-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, PQSydWiEjOJUxEWJTeRvW/JMN07OoyY8Z/noAyNVnrd/nouh5uPEgJSwGwPhO5LO Qahqmp28Oens29Jb+NiKnA== 0000763978-00-000001.txt : 20000329 0000763978-00-000001.hdr.sgml : 20000329 ACCESSION NUMBER: 0000763978-00-000001 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19991231 FILED AS OF DATE: 20000328 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CAPITAL BUILDERS DEVELOPMENT PROPERTIES /CA/ CENTRAL INDEX KEY: 0000763978 STANDARD INDUSTRIAL CLASSIFICATION: LAND SUBDIVIDERS & DEVELOPERS (NO CEMETERIES) [6552] IRS NUMBER: 770049671 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 000-15750 FILM NUMBER: 581034 BUSINESS ADDRESS: STREET 1: 1130 IRON POINT ROAD, STE 170 STREET 2: C/O CAPITAL BUILDERS INC CITY: FOLSOM STATE: CA ZIP: 95630 BUSINESS PHONE: 916-353-0500 MAIL ADDRESS: STREET 1: 1130 IRON POINT ROAD, STE 170 STREET 2: SUITE 101 CITY: FOLSOM STATE: CA ZIP: 95630 10-K 1 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 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
December December 31 31 1999 1998 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 .
Capital Builders Development Properties (a California Limited Partnership) STATEMENTS OF OPERATIONS YEARS ENDED DECEMBER 31,
1999 1998 1997 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.
CAPITAL BUILDERS DEVELOPMENT PROPERTIES, a California Limited Partnership STATEMENTS OF PARTNERS' (DEFICIT) EQUITY YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
Total Partners' General Limited (Deficit) Partners Partners Equity 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.
Capital Builders Development Properties (a California Limited Partnership) STATEMENTS OF CASH FLOWS YEARS ENDED DECEMBER 31,
1999 1998 1997 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.
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. EX-27 2
5 0000763978 CBDP1 12-MOS DEC-31-1999 DEC-31-1999 23,679 0 58,194 0 0 81,873 5,984,985 1,470,519 4,763,805 489,667 0 0 0 0 0 4,763,805 0 569,559 0 0 479,306 0 349,250 0 0 0 0 0 0 (258,997) 0 0
-----END PRIVACY-ENHANCED MESSAGE-----