-----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, IKDYKd967UJRPj/VluWTBUycC7pNtOWQ5n+xwqRUGD+sPwPild5YC/45J9UhcsMp EIAwilyWs+4JOrka9x998g== 0000763978-96-000010.txt : 19961202 0000763978-96-000010.hdr.sgml : 19961202 ACCESSION NUMBER: 0000763978-96-000010 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19960930 FILED AS OF DATE: 19961127 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: 96673420 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 16 FORM 10-Q UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 Nine Months ended September 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) CONSOLIDATED BALANCE SHEET
September December 30 31 1996 1995 ASSETS Cash and cash equivalents 10,343 90,399 Accounts receivable, net 143,115 138,421 Investment property, at cost, net of accumulated depreciation and amortization of $2,134,051 and $2,097,079 at September 30, 1996 and December 31, 1995, respectively, and a valuation allowance of $742,000 7,279,073 7,485,195 Lease commissions, net of accumulated amortization of $93,517 and $82,403 at September 30, 1996, and December 31, 1995, respectively 121,865 92,202 Other assets, net of accumulated amortization of $84,589 and $104,133 at September 30, 1996, and December 31, 1995, respectively 71,927 91,323 Minority Interest 651,801 487,968 Total assets 8,278,124 8,385,508 LIABILITIES AND PARTNERS' EQUITY Loan payable to affiliate 1,429,883 1,231,089 Notes payable 6,816,100 6,871,227 Accounts payable and accrued liabilities 165,860 84,266 Tenant deposits 112,567 108,845 Total liabilities 8,524,410 8,295,427 Commitments and contingencies Partners' Equity: General partner (60,286) (56,923) Limited partners (186,000) 147,004 Total partners' equity (246,286) 90,081 Total liabilities and partner's equity 8,278,124 8,385,508 See accompanying notes to the financial statements
CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE MONTHS ENDED SEPTEMBER 30,
1996 1996 1995 1995 Three Nine Three Nine Months Months Months Months Ended Ended Ended Ended Revenues Rental and other income $329,277 $958,500 $304,978 $946,153 Interest income 322 1,079 340 1,526 Total revenues 329,599 959,579 305,318 947,679 Expenses Operating expenses 67,865 193,804 66,970 182,666 Repairs and maintenance 28,665 99,922 43,021 110,609 Property taxes 24,372 73,116 18,555 66,943 Interest 187,836 557,229 203,204 603,139 General and administrative 19,299 81,709 22,205 75,465 Depreciation and amortization 113,494 355,516 139,851 438,487 Total expenses 441,531 1,361,296 493,806 1,477,309 Loss before minority interest (111,932) (401,717) (188,488) (529,630) Minority interest in joint venture (19,120) (65,355) (40,862) (113,439) Net loss (92,812) (336,362) (147,626) (416,191) Allocated to general partners (929) (3,364) (1,477) (4,162) Allocated to limited partners ($91,883) ($332,998 ($146,149 ($412,029) ) ) Net loss per limited partnership unit ($6.65) ($24.15) ($10.60) ($29.88) 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 Nine Three Nine Months Months Months Months Ended Ended Ended Ended Cash flows from operating activities: Net loss (92,812) (336,362) (147,626) (416,191) Adjustments to reconcile net loss to cash flow used in operating activities: Depreciation and amortization 113,494 355,516 139,851 438,487 Minority interest in joint venture (19,120) (65,355) (40,862) (113,439) Changes in assets and liabilities Decrease/(Increase) in accounts 2,393 (4,694) 54,666 61,255 receivable Increase in leasing commissions (18,759) (62,712) (9,355) (15,967) (Increase)/Decrease in other assets (2,187) (1,845) 992 (1,430) Increase/(Decrease) in accounts payable and accrued liabilities 44,298 81,594 42,991 21,688 Increase in tenant deposits 8,635 3,722 9,211 3,050 Net cash (used in) provided by operating 35,942 (30,136) 49,868 (22,547) activities Cash flows from investing activities: Improvements to investment properties (17,879) (95,107) (38,762) (45,686) Net cash used in investing activities (17,879) (95,107) (38,762) (45,686) Cash flows from financing activities: (Payments)/Proceeds from notes payable, net (16,420) (55,127) (13,708) (17,577) Proceeds on loans payable to affiliate 10,584 198,794 29,961 159,854 Distribution to minority interest (8,000) (98,480) (24,400) Net cash provided by financing activities (13,836) 45,187 16,253 117,877 Net Increase in cash 4,227 (80,056) 27,359 49,644 Cash, beginning of period 6,116 90,399 27,184 4,899 Cash, end of period 10,343 10,343 54,543 54,543 See accompanying notes to the financial statements
Capital Builders Development Properties (A California Limited Partnership) NOTES TO CONSOLIDATED 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%), Capital Builders Roseville Venture. The remaining 40% 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 NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND ORGANIZATION (CONTINUED) 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 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 revenue NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND ORGANIZATION (CONTINUED) and expenses during the reporting period. Actual results could differ from those estimates. NOTE 2 - LIQUIDITY For the nine months ended September 30, 1996, the Partnership incurred $80,056 in negative cash flows from operating activities. These negative cash flows were the result of a large office vacancy factor at Plaza De Oro, re-tenanting costs, and high interest costs incurred on the Plaza De Oro loan. Subsequent to September 30, 1996, management was successful in leasing the entire vacant office space, bringing Plaza De Oro to a 98% occupancy rate. This additional lease-up improves the probability of refinancing Plaza De Oro's loan. However, due to current lending underwriting criteria, a loan sufficient enough to pay the project's existing loan still remains difficult to achieve. As discussed in Note 6 of the Notes to Consolidated Financial Statements, Plaza De Oro's existing loan is currently charging a variable 10.25% interest rate, and is due April 1, 1997. Current interest rates for fixed loan financing range from 8.65% to 9.2%. Management has been successful in locating lenders interested in underwriting the loan at these rates, but the proposed loan amounts have not been sufficient to pay off the existing loan. Management is continuing its search for lenders who may provide a larger loan amount, and is also trying to locate additional capital via joint venture partners. 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% of gross proceeds from the sale of the Partnership units; 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 revenues collected. NOTE 3 - RELATED PARTY EXPENSE REIMBURSEMENT AND FEE ARRANGEMENT (CONTINUED) 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 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 $46,013 and $45,472 for the nine months ending September 30, 1996 and 1995, respectively, while total reimbursement of expenses were $86,618 and $84,009 respectively. NOTE 4 - INVESTMENT PROPERTIES The components of the investment property account at September 30, 1996 and December 31, 1995 are as follows: September 30, December 31, 1996 1995 Land $ 2,641,557 2,641,557 Building and Improvements 6,326,357 6,322,833 Tenant Improvements 1,187,210 1,359,884 Investment properties, at cost 10,155,124 10,324,274 Less: accumulated depreciation and amortization (2,134,051) (2,097,079) valuation allowance (742,000) (742,000) Investment property, net$ 7,279,073 $ 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% September 30, 1996 and 1995, respectively. Interest expense incurred on the loan was $81,457 and $84,854 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: September 30, December 31, 1996 1995 Plaza De Oro's construction loan of $3,300,000 with interest at prime plus 2%, 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 (7.75% at September 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. $3,349,063 $3,371,227 Capital Professional Center's mini- permanent loan of $3,400,000 with interest at the bank's prime rate (8.75% at December 31, 1995) plus 1.5% 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 a 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. $3,467,037 $3,500,000 Total notes payable $6,816,100 $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 $ 1,198,421 1997 1,038,680 1998 839,140 1999 489,508 2000 245,500 2001 and thereafter 327,015 Total $4,138,264 NOTE 8 - FAIR VALUE OF FINANCIAL INSTRUMENTS the following methods and assumptions were used by the Partnership in estimating its fair value disclosures for financial instruments. Cash, Accounts receivable, net, Accounts payable and accrued liabilities The Carrying amount approximates fair value because of the short maturity of these instruments. Note payable The fair value of the Partnership's note payable is 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 September 30, 1996 are as follows: Carrying Estimated Amount Fair Value Assets Cash $ 10,343 $ 10,343 Accounts receivable, net 143,115 143,115 Liabilities Loan payable to affiliate $ 1,429,883 (A) Accounts payable & accrued 165,860 165,860 liabilities Note payable 6,816,100 6,816,100 (A It is not practical to determine the fair value of the loan payable to affiliate as the Partnership could not borrow under similar terms or conditions from a third party. 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. 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. 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 September 30, 1996, $3,400,036 had been drawn on the mini-permanent loan, leaving a remaining line of $39,964. 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 have improved dramatically from the second quarter of 1996. Management has been successful in obtaining a lease for a large office tenant, bringing Plaza De Oro's occupancy up to 98%. The increase in rental income will contribute towards the property meeting its current obligations, but the need to refinance its existing debt still exists. The possibility of adverse change in the Partnership's liquidity will remain until a lower fixed interest rate loan is obtained. Results of Operations The Partnership's total revenues increased by $11,900 (1.3%) for the nine months ended September 30, 1996, as compared to September 30, 1995, while expenses decreased by $116,013 (7.9%) for the same respective period. In addition, the minority interest in net loss has decreased by $48,084 in 1996 compared to 1995, all resulting in a decrease in net loss of $79,829 (19.2%) for months ended September 30, 1996, as compared to September 30, 1995. The increase in revenues is due to the additional lease-up in the office building. Total expenses, including depreciation, decreased by $116,013 for the nine months ended September 30, 1996, as compared to September 30, 1995, due to the net effect of: a) $11,138 (6%) increase in operating ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) expenses due to an increase in utilities and marketing costs, b) $10,687 (9.7%) decrease in repairs and maintenance due to large suite turnover costs incurred at Capital Professional Center during the third quarter of 1995, c) $6,173 (9.2%) increase in property taxes due to a tax refund received during the third quarter of 1995, d) $45,910 (7.6%) decrease in interest due to the reduction of the interest rate resulting from the refinancing of Capital Professional Center, e) $6,244 (8.3%) increase in general and administration costs due to an increase in legal and investor services, and f) $82,971 (18.9%) decrease in depreciation due to tenant improvement costs that were amortized during the first three quarters of 1995, and 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: By: Michael J. Metzger President Date: By: Kenneth L. Buckler Chief Financial Officer EX-27 2
5 9-MOS DEC-31-1996 SEP-30-1996 10,343 0 143,115 0 0 153,458 9,413,124 2,134,051 8,278,124 165,860 0 0 0 0 0 8,278,124 0 959,579 0 0 804,067 0 557,229 (336,362) 0 0 0 0 0 (336,362) 0 0
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