15
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, 2000 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.
1130 Iron Point Road, Suite 170, Folsom, California 95630
(Address of Principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (916)353-0500
Former name, former address and former fiscal year, if changed since
last year:
4700 Roseville Road, Suite 206, North Highlands, California 95660
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or such shorter
period that the registrant was required to file such reports), and
(2) has been subject to such filing requirements for the past 90
days.
Yes X No
<TABLE>
PART I - FINANCIAL INFORMATION
Capital Builders Development
Properties
(A California Limited Partnership)
BALANCE SHEETS
<CAPTION>
March 31, December 31,
2000 1999
<S> <C> <C>
ASSETS
Cash and cash equivalents $53,220 $23,679
Accounts receivable, net 40,305 58,194
Investment property, held for sale, at
cost, net of accumulated depreciation
and amortization of $1,470,519
at March 31, 2000 and
December 31, 1999 4,542,551 4,514,466
Lease commissions, net of accumulated
amortization of $107,412 at March 31,
2000, and December 31, 1999 108,783 87,948
Other assets, net of accumulated
amortization of $81,811 and
$71,538 at March 31, 2000, and
December 31, 1999, respectively 90,476 79,518
Total assets $4,835,335 $4,763,805
LIABILITIES AND PARTNERS' DEFICIT
Notes payable $4,675,092 $4,199,057
Loan payable to affiliate 106,755 104,331
Accounts payable and accrued
liabilities 128,448 489,667
Tenant deposits 47,211 44,357
Total liabilities $4,957,506 $4,837,412
Commitments and contingencies
Partners' Deficit:
General partner (59,046) (58,560)
Limited partners (63,125) (15,047)
Total partners' deficit ($122,171) ($73,607)
Total liabilities and
partner's deficit $ 4,835,335 $ 4,763,805
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>
2000 1999
<S> <C> <C>
Revenues
Rental and other income $174,277 $116,456
Interest income 298 547
Total revenues 174,575 117,003
Expenses
Operating expenses 38,561 34,493
Repairs and maintenance 32,830 30,664
Property taxes 13,886 14,795
Interest 100,128 85,036
General and administrative 27,462 28,513
Depreciation and amortization 10,274 43,608
Total expenses 223,141 237,109
Net loss (48,566) (120,106)
Allocated to general partners (486) (1,201)
Allocated to limited partners ($48,080) ($118,905)
Net loss per limited partnership unit ($3.49) ($8.62)
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>
2000 1999
<S> <C> <C>
Cash flows from operating activities:
Net loss ($48,566) ($120,106)
Adjustments to reconcile net loss to
Cash flow used in operating
activities:
Depreciation and amortization 10,274 43,608
Changes in assets and liabilities
Decrease/(Increase) in accounts 17,889 (561)
receivable
Increase in leasing commissions (20,835) (9,505)
Increase in other assets (515) (1,635)
(Decrease)/Increase in accounts
payable and accrued liabilities (27,406) 57,234
Increase in tenant deposits 2,854 574
Net cash used in
operating activities (66,305) (30,391)
Cash flows from investing activities:
Improvements to investment properties (361,898) - - - - -
Net cash used in investing (361,898) - - - - -
Cash flows from financing activities:
Proceeds on notes payable 487,198 (10,167)
Payments on notes payable (11,163) - - - - -
Payment of loan fees (20,715) - - - - -
Proceeds on loans payable to affiliate 2,424 27,892
Net cash provided by
financing activities 457,744 17,725
Net Increase/(Decrease) in cash 29,541 (12,666)
Cash, beginning of period 23,679 17,206
Cash, end of period $53,220 $4,540
Cash paid for interest $ 108,040 $ 81,364
See accompanying notes to the financial statements.
</TABLE>
Capital Builders Development Properties
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
March 31, 2000
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.
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.
Accounting Pronouncements
On December 3, 1999, the Securities Exchange Commission staff issued
Staff Accounting Bulletin No. 101, Revenue Recognition in Financial
Statements (SAB 101). SAB 101 summarizes certain of the staff's
views in applying generally accepted accounting principles to revenue
recognition in financial statements. SAB 101 was adopted on January
1, 2000. Management believes the adoption of SAB 101 does not have a
material impact on the financial statements.
Investment Properties
On July 1, 1999, the Partnership's investment property was
reclassified as a long-lived asset to be disposed of and is
currently listed for sale. Assets to be disposed of are reported at
the lower of the carrying amount or fair value less cost to sell.
Subsequent revisions in estimates of fair value less cost to sell
are reported as adjustments to the carrying amount, provided that
the carrying amount does not exceed the initial carrying amount
before an adjustment was made to reflect the decision to sell the
asset. As of July 1, 1999, the fair value of the Partnership's
investment property less cost to sell exceeded the carrying amount.
Therefore, no adjustment was made to the carrying amount.
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. Due to the Partnership's investment property
being reclassified as a long lived asset to be disposed of,
depreciation expense has not been recorded subsequent to the second
quarter of 1999.
In accordance with Financial Account Standard No. 34, Capitalization
of Interest Cost, interest associated with borrowings used to fund
construction in process have been capitalized in the amount of
$28,615 and $-0-, respectively, for the three months ended March 31,
2000 and 1999.
Other Assets
Included in other assets are loan fees, which are amortized over the
life of the related note.
Lease Commissions
Lease commissions are no longer amortized over the related lease
terms due to being an intangible directly related to the investment
property.
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 of 13,787 during the
periods ending March 31, 2000 and 1999.
Statement of Cash Flows
For purposes of the statements 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 lease up of Plaza de Oro's existing Phase I and new Phase II pad
building has increased the project's overall occupancy to 88% during
the first quarter of 2000. This lease-up has improved the
Partnership's ability to meet current year obligations, but
additional leasing is still required to fully meet its obligations.
During the first quarter 2000, the Partnership obtained an
additional $300,000 working capital/tenant improvement loan. The
proceeds from this loan paid down the $150,000 interim loan, paid
shortfall from operations due to negative cash flow during the first
quarter, and paid for a portion of building improvements during the
first quarter.
Due to the property approaching a stabilized occupancy, Management
listed the property for sale with an independent brokerage firm on
July 1, 1999. The estimated sales proceeds are projected to be in
excess of current obligations. There is currently one offer pending
at a sales price of $6,400,000, but this offer does not represent a
guaranteed sales price. At this time, Management has not finalized
a plan for the use of the proceeds from the sale of the property.
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 remaining fees would not be
payable based on the current listing price of the assets to be
disposed of.
The total management fees paid to the Managing General Partner were
$3,045 and $-0- for the three months ended March 31, 2000 and 1999,
respectively. Total reimbursement of expenses was $22,109 and
$2,074, respectively. The Partnership has accrued $67,918 of
management fees and cost reimbursements as of March 31, 2000.
NOTE 4 - INVESTMENT PROPERTIES
The components of the investment property account are as follows:
March 31, December 31,
2000 1999
Land $1,353,177 $1,353,177
Building and Improvements 3,296,213 3,281,797
Tenant Improvements 578,747 577,747
Construction in Progress 784,933 772,264
Investment properties, at cost 6,013,070 5,984,985
Less: accumulated depreciation
and amortization (1,470,519) (1,470,519)
Investment property, net $4,542,551 $4,514,466
NOTE 5 - LOAN PAYABLE TO AFFILIATE
The loan payable at March 31, 2000 and December 31, 1999 represents
funds advanced to the Partnership from Capital Builders, Inc.
(General Partner). These funds were utilized to cover negative cash
flow from operations. The loan bears interest at approximately the
same rate charged to the Partnership by a bank for other borrowings
(9.25% as of March 31, 2000) and is payable upon demand. The
Partnership accrued interest of $9,451 and $7,154 for the periods
ending March 31, 2000 and December 31, 1999, respectively.
NOTE 6 - NOTES PAYABLE
Notes Payable consist of the following:
March 31, December 31,
2000 1999
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. $3,231,722 $3,242,885
Construction loan in the amount of
$1,123,000, which accrues interest at
Prime +1% (Prime as of March 31, 2000 is
9%) and is due August 19, 2000. Interest
accrues monthly on the outstanding
balance of the cumulative construction
loan draws. The Note provides for future
draws of $169,630 for construction costs.
This loan is secured by a First Deed of
Trust on Phase II land and improvements,
and is guaranteed by the General Partner. 953,370 616,172
A construction loan in the amount of
$190,000 due March 1, 2001. The note
requires interest only payments and bears
interest at 13.5%. The note is a Second
Deed of Trust on Phase II land and
improvements. A restricted cash reserve
balance is maintained to service monthly
payments until October 31, 2000. The
restricted cash balance as of March 31,
2000 and December 31, 1999 was $12,950
and $19,362, respectively. 190,000 190,000
Interim tenant improvement/leasing
commission loan of $150,000 due March 1,
2000, which was paid in full. The note
required interest only payments and bore
interest at 15%. The note was secured by
a Second Deed Of Trust on Plaza de Oro's
Phase I land and improvements. -0- 150,000
Interim working capital, tenant
improvement/leasing commission loan of
$300,000 due March 1, 2001. The Note
requires interest only payments and bears
interest at 15%. The Note is secured by
a Second Deed of Trust on Plaza de Oro's
Phase I land and improvements. 300,000 -0-
Total Notes Payable $4,675,092 $4,199,057
Scheduled principal payments during 2000, 2001, and 2002 are
$998,050, $531,071, and $3,145,971, respectively.
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:
2000 $ 599,101
2001 594,410
2002 334,154
2003 165,876
2004 165,335
Thereafter 33,041
Total $1,891,917
NOTE 8 - 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.
Notes payable
The fair value of the Partnership's notes payable are 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, 2000 December 31,1999
Carrying Estimated Carrying Estimated
Amount Fair Value Amount Fair Value
Liabilities
Loan payable
to affiliate $106,755 $106,755 $104,331 $104,331
Note payable $3,231,722 $3,231,722 $3,242,885 $3,242,885
Note payable $953,370 $953,370 $616,172 $616,172
Note payable $190,000 $190,000 $190,000 $190,000
Note payable - - - - - - $150,000 $150,000
Note payable $300,000 $300,000 - - - - - -
NOTE 9 - 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.
NOTE 10 - PROSPECTIVE ACCOUNTING PRONOUNCEMENTS
Accounting for Derivative Instruments and Hedging Activity
In June 1998, the FASB issued SFAS No. 133, Accounting for
Derivative Instruments and Hedging Activities. SFAS No. 133 as
amended is effective for all fiscal quarters of fiscal years
beginning after June 15, 2000. Management believes that the
adoption of SFAS No. 133 will not have a material impact on the
financial statements due to the Partnership's inability to invest in
such instruments as stated in the Partnership agreement.
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 ended March 31, 2000, cash increased by
$29,541. This was the result of net cash provided by financing in
the amount of $457,744, which was offset by negative cash flow from
operations of $66,305 and net cash used for Phase II building
improvements ($361,898).
The negative cash flow from operations is primarily the result of the
project's remaining vacant space and the leasing commissions paid
during the first quarter to lease up a portion of its vacant space.
In order to temporarily solve the Partnership's cash flow problem,
Management obtained a 12 month, $300,000 interim loan during the
first quarter 2000. This loan has allowed the Partnership to pay for
Phase I lease-up costs and 2000 operating deficits, and Phase II cost
increases.
The 9,424 square foot Phase II office/retail building was completed
and placed into service April 2000. The building is currently
partially occupied by a 6,424 square foot tenant and lease
negotiations are in process for an additional 1,500 square foot
tenant.
Plaza de Oro's Phase I and Phase II were listed for sale on July 1,
1999 with an independent brokerage firm. There has been an offer
received in the amount of $6,400,000, but this offer does not
represent a guaranteed sales price. The project's current offering
price less costs to sell is in excess of the carrying value of the
property and the Partnership's current obligations. At this time,
Management has not finalized a plan for the use of proceeds from the
sale of the property.
Results of Operations
During the three months ended March 31, 2000 as compared to March 31,
1999, the Partnership's total revenues increased by $57,572 (49.2%),
while its expenses decreased by $13,968 (5.9%), all resulting in a
decrease in net loss of $71,540.
The increase in revenues is primarily due to the increase in Phase
I's occupancy to 88% from 60% at March 31, 2000 and 1999,
respectively.
Total expenses decreased for the three months ended March 31, 2000 as
compared to March 31, 1999, due to the net effect of:
a) $4,068 (11.8%) increase in operating expenses due to higher
utility costs incurred for the office building due to an increase in
occupancy;
b) $2,166 (7.1%) increase in repair and maintenance due to
additional clean-up costs incurred in preparing the property for
sale.
c) $15,092 (17.7%) increase in interest due to interest accrued on
the affiliate loan, plus additional interest paid for the increase in
loan proceeds;
d) $1,051 (3.7%) decrease in general and administrative due to a
cost cutting program; and
e) $33,334 (76.4%) decrease in depreciation and amortization due to
depreciation no longer being taken subsequent to the second quarter
1999, as the Partnership's property had been reclassified as a long
lived asset to be disposed of.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISKS
The Partnership does not have a material market risk due to
financial instruments held by the Partnership. The Partnership's
variable rate instruments consist of a loan payable to affiliate and
a construction loan for Phase II. The total outstanding balance of
the loan payable to affiliate at March 31, 2000 was $106,755, while
the total outstanding balance of the construction loan was $953,370.
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 10, 2000 By:
Michael J. Metzger
President
Date: May 10, 2000 By:
Kenneth L. Buckler
Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-END> MAR-31-2000
<CASH> 53,220
<SECURITIES> 0
<RECEIVABLES> 40,305
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 93,525
<PP&E> 6,013,070
<DEPRECIATION> 1,470,519
<TOTAL-ASSETS> 4,835,335
<CURRENT-LIABILITIES> 128,448
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 4,835,335
<SALES> 0
<TOTAL-REVENUES> 174,575
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 123,013
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 100,128
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (48,566)
<EPS-BASIC> 0
<EPS-DILUTED> 0
</TABLE>
