4
FORM 10-Q
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Nine Months ended September 30, 1997 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:
N/A
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>
Capital Builders Development
Properties
(A California Limited Partnership)
CONSOLIDATED BALANCE SHEET
<CAPTION>
September 30 December 31
1997 1996
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 19,899 $ 49,335
Accounts receivable, net 123,158 135,406
Investment property, at cost,
net of accumulated depreciation
and amortization of $1,181,495
and $2,107,769 at September 30,
1997 and December 31, 1996,
respectively 3,983,368 7,252,601
Lease commissions, net of accumulated
amortization of $51,127 and $99,983
at September 30, 1997, and December
31, 1996, respectively 76,873 126,701
Other assets, net of accumulated
amortization of $12,552 and
$91,673 at September 30, 1997, and
December 31, 1996, respectively 72,810 66,404
Minority Interest - - - - 695,094
Total assets $ 4,276,108 $ 8,325,541
LIABILITIES AND PARTNERS' EQUITY
Loan payable to affiliate - - - - 1,514,788
Notes payable 3,520,844 6,838,732
Accounts payable and accrued
liabilities 76,496 160,718
Tenant deposits 51,626 115,332
Total liabilities $ 3,648,966 $ 8,629,570
Commitments and contingencies
Partners' Equity:
General partner (51,552) (60,864)
Limited partners 678,694 (243,165)
Total partners' equity $ 627,142 $ (304,029)
Total liabilities and partner's equity $ 4,276,108 $ 8,325,541
See accompanying notes to the financial
statements.
</TABLE>
<TABLE>
Capital Builders Development
Properties
(A California Limited Partnership)
CONSOLIDATED
STATEMENTS OF
OPERATIONS
FOR THE MONTHS
ENDED SEPTEMBER
30,
<CAPTION>
1997 1996
Three Nine Three Nine
Months Months Months Months
Ended Ended Ended Ended
<S> <C> <C> <C> <C>
Revenues
Rental and other
income $170,983 $816,785 $329,277 $958,500
Interest income 250 822 322 1,079
Total revenues 171,233 817,607 329,599 959,579
Expenses
Operating expenses 40,595 161,377 67,865 193,804
Repairs & maintenance 42,603 113,687 28,665 99,922
Property taxes 17,451 57,012 24,372 73,116
Interest 78,681 390,932 187,836 557,229
General and
administrative 19,569 74,917 19,299 81,709
Depreciation and
amortization 58,482 239,229 113,494 355,516
Total expenses 257,381 1,037,154 441,531 1,361,296
Loss before minority
interest (86,148) (219,547) (111,932) (401,717)
Minority interest in
joint venture - - - - 22,806 19,120 65,355
Gain from disposition of
joint venture - - - - 1,127,913 - - - - - - - -
Net (loss)/income (86,148) 931,172 (92,812) (336,362)
Allocated to general
partners (861) 9,312 (929) (3,364)
Allocated to limited
partners ($85,287) $921,860 ($91,883) ($332,998)
Net (loss)/income per
limited partnership unit ($6.19) $66.86 ($6.66) ($24.15)
Average units
outstanding 13,787 13,787 13,787 13,787
See accompanying notes
to the financial
statements.
</TABLE>
<TABLE>
Capital Builders Development
Properties
(A California Limited Partnership)
CONSOLIDATED STATEMENTS
OF CASH FLOWS
FOR MONTHS ENDED
SEPTEMBER 30,
<CAPTION>
1997 1996
Three Nine Three Nine
Months Months Months Months
Ended Ended Ended Ended
<S> <C> <C> <C> <C>
Cash flows from
operating activities:
Net (loss)/income ($86,147) $931,173 ($92,812) ($336,362)
Adjustments to
reconcile net loss to
cash flow used in
operating activities:
Depreciation and
amortization 58,482 239,229 113,494 355,516
Minority interest in
joint venture - - - - (22,806) (19,120) (65,355)
Gain from Partnership
Investment - - - - (1,127,913) - - - - - - - -
Unpaid Interest on
Loan Payable to
Affiliate - - - - 55,347 10,584 28,794
Changes in assets and
liabilities
(Increase)/decrease
in accounts receivable (1,895) (22,500) 2,393 (4,694)
Increase in leasing
commissions (10,290) (26,061) (18,759) (62,712)
(Increase)/decrease
in other assets (1,653) 246 (2,187) (1,845)
Increase/(decrease)
in accounts payable and
accrued liabilities 33,927 (58,596) 44,298 81,594
(Decrease)/increase
in tenant deposits (4,898) (12,164) 8,635 3,722
Net cash (used in)
provided by operating
activities (12,474) (44,045) 46,526 (1,342)
Cash flows from
investing activities:
Improvements to
investment properties (23,102) (38,566) (17,879) (95,107)
Proceeds from sale of
partnership investment - - - - 14,380 - - - - - - - -
Net cash used in
investing activities (23,102) (24,186) (17,879) (95,107)
Cash flows from
financing activities:
Payments on notes
payable (8,866) (44,886) (16,420) (55,127)
Proceeds from notes
payable 25,373 166,956 - - - - - - - -
Payment of loan fees - - - - (83,275) - - - - - - - -
Proceeds on loans
payable to affiliate - - - - - - - - - - - - 170,000
Distribution to
minority interest - - - - - - - - (8,000) (98,480)
Net cash provided
by financing activities 16,507 38,795 (24,420) 16,393
Net (decrease)/increase
in cash (19,069) (29,436) 4,227 (80,056)
Cash, beginning of
period 38,968 49,335 6,116 90,399
Cash, end of period $19,899 $19,899 $10,343 $10,343
See accompanying notes to the financial statements.
</TABLE>
Capital Builders Development Properties
(A California Limited Partnership)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1997
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND
ORGANIZATION
A summary of the significant accounting policies applied in the
preparation of the accompanying consolidated financial statements
follows:
Basis of Accounting
The consolidated 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. In May 1997 the Partnership sold its 60% interest
in Capital Builders Roseville Venture to its affiliate, Capital
Builders Development Properties II. Capital Builders Development
Properties II, a California Limited Partnership, is an affiliate of
the Partnership as they have the same General Partner, Capital
Builders, Inc. The financial statements represent financial activity
on a consolidated basis until the time of the disposition of the
majority-owned subsidiary. All significant intercompany accounts and
transactions have been eliminated. The General Partner of Capital
Builders Development Properties, Capital Builders, Inc, has no direct
ownership interest in the joint venture, and did not receive any
compensation for the sale of the subsidiary (See Note 2 for further
discussion).
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 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 companies, 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 adopted the provisions of SFAS No. 121, Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to
Be Disposed Of, on January 1, 1996. This Statement requires that
long-lived assets and certain identifiable intangibles be reviewed
for impairment whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be recoverable.
Recoverability of assets to be held and used is measured by a
comparison of the carrying amount of an asset to future net cash
flows expected to be generated by the asset. If such assets are
considered to be impaired, the impairment to be recognized is
measured by the amount by which the carrying amount of the assets
exceed the fair value of the assets. Assets to be disposed of are
reported at the lower of the carrying amount or fair value less costs
to sell. Adoption of this Statement did not have a material impact
on the Partnership's financial position, results of operations, or
liquidity.
Prior to the adoption of SFAS No. 121, the Partnership recorded a
valuation allowance for losses which represented the excess carrying
value of individual properties over their estimated net realizable
value. During 1996, this valuation allowance was allocated against
the cost basis of the land and building and improvements to be
consistent with the methodology of SFAS No. 121.
The Partnership's investment property consists of commercial land,
buildings and leasehold improvements that are carried net of
accumulated depreciation. 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.
Lease Commissions
Lease commissions are being amortized over the related lease terms.
Income Taxes
The Partnership does not provide 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 Income/(Loss) per Limited Partnership Unit
The net income/(loss) per Limited Partnership unit is computed based
on the weighted average number of units outstanding during the year
of 13,787 in 1997 and 1996.
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 - CHANGES IN OPERATIONS AND UNUSUAL ITEMS
In May 1997, the Partnership sold its 60% interest in Capital
Builders Roseville Venture to its affiliate, Capital Builders
Development Properties II. The sale was completed after an
independent property valuation of the joint venture property, Capital
Professional Center. The sale resulted in a net gain of $1,127,913
($81.81 per limited partnership unit) and net cash proceeds of
$14,380. As of September 30, 1997, the Partnership's Consolidated
Statement of Operations included a net loss of $57,015 from Capital
Builders Roseville Venture, of which $22,806 was allocated to its
minority partner. The transaction did not generate any sales
commissions, transaction fees, changes in management compensation or
any other direct or indirect benefit to the General Partner.
NOTE 3 - LIQUIDITY
During the second quarter of 1997, Management was successful in its
plan to refinance Plaza de Oro's current Note Payable. The new
financing consists of a $3,350,000, five year, mini-permanent, 9.25%
fixed interest rate loan, secured by Phase I (existing building and
improvements), and a $200,000, six month, prime +1.5% variable land
loan secured by Phase II (undeveloped pad). The land loan was
granted an additional six-month extension, extending its maturity
date to March 24, 1998.
The new lower interest rate loans will improve the Partnership's
ability to generate future cash flow, but future cash flow still
remains dependent upon its ability to maintain and improve the
occupancy of its investment properties.
NOTE 4 - 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 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
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% 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
$39,053 and $46,013 for the nine months ending September 30, 1997 and
1996, respectively, while total reimbursement of expenses were
$75,283 and $86,618, respectively.
NOTE 5 - INVESTMENT PROPERTIES
The components of the investment property account are as follows:
September 30, December 31,
1997 1996
Land $1,353,177 $2,423,706
Building and Improvements 3,283,383 5,802,208
Tenant Improvements 528,303 1,134,456
Investment properties, at cost 5,164,863 9,360,370
Less: accumulated depreciation
and amortization (1,181,495) (2,107,769)
Investment property, net $3,983,368 $7,252,601
NOTE 6 - 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 was settled
in conjunction with the sale of the 60% interest of the Roseville
joint venture. The loan bore interest at approximately the same rate
charged to it by a bank for other borrowings, which was 8.95% at the
time of sale of the joint venture, May 1, 1997 and September 30,
1997, respectively. Interest expense incurred on the loan was
$55,347 and $81,457 in 1997 and 1996, respectively.
NOTE 7 - NOTES PAYABLE
Notes Payable consist of the following at:
September 30, December 31,
1997 1996
Construction loan due April 1, 1997
was refinanced with a mini-permanent
loan with a fixed interest rate of
9.25%, and requiring monthly principal
and interest payments of $28,689,
which is sufficient to amortize the
loan over 25 years. The loan is due
April 1, 2002. The note is
collateralized by a First Deed of
Trust on the land, buildings and
improvements. $3,332,471 $3,383,141
Mini-permanent loan on joint venture
property with a fixed interest rate of
8.24% and requiring monthly principal
and interest payments 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. - - - - - 3,455,591
Land/Construction loan of $200,000 due
March, 24, 1998. The note bears
interest at bank prime rate (8.50% at
September 30, 1997) plus 1.5% with a
9% floor. The note is secured by
Plaza de Oro's separately parceled
Phase II land. 188,373 - - - - -
Total Notes Payable $3,520,844 $6,838,732
NOTE 8 - 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:
1997 $642,168
1998 582,094
1999 518,136
2000 475,095
2001 259,794
Thereafter 104,178
Total $2,581,465
NOTE 9 - FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used by the Partnership in
estimating it's fair value disclosures for financial instruments.
Cash and cash equivalents
The carrying amount approximates fair value because of the
liquid nature of the instrument.
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
are as follows:
September 30, December 31,
1997 1996
Carrying Estimated Carrying Estimated
Amount Fair Value Amount Fair Value
Assets
Cash and cash equivalents $19,899 $19,899 $49,335 $49,335
Liabilities
Loan payable to affiliate $ - - - $ - - - $1,514,788 1,514,788
Note payable 3,332,471 3,332,471 3,383,141 3,383,141
Note payable 188,373 188,373 3,455,591 3,455,591
NOTE 10 - 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.
During the nine months ending September 30, 1997, the Partnership
sold its 60% joint venture interest in Capital Builders Roseville
Venture. The Partnership was also successful in refinancing Plaza de
Oro's Note Payable, which became due April 1, 1997.
The Partnership's sale of its joint venture interest resulted in a
$1,127,913 non-cash gain and cash proceeds of $14,380. The
refinancing of the Partnership's Note Payable also provided initial
cash proceeds amounting to $141,583 and subsequent draws of $25,373
for site planning performed on the Plaza de Oro pad. The cash
provided by the sale of the joint venture and the initial funding for
the refinancing, along with cash flow from operations, was primarily
used to bring its accounts payable current, decreasing accounts
payable by $58,596, and was used to pay loan fees of $83,275 for the
Partnership's new financing.
The remaining cash proceeds were used to finance leasing commissions
of $26,061, plus tenant and pad site improvements of $38,566 for the
Partnership's investment properties. It is anticipated that
approximately $17,000 in additional tenant improvements and leasing
commissions will be incurred during 1997 in order to maintain Plaza
de Oro's stabilized occupancy. These costs will be funded by cash
reserves and property income.
The Partnership's ability to meet current year obligations has
improved during 1997 as a result of maintaining Plaza de Oro's
occupancy, as well as the refinancing of its current Note Payable as
of April 1, 1997, and extending its land loan until March 24, 1998.
The Partnership appears to be able to meet current year obligations,
provided it is able to maintain its properties current occupancy and
income stream.
It is Management's plan to actively market and attempt to locate a
potential tenant for the undeveloped 9,800 square foot building on
Plaza de Oro's Phase II land. If a tenant is identified and a lease
is signed, this will allow the Partnership to obtain additional
financing, construct the building, and convert the loan to a mini-
permanent loan. Management is also searching for new potential
lenders and joint venture equity partners to paydown the existing land
loan and finance the additional construction costs.
Results of Operations
The Partnership's total revenues decreased by $141,972 (14.8%) for the
nine months ended September 30, 1997, as compared to September 30,
1996, while expenses also decreased by $324,142 (23.8%) for the same
respective period. In addition, the minority interest in net loss has
decreased by $42,549 (65.1%) in 1997 compared to 1996, and in 1997 a
gain from the disposition of the joint venture of $1,127,913 was
incurred, all resulting in an increase in net income of $1,267,534
(376.8%) for the nine months ended September 30, 1997 as compared to
September 30, 1996.
The decrease in revenues is due to the sale of the Partnership's joint
venture interest on May 1,1997. The sale decreased reported revenues
by $248,272 since only four months of the joint venture's operations
were included in the 1997 Consolidated Statement of Operations, where
as the September 30, 1996 Statement included nine months of the joint
venture's operations. The Partnership's remaining property, Plaza de
Oro, experienced an increase in revenues of $106,300 for the nine
months ended September 30, 1997, compared to September 30 1996, due to
an increase in occupancy.
Total expenses decreased by $324,142 for the nine months ended
September 30, 1997, as compared to September 30, 1996, due to the sale
on May 1, 1997 of its 60% interest of Capital Builders Roseville
Venture. As of September 30, 1997, the Statement of Operations
included expenses of $299,645 from its joint venture, where as of
September 30, 1996, expenses of $654,285 from its joint venture were
included.
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: November 17, 1997 By:
Michael J. Metzger
President
Date: November 17, 1997 By:
Kenneth L. Buckler
Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> SEP-30-1997
<CASH> 19,899
<SECURITIES> 0
<RECEIVABLES> 123,158
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 143,057
<PP&E> 5,164,863
<DEPRECIATION> 1,181,495
<TOTAL-ASSETS> 4,276,108
<CURRENT-LIABILITIES> 76,496
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 4,276,108
<SALES> 0
<TOTAL-REVENUES> 817,607
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 646,222
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 390,932
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 931,172
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
