2
FORM 10-Q
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Six Months ended June 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)
<CAPTION>
June 30 December 31
1996 1995
<S> <C> <C>
ASSETS
Cash and cash equivalents 6,116 90,399
Accounts receivable, net 145,508 138,421
Investment property, at cost,
net of accumulated depreciation
and amortization of $2,039,698
and $2,097,079 at June 30,
1996 and December 31, 1995,
respectively, and a valuation
allowance of $742,000 7,355,545 7,485,195
Lease commissions, net of accumulated
amortization of $81,452 and $82,403
at June 30, 1996, and December 31,
1995, respectively 115,171 92,202
Other assets, net of accumulated
amortization of $77,511 and
$104,133 at June 30, 1996, and
December 31, 1995, respectively 76,819 91,323
Minority Interest 624,687 487,968
Total assets 8,323,846 8,385,508
LIABILITIES AND PARTNERS' EQUITY
Loan payable to affiliate 1,419,299 1,231,089
Notes payable 6,832,520 6,871,227
Accounts payable and accrued
liabilities 121,562 84,266
Tenant deposits 103,932 108,845
Total liabilities 8,477,313 8,295,427
Partners' Equity:
General partner (59,381) (56,923)
Limited partners (94,086) 147,004
Total partners' equity (153,467) 90,081
Commitments and contingencies
Total liabilities and partner's equity 8,323,846 8,385,508
See accompanying notes to the financial statements.
</TABLE>
<TABLE>
<CAPTION>
1996 1995 1995 1995
Three Six Three Six
Months Months Months Months
Ended Ended Ended Ended
<S> <C> <C> <C> <C>
Revenues
Rental and other income 331,310 629,223 319,201 641,175
Interest income 302 757 594 1,186
Total revenues 331,612 629,980 319,795 642,361
Expenses
Operating expenses 63,047 125,939 57,877 115,696
Repairs and maintenance 39,218 71,257 37,076 67,588
Property taxes 24,372 48,744 24,194 48,388
Interest 185,541 369,393 202,209 399,935
General and administrative 22,746 62,410 18,591 53,260
Depreciation and
amortization 120,938 242,022 140,514 298,636
Total expenses 455,862 919,765 480,461 983,503
Loss before minority interest (124,250) (289,785) (160,666) (341,142)
Minority interest in joint venture (19,731) (46,235) (37,137) (72,577)
Net loss (104,519) (243,550) (123,529) (268,565)
Allocated to general partners (1,045) (2,435) (1,235) (2,685)
Allocated to limited partners (103,474) (241,115) (122,294) (265,880)
Net loss per limited partnership unit (8) (18) (9) (19)
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 Six Three Six
Months Months Months Months
Ended Ended Ended Ended
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net loss (104,519) (243,550) (123,528) (268,565)
Adjustments to reconcile net loss
to cash flow used in operating
activities:
Depreciation and amortization 120,938 242,022 140,514 298,636
Minority interest in joint venture (19,731) (46,235) (37,137) (72,577)
Changes in assets and liabilities
(Increase)/Decrease in (8,581) (7,087) (7,741) 6,589
accounts receivable
Increase in leasing commissions (20,788) (43,953) (5,630) (6,612)
(Increase)/Decrease in other assets (166) 342 1,261 (2,422)
(Decrease)/Increase in accounts
payable and accrued liabilities (46,703) 37,296 19,683 (21,303)
Increase/(Decrease) in tenant deposits 2,928 (4,913) 677 (6,161)
Net cash (used in)
provided by operating activities (76,622) (66,078) (11,901) (72,415)
Cash flows from investing activities:
Improvements to investment properties (36,823) (77,228) (2,861) (6,924)
Net cash used in investing
activities (36,823) (77,228) (2,861) (6,924)
Cash flows from financing activities:
(Payments)/Proceeds from notes
payable, net (19,904) (38,707) (5,786) (3,869)
Proceeds on loans payable
to affiliate 188,210 188,210 29,337 129,893
Distribution to minority interest (68,000) (90,480) (4,400) (24,400)
Net cash provided by
financing activities 100,306 59,023 19,151 101,624
Net Increase in cash (13,139) (84,283) 4,389 22,285
Cash, beginning of period 19,255 90,399 22,795 4,899
Cash, end of period 6,116 6,116 27,184 27,184
See accompanying notes to the financial
statements.
</TABLE>
Capital Builders Development Properties
(A California Limited Partnership)
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.
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.
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 take 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 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 six months ended June 30, 1996, the Partnership incurred
$84,283 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 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
$30,383 and $29,131 for the six months ending June 30, 1996 and 1995,
respectively, while total reimbursement of expenses were $57,756 and
$45,152, respectively.
NOTE 4 - INVESTMENT PROPERTIES
The components of the investment property account at June 30, 1996
and December 31, 1995 are as follows:
June 30, December 31,
1996 1995
Land $ 2,641,557 2,641,557
Building and Improvements 6,326,357 6,322,833
Tenant Improvements 1,169,329 1,359,884
Investment properties, at cost 10,137,243 10,324,274
Less: accumulated depreciation
and amortization (2,039,698) (2,097,079)
valuation allowance (742,000) (742,000)
Investment property, net$ 7,355,545 $ 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 percent June 30, 1996 and 1995, respectively. Interest expense
incurred on the loan was $51,839 and $54,893 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:
June 30 December 31,
1996 1995
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% at June 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.
$3,354,268 $3,371,227
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 collatoralized by a
first deed of trust on the land, buildings
and improvements.
$3,478,252 $3,500,000
Total notes payable $6,832,520 $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 $ 1,138,811
1997 908,362
1998 715,562
1999 383,770
2000 165,500
2001 and thereafter 282,930
Total $3,594,935
NOTE 8 - 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 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 June 30, 1996,
$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 $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 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.
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
Results of Operations
The Partnership's total revenues decreased by $12,381 (1.9%) for the
six months ended June 30, 1996, as compared to June 30, 1995, while
expenses also decreased by $63,738 (6.5%) for the same respective
period. In addition, the minority interest in net loss has decreased
by $26,342 in 1996 compared to 1995, all resulting in a decrease in
net loss of $25,015 (9.3%) for months ended June 30, 1996 as compared
to June 30, 1995.
The decrease in revenues is due to a major tenant in the office
building, who occupied approximately 7,193 of rentable square feet,
prematurely terminated their lease in the third quarter of 1995.
Management was successful in re-leasing 5,292 of this vacant space by
the end of the first quarter of 1996.
Total expenses, including depreciation, decreased by $63,738 for the
six months ended June 30, 1996, as compared to June 30, 1995, due to
the net effect of: a) $10,243 (8.9%) increase in operating expenses
due to an increase in utilities and marketing costs, b) $3,669 (5.4%)
increase in repairs and maintenance due to the installation of an
additional security door lock system at Capital Professional Center,
c) $30,542 (7.6%) decrease in interest due to the reduction of the
interest rate resulting from the refinancing of Capital Professional
Center, d) $9,150 (17.1%) increase in general and administration
costs due to an increase in legal and investor services, plus due to
the timing of accounting costs, and e) $56,614 (18.9%) decrease in
depreciation due to tenant improvement costs that were amortized
during the first two quarters of 1995 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: August 1, 1996 By:
Michael J. Metzger
President
Date: August 1, 1996 By:
Kenneth L. Buckler
Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> JUN-30-1996
<CASH> 6,116
<SECURITIES> 0
<RECEIVABLES> 145,508
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 151,624
<PP&E> 9,395,243
<DEPRECIATION> 2,039,698
<TOTAL-ASSETS> 8,323,846
<CURRENT-LIABILITIES> 121,562
<BONDS> 0
<COMMON> 0
0
0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 8,323,846
<SALES> 0
<TOTAL-REVENUES> 629,980
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 550,372
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 369,393
<INCOME-PRETAX> (243,550)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (243,550)
<EPS-PRIMARY> (17.50)
<EPS-DILUTED> 0
</TABLE>
