UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[X] Annual Report Pursuant to Section 13 or 15(d)
of the Securities and Exchange Act of 1934
For the fiscal year ended
Commission File Number
December 31, 1995
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 (I.R.S.
Employer
of incorporation or 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
Securities registered pursuant to Section 12(b) of the
Act: NONE
Securities registered pursuant to Section 12(g) of the
Act: Limited Partnership Units
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. X Yes No
As of December 31, 1995 the aggregate Limited
Partnership Units held by nonaffiliates of the
registrant was 13,787. There is no market for the
units.
Documents Incorporated by Reference
Limited Partnership Agreement dated May 1, 1985, filed
as Exhibit 3.3, and the Amendment to the Limited
Partnership Agreement dated November 20, 1985 filed as
Exhibit 3.4 to Registration Statement No. 2-96042 of
Capital Builders Development Properties, A California
Limited Partnership, are hereby incorporated by
reference into Part IV of this Form 10K.
<PAGE>
PART I
ITEM 1. BUSINESS
(a) General Development of Business
Capital Builders Development Properties (the
"Partnership") is a publicly held limited partnership
organized under the provisions of the California
Revised Limited Partnership Act pursuant to the Limited
Partnership Agreement dated December 13, 1984, as
amended and restated as of May 1, 1985 (the
"Agreement"). The Partnership commenced on January 10,
1985, and shall continue in full force and effect until
December 31, 2020 unless dissolved sooner by certain
events as described in the Agreement. 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 of CB.
On September 19, 1985 the partnership sold 2,468
Limited Partnership Units for a total of $1,234,000.
From September 19, 1985, through May 1, 1986, the
Partnership sold an additional 11,319 units for a total
of 13,787 Units. On May 1, 1986, the Partnership was
closed to capital raising activity with a total of
$6,893,500 proceeds raised from the offering. The
General Partners have contributed capital in the amount
of $1,000 to the partnership for a 1% interest in the
profits, losses, tax credits and distributions of the
Partnership.
(b) Financial Information about Industry Segments
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.
(c) Narrative Description of the Business
The Partnership's business objective is to acquire land
and to develop research and development, light
industrial, commercial retail, or office buildings for
lease and eventual sale. The primary investment
objective of the Partnership is to realize capital
appreciation from the sale of the Properties developed
by it some three to five years after such Properties
have been placed in service. Consistent with the
objective of realizing capital appreciation, it is the
intent of the Partnership to distribute a portion of
the permanent loans obtained by the Partnership upon
the completion of development and the leasing of its
Properties so as to provide the Limited Partners with a
non-taxable return of capital in an amount of
approximately 30-75% of their Capital Contributions. A
secondary investment objective is to generate cash from
the leasing of Partnership Properties pending their
sale for distribution to the Limited Partners, although
it is not presently anticipated that the amount of such
cash available for distribution to the Limited Partners
will be significant. Since the Partnership has not
sold its investment properties, it has not achieved its
investment goals as yet. Although investor returns
cannot
be accurately determined until the investment
properties are sold, due to the additional time
required to lease up the investment properties, the
decline in real estate values and the California
recession, it is anticipated that ultimate returns will
be less than initially projected. Funds obtained by
the Partnership from the sale of Limited Partnership
Units have been used to acquire equity interest in one
piece of land for development and a 60% equity interest
in another for development in accordance with its
investment objective.
On April 10, 1987, the Partnership entered into a joint
venture called Capital Builders Roseville Venture
("JV") with Capital Builders Development Properties II
("CBDPII"), a California limited partnership. The
Partnership and CBDPII are affiliated as they have the
same General Partner. The Partnership contributed
$1,350,000 resulting in a 60 percent interest in the
profits, losses and cash distributions of the JV. CB,
the Managing General Partner of the Partnership, has
the same rights and obligations with respect to the
JV's operations and management as it may exercise as
Managing General Partner of the Partnership. The JV
shall continue in full force and effect until December
31, 2010 unless dissolved sooner by mutual agreement,
sale of the investment property, default by a joint
venture partner or by filing of bankruptcy by one of
the joint partners.
The acquisition of the real estate is consistent with
the Partnership objectives which are to acquire,
develop, hold, maintain, lease, sell, or otherwise
dispose of real property within the Western United
States (including the states of California, Oregon,
Washington, Arizona, Nevada, New Mexico, Utah,
Colorado, Hawaii, and Alaska), including without
limitation, the acquisition of undeveloped land for
development and construction of research and
development, light industrial, commercial/retail, or
office buildings thereon, and the acquisition of
partially completed commercial real property
developments for completion of development.
Although the Associate General Partners, Officers, and
Directors of the Managing General Partners are
experienced in real property operation and management,
they also may utilize independent advisors, agents, and
workers, in addition to the Partnership employees, to
assist them in the operation, leasing, maintenance and
improvement of the Partnership's properties.
The Partnership has no full time employees but is
managed by CB, the Managing General Partner.
ITEM 2. PROPERTIES
The Partnership owns 100 percent equity interest in a
property called Plaza de Oro ("PDO") and a 60 percent
joint venture interest in another property called
Capital Professional Center ("CPC"). PDO is a two
phase development. Phase I is a 71,600 square foot
mixed-use project consisting of two multi-tenant
buildings. Remaining improvements to complete the
lease up of Phase I are tenant improvements and leasing
commissions which are estimated to be $111,766. These
improvements will be funded by property rental income,
loans from affiliate, or existing cash reserves. Phase
II consists of 42,500 square foot corner pad which is
planned for a 8,000-10,000 square foot building to be
constructed on a build-to-suit basis. Phase II will
not be developed until a build-to-suit tenant has been
obtained. It will be funded by a new construction loan
and cash reserves, pending a joint venture of the pad
parcel. CPC is a 40,400 square foot office project
consisting of two multi-tenant buildings which are
completely developed. Both projects maintain adequate
property and general liability insurance.
<TABLE>
Additional information about the individual properties as follows:
<CAPTION>
PDO CPC
<S> <C> <C>
Ownership Percentage: 100% 60%
Acquisition Date: December 19, 1985 April 13, 1987
Location: Rancho Cordova, California Roseville,
California
Present Monthly
Effective Average
Base Rent Per Square Foot: $0.71 $1.48
Square Footage Mix:
Office 28,820 40,397
Industrial 33,825
Retail 8,940
Leased Occupancy at
December 31: 1995 92% 95%
1994 87% 100%
1993 64% 96%
1992 71% 78%
1991 82% 100%
Current Year Depreciation: $300,925 $233,236
Method of Depreciation: Straight Line Straight Line
Depreciation Life: 40 Years-Bldg. Improvements
40 Years-Bldg. Improvements
Life of Lease-Tenant Life of Lease-Tenant
Improvements Improvements
Total cost: $6,238,648 $4,477,876
Encumbrances: $3,371,227 $3,500,000
PDO CPC
Tenant occupying more
than 10 percent of square
footage and nature of
business: None Coldwell Banker (Residential Real
Estate Brokerage)
USA Properties (Real Estate
Developer)
</TABLE>
Both of the Partnership's investment properties are
held subject to encumbrances which are fully described
under Note 6 of the Partnership's Financial Statements
included under Item 8 which is incorporated herein by
reference.
Both properties are being leased to a wide variety of
tenants in a diversity of industries. Leases are
typically three to five years in term and provide for
free rent periods, at inception, equal to approximately
one month per year of a lease term. Some leases
contain options to extend the term of the lease.
The Partnerships investment properties are located in
major urban areas and, therefore, must compete with
properties of greater and lesser quality. Such
competition is based primarily on rent, location,
services and amenities. The properties are suitable
for their current and anticipated use.
ITEM 3. LEGAL PROCEEDINGS
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY
HOLDERS
None
PART II
ITEM 5. MARKET FOR REGISTRANT'S LIMITED PARTNERSHIP
INTERESTS AND RELATED SECURITY HOLDER MATTERS
There is no public trading market for the Partnership's
Limited Partnership Units and it is not anticipated
that a public trading market will develop.
Furthermore, the Partnership Agreement prohibits
Limited Partners from transferring Limited Partnership
Interests if such transfers would result in the
dissolution of the Partnership for tax purposes under
Section 708 of the Internal Revenue Code.
As of December 31, 1995, there were 1,232 holders and
13,787 Limited Partnership units outstanding.
ITEM 6. SELECTED FINANCIAL DATA
The following constitutes a summary of selected
consolidated financial data for the following periods
(000's omitted except net loss per limited partnership
unit):
<TABLE>
<CAPTION> 1995 1994 1993 1992 1991
<S> <C> <C> <C> <C> <C>
Revenues $1,262 $1,231 $1,075 $1,265 $1,296
Net Loss ($594) ($668) ($1,036) ($1,050) ($431)
Net Loss per Limited
Partnership Unit ($43) ($48) ($74)
($75) ($31)
Total Assets $8,386 $8,619 $8,829 $9,806 $10,931
Notes and Loans Payable $8,102 $7,710 $7,291 $7,206 $7,193
</TABLE>
(See ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA)
ITEM 7. 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 percent 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 December 31, 1995, $3,400,036
had been drawn on the mini-permanent loan, leaving a
remaining line of $39,964, but due to the loss of
certain office tenants during 1995, it is unlikely
these remaining funds will be made available for
further draws. 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 $111,766 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 do not
appear to be adequate to meet current year
obligations, due to an 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). The possibility of adverse change in the
Partnership's liquidity is likely unless additional
leasing and the refinancing of Plaza De Oro takes
place. To improve and stabilize the Partnership's
financial position, management is aggressively
marketing Plaza's vacant space and attempting to
refinance existing debt. Management is also working
on a Joint Venture of the pad parcel. This Joint
Venture will provide additional cash reserves for an
ownership interest in the pad. A letter of intent has
been executed and stating the Joint Venture will take
place once a lease has been signed for the building to
be constructed.
Impairment of Long Lived Assets
In March 1995, the Financial Accounting Standards
Board issued SFAS 121 [Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets to be
Disposed Of]. This statement applies to financial
statements for fiscal years beginning after December
15, 1995. It requires that long-lived assets and
certain identifiable intangibles to be held and used
by an entity be reviewed for impairment whenever
events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable.
Additionally, this statement requires that long-lived
assets and certain identifiable intangibles to be
disposed of be reported at the lower of carrying
amount or fair value less cost to sell. It is
management's opinion that applying the provisions of
this statement will not have a significant effect on
the Partnership's financial position.
Results of Operations
1995 vs 1994
The Partnership's total revenues increased by $30,191
(2.5%) in fiscal year 1995 compared to 1994. Total
expenses net of depreciation also increased by
$124,821 (9.8%), mainly due to an increase in interest
costs, while
depreciation expense decreased by $135,235 (17.8%) in
fiscal year 1995 compared to 1994. In addition, the
minority interest in net loss has increased by $32,561
(25.3%) in 1995 compared to 1994, all resulting in a
decrease in net loss of $73,166 (11%) from fiscal year
1995 to 1994, respectively.
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 the first two quarters of
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 the second quarter, 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%. Management has been
successful in re-leasing 5,292 square feet of the
suite, but an additional office tenant who occupied
2,042 square feet failed to renew its lease leaving
PDO at a 92% occupancy as of December 31, 1995.
Expenses net of depreciation increased for the fiscal
year 1995 as compared to 1994 due to the net effect
of:
a) $24,242 (8.8%) decrease in operating expenses due
to continual cost cutting programs, b) $12,828 (10%)
increase in repairs and maintenance mainly due to
recarpeting and repainting two suites at Capital
Professional Center, c) $5,991 (6.2%) decrease in
property taxes due to a decrease in Plaza de Oro's
assessed value, d) $4,680 (4.7%) decrease in general
and administrative expenses due to improved
efficiencies (see Note 2 of the Notes to the
Consolidated Financial Statements for reduction in
reimbursed expenses paid to Managing General Partner),
e) $146,906 (22%) increase in interest expense due to
interest rate increases (see Notes 5 and 6 of the
Notes to the Consolidated Financial Statements) on the
affiliate loan and mini-permanent loans. The increase
in interest is also the result of additional draws on
the affiliate loan and mini-permanent loans.
Management has been successful in refinancing the mini-
permanent loan at Capital Professional Center,
reducing its interest rate by approximately 2%.
Management is also attempting to refinance Plaza de
Oro in order to take advantage of the same type of
lower fixed rate financing.
Total expenses including depreciation decreased by
$10,414 for the fiscal year 1995 compared to 1994.
The decrease was primarily due to a decrease in
depreciation expense $135,235 (17.8%). 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 with improvements
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.
1994 vs 1993
The Partnership's total revenues increased by $156,550
(14.6%) in fiscal year 1994 compared to 1993 while
expenses decreased by $264,654 (11.5%) for the same
respective period. In addition, the minority interest
in net loss of the joint venture has decreased by
$53,288 in 1994 compared to 1993, all resulting in a
decrease in net loss of $367,916 (35.5%) from fiscal
year 1994 to 1993, respectively.
The increase in revenues is due to an increase in
occupancy at both Capital Professional Center and
Plaza de Oro. Capital Professional Center experienced
a large amount of tenant turnover in the later part of
1992 and the beginning of 1993. The property has been
successfully re-leased and is currently 100% occupied.
At Plaza de Oro approximately 16,500 square feet of
office and industrial space has been leased during
1994, resulting in 87% occupancy at December 31, 1994.
The decrease in expenses is primarily due to a
decrease in depreciation and amortization of $361,296
(32.2%) which is the result of a depreciation
adjustment made in the fourth quarter of 1993. This
adjustment was made in order for the financial
statements to reflect a change in accounting estimate
of the useful life of tenant improvement costs The
remaining increases in expenses are due to the
increase in operating expenses $24,886
(10%) and interest expense $81,124 (13.8%). The
increase in operating expenses was due to an increase
in janitorial and utility costs resulting from an
increase in occupancy. Additionally, operating
expenses increased due to an increase in bad debt
expense. The increase in interest was the result of
interest rate increases on the affiliate loan and mini-
permanent loans. The increase is also the result of
additional draws on both the affiliate loan and mini-
permanent loans.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEPENDENT AUDITORS' REPORT
CONSOLIDATED FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEETS AS OF DECEMBER 31, 1995
AND 1994
CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE YEARS
ENDED DECEMBER 31, 1995, 1994 AND 1993
CONSOLIDATED STATEMENTS OF PARTNERS' EQUITY FOR THE
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS
ENDED DECEMBER 31, 1995, 1994 AND 1993
NOTES TO FINANCIAL STATEMENTS
SUPPLEMENTAL SCHEDULES
SCHEDULE III - REAL ESTATE AND ACCUMULATED
DEPRECIATION
Financial schedules not included have been omitted
because of the absence of conditions under which they
are required or because the information is included
elsewhere in this report.
Independent Auditors' Report
The Partners
Capital Builders Development Properties:
We have audited the accompanying consolidated balance
sheets of Capital Builders Development Properties, a
California Limited Partnership and subsidiary, as of
December 31, 1995 and 1994, and the related
consolidated statements of operations, partners' equity
and cash flows for each of the years in the three-year
period ended December 31, 1995. In connection with our
audits of the consolidated financial statements, we
also have audited the financial statement schedule as
listed in the accompanying index. These consolidated
financial statements and financial statement schedule
are the responsibility of the partnerships' management.
Our responsibility is to express an opinion on these
consolidated financial statements and financial
statement schedule 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 Capital Builders
Development Properties and subsidiary as of December
31, 1995 and 1994, and the results of their operations
and their cash flows for each of the years in the three-
year period ended December 31, 1995 in conformity with
generally accepted accounting principles. Also in our
opinion, the related financial statement schedule, when
considered in relation to the basic consolidated
financial statement taken as a whole, presents fairly,
in all material respects, the information set forth
therein.
The accompanying financial statements have been
prepared assuming that the partnership will continue as
a going concern. As discussed in Note 2 to the
consolidated financial statements, the partnership's
negative cash flow position and significant debt
service raise substantial doubt about its ability to
continue as a going concern. Management's plan in
regard to these matters are also described in Note 2.
The consolidated financial statements and financial
statement schedule do not include any adjustments that
might result from the outcome of this uncertainty.
February 2, 1996 -KPMG Peat Marwick
LLP
<TABLE>
CONSOLIDATED BALANCE SHEETS
<CAPTION>
December 31 December 31
1995 1994
<S> <C> <C>
ASSETS
Cash and Cash Equivalents $90,399 $4,899
Accounts receivable, net 138,421 195,973
Investment property, at cost,
net of accumulated depreciation
and amortization of $2,097,079
and $2,029,925 and valuation allowance
of $742,000 at December 31, 1995
and 1994, respectively 7,485,195 7,944,599
Lease commissions, net of accumulated
amortization of $82,403 and $89,681 at
December 31, 1995 and 1994 respectively92,202 113,694
Other assets, net of accumulated
amortization of $104,133 and
$53,668 at December 31, 1995 and
1994, respectively 91,323 69,139
Minority Interest 487,968 290,314
$8,385,508 $8,618,618
LIABILITIES AND PARTNERS' EQUITY
Loan payable to affiliate $1,231,089 $1,010,405
Notes payable 6,871,227 6,699,864
Accounts payable and accrued
liabilities 84,266 117,530
Tenant deposits 108,845 106,309
8,295,427 7,934,108
Commitments and contingencies
Partners' Equity:
General partners (56,923) (50,979)
Limited partners 147,004 735,489
90,081 684,510
Total liabilities and
partners' equity $8,385,508 $8,618,618
See accompanying notes to the consolidated financial statements.
</TABLE>
<TABLE>
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31,
<CAPTION>
1995 1994 1993
<S> <C> <C> <C>
Revenues
Rental and other income$1,259,763 $1,229,812 $1,070,748
Interest income 1,904 1,664 4,178
Total revenues 1,261,667 1,231,476 1,074,926
Expenses
Operating expenses 249,236 273,478 248,592
Repairs and maintenance 141,104 128,276 135,021
Property taxes 90,226 96,217 95,008
Interest 817,817 670,911 589,787
General and administrative 94,467 99,138 102,970
Depreciation and
amortization 624,501 759,736 1,121,032
Total expenses 2,017,351 2,027,756 2,292,410
Loss before minority interest(755,684) (796,280) (1,217,484)
Minority interest in net loss
of joint venture (161,255) (128,685) (181,973)
Net loss (594,429) (667,595) (1,035,511)
Allocated to general partners(5,944) (6,676) (10,355)
Allocated to limited partners($588,485)($660,919) ($1,025,156)
Net loss per limited
partnership unit ($42.68) ($47.94) ($74.36)
Average units outstanding 13,787 13,787 13,787
See accompanying notes to the consolidated financial statements.
</TABLE>
<TABLE>
CONSOLIDATED STATEMENTS OF PARTNERS' EQUITY
YEARS ENDED DECEMBER 31, 1995, 1994, AND 1993
<CAPTION>
Total
General Limited Partners'
Partners Partners Equity
<S> <C> <C> <C>
Balance at December 31, 1992 ($33,948) $2,421,564 $2,387,616
Net loss (10,355) (1,025,156) (1,035,511)
Balance at December 31, 1993 (44,303) 1,396,408 1,352,105
Net loss (6,676) (660,919) (667,595)
Balance at December 31, 1994 (50,979) 735,489 684,510
Net Loss (5,944) (588,485) (594,429)
Balance at December 31, 1995 ($56,923) $147,004 $90,081
</TABLE>
<TABLE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31,
<CAPTION>
1995 1994 1993
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss ($594,429) ($667,595) ($1,035,511)
Adjustments to reconcile net loss
to cash flow used in operating
activities:
Depreciation and amortization 624,501 759,736 1,121,032
Minority interest in joint venture (161,255) (128,685) (181,973)
Unpaid interest expense on loan payable115,684 - - - - - -
to affiliate
Changes in assets and liabilities
Decrease/(Increase) in accounts
receivable 57,552 (30,405) 4,444
Increase in leasing commissions (18,378) (59,642) (86,743)
(Increase)/Decrease in other assets (72,650) (75,440) 3,867
(Decrease)/Increase in accounts payable
and accrued liabilities (33,264) 32,498 41,922
Increase in tenant deposits 2,536 5,611 30,285
Net cash used in
operating activities (79,703) (163,922) (102,677)
Cash flows from investing activities:
Improvements to investment properties (74,760) (211,959) (226,925)
Net cash used in investing
activities (74,760) (211,959) (226,925)
Cash flows from financing activities:
Proceeds from notes payable 171,363 238,757 35,186
Proceeds on loans payable
to affiliate 105,000 180,405 50,000
Distribution to minority interest (36,400) (63,601) (14,800)
239,963 355,561 70,386
Net Increase/(Decrease) in cash 85,500 (20,320) (259,216)
Cash, beginning of period 4,899 25,219 284,435
Cash, end of period $90,399 $4,899 $25,219
Supplemental disclosure:
Cash paid for interest $703,741 $688,172 $589,787
See accompanying notes to the consolidated financial statements.
</TABLE>
Capital Builders Development Properties
(A California Limited Partnership)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1995, 1994 and 1993
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 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 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. 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.
Revenue Recognition
Rental income is recognized on a straight-line basis
over the life of the lease, which may differ from the
scheduled rental payments.
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, 1994,
and 1993.
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 revenues and expenses during the reporting
period. Actual results could differ from those
estimates.
NOTE 2 - LIQUIDITY
The Partnership's viability as a going concern is
dependent upon management's ability to continue the
lease up of the Partnership's projects and the
restructuring and refinancing of Plaza de Oro's Note
Payable. See Note 6 of the Notes to Consolidated
Financial Statements for information of the
Partnership's Note Payable.
For the year ended December 31, 1995, the Partnership
incurred $(79,703) in negative cash flows from
operating activities. These negative cash flows are
the result of an increase in interest costs and the
loss of a major tenant at Plaza de Oro. As indicated
in Note 6 of the Notes to the Consolidated Financial
Statements, the Partnership's management was successful
in refinancing Capital Professional Center with a fixed
interest rate loan, reducing its annual interest rate
by approximately 2%. However, due to financial ratio
requirements of potential new lenders and current real
estate market conditions, it is likely that Plaza de
Oro's current loan will require restructuring in order
for the project to be refinanced and meet its future
obligations. It is anticipated that Plaza de Oro will
continue to produce negative cash flows unless its
current loan is restructured and or refinanced.
Management is aggressively marketing the project's
vacant suites and reviewing all options of loan
restructure and refinancing. There can be no assurance
the Company's restructuring efforts will be successful.
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
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 rental
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 $60,897, $58,580 and $52,022 for the years
ended December 31, 1995, 1994 and 1993, respectively,
while total reimbursement of expenses were $102,669,
$112,269 and $115,304, respectively.
NOTE 4 - INVESTMENT PROPERTIES
The components of the investment property account at
December 31 are as follows:
<TABLE>
<CAPTION>
1995 1994
<S> <C> <C>
Land $ 2,641,557 $ 2,641,557
Building and Improvements 6,322,833 6,308,700
Tenant Improvements 1,359,884 1,766,267
Investment properties, at cost 10,324,274 10,716,524
Less: accumulated depreciation
and amortization (2,097,079) (2,029,925)
valuation allowance ( 742,000) (742,000)
Investment property, net $ 7,485,195 $ 7,944,599
</TABLE>
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 other
borrowings, which was 8.24 and 10 percent at December
31, 1995 and 1994, respectively. Interest expense
incurred on the loan was $115,683, $78,425 and
$58,900 in 1995, 1994 and 1993, respectively. The
loan is unsecured and is due and payable on demand.
NOTE 6 - NOTES PAYABLE
Notes payable consist of the following at December 31:
<TABLE>
<CAPTION
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
(8.0 percent at December 31, 1995)
plus 2.5 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.$3,371,227 $3,314,188
The mini-permanent loan of $3,400,000
with interest at the bank's prime rate
(8.75 percent at December 31, 1995)
plus 1.5 percent 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 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 collatorized by a first deed of
trust on the land, buildings and
improvements. 3,500,000 3,385,676
Total notes payable $6,871,227 $6,699,864
Scheduled principal payments during 1996, 1997, 1998, 1999, and 2000 are
$74,498, $3,388,724, $51,983, $56,432 and $3,299,590, respectively.
</TABLE>
NOTE 7 - RENTAL LEASES
The Partnership leases its properties under long-term
noncancelable 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 $ 989,928
1997 683,508
1998 498,905
1999 255,290
2000 148,407
Thereafter 204,397
Total $2,780,435
NOTE 8 - RECONCILIATION TO INCOME TAX METHOD OF
ACCOUNTING
A reconciliation of the financial statement method of
accounting to the Federal income tax method of
accounting for the years ended December 31 are as
follows:
<TABLE>
<CAPTION>
1995 1994 1993
<S> <C> <C> <C>
Net loss - financial ($594,429) ($667,595) ($1,035,511)
Increases
resulting from:
Book to tax difference in
depreciation and amortization 265,630 372,829 684,497
Net loss - tax method ($328,799) ($294,766) ($351,014)
Partners' equity - financial $90,081 $684,510 $1,352,105
Increases
resulting from:
Book to tax difference in depreciation
and amortization and valuation allowance 2,066,363 1,800,733 1,427,904
Selling expenses for partnership units 1,012,108 1,012,108 1,012,108
Partners' equity - tax $3,168,552 $3,497,351 $3,792,117
Taxable loss per Limited Partnership
unit after giving effect to the taxable
loss allocated to the General Partner ($23.61) ($21.17) $25.21)
</TABLE>
NOTE 9 - FAIR VALUE OF FINANCIAL INSTRUMENTS
Effective December 31, 1995, the Partnership adopted the provisions of SFAS 107,
"Disclosures about Fair Value of Financial Instruments," which requires
disclosure of fair value information about financial instruments, whether or not
recognized in the balance sheet, for which it is practicable to estimate that
value.
The following methods and assumptions were used by the Partnership in estimating
it's 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
December 31, 1995 are as follows:
<TABLE>
<CAPTION>
Carrying Estimated
Amount Fair Value
<S> <C> <C>
Assets
Cash $ 90,399 $90,399
Accounts receivable, net 138,421 138,421
Liabilities
Loan payable to affiliate $1,231,089 (A)
Accounts payable &accrued liabilities 84,266 84,266
Note payable 3,371,227 (B)
Note payable 3,500,000 3,500,000
(A) It is not practicable 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.
(B) It is not practicable to determine the fair value
of the note payable as it will require
restructuring in order for the project to meet the
future obligations of the note.
</TABLE>
NOTE 10 - COMMITMENTS AND CONTINGENCIES
The Partnership is involved in litigation 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.
PART III
ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
NONE
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The Partnership has no directors. The Partnership is
managed by Capital Builders, Inc. ("CB"), the Managing
General Partner. The following are the names and other
information relating to the Managing General Partner.
No expiration date has been set for the term during
which the Managing General Partner is to serve.
MANAGING GENERAL PARTNER
The Partnership is being managed by CB, the Managing
General Partner. CB is a California corporation
organized in May 1978, with its executive offices at
4700 Roseville Road, Suite 206, North Highlands,
California 95660 [telephone number (916)331-8080]. To
date, CB has organized ten partnerships to engage in
commercial real estate development. As the General
Partner, CB may be responsible for certain liabilities
that a partnership it manages is unable to pay. In
addition, CB, in the normal course of business, has
guaranteed certain debt obligations of the partnerships
it sponsored aggregating $3,440,000.
The officers, directors, and key personnel of CB are as
follows:
Name Office
Michael J. Metzger President and Director
James F. Elder Director
Michael C. Elder Director
Michael J. Metzger. Mr. Metzger, 51, is responsible
for the general management of CB. Mr. Metzger assumed
responsibility for the management of CB in December
1986. He was formerly the Executive Vice-President of
The Elder-Nelson Company (EN) and its subsidiary, the
Elder-Nelson Equities Corporation - affiliated
companies which provided underwriting and
administrative services to CB. Prior to joining EN in
1977, Mr. Metzger was Partner/General Manager for two
years in his family's real estate contracting,
development and syndication business. Mr. Metzger has
also had five years of experience in manufacturing
management and served as an Army Officer for four
years. Mr. Metzger holds a B.S. degree in Business and
Industrial Management as well as licenses in Real
Estate, Securities and Insurance.
James F. Elder. Mr. Elder, 52, is a founder of CB and
remains active as a Director in the review of company
operations. Mr. Elder is the Chairman and Chief
Executive Officer of SuperBus, Inc., a bus
manufacturing company, where he has been active since
1986. Mr. Elder was previously Executive Vice
President of CB from 1980 through 1986. Mr. Elder was
also a founder and Director of The Elder-Nelson
Company, and its subsidiaries Elder-Nelson Equities
Corp., the Underwriter, in which he was active from
1977 to 1993. Mr. Elder was previously with a Newport
Beach based securities and insurance services firm from
1969 to 1977. Mr. Elder holds a BA degree in Business
as well as licenses in Real Estate, Securities and
Insurance.
Michael C. Elder. Mr. Elder, 48, is a founder and
Vice President of CB and remains active as a Director
in the review of company operations. Mr. Elder was
also a founder, the President and Director of The Elder-
Nelson Company and its subsidiary Elder-Nelson Equities
Corporation, the Underwriter, in which he was active
from 1977 to 1993. Mr. Elder is the brother of James
F. Elder; and was also with a Newport Beach based
securities and insurance services firm from 1970 to
1977. Mr. Elder holds a B.A. degree in Business
Administration as well as licenses in Real Estate,
Securities and Insurance.
ITEM 11. EXECUTIVE COMPENSATION
The Partnership does not have any officers or
employees and, therefore, does not pay compensation to
such persons. The Partnership's business is conducted
by the Managing General Partner which is entitled under
Article IV of the Partnership Agreement to receive
underwriting commission, acquisition fees, property
management fees, subordinated real estate commission,
share of distribution and an interest in the
partnership. The Managing General Partner's fees
totaled $60,897 in 1995, consisting entirely of
property management fees which are calculated as 5
percent of gross rental revenues collected.
In addition to the fees described above, the General
Partner is entitled to reimbursement for out of pocket
expenses incurred on behalf of the Partnership. Such
expenses aggregated $102,669 in 1995.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT
The Managing General Partner contributed $1,000 to the
Partnership Capital accounts, however, no securities
were issued in respect thereof. No person is known to
the partnership to own beneficially more than 5 percent
of the units.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS
The partnership agreement (see Part IV, Item 14(a)(4)
Exhibits) which was executed in 1985, authorized the
compensation set forth below to be paid to the Managing
General Partner and to affiliates of the Managing
General Partner.
During the year ended December 31, 1995, the Managing
General Partner and/or its affiliate received $102,669
for reimbursement of administrative services and
$60,897 for property management and administrative
fees.
PART IV
ITEM 14.EXHIBITS FINANCIAL STATEMENT SCHEDULES, AND
REPORTS ON FORM 8-K
EXHIBIT
NUMBEREXHIBIT
(a) 1,2 See Item 8 of this Form 10-K
for the Consolidated Financial
Statements of the Partnership, Notes
thereto, and Supplementary Schedules.
An Index to Financial Statements and
Schedules is included and incorporated
herein by reference.
4 Limited Partnership Agreement
dated May 1, 1985 filed as exhibit 3.3
and the Amendment to the Limited
Partnership Agreement dated November
20, 1986 filed as exhibit 3.4 to
Registration Statement No. 2-96042 of
Capital Builders Development
Properties, A California Limited
Partnership are hereby incorporated by
reference.
11 Statement regarding
computation of per unit earnings is not
included because the computation can be
clearly determined from the material
contained in this report.
(b) Reports on Form 8-K
The Partnership filed an 8-K dated
November 11, 1992.
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.
Capital Builders Development Properties and
Subsidiary
A California Limited Partnership
By CAPITAL BUILDERS, INC.,
The Managing General Partner,
For and On Behalf of the
Capital Builders Development Properties
A California Limited Partnership
_______________
Michael J. Metzger President March 10, 1996
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 date indicated.
Signature Title
Date
____________________ Associate General
March 10, 1996
Michael J. Metzger Partner; President and
Director of Capital
Builders,
Inc. ("CB")
____________________ Associate General
March 10, 1996
James F. Elder Partner and Director
of CB
____________________ Associate General
March 10, 1996
Michael C. Elder Partner and Director
of CB
____________________ Chief Financial
March 10, 1996
Kenneth L. Buckler Officer of CB
SUPPLEMENTAL INFORMATION TO BE FURNISHED WITH REPORTS
PURSUANT TO SECTION 15(d) OF THE ACT BY REGISTRANTS
WHICH HAVE NOT REGISTERED SECURITIES PURSUANT TO
SECTION 12 OF THE ACT.
The Partnership has not sent an annual report or proxy
statements to the Limited Partners and does not intend
to send a proxy statement to the Limited Partners. The
Partnership will send the Limited Partners an annual
report and will furnish the Commission with copies of
the annual report on or before April 30, 1996.
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<CASH> 90,399
<SECURITIES> 0
<RECEIVABLES> 138,421
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 228,820
<PP&E> 9,582,274
<DEPRECIATION> 2,097,079
<TOTAL-ASSETS> 8,385,508
<CURRENT-LIABILITIES> 84,266
<BONDS> 0
<COMMON> 0
0
0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 8,385,508
<SALES> 0
<TOTAL-REVENUES> 1,261,667
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 2,017,351
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,199,534
<INCOME-PRETAX> (594,429)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (594,429)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
