13
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities and Exchange Act of 1934
For The Quarter Ended March 31, 1998 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:
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or such shorter
period that the registrant was required to file such reports), and
(2) has been subject to such filing requirements for the past 90
days.
Yes X No
<TABLE>
PART 1 - FINANCIAL
INFORMATION
Capital Builders
Development Properties
(A California Limited
Partnership)
BALANCE SHEETS
<CAPTION>
March 31 December 31
1998 1997
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 3,023 $ 2,310
Accounts receivable, net 125,924 120,152
Investment property, at cost,
net of accumulated depreciation
and amortization of $1,227,709
and $1,227,226 at March 31,
1998 and December 31, 1997,
respectively 3,904,343 3,947,695
Lease commissions, net of accumulated
amortization of $59,156 and 58,098
at March 31, 1998, and December 31,
1997, respectively 73,910 80,188
Other assets, net of accumulated
amortization of $21,760 and
$17,382 at March 31, 1998, and
December 31, 1997, respectively 64,553 68,984
Total assets $4,171,753 $4,219,329
LIABILITIES AND PARTNERS' EQUITY
Notes payable $ 3,494,114 $ 3,503,398
Accounts payable and accrued
liabilities 117,219 88,257
Tenant deposits 48,925 51,989
Total liabilities $3,660,258 $3,643,644
Commitments and contingencies
Partners' Equity:
General partner (52,709) (52,067)
Limited partners 564,204 627,752
Total partners' equity $ 511,495 $ 575,685
Total liabilities and
partner's equity $4,171,753 $4,219,329
See accompanying notes to the financial
statements.
</TABLE>
<TABLE>
Capital Builders Development
Properties
(A California Limited
Partnership)
STATEMENTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31,
<CAPTION>
1998 1997
<S> <C> <C>
Revenues
Rental and other income $ 172,363 $ 354,191
Interest income 49 286
Total revenues 172,412 354,477
Expenses
Operating expenses 35,692 71,053
Repairs and maintenance 19,028 43,494
Property taxes 14,185 23,417
Interest 81,364 187,923
General and administrative 30,736 35,364
Depreciation and amortization 55,597 106,569
Total expenses 236,602 467,820
Loss before minority interest (64,190) (113,343)
Minority interest in net loss
of joint venture - - - - (18,876)
Net loss (64,190) (94,467)
Allocated to general partners (642) (945)
Allocated to limited partners $ (63,548) $ (93,522)
Net loss per limited partnership $ (4.61) $ (6.78)
unit
Average units outstanding 13,787 13,787
See accompanying notes to the
financial statements.
</TABLE>
<TABLE>
Capital Builders Development
Properties
(A California Limited Partnership)
STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED MARCH 31,
<CAPTION>
1998 1997
<S> <C> <C>
Cash flows from operating activities:
Net loss ($64,190) ($94,467)
Adjustments to reconcile net loss
to cash flow provided by/(used in)
operating activities:
Depreciation and amortization 55,597 106,569
Minority interest in joint venture - - - - - (18,876)
Unpaid interest on loan payable
to affiliate - - - - - 31,333
Changes in assets and liabilities
(Increase)/Decrease in accounts (5,772) 14,381
receivable
Increase in leasing commissions - - - - - (15,771)
Decrease/(Increase) in other assets 51 (6,939)
Increase in accounts
payable and accrued liabilities 28,962 16,514
Decrease in tenant deposits (3,064) (7,452)
Net cash provided by
operating activities 11,584 25,292
Cash flows from investing activities:
Improvements to investment properties (1,587) (108)
Net cash used in investing (1,587) (108)
Cash flows from financing activities:
Payments on notes payable (9,284) (23,408)
Net cash used in
financing activities (9,284) (23,408)
Net Increase in cash 713 1,776
Cash, beginning of period 2,310 49,335
Cash, end of period $3,023 $51,111
See accompanying notes to the financial
statements.
</TABLE>
Capital Builders Development Properties
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
March 31, 1998
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND
ORGANIZATION
A summary of the significant accounting policies applied in the
preparation of the accompanying financial statements follows:
Basis of Accounting
The financial statements of Capital Builders Development Properties
(The "Partnership") are prepared on the accrual basis and therefore
revenue is recorded as earned and costs and expenses are recorded as
incurred. Certain prior year amounts have been reclassified to
conform to current year classifications.
Principles of Presentation
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.
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
Long-lived assets and certain identifiable intangibles are 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.
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
quarter ended March 31 of 13,787 in 1998 and 1997.
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
Subsequent to March 31, 1998, Management was successful in its plan
to refinance its $180,000 land/construction loan with a 12 month,
$290,000, 12.5% interest only land loan. The additional proceeds
generated from this loan will be primarily used to reduce the
property's accounts payable balance and increase its cash reserves.
The refinancing will help stabilize the Partnership and improve its
ability to generate future cash flow, but future cash flow still
remains dependent upon the Partnership's ability to maintain and
improve the occupancy of its investment properties.
Additionally, to help improve the Partnership's future cash flow, it
will be necessary for Management to obtain additional financing to
complete Plaza de Oro's development of Phase II. This financing
will require either a joint venture partner, or a construction loan
after pre-leasing a portion of the pad building, or a combination of
both.
Management is currently having preliminary negotiations with
potential construction lenders and prospective tenants. It is
Management's objective to have financing in place sometime during
the third or fourth quarter of 1998 so it can begin Phase II
construction.
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
$8,010 and $18,553 for the three months ended March 31, 1998 and
1997, respectively, while total reimbursement of expenses was
$21,184 and $28,594, respectively.
NOTE 4 - INVESTMENT PROPERTIES
The components of the investment property account are as follows:
March 31, 1998 December 31, 1997
Land $1,353,177 $1,353,177
Building and Improvements 3,289,420 3,287,832
Tenant Improvements 489,455 533,912
Investment properties, at cost 5,132,052 5,174,921
Less: accumulated depreciation
and amortization (1,227,709) (1,227,226)
Investment property, net $3,904,343 $3,947,695
NOTE 5 - NOTES PAYABLE
Notes Payable consist of the following at:
March 31, December 31,
1998 1997
Mini-permanent loan with a fixed interest
rate of 9.25%, 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,
and is guaranteed by the General Partner. $3,314,114 $3,323,398
Land loan of $180,000 due March, 24,
1998. The note bears interest at bank
prime rate plus 1.5% (10.0% at December
31, 1997 with a 9% floor). The note is
secured by Plaza de Oro's separately
parceled Phase II land and is guaranteed
by the General Partner. This loan was
refinanced with a $290,000 land loan on
April 1, 1998. 180,000 180,000
Total Notes Payable $3,494,114 $3,503,398
NOTE 6 - 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:
1998 $582,094
1999 518,136
2000 475,095
2001 259,794
2002 104,178
Total $1,939,297
NOTE 7 - 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:
March 31, 1998 December 31, 1997
Carrying Estimated Carrying Estimated
Amount Fair Value Amount Fair Value
Assets
Cash and cash equivalents $3,023 $3,023 $2,310 $2,310
Liabilities
Note payable $3,314,114 $3,314,114 $3,323,398 $3,323,398
Note payable $180,000 $180,000 $180,000 $180,000
NOTE 8 - COMMITMENTS AND CONTINGENCIES
The Partnership is involved in litigation primarily arising in the
normal course of its business. In the opinion of management, the
Partnership's recovery or liability, if any, under any pending
litigation would not materially affect its financial condition or
operations.
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Liquidity and Capital Resources
The Partnership commenced operations on September 19, 1985 upon the
sale of the minimum number of Limited Partnership Units. The
Partnership's initial source of cash was from the sale of Limited
Partnership Units. Through the offering of Units, the Partnership
has raised $6,893,500 (represented by 13,787 Limited Partnership
Units). Cash generated from the sale of Limited Partnership Units
has been used to acquire land and for the development of a mixed use
commercial project and a 60% interest in a commercial office
project.
During the three months ending March 31, 1998, there were no
significant financial transactions that occurred affecting the
Partnership. Since December 31, 1997, Plaza de Oro did not
recognize any additional lease-up of vacant space, and no additional
leasing commissions or tenant improvement costs were incurred.
Management does anticipate additional lease-up will occur during
1998 to help stabilize Plaza de Oro's occupancy, estimated to cost
approximately $67,400 in tenant improvements and leasing
commissions.
Subsequent to March 31, 1998, Management was successful in
refinancing Plaza de Oro's land loan by obtaining a $290,000, 12
month, 12.5% interest only loan, which provided approximately
$90,000 in cash reserves to help meet current year obligations. The
Partnership still needs to improve Plaza de Oro's current occupancy
of 76% in order to further meet current year obligations.
Management continues to actively market the lease-up of Plaza de
Oro's existing current vacant space of 15,657 square feet, as well
as the undeveloped 9,800 square foot Phase II building. The current
commercial real estate market in Sacramento is improving, and
potential tenant activity has increased during 1998.
Results of Operations
The Partnership's total revenues decreased by $182,065 (51.4%) for
the three months ended March 31, 1998 as compared to March 31, 1997,
while expenses also decreased by $231,218 (49.4%) for the same
respective period. In addition, the minority interest in net loss has
decreased by $18,876 (100%) in 1998 compared to 1997, all resulting
in a decrease in net loss of $30,277 (32.0%) for months ended March
31, 1998 as compared to March 31, 1997.
The decrease in revenues is due primarily to the sale of the
Partnership's joint venture interest on May 1, 1997. The sale
decreased reported revenues by $170,065 since the Partnership no
longer owns 60% of the Roseville Joint Venture (Capital Professional
Center), as it did during the three months ended March 31, 1997. The
Partnership's remaining property, Plaza de Oro, experienced a
decrease in revenue of $12,000 due to a decrease in occupancy to 76%
from 97% as of March 31, 1998 and 1997, respectfully. The decrease
in occupancy is primarily the result of two large industrial tenants,
totaling 10,530 square feet, declaring bankruptcy and abandoning
their suites. Management is currently in negotiations to lease
approximately 3,510 square feet of this space.
Total expenses decreased by $231,218 for the three months ended March
31, 1998, as compared to March 31, 1997, primarily due to the sale of
its 60% interest in Capital Builders Roseville Venture on May 1,
1997. As of March 31, 1998, the Statement of Operations did not
include any joint venture expenses, where as of March 31, 1997,
expenses of $217,247 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: May 15, 1998 By:
Michael J. Metzger
President
Date: May 15, 1998 By:
Kenneth L. Buckler
Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> MAR-31-1998
<CASH> 3023
<SECURITIES> 0
<RECEIVABLES> 125,924
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 128,947
<PP&E> 5,132,052
<DEPRECIATION> 1,227,709
<TOTAL-ASSETS> 4,171,753
<CURRENT-LIABILITIES> 117,219
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 4,171,753
<SALES> 0
<TOTAL-REVENUES> 172,412
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 155,238
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 81,364
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (64,190)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
