-----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, S5OOY3nShqmjsDpWH6WZKXZ2b4hshpQwkW7YxVm/4P0xe3qKPdRNJFf+SG7G3nsq suQdw4vTSvKepGFh/V+EkQ== 0000763978-96-000006.txt : 19960830 0000763978-96-000006.hdr.sgml : 19960830 ACCESSION NUMBER: 0000763978-96-000006 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19960630 FILED AS OF DATE: 19960829 SROS: NONE 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-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-15750 FILM NUMBER: 96623050 BUSINESS ADDRESS: STREET 1: 4700 ROSEVILLE RD, STE 101 STREET 2: C/O CAPITAL BUILDERS INC CITY: NORTH HIGHLANDS STATE: CA ZIP: 95660 BUSINESS PHONE: 9163318080 MAIL ADDRESS: STREET 1: 4700 ROSEVILLE ROAD STREET 2: SUITE 101 CITY: NORTH HIGHLANDS STATE: CA ZIP: 95660 10-Q 1 2 FORM 10-Q UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 Six Months ended June 30, 1996 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. 4700 Roseville Road, Suite 206, 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: 4700 Roseville Road, Suite 101, 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 PART 1 - FINANCIAL INFORMATION Capital Builders Development Properties (A California Limited Partnership)
June 30 December 31 1996 1995 ASSETS Cash and cash equivalents 6,116 90,399 Accounts receivable, net 145,508 138,421 Investment property, at cost, net of accumulated depreciation and amortization of $2,039,698 and $2,097,079 at June 30, 1996 and December 31, 1995, respectively, and a valuation allowance of $742,000 7,355,545 7,485,195 Lease commissions, net of accumulated amortization of $81,452 and $82,403 at June 30, 1996, and December 31, 1995, respectively 115,171 92,202 Other assets, net of accumulated amortization of $77,511 and $104,133 at June 30, 1996, and December 31, 1995, respectively 76,819 91,323 Minority Interest 624,687 487,968 Total assets 8,323,846 8,385,508 LIABILITIES AND PARTNERS' EQUITY Loan payable to affiliate 1,419,299 1,231,089 Notes payable 6,832,520 6,871,227 Accounts payable and accrued liabilities 121,562 84,266 Tenant deposits 103,932 108,845 Total liabilities 8,477,313 8,295,427 Partners' Equity: General partner (59,381) (56,923) Limited partners (94,086) 147,004 Total partners' equity (153,467) 90,081 Commitments and contingencies Total liabilities and partner's equity 8,323,846 8,385,508 See accompanying notes to the financial statements.
1996 1995 1995 1995 Three Six Three Six Months Months Months Months Ended Ended Ended Ended Revenues Rental and other income 331,310 629,223 319,201 641,175 Interest income 302 757 594 1,186 Total revenues 331,612 629,980 319,795 642,361 Expenses Operating expenses 63,047 125,939 57,877 115,696 Repairs and maintenance 39,218 71,257 37,076 67,588 Property taxes 24,372 48,744 24,194 48,388 Interest 185,541 369,393 202,209 399,935 General and administrative 22,746 62,410 18,591 53,260 Depreciation and amortization 120,938 242,022 140,514 298,636 Total expenses 455,862 919,765 480,461 983,503 Loss before minority interest (124,250) (289,785) (160,666) (341,142) Minority interest in joint venture (19,731) (46,235) (37,137) (72,577) Net loss (104,519) (243,550) (123,529) (268,565) Allocated to general partners (1,045) (2,435) (1,235) (2,685) Allocated to limited partners (103,474) (241,115) (122,294) (265,880) Net loss per limited partnership unit (8) (18) (9) (19) Average units outstanding 13,787 13,787 13,787 13,787 See accompanying notes to the financial statements.
STATEMENTS OF CASH FLOWS FOR MONTHS ENDED JUNE 30,
1996 1996 1995 1995 Three Six Three Six Months Months Months Months Ended Ended Ended Ended Cash flows from operating activities: Net loss (104,519) (243,550) (123,528) (268,565) Adjustments to reconcile net loss to cash flow used in operating activities: Depreciation and amortization 120,938 242,022 140,514 298,636 Minority interest in joint venture (19,731) (46,235) (37,137) (72,577) Changes in assets and liabilities (Increase)/Decrease in (8,581) (7,087) (7,741) 6,589 accounts receivable Increase in leasing commissions (20,788) (43,953) (5,630) (6,612) (Increase)/Decrease in other assets (166) 342 1,261 (2,422) (Decrease)/Increase in accounts payable and accrued liabilities (46,703) 37,296 19,683 (21,303) Increase/(Decrease) in tenant deposits 2,928 (4,913) 677 (6,161) Net cash (used in) provided by operating activities (76,622) (66,078) (11,901) (72,415) Cash flows from investing activities: Improvements to investment properties (36,823) (77,228) (2,861) (6,924) Net cash used in investing activities (36,823) (77,228) (2,861) (6,924) Cash flows from financing activities: (Payments)/Proceeds from notes payable, net (19,904) (38,707) (5,786) (3,869) Proceeds on loans payable to affiliate 188,210 188,210 29,337 129,893 Distribution to minority interest (68,000) (90,480) (4,400) (24,400) Net cash provided by financing activities 100,306 59,023 19,151 101,624 Net Increase in cash (13,139) (84,283) 4,389 22,285 Cash, beginning of period 19,255 90,399 22,795 4,899 Cash, end of period 6,116 6,116 27,184 27,184 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. 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 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. 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 less valuation allowance for possible investment losses. The valuation allowance represents the excess carrying value of individual properties over their estimated net realizable value. The additions to the valuation allowance for possible investment losses are recorded after consideration of various external factors, particularly the lack of credit available to purchasers of real estate and overbuilt real estate markets, both of which adversely affect real estate. A gain or loss will be recorded to the extent that the amounts ultimately realized from property sales differ from those currently estimated. In the event economic conditions for real estate continue to decline, additional valuation losses may be recognized. 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 1996 and 1995. 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. Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to take 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 revenue and expenses during the reporting period. Actual results could differ from those estimates. NOTE 2 - LIQUIDITY The Partnership's viability as a going concern is dependent upon management's ability to continue the lease up of the Partnership's projects and the restructuring and refinancing of Plaza de Oro's Note Payable. See Note 6 of the Notes to Consolidated Financial Statements for information of the Partnership's Note Payable. For the six months ended June 30, 1996, the Partnership incurred $84,283 in negative cash flows from operating activities. These negative cash flows are the result of an increase in interest costs and the loss of a major tenant at Plaza de Oro. As indicated in Note 6 of the Notes to the Consolidated Financial Statements, the Partnership's management was successful in refinancing Capital Professional Center with a fixed interest rate loan, reducing its annual interest rate by approximately 2%. However, due to financial ratio requirements of potential new lenders and current real estate market conditions, it is likely that Plaza de Oro's current loan will require restructuring in order for the project to be refinanced and meet its future obligations. It is anticipated that Plaza de Oro will continue to produce negative cash flows unless its current loan is restructured and or refinanced. Management is aggressively marketing the project's vacant suites and reviewing all options of loan restructure and refinancing. There can be no assurance the Company's restructuring efforts will be successful. 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 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 $30,383 and $29,131 for the six months ending June 30, 1996 and 1995, respectively, while total reimbursement of expenses were $57,756 and $45,152, respectively. NOTE 4 - INVESTMENT PROPERTIES The components of the investment property account at June 30, 1996 and December 31, 1995 are as follows: June 30, December 31, 1996 1995 Land $ 2,641,557 2,641,557 Building and Improvements 6,326,357 6,322,833 Tenant Improvements 1,169,329 1,359,884 Investment properties, at cost 10,137,243 10,324,274 Less: accumulated depreciation and amortization (2,039,698) (2,097,079) valuation allowance (742,000) (742,000) Investment property, net$ 7,355,545 $ 7,485,195 NOTE 5 - 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 8.24 and 10.5 percent June 30, 1996 and 1995, respectively. Interest expense incurred on the loan was $51,839 and $54,893 in 1996 and 1995, respectively. The loan is unsecured and is due and payable on demand. NOTE 6 - NOTES PAYABLE Notes payable consists of the following: June 30 December 31, 1996 1995 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 (8.0% at June 30, 1996) plus 2.5% with a floor of 8.5% and a ceiling of 10.75%. 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. $3,354,268 $3,371,227 The mini-permanent loan of $3,400,000 with interest at the bank's prime rate (8.75 percent at December 31, 1995) plus 1.5 percent was refinanced with a $3,500,000 mini-permanent fixed interest rate loan on December 29, 1995. The loan's fixed interest rate is 8.24% and requires monthly principal and interest payment of $27,541, which is sufficient to amortize the loan over 25 years. The loan is due January 1, 2001. The note is collatoralized by a first deed of trust on the land, buildings and improvements. $3,478,252 $3,500,000 Total notes payable $6,832,520 $6,871,227 NOTE 7 - 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 these leases for the years ending December 31 are as follows: 1996 $ 1,138,811 1997 908,362 1998 715,562 1999 383,770 2000 165,500 2001 and thereafter 282,930 Total $3,594,935 NOTE 8 - 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 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 percent interest in a commercial office project. The Partnership's primary current sources of cash are from cash reserves, property rental income, additional draws on its $3,440,000 mini-permanent loan and loans from affiliate. As of June 30, 1996, $3,400,036 had been drawn on the mini-permanent loan, leaving a remaining line of $39,964, but due to the loss of certain office tenants during 1995, it is unlikely these remaining funds will be made available for further draws. The terms of such financing are described in Note 6 of the Notes to the Consolidated 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. The Partnership is expected to incur $73,000 in lease up and improvement costs on the existing building which will be funded by cash reserves, property income and affiliate loans. The Partnership's current financial resources do not appear to be adequate to meet current year obligations, due to an increase in interest costs and the loss of a major office tenant at Plaza de Oro (discussed further in MDA's Results of Operations section). The possibility of adverse change in the Partnership's liquidity is likely unless additional leasing and the refinancing of Plaza De Oro takes place. To improve and stabilize the Partnership's financial position, management is aggressively marketing Plaza's vacant space and attempting to refinance existing debt. ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) Results of Operations The Partnership's total revenues decreased by $12,381 (1.9%) for the six months ended June 30, 1996, as compared to June 30, 1995, while expenses also decreased by $63,738 (6.5%) for the same respective period. In addition, the minority interest in net loss has decreased by $26,342 in 1996 compared to 1995, all resulting in a decrease in net loss of $25,015 (9.3%) for months ended June 30, 1996 as compared to June 30, 1995. The decrease in revenues is due to a major tenant in the office building, who occupied approximately 7,193 of rentable square feet, prematurely terminated their lease in the third quarter of 1995. Management was successful in re-leasing 5,292 of this vacant space by the end of the first quarter of 1996. Total expenses, including depreciation, decreased by $63,738 for the six months ended June 30, 1996, as compared to June 30, 1995, due to the net effect of: a) $10,243 (8.9%) increase in operating expenses due to an increase in utilities and marketing costs, b) $3,669 (5.4%) increase in repairs and maintenance due to the installation of an additional security door lock system at Capital Professional Center, c) $30,542 (7.6%) decrease in interest due to the reduction of the interest rate resulting from the refinancing of Capital Professional Center, d) $9,150 (17.1%) increase in general and administration costs due to an increase in legal and investor services, plus due to the timing of accounting costs, and e) $56,614 (18.9%) decrease in depreciation due to tenant improvement costs that were amortized during the first two quarters of 1995 became fully amortized by the end of 1995. 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 1, 1996 By: Michael J. Metzger President Date: August 1, 1996 By: Kenneth L. Buckler Chief Financial Officer EX-27 2
5 6-MOS DEC-31-1996 JUN-30-1996 6,116 0 145,508 0 0 151,624 9,395,243 2,039,698 8,323,846 121,562 0 0 0 0 0 8,323,846 0 629,980 0 0 550,372 0 369,393 (243,550) 0 0 0 0 0 (243,550) (17.50) 0
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