10-Q 1 FORM 10-Q UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 Nine Months ended March 31, 1995 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 I.R.S. employer of organization identification number 4700 Roseville Road, Suite 101, North Highlands, California 95660 (Address of Principal executive offices) (Zip Code) Registrant's telephone number, including area code: (916)331-8080 Former name, former address and former fiscal year, if changed since last year Not applicable 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 ___ PART 1 - FINANCIAL INFORMATION Capital Builders Development Properties (A California Limited Partnership) BALANCE SHEETS
March 31 December 31 1995 1994 ASSETS Cash and cash equivalents $22,795 $4,899 Accounts receivable, net 181,643 195,973 Investment property, at cost, net of accumulated depreciation and amortization of $2,034,015 and $2,029,925 at March 31, 1995, and December 31, 1994, respectively, and a valuation allowance of $742,000. 7,807,166 7,944,599 Lease commissions, net of accumulated amortization of $72,419 and $89,681 at March 31, 1995 and December 31,1994, respectively 103,529 113,694 Other assets, net of accumulated amortization of $59,147 and $53,668 at March 31, 1995 and December 31, 1994, respectively 67,343 69,139 Minority Interest 345,754 290,314 Total assets $8,528,230 $8,618,618 LIABILITIES AND PARTNERS' EQUITY Loan payable to affiliate $1,110,961 $1,010,405 Notes payable 6,701,781 6,699,864 Accounts payable and accrued liabilities 76,544 117,530 Tenant deposits 99,471 106,309 Total liabilities 7,988,757 7,934,108 Partners' Equity: General partner (50,979) (50,979) Limited partners 590,452 735,489 Total partners' equity 539,473 684,510 Commitments and contingencies Total liabilities and partners' equity $8,528,230 $8,618,618 See accompanying notes to the financial statements.
Capital Builders Development Properties (A California Limited Partnership) STATEMENTS OF OPERATIONS THREE MONTHS ENDED MARCH 31,
1995 1994 Revenues Rental and other income $321,974 $286,324 Interest income 592 312 Total revenues 322,566 286,636 Expenses Operating expenses 57,819 63,577 Repairs and maintenance 30,512 32,536 Property taxes 24,194 23,920 Interest 197,726 149,148 General and administrative 34,669 34,986 Depreciation and amortization 158,122 217,079 Total expenses 503,042 521,246 Loss before minority interest (180,476) (234,610) Minority interest in joint venture (35,440) (31,608) Net loss (145,037) (203,002) Allocated to general partners (1,450) (2,030) Allocated to limited partners ($143,587) ($200,972) Net loss per limited partnership unit ($10.41) ($14.57) Average units outstanding 13,787 13,787 See accompanying notes to the financial statements.
Capital Builders Development Properties II (A California Limited Partnership) STATEMENTS OF CASH FLOWS THREE MONTHS ENDED MARCH 31
1995 1994 Cash flows from operating activities: Net loss ($145,037) ($203,002) Adjustments to reconcile net loss to cash flow used in operating activities: Depreciation and amortization 158,122 217,079 Minority interest in joint venture (35,440) (31,608) Changes in assets and liabilities Decrease in accounts receivable 14,330 23,189 Increase in leasing commissions (982) (22,138) Increase in other assets (3,683) (5,519) (Decrease)/Increase in accounts payable and accrued liabilities (40,986) 40,292 Decrease in tenant deposits (6,838) (2,341) Net cash (used in) provided by by operating activities (60,514) 17,946 Cash flows from investing activities: Improvements to investment properties (4,063) (98,874) Distribution to minority interest (20,000) (5,600) Net cash used in investing activities (24,063) (104,474) Cash flows from financing activities: Proceeds from notes payable, net 1,917 87,180 Proceeds on loans payable to affiliate 100,556 5,287 Net cash provided byfinancing activities 102,473 92,467 Net increase in cash 17,896 5,939 Cash, beginning of period 4,899 25,219 Cash, end of period $22,795 $31,158 See accompanying notes to the financial statements.
Capital Builders Development Properties (A California Limited Partnership) NOTES TO FINANCIAL STATEMENTS NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND ORGANIZATION A summary of the significant accounting policies applied in the preparation of the accompanying financial statements follows: Basis of Accounting The financial statements of Capital Builders Development Properties (The "Partnership") are prepared on the accrual basis and therefore revenue is recorded as earned and costs and expenses are recorded as incurred. Certain prior year amounts have been reclassified to conform to current year classifications. Principles of Consolidation The consolidated financial statements include the accounts of the company and its majority-owned subsidiary (60 percent), Capital Builders Roseville Venture. The remaining 40 percent is owned by Capital Builders Development Properties II, a California Limited Partnership and affiliate of the Partnership as they have the same General Partner. All significant intercompany accounts and transactions have been eliminated. 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 Associate General Partners are: 1) the sole shareholder, President and Director of CB, 2) four founders of CB, two of which are members of the Board of Directors. The Partnership is in the business of acquiring land for developing commercial properties for lease and eventual sale. Investment Properties The Partnership's investment property account consists of commercial land and buildings that are carried at the lower of cost, net of accumulated depreciation and amortization, or their net realizable value. Net realizable value is based upon an appraisal of the property by an independent appraiser and management's assessment of current market conditions. 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. Other Assets Included in other assets are loan fees. Loan fees are amortized over the life of the related notes. Lease Commissions Lease commissions are being amortized over the related lease terms. Income Taxes The Partnership has no provision for income taxes since all income or losses are reported separately on the individual partners' tax returns. Net Loss per Limited Partnership Unit The net loss per limited partnership unit is computed based on the weighted average number of units outstanding during the year of 13,787 in 1995 and 1994. Statement of Cash Flows For purposes of statement of cash flows, the Partnership considers all short-term investments with a maturity, at date of purchase, of three months or less to be cash equivalents. NOTE 2 - 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 portion of the sales commissions payable by the partnership with respect to the sale of the Partnership units; an acquisition fee of up to 12.5 percent of gross proceeds from the sale of the Partnership units; a property management fee up to 6 percent of gross revenues realized by the Partnership with respect to its properties; a subordinated real estate commission of up to 3 percent of the gross sales price of the properties; and a subordinated 25 percent share of the Partnership's distributions of cash from sales or refinancing. The property management fee currently being charged is 5 percent of gross revenues collected. All acquisition fees and expenses, all underwriting commissions, and all offering and organizational expenses which can be paid are limited to 20 percent 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 percent of the gross offering proceeds based upon the total acquisition and development costs, including borrowing. Since the formation of the partnership, 27.5% of these fees were paid to the partnership's related parties, leaving a remaining maximum of 5.5% ($379,143) of the gross offering proceeds. The ultimate amount of these costs will be determined once the properties are fully developed and leveraged. The total management fees paid to the Managing General Partner were $14,780 and $14,158 for the three months ending March 31, 1995 and 1994, respectively, while total reimbursement of expenses were $25,236 and $26,991, respectively. NOTE 3 - INVESTMENT PROPERTIES The components of the investment property account at March 31, 1995 and December 31, 1994 are as follows:
March 31, December 31, 1995 1994 Land $2,641,557 $2,641,557 Building and Improvements 6,308,700 6,308,700 Tenant Improvements 1,632,924 1,766,267 Investment properties, at cost 10,583,181 10,716,524 Less: accumulated depreciation and amortization (2,034,015) (2,029,925) valuation allowance (742,000) (742,000) Investment property, net $ 7,807,166 $ 7,944,599
NOTE 4 - LOAN PAYABLE TO AFFILIATE The loan payable represents funds advanced to the Roseville Joint Venture from Capital Builders Development Properties II, a related partnership which has the same General Partner. The loan bears interest, which is paid monthly, at approximately the same rate charged to it by a bank for similar borrowing, which was 10.5 and 7.5 percent March 31, 1995 and 1994, respectively. Interest expense incurred on the loan was $25,555 and $15,349 in 1995 and 1994, respectively. The loan is unsecured and is due and payable on demand. Notes payable consists of the following:
March 31, December 31, 1995 1994 Construction loan of $3,300,000 with interest at prime plus 2 percent which was modified effective April 1, 1992 as a new mini-permanent loan of $3,440,000 due April 1, 1997. The note bears interest at bank commercial lending rate (8.5 percent (at March 31, 1995)plus 2.0 percent with a floor of 8.5 percent and a ceiling of 9.75% as of May 31, 1995. Ceiling will then increase to 10.75% for the remaining life of the loan. The note provides for additional cash draws as additional lease up of the project is obtained and certain expense ratios are maintained. The note is collateralized by a first deed of trust on the land, buildings and improvements and is guaranteed by the General Partner. $3,322,581 $3,314,188 Mini-permanent loan of $3,400,000 has been modified effective June 23, 1994 as a new mini-permanent loan of $3,400,000, due June 25, 1999. The note requires monthly principal and interest payments and bears interest at bank prime (9.0 percent at March 31, 1995) plus 1.5 percent with a floor of 6.75 percent. The note is collateralized by a first deed of trust on the land, buildings and improvements, and is guaranteed by the General Partner. 3,379,200 3,385,676 Total notes payable $6,701,781 $6,699,864
NOTE 6 - RENTAL LEASES The Partnership leases its properties under long-term non-cancelable 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 theses leases for the years ending December 31 are as follows: 1996 $912,503 1997 588,207 1998 430,496 1999 235,154 2000 and thereafter 342,648 Total $2,509,008 NOTE 7 - COMMITMENTS AND CONTINGENCIES The Partnership is involved in litigation primarily arising in the normal course of its business. In the opinion of management, the Partnership's recovery or liability, if any, under any pending litigation would not materially affect its financial condition or operations. ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS LIQUIDITY AND CAPITAL RESOURCES The Partnership commenced operations on September 19, 1985 upon the sale of the minimum number of Limited Partnership Units. The Partnership's initial source of cash has been 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 for the development of an office/industrial project and 60 percent interest in the development of an office project. The Partnership's primary current sources of cash are from property rental income, additional draws on its $3,440,000 mini-permanent loan and loans from affiliate. As of March 31, 1995, $3,336,000 had been drawn on the loan, leaving a remaining line of $104,000. The terms of such financing are described in Note 5 of the Partnership's Financial Statements. It is the Partnership's investment goal to utilize existing capital resources for the continued lease up (tenant improvements and leasing commissions) and the further development of its investment properties. Funds for these commitments are obtained from property income, additional advances on the mini-permanent loan, loans from affiliate or existing cash reserves. The Partnership is expected to incur $104,000 in lease up and improvement costs which will be funded by additional draws on the mini- permanent loan. The Partnership's financial resources appear to be adequate to meet current year obligations and no adverse change in liquidity is foreseen. RESULTS OF OPERATIONS The Partnership's total revenues increased by $35,930 (12.5%) for the three months ended March 31, 1995 as compared to March 31, 1994, while expenses also decreased by $18,203 (3.5%) for the same respective period. In addition, the minority interest in net loss has decreased by $3,832 in 1995 compared to 1994, all resulting in a decrease in net loss of $57,965 (28.5%) for months ended March 31, 1995 as compared to March 31, 1994. The increase in revenues is due to an increase in occupancy at Plaza de Oro. Plaza de Oro experienced a lease up of 12,085 square feet of industrial and 1,241 of office space subsequent to the first quarter of 1994. The majority of this space is still incurring free rent but will begin receiving rent in the second quarter of 1995. The decrease in expenses is due to a decrease in deprecation and amortization of $58,957 (27.2%), a decrease in operating expenses of $5,758 (9.1%), and a decrease in repairs and maintenance of $2,024 (6.2%). The decrease in depreciation is due to an adjustment made in the first quarter of 1994 that resulted from a change in accounting estimate of the useful life of tenant improvement costs. The decrease in operating expenses and repairs and maintenance is due to the continued implementation of cost cutting programs. The remaining increase in expenses is due to an increase in interest of $48,578 (32.5%) which is the result of interest rate increases (see Notes 4 and 5) on the affiliate loan and mini-permanent loans. The increase also is the result of additional draws on both the affiliate loan and mini- permanent loans. 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 5, 1995 By: ______________________________________ Michael J. Metzger President Date: May 5, 1995 By: ______________________________________ Kenneth L. Buckler Chief Financial Officer EX-27 2
5 3-MOS DEC-31-1995 MAR-31-1995 22,795 0 181,643 0 0 204,738 9,837,091 2,034,015 8,528,230 76,544 0 0 0 0 0 8,528,230 0 322,566 0 0 305,316 0 197,726 (145,037) 0 (145,037) 0 0 0 (145,037) 0 0