLE>
STATEMENTS OF CASH FLOWS
FOR MONTHS ENDED JUNE 30,
<CAPTION>
1996 1996 1995 1995
Three Nine Three Nine
Months Months Months Months
Ended Ended Ended Ended
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net loss (92,812) (336,362) (147,626) (416,191)
Adjustments to reconcile net loss
to cash flow used in operating
activities:
Depreciation and amortization 113,494 355,516 139,851 438,487
Minority interest in joint venture (19,120) (65,355) (40,862) (113,439)
Changes in assets and liabilities
Decrease/(Increase) in accounts 2,393 (4,694) 54,666 61,255
receivable
Increase in leasing commissions (18,759) (62,712) (9,355) (15,967)
(Increase)/Decrease in other assets (2,187) (1,845) 992 (1,430)
Increase/(Decrease) in accounts
payable and accrued liabilities 44,298 81,594 42,991 21,688
Increase in tenant deposits 8,635 3,722 9,211 3,050
Net cash (used in)
provided by operating 35,942 (30,136) 49,868 (22,547)
activities
Cash flows from investing activities:
Improvements to investment properties (17,879) (95,107) (38,762) (45,686)
Net cash used in investing
activities (17,879) (95,107) (38,762) (45,686)
Cash flows from financing activities:
(Payments)/Proceeds from notes
payable, net (16,420) (55,127) (13,708) (17,577)
Proceeds on loans payable to affiliate 10,584 198,794 29,961 159,854
Distribution to minority interest (8,000) (98,480) (24,400)
Net cash provided by
financing activities (13,836) 45,187 16,253 117,877
Net Increase in cash 4,227 (80,056) 27,359 49,644
Cash, beginning of period 6,116 90,399 27,184 4,899
Cash, end of period 10,343 10,343 54,543 54,543
See accompanying notes to the financial
statements
</TABLE>
Capital Builders Development Properties
(A California Limited Partnership)
NOTES TO CONSOLIDATED 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%), Capital Builders
Roseville Venture. The remaining 40% 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.
The Partnership is in the business of real estate development and is
not a significant factor in its industry. The Partnership's
investment properties are located near major urban areas and,
accordingly, compete not only with similar properties in their
immediate areas but with hundreds of properties throughout the urban
areas. Such competition is primarily on the basis of locations,
rents, services and amenities. In addition, the Partnership competes
with significant numbers of individuals or organizations (including
similar partnerships, real estate investment trusts and financial
institutions) with respect to the purchase and sale of land,
primarily on the basis of the prices and terms of such transactions.
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 less valuation allowance
for possible investment losses. The valuation allowance represents
the excess carrying value of individual properties over their
estimated net realizable value. The additions to the valuation
allowance
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND ORGANIZATION
(CONTINUED)
for possible investment losses are recorded after consideration of
various external factors, particularly the lack of credit available
to purchasers of real estate and overbuilt real estate markets, both
of which adversely affect real estate. A gain or loss will be
recorded to the extent that the amounts ultimately realized from
property sales differ from those currently estimated. In the event
economic conditions for real estate continue to decline, additional
valuation losses may be recognized. 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 1996 and 1995.
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.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles 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
revenue
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND ORGANIZATION
(CONTINUED)
and expenses during the reporting period. Actual results could
differ from those estimates.
NOTE 2 - LIQUIDITY
For the nine months ended September 30, 1996, the Partnership
incurred $80,056 in negative cash flows from operating activities.
These negative cash flows were the result of a large office vacancy
factor at Plaza De Oro, re-tenanting costs, and high interest costs
incurred on the Plaza De Oro loan.
Subsequent to September 30, 1996, management was successful in
leasing the entire vacant office space, bringing Plaza De Oro to a
98% occupancy rate. This additional lease-up improves the
probability of refinancing Plaza De Oro's loan. However, due to
current lending underwriting criteria, a loan sufficient enough to
pay the project's existing loan still remains difficult to achieve.
As discussed in Note 6 of the Notes to Consolidated Financial
Statements, Plaza De Oro's existing loan is currently charging a
variable 10.25% interest rate, and is due April 1, 1997. Current
interest rates for fixed loan financing range from 8.65% to 9.2%.
Management has been successful in locating lenders interested in
underwriting the loan at these rates, but the proposed loan amounts
have not been sufficient to pay off the existing loan.
Management is continuing its search for lenders who may provide a
larger loan amount, and is also trying to locate additional capital
via joint venture partners.
NOTE 3 - 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% of gross
proceeds from the sale of the Partnership units; a property
management fee up to 6% of gross revenues realized by the Partnership
with respect to its properties; a subordinated real estate commission
of up to 3% of the gross sales price of the properties; and a
subordinated 25% share of the Partnership's distributions of cash
from sales or refinancing.
The property management fee currently being charged is 5% of gross
revenues collected.
NOTE 3 - RELATED PARTY EXPENSE REIMBURSEMENT AND FEE ARRANGEMENT
(CONTINUED)
All acquisition fees and expenses, all underwriting commissions, and
all offering and organizational expenses which can be paid are
limited to 20% 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% 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
$46,013 and $45,472 for the nine months ending September 30, 1996 and
1995, respectively, while total reimbursement of expenses were
$86,618 and $84,009 respectively.
NOTE 4 - INVESTMENT PROPERTIES
The components of the investment property account at September 30,
1996 and December 31, 1995 are as follows:
September 30, December 31,
1996 1995
Land $ 2,641,557 2,641,557
Building and Improvements 6,326,357 6,322,833
Tenant Improvements 1,187,210 1,359,884
Investment properties, at cost 10,155,124 10,324,274
Less: accumulated depreciation
and amortization (2,134,051) (2,097,079)
valuation allowance (742,000) (742,000)
Investment property, net$ 7,279,073 $ 7,485,195
NOTE 5 - 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 8.24% and
10.5% September 30, 1996 and 1995, respectively. Interest expense
incurred on the loan was $81,457 and $84,854 in 1996 and 1995,
respectively. The loan is unsecured and is due and payable on
demand.
NOTE 6 - NOTES PAYABLE
Notes payable consists of the following:
September 30, December 31,
1996 1995
Plaza De Oro's construction loan of
$3,300,000 with interest at prime plus 2%,
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 (7.75% at
September 30, 1996) plus 2.5% with a floor
of 8.5% and a ceiling of 10.75%. 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. $3,349,063 $3,371,227
Capital Professional Center's mini-
permanent loan of $3,400,000 with interest
at the bank's prime rate (8.75% at December
31, 1995) plus 1.5% was refinanced with a
$3,500,000 mini-permanent fixed interest
rate loan on December 29, 1995. The loan's
fixed interest rate is 8.24% and requires a
monthly principal and interest payment of
$27,541, which is sufficient to amortize
the loan over 25 years. The loan is due
January 1, 2001. The note is
collatoralized by a first deed of trust on
the land, buildings and improvements. $3,467,037 $3,500,000
Total notes payable $6,816,100 $6,871,227
NOTE 7 - 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 these leases for the years
ending December 31 are as follows:
1996 $ 1,198,421
1997 1,038,680
1998 839,140
1999 489,508
2000 245,500
2001 and thereafter 327,015
Total $4,138,264
NOTE 8 - FAIR VALUE OF FINANCIAL INSTRUMENTS
the following methods and assumptions were used by the Partnership in
estimating its fair value disclosures for financial instruments.
Cash, Accounts receivable, net, Accounts payable and accrued
liabilities
The Carrying amount approximates fair value because of the short
maturity of these instruments.
Note payable
The fair value of the Partnership's note payable is estimated
based on the quoted market prices for the same or similar issues
or on the current rates offered to the Partnership for debt of
the same remaining maturities.
The estimated fair values of the Partnership's financial instruments
as of September 30, 1996 are as follows:
Carrying Estimated
Amount Fair Value
Assets
Cash $ 10,343 $ 10,343
Accounts receivable, net 143,115 143,115
Liabilities
Loan payable to affiliate $ 1,429,883 (A)
Accounts payable & accrued 165,860 165,860
liabilities
Note payable 6,816,100 6,816,100
(A It is not practical to determine the fair value of the loan
payable to affiliate as the Partnership could not borrow under
similar terms or conditions from a third party.
NOTE 9 - 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 was 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 and for the development of a mixed use
commercial project, and a 60% interest in a commercial office
project.
The Partnership's primary current sources of cash are from cash
reserves, property rental income, additional draws on its $3,440,000
mini-permanent loan and loans from affiliate. As of September 30,
1996, $3,400,036 had been drawn on the mini-permanent loan, leaving a
remaining line of $39,964. The terms of such financing are described
in Note 6 of the Notes to the Consolidated 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. The Partnership is expected to incur $73,000 in lease-up
and improvement costs on the existing building, which will be funded
by cash reserves, property income and affiliate loans.
The Partnership's current financial resources have improved
dramatically from the second quarter of 1996. Management has been
successful in obtaining a lease for a large office tenant, bringing
Plaza De Oro's occupancy up to 98%. The increase in rental income
will contribute towards the property meeting its current obligations,
but the need to refinance its existing debt still exists. The
possibility of adverse change in the Partnership's liquidity will
remain until a lower fixed interest rate loan is obtained.
Results of Operations
The Partnership's total revenues increased by $11,900 (1.3%) for the
nine months ended September 30, 1996, as compared to September 30,
1995, while expenses decreased by $116,013 (7.9%) for the same
respective period. In addition, the minority interest in net loss has
decreased by $48,084 in 1996 compared to 1995, all resulting in a
decrease in net loss of $79,829 (19.2%) for months ended September
30, 1996, as compared to September 30, 1995.
The increase in revenues is due to the additional lease-up in the
office building.
Total expenses, including depreciation, decreased by $116,013 for the
nine months ended September 30, 1996, as compared to September 30,
1995, due to the net effect of: a) $11,138 (6%) increase in operating
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
expenses due to an increase in utilities and marketing costs, b)
$10,687 (9.7%) decrease in repairs and maintenance due to large suite
turnover costs incurred at Capital Professional Center during the
third quarter of 1995, c) $6,173 (9.2%) increase in property taxes
due to a tax refund received during the third quarter of 1995, d)
$45,910 (7.6%) decrease in interest due to the reduction of the
interest rate resulting from the refinancing of Capital Professional
Center, e) $6,244 (8.3%) increase in general and administration costs
due to an increase in legal and investor services, and f) $82,971
(18.9%) decrease in depreciation due to tenant improvement costs that
were amortized during the first three quarters of 1995, and became
fully amortized by the end of 1995.
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: By:
Michael J. Metzger
President
Date: By:
Kenneth L. Buckler
Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> SEP-30-1996
<CASH> 10,343
<SECURITIES> 0
<RECEIVABLES> 143,115
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 153,458
<PP&E> 9,413,124
<DEPRECIATION> 2,134,051
<TOTAL-ASSETS> 8,278,124
<CURRENT-LIABILITIES> 165,860
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 8,278,124
<SALES> 0
<TOTAL-REVENUES> 959,579
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 804,067
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 557,229
<INCOME-PRETAX> (336,362)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (336,362)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
