28
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, 1999 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.)
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
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, 1999 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.
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
remaining investment property is located near a major urban area and,
accordingly, competes not only with similar properties in its
immediate area 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 a commercial retail building for lease and
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, and due to the decline in real estate values during the
California real estate recession, it is anticipated that ultimate
returns will be less than initially projected.
On April 10, 1987, the Partnership entered into a joint venture
called Capital Builders Roseville Venture ("JV") with Capital
Builders Development Properties II ("CBDP II"), a California Limited
Partnership. The Partnership and CBDP II 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, had the same
rights and obligations with respect to the JV's operations and
management as it could exercise as Managing General Partner of the
Partnership. The JV was dissolved on May 1, 1997 when CBDP II
purchased CBDP's remaining 60% interest in the JV.
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 a 100% equity interest in a property called
Plaza de Oro ("PDO"). 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 on
which a 9,424 square foot building is currently under construction.
PDO maintains adequate property and general liability insurance.
Additional information about the Partnership's property follows:
Ownership Percentage: 100%
Acquisition Date: December 19, 1985
Location: Rancho Cordova, CA
Present Monthly
Effective Average
Base Rent Per Square Foot: $0.85
Square Footage Mix:
Office 28,820
Industrial 33,825
Retail 18,364
Leased Occupancy at
December 31: 1999 87%
1998 60%
1997 81%
1996 98%
1995 92%
Current Year Depreciation: $66,175
Method of Depreciation: Straight Line
Depreciation Life: 40 Years
Bldg Improvements
Life of Lease
Tenant Improvements
Total cost: $5,984,985
Encumbrances: $4,199,057
Tenant occupying more than
10% of square footage and nature
of business: None
The Partnership's property was listed for sale on July 1, 1999, and
since that date there has been no depreciation taken on its buildings
or improvements.
The Partnership's property is held subject to encumbrances which are
more fully described under Note 6 to the Partnership's Financial
Statements included under Item 8 which is incorporated herein by
reference.
Plaza de Oro is 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 three years of a lease term. Some leases
contain options to extend the term of the lease.
The Partnership's investment property is located in a major urban
area 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, 1999, there were 1,137 holders and 13,787 Limited
Partnership units outstanding.
ITEM 6. SELECTED FINANCIAL DATA
The following constitutes a summary of selected consolidated
financial data for the following periods (000's omitted except net
loss per Limited Partnership unit):
1999 1998 1997 1996 1995
Revenues $570 $622 $992 $1,341 $1,262
Net (Loss) Income ($259) ($390) $879 ($394) ($594)
Net (Loss) Income per
Limited Partnership
Unit ($19) ($28) $63 ($28) ($43)
Total Assets 4,764 $3,901 $4,219 $8,326 $8,386
Notes and Loans Payable 4,303 $3,599 $3,503 $8,354 $8,102
(See ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA)
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Year 2000 Issue
The Partnership experienced no Year 2000 issues that materially
effected the Partnership's operations.
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 is required to be
adopted no later than the first quarter of the fiscal year beginning
after December 15, 1999. Management believes that the adoption of SAB
101 will not have a material impact on the financial statements.
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.
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 twelve months ended December 31, 1999, cash increased by
$6,473. This was the result of net cash provided by financing in the
amount of $653,240, which was offset by negative cash flow from
operations of $127,649, net cash used for Phase I tenant improvements
($88,292) and net cash used for Phase II building improvements
($430,826).
The negative cash flow from operations is primarily the result of the
project's vacant space and the leasing commissions paid during the
second and third quarters to lease up a portion of its vacant space.
In order to temporarily solve the Partnership's cash flow problem,
Management obtained a 10 month, $150,000 interim loan during the
second quarter 1999. This loan has allowed the Partnership to pay for
Phase I lease-up costs and 1999 operating deficits.
During the twelve months ended 1999, Management was successful in re-
leasing 14,621 square feet of office space, 7,020 square feet of
industrial space, and 6,424 square feet of the pad building, which is
currently under construction. This lease up will continue to decrease
future net losses from operations, but it is still necessary for the
property to continue to lease up in order for the Partnership to meet
its current obligations.
During the third quarter of 1999, Management began the development of
the remaining pad with a 9,424 square foot office/retail building.
Lease terms for this building were finalized with a tenant requiring
approximately 6,424 square feet. Construction loans totaling
$1,313,000 have also been obtained during the third quarter of 1999.
The initial proceeds from these loans were used to pay off the
$290,000 Phase II land loan and paid the initial development costs of
the Phase II building. There have been approximately $50,000 in
identified cost increases in Phase II, which necessitates an increase
in construction loan proceeds. Management is currently negotiating
with lenders to provide the necessary funds to cover these additional
costs.
Plaza de Oro's Phase I and Phase II were listed for sale on July 1,
1999 with an independent brokerage firm. The project's current asking
price less costs to sell is in excess of the carrying value of the
property and the Partnership's current obligations. Presently, there
are no pending offers or identified buyers; therefore, the final sales
prices cannot be determined at this time. At this time, Management
has not finalized a plan for the use of the proceeds from the sale of
the property.
Results of Operations
1999 vs 1998
During the twelve months ended December 31, 1999 as compared to
December 31, 1998, the Partnership's total revenues decreased by
$52,646 (8.5%), while its expenses decreased by $183,944 (18.2%), all
resulting in a decrease in net loss of $131,298.
The decrease in revenues is primarily due to one of Plaza de Oro's
major office tenants, who had occupied 12,052 square feet, filing
Chapter 11 Bankruptcy during the fourth quarter of 1998.
Total expenses decreased for the twelve months ended December 31, 1999
as compared to December 31, 1998, due to the net effect of:
a) $10,837 (7.2%) decrease in operating expenses due to lower
management fees and utility costs associated with vacant space during
1999;
b) $14,434 (18.9%) increase in repairs and maintenance due to funds
expended to improve the property's appearance for its potential sale;
c) $10,796 (3.2%) increase in interest costs due to the additional
funds borrowed for operating deficits;
d) $5,342 (5.7%) decrease in General and Administrative due to cost
saving measures; and
e) $192,733 (65.4%) decrease in depreciation and amortization
primarily due to depreciation no longer being taken subsequent to the
second quarter 1999, as the Partnership's property has been
reclassified as a long lived asset to be disposed of. Additionally,
fewer tenant improvements were in place during 1999 as compared to
1998.
1998 vs 1997
The Partnership's total revenues decreased by $369,917 (37.3%) for the
twelve months ended December 31, 1998 as compared to December 31,
1997, while expenses also decreased by $250,627 (19.8%) for the same
respective period. In addition, the minority interest in net loss
decreased by $22,806 (100%) in 1998 compared to 1997, and a gain of
$1,127,913 was recognized during the twelve months ended December 31,
1997 from the sale of its 60% interest in the Capital Builders
Roseville Venture, all resulting in a decrease in net income of
$1,270,009 (144.4%) for the twelve months ended December 31, 1998 as
compared to December 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 $242,630 since the Partnership no
longer owns 60% of the Roseville Joint Venture (Capital Professional
Center), as it did during the twelve months ended December 31, 1997.
The Partnership's remaining property, Plaza de Oro, experienced a
decrease in revenue of $127,288 due to a large decrease in occupancy
amounting to a decrease in rental income of $91,288. Additionally,
the Partnership recognized $36,000 of income during 1997 due to the
refinancing of its permanent loan, in which back-end loan fees which
had been previously amortized over the life of the loan were forgiven
by the Lender.
Total expenses decreased by $250,627 for the twelve months ended
December 31, 1998, as compared to December 31, 1997, primarily due to
the sale of its 60% interest in Capital Builders Roseville Venture on
May 1, 1997. As of December 31, 1998, the Statement of Operations did
not include any joint venture expenses, where as of December 31, 1997,
expenses of $299,645 were included.
The Partnership's remaining property, Plaza de Oro, recognized an
increase in expenses of $48,669 primarily due to the increase of
depreciation and amortization resulting from the accelerated write-off
of tenant improvements and leasing commissions relating to the
premature vacancy of the 12,052 square foot office tenant.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES 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 balances of these loans are
$720,503 and $24,000 as of December 31, 1999 and 1998, respectively.
The increase from 1998 to 1999 is due to additional draws for
construction of Phase II.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Page Number
INDEPENDENT AUDITORS' REPORT 11
FINANCIAL STATEMENTS
BALANCE SHEETS 12
AS OF DECEMBER 31, 1999, and 1998
STATEMENTS OF OPERATIONS 13
FOR THE YEARS ENDED
DECEMBER 31, 1999, 1998, and 1997
STATEMENTS OF PARTNERS' 14
(DEFICIT) EQUITY FOR THE YEARS ENDED
DECEMBER 31, 1999, 1998, and 1997
STATEMENTS OF CASH FLOWS 15
FOR THE YEARS ENDED
DECEMBER 31, 1999, 1998, and 1997
NOTES TO FINANCIAL STATEMENTS 16-23
SUPPLEMENTAL SCHEDULES
SCHEDULE III
REAL ESTATE AND ACCUMULATED DEPRECIATION 28
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 balance sheets of Capital Builders
Development Properties, a California Limited Partnership, as of
December 31, 1999 and 1998, and the related statements of operations,
partners' (deficit) equity and cash flows for each of the years in
the three-year period ended December 31, 1999. In connection with
our audits of the financial statements, we also have audited the
financial statement schedule as listed in the accompanying index.
These financial statements and financial statement schedule are the
responsibility of the partnership's management. Our responsibility is
to express an opinion on these 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 financial statements referred to above present
fairly, in all material respects, the financial position of Capital
Builders Development Properties as of December 31, 1999 and 1998, and
the results of its operations and its cash flows for each of the
years in the three-year period ended December 31, 1999 in conformity
with generally accepted accounting principles. Also in our opinion,
the related financial statement schedule, when considered in relation
to the basic financial statements taken as a whole, presents fairly,
in all material respects, the information set forth therein.
The accompanying financial statements have been prepared assuming
that the partnership will continue as a going concern. As discussed
in Note 2 to the financial statements, the partnership's negative
cash flow position and significant debt service requirements 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 financial statements and financial statement schedule do
not include any adjustments that might result from the outcome of
this uncertainty.
Sacramento, California KPMG LLP
January 28, 2000
PART 2 - FINANCIAL INFORMATION
<TABLE>
Ca
pi
ta
l
Bu
il
de
rs
De
ve
lo
pm
en
t
Pr
op
er
ti
es
(a
Ca
li
fo
rn
ia
Li
mi
te
d
Pa
rt
ne
rs
hi
p)
BA
LA
NC
E
SH
EE
TS
<CAPTION>
December December
31 31
1999 1998
<S> <C> <C>
AS
SE
TS
Ca $23,679 $17,206
sh
,
in
cl
ud
in
g
re
st
ri
ct
ed
ca
sh
Ac 58,194 68,742
co
un
ts
re
ce
iv
ab
le
,
ne
t
In
ve
st
me
nt
pr
op
er
ty
he
ld
fo
r
sa
le
,
ne
t
of
accumulat
ed
depreciat
ion and
amortizat
ion of
$1,470,51
9 and
$1,404,34
3 at
December
31, 1999
and 1998, 4,514,466 3,727,709
respectiv
ely
Le
as
e
Co
mm
is
si
on
s,
ne
t
of
ac
cu
mu
la
te
d
amortizat
ion of
$107,412
and
$99,899
at
December 87,948 34,260
31, 1999
and 1998,
respectiv
ely
Ot
he
r
as
se
ts
,
ne
t
of
ac
cu
mu
la
te
d
amortizat
ion of
$71,538
and
$43,372
at
December
31, 1999
and
1998, 79,518 53,389
respectiv
ely
Total Assets $4,763,805 $3,901,306
LI
AB
IL
IT
IE
S
AN
D
PA
RT
NE
RS
'
(D
EF
IC
IT
)
EQ
UI
TY
No $4,199,057 $3,574,944
te
s
pa
ya
bl
e
Lo 104,331 24,000
an
pa
ya
bl
e
to
af
fi
li
at
e
Ac 489,667 87,929
co
un
ts
pa
ya
bl
e
an
d
ac
cr
ue
d
li
ab
il
it
ie
s
Te 44,357 29,043
na
nt
de
po
si
ts
Total Liabilities 4,837,412 3,715,916
Co
mm
it
me
nt
s
an
d
co
nt
in
ge
nc
ie
s
Pa
rt
ne
rs
'
(D
ef
ic
it
)
Eq
ui
ty
:
General (58,560) (55,970)
Partners
Limited (15,047) 241,360
Partners
Total Partners' (Deficit) Equity (73,607) 185,390
Total
Liabiliti $4,763,805 $3,901,306
es and
Partners'
(Deficit)
Equity
Se
e
ac
co
mp
an
yi
ng
no
te
s
to
th
e
fi
na
nc
ia
l
st
at
em
en
ts
.
</TABLE>
<TABLE>
Capital Builders Development
Properties
(a California Limited
Partnership)
STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31,
<CAPTION>
1999 1998 1997
<S> <C> <C> <C>
Revenues
Rental and other income $568,131 $621,770 $991,210
Interest Income 1,428 435 912
Total revenues 569,559 622,205 992,122
Expenses
Operating expenses 140,441 151,278 202,125
Repairs & maintenance 90,690 76,256 130,654
Property taxes 57,411 57,673 71,632
Interest 349,250 338,454 472,622
General and administrative 88,911 94,253 89,335
Depreciation and
amortization 101,853 294,586 296,759
Total expenses 828,556 1,012,500 1,263,127
Loss before minority
interest and gain from
disposition of Joint Venture (258,997) (390,295) (271,005)
Minority interest in net
loss of Joint Venture - - - - - - - - - - 22,806
Gain from disposition of
Joint Venture - - - - - - - - - - 1,127,913
Net (loss) income (258,997) (390,295) 879,714
Allocated to General
Partners (2,590) (3,903) 8,797
Allocated to Limited
Partners ($256,407) ($386,392) $870,917
Net (loss) income per
limited Partnership unit ($18.60) ($28.03) $63.17
Average units outstanding 13,787 13,787 13,787
See accompanying notes to the financial statements.
</TABLE>
<TABLE>
CAPITAL BUILDERS DEVELOPMENT PROPERTIES,
a California Limited Partnership
STATEMENTS OF PARTNERS' (DEFICIT) EQUITY
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
<CAPTION>
Total
Partners'
General Limited (Deficit)
Partners Partners Equity
<S> <C> <C> <C>
Balance at December 31, 1996 ($60,864) ($243,165) ($304,029)
Net income 8,797 870,917 879,714
Balance at December 31, 1997 (52,067) 627,752 575,685
Net Loss (3,903) (386,392) (390,295)
Balance at December 31, 1998 (55,970) 241,360 185,390
Net Loss (2,590) (256,407) (258,997)
Balance at December 31, 1999 ($58,560) ($15,047) ($73,607)
See accompanying notes to the financial statements.
</TABLE>
<TABLE>
Capital Builders Development
Properties
(a California Limited
Partnership)
STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31,
<CAPTION>
1999 1998 1997
<S> <C> <C> <C>
Cash flows from operating
activities:
Net (loss) income ($258,997) ($390,295) $879,714
Adjustments to reconcile
net (loss) income to cash
flow (used in) provided by
operating activities:
Depreciation and
amortization 101,853 294,586 296,759
Minority interest in joint
venture - - - - - - - - - - (22,806)
Gain from disposition of
joint venture investment - - - - - - - - - - (1,127,913)
Unpaid interest expense on
loan payable - - - - - - - - - - 55,347
Changes in assets and
liabilities:
Decrease (Increase) in
accounts receivable 10,548 51,410 (19,494)
Increase in leasing
commissions (61,201) (1,093) (36,346)
(Increase) Decrease in
other assets (3,091) 2,703 (757)
Increase (Decrease) in
accounts payable and
accrued liabilities 67,925 (328) (12,259)
Increase (Decrease ) in
tenant deposits 15,314 (22,946) (11,801)
Net cash (used in) provided
by operating activities (127,649) (65,963) 444
Cash flows from investing
activities:
Improvements to investment
properties (519,118) (1,588) (83,197)
Proceeds from sale of
partnership investment - - - - - - - - - - 14,380
Net cash used in investing
activities (519,118) (1,588) (68,817)
Cash flows from financing
activities:
Proceeds on notes payable 956,174 110,000 3,530,000
Payments on notes payable (332,061) (38,454) (3,425,377)
Payment of loan fees (51,204) (13,099) (83,275)
Proceeds on loans payable
to affiliate 80,331 24,000 - - - - -
Net cash provided by
financing activites 653,240 82,447 21,348
Net increase (decrease) in
cash 6,473 14,896 (47,025)
Cash, beginning of period 17,206 2,310 49,335
Cash, end of period $23,679 $17,206 $2,310
Supplemental disclosure:
Cash paid for interest $349,250 $338,454 $391,634
Non cash investing and
financing activity:
Capital improvements
financed through accounts
payable and accrued
liabilities $333,813 - - - - - - - - - -
See accompanying notes to the financial statements.
</TABLE>
Capital Builders Development Properties
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
December 31, 1999, 1998 and 1997
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.
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
$20,703.
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 during the year ended
December 31 of 13,787 in 1999, 1998 and 1997.
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
In November 1998, one of the investment property's major office
tenants, occupying 12,052 square feet, filed Chapter 11 Bankruptcy
and vacated its suites. Although the tenant's lease does not expire
until January 31, 2001, it is unlikely that any future collections
will be received on the lease.
The loss of this tenant has had a significant negative impact on the
Partnership's cash flow. As of December 31, 1999, Management was
successful in re-leasing the 12,052 square feet and an additional
2,569 square feet of office space and 7,020 of industrial space.
Additionally, Management was successful in leasing 6,424 square feet
of the 9,424 square foot pad building. The pad building is currently
under construction.
The additional lease up of Plaza de Oro's existing Phase I and new
Phase II pad building has increased the project's overall occupancy
to 87% during the third quarter of 1999. This additional 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 1999, Management secured a $150,000 interim loan to fund 1999
lease-up costs and a portion of operating expenses in excess of cash
provided by operations. Additionally, the General Partner provided
an affiliate loan to cover additional operating expenses. During
1999, Management also obtained construction loans totaling $1,313,000
to cover the development costs of Phase II's 9,424 square foot pad
building.
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, but there are no offers pending or
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 $-
0-, $7,960 and $47,380 for the years ended December 31, 1999, 1998,
and 1997 respectively. Total reimbursement of expenses was $86,352,
$85,552, and $97,416, respectively. The Partnership has accrued
$75,213 of management fees and cost reimbursements as of December 31,
1999.
NOTE 4 - INVESTMENT PROPERTIES
The components of the investment property account are as follows at
December 31,:
1999 1998
Land $1,353,177 $1,353,177
Building and Improvements 3,281,797 3,289,420
Tenant Improvements 577,747 489,455
Construction in Progress 772,264 - - -
Investment properties, at cost 5,984,985 5,132,052
Less: accumulated depreciation
and amortization (1,470,519) (1,404,343)
Investment property, net $4,514,466 $3,727,709
NOTE 5 - LOAN PAYABLE TO AFFILIATE
The loan payable at December 31, 1999 and December 31, 1998
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 December 31, 1999) and is payable upon
demand. The Partnership accrued interest of $7,154 and $128 for the
years ending December 31, 1999 and 1998, respectively.
NOTE 6 - NOTES PAYABLE
Notes Payable consist of the following at December 31,:
1999 1998
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. $3,242,885 $3,284,944
Land loan of $290,000 due May 1, 1999,
which had been extended to September 1,
1999. The note required interest only
payments and beared interest at 12.5%.
The note was secured by Plaza de Oro's
separately parceled Phase II land. - 0 - 290,000
Construction loan in the amount of
$1,123,000, which accrues interest at
Prime +1% (Prime as of December 31, 1999
is 8.5%) 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 $506,828 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. 616,172 - 0 -
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 December 31,
1999 is $19,362. 190,000 - 0 -
Interim tenant improvement/leasing
commission loan of $150,000 due March 1,
2000. 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. 150,000 - - - -
Total Notes Payable $4,199,057 $3,574,944
Scheduled principal payments during 2000, 2001, and 2002 are
$812,398, $240,688, and $3,145,971, respectively.
Management is currently in the process of negotiating terms to
refinance the interim tenant improvement loan of $150,000 due March
1, 2000.
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 $508,770
2001 470,762
2002 210,503
2003 42,228
2004 39,690
Total $1,271,953
NOTE 8 - RECONCILIATION TO INCOME TAX METHOD OF ACCOUNTING
A reconciliation of the net (loss) income as reflected on the
accompanying Statements of Operations to that reflected on the
Federal income tax return for the years ended December 31 is as
follows:
1999 1998 1997
Net (loss) income - Statements
of Operations ($258,997) ($390,295) $879,714
Adjustments
resulting from:
Difference in depreciation
and amortization (1,590) 108,868 (413,552)
Net (loss) income - tax return ($260,587) ($281,427) $466,162
Partners' equity - Statements of
Partners' (deficit)equity ($73,607) $185,390 $575,685
Increases
resulting from:
Difference in depreciation
and amortization and
valuation allowance 1,875,009 1,876,599 1,767,731
Selling expenses for
Partnership units 1,012,108 1,012,108 1,012,108
Partners' equity - tax return $2,813,510 $3,074,097 $3,355,524
Taxable (loss) income per Limited
Partnership unit after
giving effect to the
taxable loss allocated to
the General Partner ($18.71) ($20.21) $33.47
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.
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
as of December 31, are as follows:
1999 1998
Carrying Estimated Carrying Estimated
Amount Fair Value Amount Fair Value
Liabilities
Loan payable to affiliate $104,331 $104,331 $24,000 $24,000
Note payable $3,242,885 $3,242,885 $3,284,944 $3,284,944
Note payable - - - - - - $290,000 $290,000
Note payable $616,172 $616,172 - - - - - -
Note payable $190,000 $190,000 - - - - - -
Note payable $150,000 $150,000 - - - - - -
NOTE 10 - COMMITMENTS AND CONTINGENCIES
The Partnership is involved in litigation primarily arising in the
normal course of its business. In the opinion of management, the
Partnership's recovery or liability, if any, under any pending
litigation would not materially affect its financial condition or
operations.
NOTE 11 - PROSPECTIVE ACCOUNTING PRONOUNCEMENTS
Revenue Recognition in Financial Statements
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 is required to be
adopted no later than the first quarter of the fiscal year beginning
after December 15, 1999. Management believes that the adoption of SAB
101 will not have a material impact on the financial statements.
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.
PART III
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS 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. CB relocated
on October 8, 1999, and its executive offices are now located at 1130
Iron Point Road, Suite 170, Folsom, California 95630 [telephone
number (916) 353-0500]. 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 $4,199,057.
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 a license in Real Estate and former
licenses in Insurance and Securities.
Ellen Wilcox: Ellen Wilcox is a Registered Investment Advisor in
California and the former Owner/Manager of Wilcox Financial Services.
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. From 1978 to 1995 he worked
for KPMG LLP and was a 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.
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 $25,048, of which $-0- was paid and
$25,048 was accrued in 1999. These fees consisted 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 $86,352 in 1999.
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, 1999 the Managing General Partner
and/or its affiliate received $86,352 for reimbursement of
administrative services and $-0- 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 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, 2000.
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