26
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, 1996 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, 1996 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 the sole
shareholder, President and Director of CB, and four founders 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
and 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 complete the development of its
existing land with light industrial, commercial retail, or an office
building 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. 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 an 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 Limited Partners of the Partnership have the ability to
replace the General Partner through a majority vote. The Partnership
contributed $1,350,000 resulting in a 60% 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% equity interest in a property called Plaza de
Oro ("PDO") and a 60% 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. Phase II consists of 42,500 square foot corner pad which
is planned for a 8,000-10,000 square foot building. Construction will
begin once funding is obtained from either a construction loan or a joint
venture partner. 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, CA Roseville, CA
Present Monthly
Effective Average
Base Rent Per Square Foot: $0.79 $1.53
Square Footage Mix:
Office 28,820 40,397
Industrial 33,825
Retail 8,940
Leased Occupancy at
December 31: 1996 98% 95%
1995 92% 95%
1994 87% 100%
1993 64% 96%
1992 71% 78%
Current Year Depreciation: $212,960 $178,025
Method of Depreciation: Straight Line Straight Line
Depreciation Life: 40 Years 40 Years
Bldg Improvements Bldg Improvements
Life of Lease Life of Lease
Tenant Improvements Tenant Improvements
Total cost: $5,187,783 $4,172,587
Encumbrances: $3,383,141 $3,455,591
PDO CPC
Tenant occupying more
than 10% of square
footage and nature of
business: FPA Medical Coldwell Banker
Management (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 Partnership's 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, 1996, there were 1,234 holders and 13,787 Limited
Partnership units outstanding.
ITEM 6. SELECTED FINANCIAL DATA
<TABLE>
The following constitutes a summary of selected consolidated financial
data for the following periods (000's omitted except net loss per Limited
Partnership unit):
<CAPTION> 1996 1995 1994 1993 1992
<S> <C> <C> <C> <C> <C>
Revenues $1,341 $1,262 $1,231 $1,075 $1,265
Net Loss ($394) ($594) ($668) ($1,036) ($1,050)
Net Loss per Limited
Partnership Unit ($28) ($43) ($48) ($74) ($75)
Total Assets $8,326 $8,386 $8,619 $8,829 $9,806
Notes and Loans Payable $8,354 $8,102 $7,710 $7,291 $7,206
</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% interest
in a commercial office project.
During 1996, the Partnership's management was successful in both obtaining
additional leases which increased Plaza de Oro's occupancy to 98%, and in
maintaining Capital Professional Center's occupancy at 95%. As a result
of the 1996 leasing activity, the Partnership incurred $79,663 in leasing
commissions and $158,391 in tenant improvement costs. These costs were
$61,285 and $83,631 higher, respectively, than 1995 costs, mainly due to
the lease-up of Plaza de Oro's office building. It is anticipated that
during 1997 approximately $23,000 in leasing commissions and $67,000 in
tenant improvement costs will be incurred both to lease the remaining
vacant space and any vacancies resulting from lease expirations. These
costs will be funded by cash reserves and property income.
During 1996, Capital Builders Roseville Venture accrued $58,699 in
interest costs and received $225,000 of additional draws on its affiliate
loan. The interest and additional draws on the Partnership's affiliate
loan were incurred to supplement the funding of 1996 operating
expenditures, tenant improvements, and leasing commissions for Capital
Professional Center. It is anticipated that during 1997 approximately
$73,000 of interest will be accrued, with no additional draws taken on the
loan.
Management is evaluating the effect of exchanging all or a portion of the
affiliate loan owed to CBDP II for the Partnership's ownership equity
during 1997. This would substantially reduce or eliminate the
Partnership's current 60% joint venture interest in Capital Professional
Center, and would increase CBDP II's ownership interest. See Note 5 of
the consolidated financial statements for further discussion of the
Partnership's affiliate loan.
The Partnership also experienced an increase in Accounts Payable of
$76,452 during 1996. The increase in accounts payable was mainly due to
the Partnership incurring leasing commissions and tenant improvement costs
during November and December of 1996. It appears that a decrease in
accounts payable will be recognized in 1997, with these costs being funded
by cash reserves and property income.
The Partnership's ability to meet current year obligations has improved
during 1996 as a result of the increase in Plaza de Oro's occupancy. The
Partnership appears to be able to meet current year obligations, provided
it is successful in refinancing Plaza de Oro's current Note Payable with a
lower interest rate loan, as well as having the properties maintain their
current occupancy rates and income stream.
In management's active search for a new loan, there have been several
potential lenders offering to underwrite Plaza de Oro's existing buildings
(Phase I) with rate reductions from its current loan ranging from 1.6% to
1%. These loans were offered at amounts ranging from $2,900,000 to
$3,350,000, which after loan fees and the paydown of Plaza's existing
loan, would result in a shortfall of $550,000 to $100,000, respectively.
It is management's plan to proceed with the underwriting of the $3,350,000
loan. This plan would also include the search for an additional loan to
cover the loan shortfall, and possibly generate additional cash reserves
for future operations. The additional loan would be secured by the
undeveloped pad (Phase II) located at the Plaza de Oro project. See Item
2 of Form 10K for further description of the Properties.
This plan will be successful provided that Plaza de Oro's appraised value
reaches or exceeds $4,855,000 for Phase I and 400,000 for Phase II. Based
on the project's current operations, management believes that it is likely
that these values will be achieved.
If this plan is not achieved, Management will consider the sale of its
Phase II land, or the sale of partial or all of the Joint Venture project.
The sale of the entire project would result in the dissolution of the
Joint Venture Partnership.
Management believes they will have the required financing in place prior
to the maturity of Plaza de Oro's Note Payable.
Results of Operations
1996 vs 1995
The Partnership's total revenues increased by $79,074 (6.3%) in fiscal
year 1996 compared to 1995, while expenses decreased by $199,858 (9.9%)
for the same respective period. In addition, the minority interest in net
loss has decreased by $78,613 (48.8%) in 1996 compared to 1995, all
resulting in a decrease in net loss of $200,319 (33.7%) from fiscal year
1996 to 1995.
The increase in revenues is due to an increase in occupancy at Plaza de
Oro. Throughout fiscal year 1996, management was successful in obtaining
leases for the project's office building, and by the fourth quarter, had
successfully leased the entire building. This brought the project up to a
98% occupancy. The Sacramento market in which the property is located is
continuing to improve. Vacancy factors are beginning to decline, while
market rents have started to increase.
Total expenses, including depreciation, decreased by $199,858 for the
fiscal year 1996 compared to 1995 due primarily to the net effect of:
a) $13,649 (5.5%) increase in operating expenses mainly due to an increase
in utilities and marketing costs, which were a direct result of new
leasing activity at Plaza de Oro,
b) $7,322 (8.1%) increase in property taxes due to a tax refund received
during 1995,
c) $73,379 (9.0%) decrease in interest due to the reduction of the
interest rate resulting from the refinancing of Capital Professional
Center,
d) $12,836 (13.6%) increase in general and administrative costs due to an
increase in legal and investor service costs, and
e) $160,028 (25.6%) decrease in depreciation due to tenant improvement
costs that were amortized during 1995 and became fully amortized by the
end of 1995.
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 re-carpeting 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.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Page Number
INDEPENDENT AUDITORS' REPORT 10
CONSOLIDATED FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEETS 11
AS OF DECEMBER 31, 1996 AND 1995
CONSOLIDATED STATEMENTS OF OPERATIONS 12
FOR THE YEARS ENDED
DECEMBER 31, 1996, 1995, and 1994
CONSOLIDATED STATEMENTS OF PARTNERS' 13
(DEFICIT) EQUITY FOR THE YEARS ENDED
DECEMBER 31, 1996, 1995, and 1994
CONSOLIDATED STATEMENTS OF CASH FLOWS 14
FOR THE YEARS ENDED
DECEMBER 31, 1996, 1995, and 1994
NOTES TO FINANCIAL STATEMENTS 15-21
SUPPLEMENTAL SCHEDULES
SCHEDULE III
REAL ESTATE AND ACCUMULATED DEPRECIATION 25
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, 1996 and 1995, and the related consolidated
statements of operations, partners' (deficit) equity and cash flows for
each of the years in the three-year period ended December 31. 1996. 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 partnership's 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,
1996 and 1995, and the results of their operations and their cash flows
for each of the years in the three-year period ended December 31, 1996 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 statements taken as a whole,
presents fairly, in all material respects, the information set forth
therein.
The accompanying consolidated 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 plans 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.
Sacramento, California KPMG Peat Marwick LLP
February 5, 1997
PART 2 - FINANCIAL INFORMATION
<TABLE>
Capital Builders Development Properties
(a California Limited Partnership)
CONSOLIDATED BALANCE SHEETS
<CAPTION>
December 31 December 31
1996 1995
<S> <C> <C>
ASSETS
Cash and Cash Equivalents $49,335 $90,399
Accounts receivable, net 135,406 138,421
Investment property, net of
accumulated depreciation and
amortization of $2,107,769 and
$2,097,079 and valuation allowance
of $0 and $742,000 at December 31,
1996 and 1995, respectively 7,252,601 7,485,195
Lease commissions, net of accumulated
amortization of $99,983 and $82,403 at
December 31, 1996 and 1995, respectively 126,701 92,202
Other assets, net of accumulated
amortization of $91,673 and
$104,133 at December 31, 1996 and
1995, respectively 66,404 91,323
Minority Interest 695,094 487,968
Total Assets $8,325,541 $8,385,508
LIABILITIES AND PARTNERS' (DEFICIT) EQUITY
Loan payable to affiliate $1,514,788 $1,231,089
Notes payable 6,838,732 6,871,227
Accounts payable and accrued
liabilities 160,718 84,266
Tenant deposits 115,332 108,845
Total Liabilities 8,629,570 8,295,427
Commitments and contingencies
Partners' (Deficit) Equity:
General Partners (60,864) (56,923)
Limited Partners (243,165) 147,004
Total Partners (Deficit) Equity (304,029) 90,081
Total liabilities and
Partners' (deficit) equity $8,325,541 $8,385,508
See accompanying notes to the consolidated financial statements.
</TABLE>
<TABLE>
Capital Builders Development Properties
(a California Limited Partnership)
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31,
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
Revenues
Rental and other income $1,339,355 $1,259,763 $1,229,812
Interest income 1,386 1,904 1,664
Total revenues 1,340,741 1,261,667 1,231,476
Expenses
Operating expenses 262,885 249,236 273,478
Repairs and maintenance 140,846 141,104 128,276
Property taxes 97,548 90,226 96,217
Interest 744,438 817,817 670,911
General and administrative 107,306 94,467 99,138
Depreciation and
amortization 464,473 624,501 759,736
Total expenses 1,817,496 2,017,351 2,027,756
Loss before minority interest (476,755) (755,684) (796,280)
Minority interest in net loss
of joint venture (82,645) (161,255) (128,685)
Net loss (394,110) (594,429) (667,595)
Allocated to General Partners (3,941) (5,944) (6,676)
Allocated to Limited Partners ($390,169) ($588,485) ($660,919)
Net loss per Limited
Partnership unit ($28.30) ($42.68) ($47.94)
Average units outstanding 13,787 13,787 13,787
See accompanying notes to the consolidated financial statements.
</TABLE>
<TABLE>
CAPITAL BUILDERS DEVELOPMENT PROPERTIES,
a California Limited Partnership
CONSOLIDATED STATEMENTS OF PARTNERS' (DEFICIT) EQUITY
YEARS ENDED DECEMBER 31, 1996, 1995, AND 1994
<CAPTION>
Total
General Limited Partners'
Partners Partners (Deficit)
Equity
<S> <C> <C> <C>
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
Net loss (3,941) (390,169) (394,110)
Balance at December 31, 1996 ($60,864) ($243,165) ($304,029)
See accompanying notes to the consolidated financial statements.
</TABLE>
<TABLE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31,
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss ($394,110) ($594,429) ($667,595)
Adjustments to reconcile net loss
to cash flow provided by/(used
in) operating activities:
Depreciation and amortization 464,476 624,501 759,736
Minority interest in joint venture (82,645) (161,255) (128,685)
Unpaid interest expense on loan payable 58,699 115,684 - - -
to affiliate
Changes in assets and liabilities
Decrease/(Increase) in accounts
receivable 3,015 57,552 (30,405)
Increase in leasing commissions (79,663) (18,378) (59,642)
Increase in other assets (3,409) (72,650) (75,440)
Increase/(Decrease)in accounts payable
and accrued liabilities 41,876 (33,264) 32,498
Increase in tenant deposits 6,487 2,536 5,611
Net cash provided by/(used in)
operating activities 14,726 (79,703) (163,922)
Cash flows from investing activities:
Improvements to investment properties (123,815) (74,760) (211,959)
Net cash used in investing
activities (123,815) (74,760) (211,959)
Cash flows from financing activities:
Proceeds on notes payable 39,954 204,831 277,190
Payments on notes payable (72,449) (33,468) (38,433)
Proceeds on loans payable to affiliate 225,000 105,000 180,405
Distribution to minority interest (124,480) (36,400) (63,601)
Net cash provided by
financing activities 68,025 239,963 355,561
Net (decrease)/increase in cash (41,064) 85,500 (20,320)
Cash & cash equivalents, beg. of period 90,399 4,899 25,219
Cash & cash equivalents, end of period $49,335 $90,399 $4,899
Supplemental disclosure:
Cash paid for interest $685,739 $703,741 $688,172
Non cash investing and financing activity:
Capital improvements financed through
accounts payable and accrued
liabilities $34,576 - - - - - - - -
See accompanying notes to the consolidated financial statements.
</TABLE>
Capital Builders Development Properties
(A California Limited Partnership)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1996, 1995 and 1994
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. The remaining 40% is owned by Capital Builders Development
Properties II, a California Limited Partnership and affiliate of the
Partnership as they have the same General Partner. All significant
intercompany accounts and transactions have been eliminated. The General
Partner of Capital Builders Development Properties, CB, has no direct
ownership interest in the joint venture.
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. The
valuation allowance included in the accompanying balance sheet at December
31, 1995 was $742,000. 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 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, 1995, and 1994.
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 implement its plan of maintaining both projects'
current occupancy and refinancing Plaza de Oro's Note Payable.
Management believes it is likely that they will be successful in their
plan, due to current favorable conditions in the Sacramento leasing
market, and its success in locating a lender to underwrite a loan for
Plaza de Oro for a potential $3,350,000. This new loan is being
considered at a lower interest rate than the current loan. The financial
institution has not made any commitment to the final terms of the loan or
its funding; and therefore, there is no guarantee that the loan will be
made. Additionally, if the loan is made, its net loan proceeds will fall
short of paying down the project's existing note payable by approximately
$100,000. It is management's intention to fund this shortfall by
obtaining an additional loan secured by the project's undeveloped pad
(Phase II).
If this plan is achieved, the Partnership expects to be able to improve
its cash flow and have the ability to meet current obligations. If the
plan is not achieved, management will consider the sale of the Phase II
land and funding the shortfall with the proceeds, joint venturing Phase I
and/or Phase II, or selling the entire project, which would result in the
dissolution of the Partnership.
Management believes they will have the required financing in place prior
to the maturity of Plaza de Oro's Note Payable.
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 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
$62,154, $60,897 and $58,580 for the years ended December 31, 1996, 1995,
and 1994, respectively, while total reimbursement of expenses were
$114,512, $102,669, and $112,269, respectively.
Capital Builders Development Properties
A California Limited Partnership)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 4 - INVESTMENT PROPERTIES
The components of the investment property account at December 31 are as
follows:
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Land $2,423,706 $ 2,641,557
Building and Improvements 5,802,208 6,322,833
Tenant Improvements 1,134,456 1,359,884
Investment properties, at cost 9,360,370 10,324,274
Less: accumulated depreciation
and amortization (2,107,769) (2,097,079)
valuation allowance - - - - (742,000)
Investment property, net $7,252,601 $7,485,195
</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
payable monthly, at approximately the same rate charged to it by a bank
for other borrowings, which was 8.24% at December 31, 1996 and 1995,
respectively. Interest expense incurred on the loan was $111,362,
$115,683, and $78,425 in 1996, 1995, and 1994, 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>
1996 1995
<S> <C> <C>
Construction loan due April 1, 1997.
The note bears interest at bank
commercial lending rate (7.75% at
December 31, 1996) plus 2.5% with a floor
of 8.5% and a ceiling of 10.75% for the
remaining life of the loan. The note
is collateralized by a first deed of trust
on the land, buildings and improvements
and is guaranteed by the General Partner. $3,383,141 $3,371,227
Mini-permanent loan 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 3,500,000
Total notes payable $6,838,732 $6,871,227
Scheduled principal payments during 1997, 1998, 1999, 2000, and 2001 are
$3,430,727, $51,983, $56,432, $61,202, and $3,238,388 respectively.
</TABLE>
NOTE 7 - 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 $1,289,634
1998 1,050,419
1999 657,281
2000 476,606
2001 287,832
Thereafter 109,614
Total $3,871,386
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>
1996 1995 1994
<S> <C> <C> <C>
Net loss - financial ($394,110) ($594,429) ($667,595)
Adjustments
resulting from:
Book to tax difference in
depreciation and amortization 114,923 265,630 372,829
Net loss - tax method ($279,187) ($328,799) ($294,766)
Partners' equity - financial ($304,029) $90,081 $684,510
Increases
resulting from:
Book to tax difference in
depreciation and amortization
and valuation allowance 2,181,286 2,066,363 1,800,733
Selling expenses for
Partnership units 1,012,108 1,012,108 1,012,108
Partners' equity - tax $2,889,365 $3,168,552 $3,497,351
Taxable loss per Limited
Partnership unit after
giving effect to the
taxable loss allocated to
the General Partner ($20.05) ($23.61) ($21.17)
</TABLE>
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 as of
December 31 are as follows:
<TABLE>
<CAPTION>
1996 1995
Carrying Estimated Carrying Estimated
Amount Fair Value Amount Fair Value
<S> <C> <C> <C> <C>
Assets
Cash and cash equivalents $49,335 $49,335 $90,399 $90,399
Liabilities
Loan payable to affiliate $1,514,788 (A) $1,231,089 (A)
Note payable 3,383,141 3,383,141 3,371,227 (B)
Note payable 3,455,591 3,455,591 3,500,000 3,500,000
(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.
(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
Mark Leggio Director
Ellen Wilcox Director
Michael J. Metzger. Mr. Metzger 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.
Ellen Wilcox: Ellen Wilcox is the Owner/Manager of Wilcox Financial
Services, a Registered Investment Advisor in San Carlos CA. She is
licensed in General Securities and Insurance through Linsco/Private Ledger,
an NASD Registered Broker/Dealer. As an Investment Advisor and Broker, Ms.
Wilcox provides a full range of investment products and services to
individuals and small business owners. She has been actively providing
such services since 1986. Ms. Wilcox teaches classes on retirement
planning, investment strategies, and basic money management. She is a
popular speaker and lecturer on financial topics and has authored many
published articles and has appeared on several radio shows.
Mark J. Leggio: Mark Leggio is the Owner of Mark J. Leggio, CPA. He
provides tax accounting and business consultation services to a wide
variety of small and mid-size businesses. In addition, he is the founding
shareholder and chief financial officer of Green Planet Juicery, Inc.,
located in the Sacramento area. From 1978 to 1995 he worked for KPMG Peat
Marwick and was a managing partner when he left. Mr. Leggio holds a
Bachelor of Science degree in Accounting from the University of Southern
California, where he graduated cum laude with a 4.0 grade point average in
his major.
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 $62,154 in 1996, consisting
entirely of property management fees which are calculated as 5% 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 $114,512 in 1996.
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% 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, 1996, the Managing General Partner
and/or its affiliate received $114,512 for reimbursement of administrative
services and $62,154 for property management and administrative fees.
PART IV
ITEM 14. EXHIBITS FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
EXHIBIT NUMBER EXHIBIT
(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 Date
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
Michael J. Metzger Partner; President and
Director of Capital Builders,
Inc. ("CB")
____________________ Chief Financial
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>
<CAPTION>
Capital
Builders
Development
Properties
A California
Limited
Partnership
and
Subsidiary
SCHEDULE III
- REAL
ESTATE AND
ACCUMULATED
DEPRECIATION
December 31,
1996
Column A Column Column Column D Column E Column F Column Column Column
B C G H I
<C> <C> <C> <C> <C> <C> <C> <C> <C>
Cost AccumulDate of Date Depreci
Captiali ated ation
zed
Description Encumbr InitialSubseque Gross Depreciation Constru Acquire Life
ances Cost nt to Carrying ction d
Acquisti Amount at End
on of Period
Carry Buildin
ing gs &
Land Improvem Costs Land ImproveTotal(1
(1) ents(1) ments )
Commercial 40
Office Bldg. Years
(Bldg)
Rancho $ $ $ $ $ $ $ $ 1987 1985 Life of
Cordova 3,383,1 1,143,1 4,025,13 19,48 1,353,1 3,834,6 5,187,7 1,098,6 Lease
41 65 6 2 79 04 83 47 (Tenant
Imp.)
40
Years
(Bldg)
Roseville 1987 1987 Life of
3,455,9 986,715 3,096,54 89,32 1,070,5 3,102,0 4,172,5 1,009,1 Lease
11 6 6 27 60 87 22 (Tenant
Imp.)
$ $ $ $ $ $ $ $
6,839,0 2,129,8 7,121,68 108,8 2,423,7 6,936,6 9,360,3 2,107,7
52 80 2 08 06 64 70 69
Column Column
E Total F Total
1994 1995 1996 1994 1995 1996
<C> <C> <C> <C> <C> <C>
Balance at $ $ $ $ $ $
beginning of 10,339, 9,974,5 9,582,2 1,927,1 2,029,9 2,097,0
period 717 24 74 04 25 79
Additions
211,959 74,760 158,391 679,973 534,164 390,985
Deletions
(2) (577,15 (467,01 (380,29 (577,15 (467,01 (380,29
2) 0) 5) 2) 0) 5)
Balance at $ $ $ $ $ $
end of 9,974,5 9,582,2 9,360,3 2,029,9 2,097,0 2,107,7
period 24 74 70 25 79 69
1) Valuation
allowance
for possible
investment
loss of
$742,000 at
December 31,
1995
was
charged
against the
cost basis
of the land
and building
and
improvements
on a pro
rata basis
in
accordance
with the
provisions
of SFAS No.
121 which
was adopted
on January
1, 1996.
2) Deletions
represent
the write-
off of fully
amortized
tenant
improvement
costs.
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 49335
<SECURITIES> 0
<RECEIVABLES> 135406
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 184741
<PP&E> 9360370
<DEPRECIATION> 2107769
<TOTAL-ASSETS> 8325541
<CURRENT-LIABILITIES> 160718
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 8315541
<SALES> 0
<TOTAL-REVENUES> 1340741
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 1073058
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 744438
<INCOME-PRETAX> (394110)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (394110)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
