Capital Builders Development Properties
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
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 June 30, 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 1 - FINANCIAL INFORMATION
Capital Builders Development
Properties
(A California Limited Partnership)
BALANCE SHEETS
<CAPTION>
June 30, December 31,
2000 1999
<S> <C> <C>
ASSETS
Cash and cash equivalents $35,061 $23,679
Accounts receivable, net 70,078 58,194
Investment property, held for sale,
at cost, net of accumulated
depreciation and amortization of
$1,470,519 at June 30, 2000 and
December 31, 1999 4,537,654 4,514,466
Lease commissions, net of accumulated
amortization of $107,412 at June 30,
2000, and December 31, 1999 113,227 87,948
Other assets, net of accumulated
amortization of $90,919 and
$71,538 at June 30, 2000, and
December 31, 1999, respectively 79,865 79,518
Total assets $4,835,885 $4,763,805
LIABILITIES AND PARTNERS' DEFICIT
Notes payable $4,673,768 $4,199,057
Loan payable to affiliate 109,236 104,331
Accounts payable and accrued
liabilities 110,310 489,667
Tenant deposits 47,211 44,357
Total liabilities $4,940,525 $4,837,412
Commitments and contingencies
Partners' Deficit:
General partner (58,870) (58,560)
Limited partners (45,770) (15,047)
Total partners' deficit ($104,640) ($73,607)
Total liabilities and
partner's deficit $4,835,885 $4,763,805
See accompanying notes to the financial statements.
</TABLE>
<TABLE>
Capital Builders
Development Properties
(A California Limited
Partnership)
STATEMENTS OF
OPERATIONS
THREE AND SIX MONTHS
ENDED JUNE 30,
<CAPTION>
2000 1999
Three Six Three Six
Months Months Months Months
Ended Ended Ended Ended
<S> <C> <C> <C> <C>
Revenues
Rental and other
income $247,372 $421,649 $132,887 $249,343
Interest income 690 801 375 922
Total revenues 248,062 422,450 133,262 250,265
Expenses
Operating expenses 36,789 75,350 32,557 67,050
Repairs and
maintenance 18,113 50,943 14,480 45,144
Property taxes 13,885 27,771 11,719 26,514
Interest 130,888 231,016 82,361 167,397
General and
administrative 21,563 49,022 19,160 47,673
Depreciation and
amortization 9,107 19,381 44,104 87,712
Total expenses 230,345 453,483 204,381 441,490
Net income/(loss) 17,717 (31,033) (71,119) (191,225)
Allocated to general
partners 177 (310) (711) (1,912)
Allocated to limited
partners $17,540 ($30,723) ($70,408) ($189,313)
Net income/(loss) per
limited partnership
unit $1.27 ($2.23) ($5.11) ($13.73)
Average units
outstanding 13,787 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 CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE
30,
<CAPTION>
2000 1999
<S> <C> <C>
Cash flows from operating
activities:
Net loss ($31,033) ($191,225)
Adjustments to reconcile net loss
to cash flows used in
operating activities:
Depreciation and amortization 19,381 87,712
Changes in assets and liabilities
(Increase)/Decrease in
accounts receivable (11,884) 7,812
Increase in leasing commissions (25,279) (41,874)
Decrease/(Increase) in other
assets 987 (1,102)
(Decrease)/Increase in accounts
payable and accrued liabilities (45,545) 12,508
Increase in tenant deposits 2,854 10,938
Net cash used in
operating activities (90,519) (115,231)
Cash flows from investing
activities:
Improvements to investment
properties (357,000) (33,747)
Net cash used in
investing activities (357,000) (33,747)
Cash flows from financing
activities:
Payments on notes & loan payables (20,355) (20,553)
Proceeds from notes & loan
payables 495,066 195,304
Payment of loan fees (20,715) (11,584)
Proceeds on loans payable to
affiliate 4,905 - - - - -
Net cash provided by
financing activities 458,901 163,167
Net Increase in cash 11,382 14,189
Cash, beginning of period 23,679 17,206
Cash, end of period $35,061 $31,395
Supplemental disclosure:
Cash paid for interest $ 238,928 $ 167,397
Non cash investing and financing
activity:
Capital improvements financed
through accounts payable and
accrued liabilities $ 333,812 - - - - -
See accompanying notes to the financial statements.
</TABLE>
Capital Builders Development Properties
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
June 30, 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 six months ended June 30,
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, which is classified as held for sale.
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 of 13,787 during
the periods ending June 30, 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
Additional lease-up in Plaza de Oro's existing Phase I increased the
project's overall occupancy to 90% during the second 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, funded
the 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. A property sale contract was entered
into on March 23, 2000, which has an expected closing date of August
31, 2000. This contract offer does not represent a guaranteed sales
price, and at this time, Management has not finalized a plan for the
use of the proceeds from the sale of the property. If the current
offer does result in a sale and if a plan to dissolve the
Partnership is adopted, approximately 14% of the original invested
capital would be available for distribution.
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 (including the
subordinated real estate commissions, the subordinated share of
distribution and the remaining acquisition fees) would not be
payable based on the current contract sale price of the assets to be
disposed of.
The total management fees paid to the Managing General Partner were
$26,604 and $-0- for the six months ended June 30, 2000 and 1999,
respectively. Total reimbursement of expenses was $37,684 and
$10,522, respectively. The Partnership has accrued $49,044 of
management fees and cost reimbursements as of June 30, 2000.
NOTE 4 - INVESTMENT PROPERTIES
The components of the investment property account are as follows:
June 30, December 31,
2000 1999
Land $1,353,177 $1,353,177
Building and Improvements 4,075,029 3,281,797
Tenant Improvements 579,967 577,747
Construction in Progress - - - - 772,264
Investment properties, at cost 6,008,173 5,984,985
Less: accumulated depreciation
and amortization (1,470,519) (1,470,519)
Investment property, net $4,537,654 $4,514,466
NOTE 5 - LOAN PAYABLE TO AFFILIATE
The loan payable at June 30, 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 June 30, 2000) and is payable upon demand. The
Partnership accrued interest of $11,934 and $7,154 for the periods
ending June 30, 2000 and December 31, 1999, respectively.
NOTE 6 - NOTES PAYABLE
Notes Payable consist of the following:
June 30, 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 Phase I land, buildings and
improvements, and is guaranteed by the
General Partner. $3,220,299 $3,242,885
Construction loan in the amount of
$1,123,000, which accrues interest at
Prime +1% (Prime as of June 30, 2000 is
9.5%) and is due August 19, 2000. The
loan provides for a six month extension
period. Interest accrues monthly on the
outstanding balance of the cumulative
construction loan draws. The Note
provides for future draws of $159,531 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. 963,469 616,172
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 June 30,
2000 and December 31, 1999 was $6,703 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 $4,673,768 $4,199,057
Scheduled principal payments during 2000, 2001, and 2002 are
$996,726, $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 $ 610,613
2001 612,014
2002 358,378
2003 165,876
2004 163,335
Thereafter 33,041
Total $1,943,257
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:
June 30, 2000 December 31,1999
Carrying Estimated Carrying Estimated
Amount Fair Value Amount Fair Value
Liabilities
Loan payable
to affiliate $109,236 $109,236 $104,331 $104,331
Note payable $3,220,299 $3,220,299 $3,242,885 $3,242,885
Note payable $963,469 $963,469 $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 six months ended June 30, 2000, cash increased by $11,382.
This was the result of net cash provided by financing in the amount
of $458,901, which was offset by negative cash flow from operations
of $90,519 and net cash used for Phase II building improvements of
$357,000.
The negative cash flow from operations is primarily the result of the
project's remaining vacant space, the leasing commissions paid year-
to-date to lease-up a portion of its vacant space, and the reduction
of accounts payable.
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 allowed the Partnership to pay for
Phase I lease-up costs, 2000 operating deficits, and Phase II cost
increases.
During the second quarter of 2000, the 9,424 square foot Phase II
office/retail building was completed and placed into service. 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, 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 six months ended June 30, 2000 as compared to June 30,
1999, the Partnership's total revenues increased by $172,185 (68.8%),
while its expenses also increased by $11,993 (2.7%), all resulting in
a decrease in net loss of $160,192.
The increase in revenues is due to the increase in Phase I's
occupancy to 93% from 68% at June 30, 2000 and 1999, respectively.
Additionally, Phase II began providing rental income during the
second quarter of 2000.
Total expenses decreased for the six months ended June 30, 2000 as
compared to June 30, 1999, due to the net effect of:
a) $8,300 (12.4%) increase in operating expenses due to higher
utility costs incurred for the office building due to an increase in
occupancy;
b) $5,799 (12.8%) increase in repair and maintenance due to
additional clean-up costs incurred in preparing the property for
sale;
c) $63,619 (38%) increase in interest due to interest incurred for
additional borrowings for Phase II and the additional operating loan,
plus interest accrued on the affiliate loan; and
d) $68,331 (77.9%) 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.
During the second quarter ended June 30, 2000 as compared to June 30,
1999, revenues increased by $114,800 (86.1%), while expenses also
increased by $25,964 (12.7%). The increase in revenue is due to the
increase in occupancy of Phase I, as well as Phase II being placed
into service in April 2000, thereby generating revenue. The increase
in expenses is primarily due to the increase in interest cost for
Phase II borrowings and the operating loan.
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 June 30, 2000 was $109,236, while
the total outstanding balance of the construction loan was $963,469.
PART II - OTHER INFORMATION
Item 1 - Legal Proceeding
The Partnership is not a party to, nor is
the Partnership's property the subject of, any
material pending legal proceedings.
Item 2 - Not applicable
Item 3 - Not applicable
Item 4 - Not applicable
Item 5 - Not applicable
Item 6 - Exhibits and Reports on Form 8-K
(a) Exhibits - None
(b) Reports on Form 8-K - None
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has dully caused this report to be signed on its
behalf by the undersigned, hereunto dully authorized.
CAPITAL BUILDERS DEVELOPMENT PROPERTIES
a California Limited Partnership
By: Capital Builders, Inc.
Its Corporate General Partner
Date: August 11, 2000 By:
Michael J. Metzger
President
Date: August 11, 2000 By:
Kenneth L. Buckler
Chief Financial Officer
