6
FORM 10-Q
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Six Months ended June 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
Part 1- FINANCIAL INFORMATION
<TABLE>
Capital Builders Development
Properties
(A California Limited Partnership)
CONSOLIDATED BALANCE SHEET
<CAPTION>
June 30, 1997 Dec 31,1996
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 38,968 $ 49,335
Accounts receivable, net
121,263 135,406
Investment property, at cost, net of
accumulated depreciation and
amortization of $1,196,820 and
$2,107,769 at June 30, 1997 and
December 31, 1996, respectively 4,006,339 7,252,601
Lease commissions, net of accumulated
amortization of $48,550 and $99,983
at June 30, 1997, and December 31,
1996, respectively 72,719 126,701
Other assets, net of accumulated
amortization of $6,276 and
$91,673 at June 30, 1997, and
December 31, 1996, respectively 77,431 66,404
Minority Interest - - - - - 695,094
Total assets $ 4,316,720 $ 8,325,541
LIABILITIES AND PARTNERS' EQUITY
Loan payable to affiliate $ - - - - - $ 1,514,788
Notes payable 3,504,337 6,838,732
Accounts payable & accrued liabilities 42,569 160,718
Tenant deposits 56,524 115,332
Total liabilities $ 3,603,430 $ 8,629,570
Commitments and contingencies
Partners' Equity:
General partner (50,691) (60,864)
Limited partners 763,981 (243,165)
Total partners' equity $ 713,290 $ (304,029)
Total liabilities & partner's equity $ 4,316,720 $ 8,325,541
See accompanying notes to the financial statements.
</TABLE>
<TABLE>
CONSOLIDATED STATEMENTS
OF OPERATIONS
FOR THE MONTHS ENDED
JUNE 30,
<CAPTION>
1997 1996
Three Six Three Six
Months Months Months Months
Ended Ended Ended Ended
<S> <C> <C> <C> <C>
Revenues
Rental and other $ $ $ 331,310 $
income 291,611 645,802 629,223
Interest income
286 572 302 757
Total revenues 291,897 646,374 331,612 629,980
Expenses
Operating expenses
49,729 120,782 63,047 125,939
Repairs and
maintenance 27,590 71,084 39,218 71,257
Property taxes
16,144 39,561 24,372 48,744
Interest
124,328 312,251 185,541 369,393
General and
administrative 19,984 55,348 22,746 62,410
Depreciation and
amortization
74,178 180,747 120,938 242,022
Total expenses 311,953 779,773 455,862 919,765
Loss before minority
interest (20,056) (133,399) (124,250) (289,785)
Minority interest in
joint venture 3,930 22,806 19,731 46,235
Gain from disposition - - - - - - - - -
of joint venture 1,127,913 1,127,913 -
Net income/(loss) 1,111,787 1,017,320 (104,519) (243,550)
Allocated to general 11,118 10,173 (1,045) (2,435)
partners
Allocated to limited $ $ $ $
partners 1,100,669 1,007,147 (103,474) (241,115)
Net income/(loss)
per limited $ $ $ $
partnership unit 79.83 73.05 (7.51) (17.50)
Average units 13,787 13,787 13,787 13,787
outstanding
See accompanying notes to the
financial statements.
</TABLE>
<TABLE>
CONSOLIDATED STATEMENTS
OF CASH FLOWS
FOR MONTHS ENDED JUNE 30,
<CAPTION>
1997 1996
Three Six Three Six
Months Months Months Months
Ended Ended Ended Ended
<S> <C> <C> <C> <C>
Cash flows from operating
activities:
Net income/(loss) $1,111,787 $1,017,320 ($104,519) ($243,550)
Adjustments to reconcile
net loss to cash flow
used
in operating activities:
Depreciation & 74,178 180,747 120,938 242,022
amortization
Minority interest in
joint (3,930) (22,806) (19,731) (46,235)
venture
Gain from Partnership
Investment (1,127,913 (1,127,913 - - - - - - - - - -
) )
Unpaid Interest on Loan
Payable to Affiliate 24,014 55,347 18,210 18,210
Changes in assets and
liabilities:
Increase in accounts
receivable (34,986) (20,605) (8,581) (7,087)
Increase in leasing
commissions - - - - - (15,771) (20,788) (43,953)
Decrease/(Increase) in
other assets 8,838 1,899 (166) 342
(Decrease)/Increase in
accounts and accrued
liabilities (109,037) (92,523) (46,703) 37,296
Increase/(Decrease) in
tenant deposits 186 (7,266) 2,928 (4,913)
Net cash (used
in)provided
by operating activities (56,863) (31,571) (58,412) (47,868)
Cash flows from investing
activities:
Improvements to
investment (15,356) (15,464) (36,823) (77,228)
properties
Proceeds from sale of
partnership investment 14,380 14,380 - - - - - - - - - -
Net cash used in
investing (976) (1,084) (36,823) (77,228)
activities
Cash flows from financing
activities:
Payments from notes (12,612) (36,020) (19,904) (38,707)
payable
Proceeds from notes 141,583 141,583 - - - - - - - - - -
payable
Payment of loan fees (83,275) (83,275) - - - - - - - - - -
Proceeds on loans payable
to affiliate - - - - - - - - - - 170,000 170,000
Distribution to minority
interest - - - - - - - - - - (68,000) (90,480)
Net cash provided by
financing activities 45,696 22,288 82,096 40,813
Net decrease in cash (12,143) (10,367) (13,139) (84,283)
Cash, beginning of period 51,111 49,335 19,255 90,399
Cash, end of period $38,968 $38,968 $6,116 $6,116
See accompanying notes to the financial statements.
</TABLE>
Capital Builders Development Properties
(A California Limited Partnership)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 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 cash proceeds
of $51,068. As of June 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 loan
secured by Phase II (undeveloped pad).
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. Additionally, with the land
loan becoming due prior to year-end, it will be necessary to
refinance or extend the loan prior to year-end.
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
$31,058 and $30,383 for the six months ending June 30, 1997 and
1996, respectively, while total reimbursement of expenses were
$52,538 and $57,756, respectively.
NOTE 5 - INVESTMENT PROPERTIES
The components of the investment property account are as follows:
June 30, December 31,
1997 1996
Land $1,353,177 $2,423,706
Building and Improvements 3,271,630 5,802,208
Tenant Improvements 578,352 1,134,456
Investment properties, at cost 5,203,159 9,360,370
Less: accumulated depreciation
and amortization (1,196,820) (2,107,769)
Investment property, net $4,006,339 $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
June 30, 1996, respectively. Interest expense incurred on the loan
was $55,347 and $51,839 in 1997 and 1996, respectively.
NOTE 7 - NOTES PAYABLE
Notes Payable consist of the following at:
June 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 collatoralized by a First Deed of
Trust on the land, buildings and
improvements. $3,341,337 $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 September 24, 1997. The note
bears interest at bank prime rate
(8.50% at June 30, 1997) plus 1.5%
with a 9% floor. The note is secured
by Plaza de Oro's separately parceled
Phase II land. 163,000 - - - - -
Total Notes Payable $3,504,337 $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 $649,348
1998 564,741
1999 476,363
2000 401,801
2001 212,421
Thereafter 109,614
Total $2,414,288
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:
June 30, December 31,
1997 1996
Carrying Estimated Carrying Estimated
Amount Fair Value Amount Fair Value
Assets
Cash and cash equivalents $38,968 $38,968 $49,335 $49,335
Liabilities
Loan payable to affiliate $ - - - $ - - - $1,514,788 (A)
Note payable 3,341,337 3,341,337 3,383,141 3,383,141
Note payable 163,000 163,000 3,455,591 3,455,591
(A) It is not practicable to determine the fair value of the loan
payable to affiliate due to the related party nature of the
arrangement.
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 six months ending June 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 $51,068. The
refinancing of the Partnership's Note Payable also provided cash
proceeds amounting to $141,583. The cash provided by these
transactions, along with cash flow from operations, was primarily
used to bring its accounts payable current, decreasing accounts
payable by $92,523, 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 $15,771 and tenant improvements of $15,463 for the Partnership's
investment properties. It is anticipated that approximately $50,000
in additional tenant improvements and leasing commissions will be
incurred during 1997 in order to maintain Plaza de Oro's current 97%
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. The Partnership appears to be able to meet
current year obligations, provided it is successful in refinancing
or extending Plaza de Oro's undeveloped pad loan, which was obtained
April 1, 1997, but will be due September 24, 1997, as well as having
the property maintain its current occupancy rate 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 increased by $16,394 (2.6%) for the
six months ended June 30, 1997, as compared to June 30, 1996, while
expenses decreased by $139,692 (15.2%) for the same respective
period. In addition, the minority interest in net loss has decreased
by $23,429 (50.7%) 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 $1,260,870 (517.7%) for the
months ended June 30, 1997 as compared to June 30, 1996.
The increase in revenues is due primarily to the successful lease-up
of Plaza de Oro, which as of June 30, 1997 was 97% occupied.
Total expenses decreased by $139,992 for the six months ended June
30, 1997, as compared to June 30, 1996, due to the sale on May 1,
1997 of its 60% interest of Capital Builders Roseville Venture. As
of June 30, 1997, the Statement of Operations included expenses of
$299,645 from its joint venture, where as of June 30, 1996, expenses
of $439,856 from its joint venture were included. As a result of the
sale, only four months of the joint venture's operations were
included in the June 30, 1997 Consolidated Statement of Operations,
where as of June 30, 1996, six months of the joint venture's
operations 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: August 27, 1997 By:
Michael J. Metzger
President
Date: August 27, 1997 By:
Kenneth L. Buckler
Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1997
<CASH> 38,968
<SECURITIES> 0
<RECEIVABLES> 121,263
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 160,231
<PP&E> 5,203,159
<DEPRECIATION> 1,196,820
<TOTAL-ASSETS> 4,316,720
<CURRENT-LIABILITIES> 42,569
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 4,316,720
<SALES> 0
<TOTAL-REVENUES> 646,374
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 467,522
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 312,251
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,017,320
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
