-----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, Kq6rAsftB//XntRgVGosU3gSg4XmkvUW11xq07RM10rapm4AMVmu0v7+/NpabE6I UEmV2kZOA7O7CNhR6RLjZQ== 0000763978-97-000002.txt : 19970402 0000763978-97-000002.hdr.sgml : 19970402 ACCESSION NUMBER: 0000763978-97-000002 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19961231 FILED AS OF DATE: 19970401 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-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-15750 FILM NUMBER: 97572482 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-K 1 26 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, 1996 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.) 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 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, 1996 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 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 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 light industrial, commercial retail, or an office building for lease and eventual 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, the decline in real estate values and the California recession, it is anticipated that ultimate returns will be less than initially projected. Funds obtained by the Partnership from the sale of Limited Partnership Units have been used to acquire an equity interest in one piece of land for development and a 60% equity interest in another for development in accordance with its investment objective. On April 10, 1987, the Partnership entered into a joint venture called Capital Builders Roseville Venture ("JV") with Capital Builders Development Properties II ("CBDPII"), a California Limited Partnership. The Partnership and CBDPII 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, has the same rights and obligations with respect to the JV's operations and management as it may exercise as Managing General Partner of the Partnership. The JV shall continue in full force and effect until December 31, 2010 unless dissolved sooner by mutual agreement, sale of the investment property, default by a joint venture partner or by filing of bankruptcy by one of the joint partners. 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 100% equity interest in a property called Plaza de Oro ("PDO") and a 60% joint venture interest in another property called Capital Professional Center ("CPC"). 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 which is planned for a 8,000-10,000 square foot building. Construction will begin once funding is obtained from either a construction loan or a joint venture partner. CPC is a 40,400 square foot office project consisting of two multi-tenant buildings which are completely developed. Both projects maintain adequate property and general liability insurance. Additional information about the individual properties as follows:
PDO CPC Ownership Percentage: 100% 60% Acquisition Date: December 19, 1985 April 13, 1987 Location: Rancho Cordova, CA Roseville, CA Present Monthly Effective Average Base Rent Per Square Foot: $0.79 $1.53 Square Footage Mix: Office 28,820 40,397 Industrial 33,825 Retail 8,940 Leased Occupancy at December 31: 1996 98% 95% 1995 92% 95% 1994 87% 100% 1993 64% 96% 1992 71% 78% Current Year Depreciation: $212,960 $178,025 Method of Depreciation: Straight Line Straight Line Depreciation Life: 40 Years 40 Years Bldg Improvements Bldg Improvements Life of Lease Life of Lease Tenant Improvements Tenant Improvements Total cost: $5,187,783 $4,172,587 Encumbrances: $3,383,141 $3,455,591 PDO CPC Tenant occupying more than 10% of square footage and nature of business: FPA Medical Coldwell Banker Management (Residential Real Estate Brokerage) USA Properties (Real Estate Developer)
Both of the Partnership's investment properties are held subject to encumbrances which are fully described under Note 6 of the Partnership's Financial Statements included under Item 8 which is incorporated herein by reference. Both properties are 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 year of a lease term. Some leases contain options to extend the term of the lease. The Partnership's investment properties are located in major urban areas 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, 1996, there were 1,234 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):
1996 1995 1994 1993 1992 Revenues $1,341 $1,262 $1,231 $1,075 $1,265 Net Loss ($394) ($594) ($668) ($1,036) ($1,050) Net Loss per Limited Partnership Unit ($28) ($43) ($48) ($74) ($75) Total Assets $8,326 $8,386 $8,619 $8,829 $9,806 Notes and Loans Payable $8,354 $8,102 $7,710 $7,291 $7,206
(See ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA) ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Liquidity and Capital Resources The Partnership commenced operations on September 19, 1985 upon the sale of the minimum number of Limited Partnership Units. The Partnership's initial source of cash was from the sale of Limited Partnership Units. Through the offering of Units, the Partnership has raised $6,893,500 (represented by 13,787 Limited Partnership Units). Cash generated from the sale of Limited Partnership Units has been used to acquire land and for the development of a mixed use commercial project and a 60% interest in a commercial office project. During 1996, the Partnership's management was successful in both obtaining additional leases which increased Plaza de Oro's occupancy to 98%, and in maintaining Capital Professional Center's occupancy at 95%. As a result of the 1996 leasing activity, the Partnership incurred $79,663 in leasing commissions and $158,391 in tenant improvement costs. These costs were $61,285 and $83,631 higher, respectively, than 1995 costs, mainly due to the lease-up of Plaza de Oro's office building. It is anticipated that during 1997 approximately $23,000 in leasing commissions and $67,000 in tenant improvement costs will be incurred both to lease the remaining vacant space and any vacancies resulting from lease expirations. These costs will be funded by cash reserves and property income. During 1996, Capital Builders Roseville Venture accrued $58,699 in interest costs and received $225,000 of additional draws on its affiliate loan. The interest and additional draws on the Partnership's affiliate loan were incurred to supplement the funding of 1996 operating expenditures, tenant improvements, and leasing commissions for Capital Professional Center. It is anticipated that during 1997 approximately $73,000 of interest will be accrued, with no additional draws taken on the loan. Management is evaluating the effect of exchanging all or a portion of the affiliate loan owed to CBDP II for the Partnership's ownership equity during 1997. This would substantially reduce or eliminate the Partnership's current 60% joint venture interest in Capital Professional Center, and would increase CBDP II's ownership interest. See Note 5 of the consolidated financial statements for further discussion of the Partnership's affiliate loan. The Partnership also experienced an increase in Accounts Payable of $76,452 during 1996. The increase in accounts payable was mainly due to the Partnership incurring leasing commissions and tenant improvement costs during November and December of 1996. It appears that a decrease in accounts payable will be recognized in 1997, with these costs being funded by cash reserves and property income. The Partnership's ability to meet current year obligations has improved during 1996 as a result of the increase in Plaza de Oro's occupancy. The Partnership appears to be able to meet current year obligations, provided it is successful in refinancing Plaza de Oro's current Note Payable with a lower interest rate loan, as well as having the properties maintain their current occupancy rates and income stream. In management's active search for a new loan, there have been several potential lenders offering to underwrite Plaza de Oro's existing buildings (Phase I) with rate reductions from its current loan ranging from 1.6% to 1%. These loans were offered at amounts ranging from $2,900,000 to $3,350,000, which after loan fees and the paydown of Plaza's existing loan, would result in a shortfall of $550,000 to $100,000, respectively. It is management's plan to proceed with the underwriting of the $3,350,000 loan. This plan would also include the search for an additional loan to cover the loan shortfall, and possibly generate additional cash reserves for future operations. The additional loan would be secured by the undeveloped pad (Phase II) located at the Plaza de Oro project. See Item 2 of Form 10K for further description of the Properties. This plan will be successful provided that Plaza de Oro's appraised value reaches or exceeds $4,855,000 for Phase I and 400,000 for Phase II. Based on the project's current operations, management believes that it is likely that these values will be achieved. If this plan is not achieved, Management will consider the sale of its Phase II land, or the sale of partial or all of the Joint Venture project. The sale of the entire project would result in the dissolution of the Joint Venture Partnership. Management believes they will have the required financing in place prior to the maturity of Plaza de Oro's Note Payable. Results of Operations 1996 vs 1995 The Partnership's total revenues increased by $79,074 (6.3%) in fiscal year 1996 compared to 1995, while expenses decreased by $199,858 (9.9%) for the same respective period. In addition, the minority interest in net loss has decreased by $78,613 (48.8%) in 1996 compared to 1995, all resulting in a decrease in net loss of $200,319 (33.7%) from fiscal year 1996 to 1995. The increase in revenues is due to an increase in occupancy at Plaza de Oro. Throughout fiscal year 1996, management was successful in obtaining leases for the project's office building, and by the fourth quarter, had successfully leased the entire building. This brought the project up to a 98% occupancy. The Sacramento market in which the property is located is continuing to improve. Vacancy factors are beginning to decline, while market rents have started to increase. Total expenses, including depreciation, decreased by $199,858 for the fiscal year 1996 compared to 1995 due primarily to the net effect of: a) $13,649 (5.5%) increase in operating expenses mainly due to an increase in utilities and marketing costs, which were a direct result of new leasing activity at Plaza de Oro, b) $7,322 (8.1%) increase in property taxes due to a tax refund received during 1995, c) $73,379 (9.0%) decrease in interest due to the reduction of the interest rate resulting from the refinancing of Capital Professional Center, d) $12,836 (13.6%) increase in general and administrative costs due to an increase in legal and investor service costs, and e) $160,028 (25.6%) decrease in depreciation due to tenant improvement costs that were amortized during 1995 and became fully amortized by the end of 1995. 1995 vs 1994 The Partnership's total revenues increased by $30,191 (2.5%) in fiscal year 1995 compared to 1994. Total expenses net of depreciation also increased by $124,821 (9.8%), mainly due to an increase in interest costs, while depreciation expense decreased by $135,235 (17.8%) in fiscal year 1995 compared to 1994. In addition, the minority interest in net loss has increased by $32,561 (25.3%) in 1995 compared to 1994, all resulting in a decrease in net loss of $73,166 (11%) from fiscal year 1995 to 1994, respectively. The increase in revenues is due to an increase in occupancy at Plaza de Oro. During the first six months of 1994 Plaza de Oro experienced an average occupancy of 77%, while in the first two quarters of 1995 Plaza's occupancy consisted of 98%. The increase in occupancy was mainly due to the lease up of 12,085 square feet of industrial space during the first quarter of 1995. Subsequent to the second quarter, a major tenant in the office building who occupied approximately 7,193 of rentable space, prematurely terminated their lease, reducing Plaza's occupancy to 88%. Management has been successful in re-leasing 5,292 square feet of the suite, but an additional office tenant who occupied 2,042 square feet failed to renew its lease leaving PDO at a 92% occupancy as of December 31, 1995. Expenses net of depreciation increased for the fiscal year 1995 as compared to 1994 due to the net effect of: a) $24,242 (8.8%) decrease in operating expenses due to continual cost cutting programs, b) $12,828 (10%) increase in repairs and maintenance mainly due to re-carpeting and repainting two suites at Capital Professional Center, c) $5,991 (6.2%) decrease in property taxes due to a decrease in Plaza de Oro's assessed value, d) $4,680 (4.7%) decrease in general and administrative expenses due to improved efficiencies (see Note 2 of the Notes to the Consolidated Financial Statements for reduction in reimbursed expenses paid to Managing General Partner), e) $146,906 (22%) increase in interest expense due to interest rate increases (see Notes 5 and 6 of the Notes to the Consolidated Financial Statements) on the affiliate loan and mini-permanent loans. The increase in interest is also the result of additional draws on the affiliate loan and mini-permanent loans. Management has been successful in refinancing the mini-permanent loan at Capital Professional Center, reducing its interest rate by approximately 2%. Management is also attempting to refinance Plaza de Oro in order to take advantage of the same type of lower fixed rate financing. Total expenses including depreciation decreased by $10,414 for the fiscal year 1995 compared to 1994. The decrease was primarily due to a decrease in depreciation expense $135,235 (17.8%). The reduction of depreciation was the result of tenant improvement costs that were amortized during the first two quarters of 1994 became fully amortized in the third quarter of 1994. Many of the suites with improvements fully amortized were either leased or their leases renewed without requiring any major tenant improvement buildout, therefore a minimal amount of depreciation was incurred for these suites in 1995. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA Page Number INDEPENDENT AUDITORS' REPORT 10 CONSOLIDATED FINANCIAL STATEMENTS CONSOLIDATED BALANCE SHEETS 11 AS OF DECEMBER 31, 1996 AND 1995 CONSOLIDATED STATEMENTS OF OPERATIONS 12 FOR THE YEARS ENDED DECEMBER 31, 1996, 1995, and 1994 CONSOLIDATED STATEMENTS OF PARTNERS' 13 (DEFICIT) EQUITY FOR THE YEARS ENDED DECEMBER 31, 1996, 1995, and 1994 CONSOLIDATED STATEMENTS OF CASH FLOWS 14 FOR THE YEARS ENDED DECEMBER 31, 1996, 1995, and 1994 NOTES TO FINANCIAL STATEMENTS 15-21 SUPPLEMENTAL SCHEDULES SCHEDULE III REAL ESTATE AND ACCUMULATED DEPRECIATION 25 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 consolidated balance sheets of Capital Builders Development Properties, a California Limited Partnership and subsidiary, as of December 31, 1996 and 1995, and the related consolidated statements of operations, partners' (deficit) equity and cash flows for each of the years in the three-year period ended December 31. 1996. In connection with our audits of the consolidated financial statements, we also have audited the financial statement schedule as listed in the accompanying index. These consolidated financial statements and financial statement schedule are the responsibility of the partnership's management. Our responsibility is to express an opinion on these consolidated 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 consolidated financial statements referred to above present fairly, in all material respects, the financial position of Capital Builders Development Properties and subsidiary as of December 31, 1996 and 1995, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 1996 in conformity with generally accepted accounting principles. Also in our opinion, the related financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein. The accompanying consolidated financial statements have been prepared assuming that the partnership will continue as a going concern. As discussed in Note 2 to the consolidated financial statements, the partnership's negative cash flow position and significant debt service 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 consolidated financial statements and financial statement schedule do not include any adjustments that might result from the outcome of this uncertainty. Sacramento, California KPMG Peat Marwick LLP February 5, 1997 PART 2 - FINANCIAL INFORMATION Capital Builders Development Properties (a California Limited Partnership) CONSOLIDATED BALANCE SHEETS
December 31 December 31 1996 1995 ASSETS Cash and Cash Equivalents $49,335 $90,399 Accounts receivable, net 135,406 138,421 Investment property, net of accumulated depreciation and amortization of $2,107,769 and $2,097,079 and valuation allowance of $0 and $742,000 at December 31, 1996 and 1995, respectively 7,252,601 7,485,195 Lease commissions, net of accumulated amortization of $99,983 and $82,403 at December 31, 1996 and 1995, respectively 126,701 92,202 Other assets, net of accumulated amortization of $91,673 and $104,133 at December 31, 1996 and 1995, respectively 66,404 91,323 Minority Interest 695,094 487,968 Total Assets $8,325,541 $8,385,508 LIABILITIES AND PARTNERS' (DEFICIT) EQUITY Loan payable to affiliate $1,514,788 $1,231,089 Notes payable 6,838,732 6,871,227 Accounts payable and accrued liabilities 160,718 84,266 Tenant deposits 115,332 108,845 Total Liabilities 8,629,570 8,295,427 Commitments and contingencies Partners' (Deficit) Equity: General Partners (60,864) (56,923) Limited Partners (243,165) 147,004 Total Partners (Deficit) Equity (304,029) 90,081 Total liabilities and Partners' (deficit) equity $8,325,541 $8,385,508 See accompanying notes to the consolidated financial statements.
Capital Builders Development Properties (a California Limited Partnership) CONSOLIDATED STATEMENTS OF OPERATIONS YEARS ENDED DECEMBER 31,
1996 1995 1994 Revenues Rental and other income $1,339,355 $1,259,763 $1,229,812 Interest income 1,386 1,904 1,664 Total revenues 1,340,741 1,261,667 1,231,476 Expenses Operating expenses 262,885 249,236 273,478 Repairs and maintenance 140,846 141,104 128,276 Property taxes 97,548 90,226 96,217 Interest 744,438 817,817 670,911 General and administrative 107,306 94,467 99,138 Depreciation and amortization 464,473 624,501 759,736 Total expenses 1,817,496 2,017,351 2,027,756 Loss before minority interest (476,755) (755,684) (796,280) Minority interest in net loss of joint venture (82,645) (161,255) (128,685) Net loss (394,110) (594,429) (667,595) Allocated to General Partners (3,941) (5,944) (6,676) Allocated to Limited Partners ($390,169) ($588,485) ($660,919) Net loss per Limited Partnership unit ($28.30) ($42.68) ($47.94) Average units outstanding 13,787 13,787 13,787 See accompanying notes to the consolidated financial statements.
CAPITAL BUILDERS DEVELOPMENT PROPERTIES, a California Limited Partnership CONSOLIDATED STATEMENTS OF PARTNERS' (DEFICIT) EQUITY YEARS ENDED DECEMBER 31, 1996, 1995, AND 1994
Total General Limited Partners' Partners Partners (Deficit) Equity Balance at December 31, 1993 (44,303) 1,396,408 1,352,105 Net loss (6,676) (660,919) (667,595) Balance at December 31, 1994 (50,979) 735,489 684,510 Net Loss (5,944) (588,485) (594,429) Balance at December 31, 1995 ($56,923) $147,004 $90,081 Net loss (3,941) (390,169) (394,110) Balance at December 31, 1996 ($60,864) ($243,165) ($304,029) See accompanying notes to the consolidated financial statements.
CONSOLIDATED STATEMENTS OF CASH FLOWS YEARS ENDED DECEMBER 31,
1996 1995 1994 Cash flows from operating activities: Net loss ($394,110) ($594,429) ($667,595) Adjustments to reconcile net loss to cash flow provided by/(used in) operating activities: Depreciation and amortization 464,476 624,501 759,736 Minority interest in joint venture (82,645) (161,255) (128,685) Unpaid interest expense on loan payable 58,699 115,684 - - - to affiliate Changes in assets and liabilities Decrease/(Increase) in accounts receivable 3,015 57,552 (30,405) Increase in leasing commissions (79,663) (18,378) (59,642) Increase in other assets (3,409) (72,650) (75,440) Increase/(Decrease)in accounts payable and accrued liabilities 41,876 (33,264) 32,498 Increase in tenant deposits 6,487 2,536 5,611 Net cash provided by/(used in) operating activities 14,726 (79,703) (163,922) Cash flows from investing activities: Improvements to investment properties (123,815) (74,760) (211,959) Net cash used in investing activities (123,815) (74,760) (211,959) Cash flows from financing activities: Proceeds on notes payable 39,954 204,831 277,190 Payments on notes payable (72,449) (33,468) (38,433) Proceeds on loans payable to affiliate 225,000 105,000 180,405 Distribution to minority interest (124,480) (36,400) (63,601) Net cash provided by financing activities 68,025 239,963 355,561 Net (decrease)/increase in cash (41,064) 85,500 (20,320) Cash & cash equivalents, beg. of period 90,399 4,899 25,219 Cash & cash equivalents, end of period $49,335 $90,399 $4,899 Supplemental disclosure: Cash paid for interest $685,739 $703,741 $688,172 Non cash investing and financing activity: Capital improvements financed through accounts payable and accrued liabilities $34,576 - - - - - - - - See accompanying notes to the consolidated financial statements.
Capital Builders Development Properties (A California Limited Partnership) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 1996, 1995 and 1994 NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND ORGANIZATION A summary of the significant accounting policies applied in the preparation of the accompanying consolidated financial statements follows: Basis of Accounting The consolidated 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. The General Partner of Capital Builders Development Properties, CB, has no direct ownership interest in the joint venture. 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 The Partnership adopted the provisions of SFAS No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of, on January 1, 1996. This Statement requires that long-lived assets and certain identifiable intangibles be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to future net cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceed the fair value of the assets. Assets to be disposed of are reported at the lower of the carrying amount or fair value less costs to sell. Adoption of this Statement did not have a material impact on the Partnership's financial position, results of operations, or liquidity. Prior to the adoption of SFAS No. 121, the Partnership recorded a valuation allowance for losses which represented the excess carrying value of individual properties over their estimated net realizable value. The valuation allowance included in the accompanying balance sheet at December 31, 1995 was $742,000. During 1996, this valuation allowance was allocated against the cost basis of the land and building and improvements to be consistent with the methodology of SFAS No. 121. 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. Lease Commissions Lease commissions are being amortized over the related lease terms. 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 of 13,787 in 1996, 1995, and 1994. Statement of Cash Flows For purposes of statement of cash flows, the Partnership considers all short-term investments with a maturity, at date of purchase, of three months or less to be cash equivalents. 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 The Partnership's viability as a going concern is dependent upon management's ability to implement its plan of maintaining both projects' current occupancy and refinancing Plaza de Oro's Note Payable. Management believes it is likely that they will be successful in their plan, due to current favorable conditions in the Sacramento leasing market, and its success in locating a lender to underwrite a loan for Plaza de Oro for a potential $3,350,000. This new loan is being considered at a lower interest rate than the current loan. The financial institution has not made any commitment to the final terms of the loan or its funding; and therefore, there is no guarantee that the loan will be made. Additionally, if the loan is made, its net loan proceeds will fall short of paying down the project's existing note payable by approximately $100,000. It is management's intention to fund this shortfall by obtaining an additional loan secured by the project's undeveloped pad (Phase II). If this plan is achieved, the Partnership expects to be able to improve its cash flow and have the ability to meet current obligations. If the plan is not achieved, management will consider the sale of the Phase II land and funding the shortfall with the proceeds, joint venturing Phase I and/or Phase II, or selling the entire project, which would result in the dissolution of the Partnership. Management believes they will have the required financing in place prior to the maturity of Plaza de Oro's Note Payable. 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 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 $62,154, $60,897 and $58,580 for the years ended December 31, 1996, 1995, and 1994, respectively, while total reimbursement of expenses were $114,512, $102,669, and $112,269, respectively. Capital Builders Development Properties A California Limited Partnership) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 4 - INVESTMENT PROPERTIES The components of the investment property account at December 31 are as follows:
1996 1995 Land $2,423,706 $ 2,641,557 Building and Improvements 5,802,208 6,322,833 Tenant Improvements 1,134,456 1,359,884 Investment properties, at cost 9,360,370 10,324,274 Less: accumulated depreciation and amortization (2,107,769) (2,097,079) valuation allowance - - - - (742,000) Investment property, net $7,252,601 $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 payable monthly, at approximately the same rate charged to it by a bank for other borrowings, which was 8.24% at December 31, 1996 and 1995, respectively. Interest expense incurred on the loan was $111,362, $115,683, and $78,425 in 1996, 1995, and 1994, respectively. The loan is unsecured and is due and payable on demand. NOTE 6 - NOTES PAYABLE Notes payable consist of the following at December 31:
1996 1995 Construction loan due April 1, 1997. The note bears interest at bank commercial lending rate (7.75% at December 31, 1996) plus 2.5% with a floor of 8.5% and a ceiling of 10.75% for the remaining life of the loan. The note is collateralized by a first deed of trust on the land, buildings and improvements and is guaranteed by the General Partner. $3,383,141 $3,371,227 Mini-permanent loan with a fixed interest rate of 8.24% and requiring monthly principal and interest payments 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. 3,455,591 3,500,000 Total notes payable $6,838,732 $6,871,227 Scheduled principal payments during 1997, 1998, 1999, 2000, and 2001 are $3,430,727, $51,983, $56,432, $61,202, and $3,238,388 respectively.
NOTE 7 - LEASES The Partnership leases its properties under long-term noncancelable operating leases to various tenants. The facilities are leased through agreements for rents based on the square footage leased. Minimum annual base rental payments under these leases for the years ending December 31 are as follows: 1997 $1,289,634 1998 1,050,419 1999 657,281 2000 476,606 2001 287,832 Thereafter 109,614 Total $3,871,386 NOTE 8 - RECONCILIATION TO INCOME TAX METHOD OF ACCOUNTING A reconciliation of the financial statement method of accounting to the Federal income tax method of accounting for the years ended December 31 are as follows:
1996 1995 1994 Net loss - financial ($394,110) ($594,429) ($667,595) Adjustments resulting from: Book to tax difference in depreciation and amortization 114,923 265,630 372,829 Net loss - tax method ($279,187) ($328,799) ($294,766) Partners' equity - financial ($304,029) $90,081 $684,510 Increases resulting from: Book to tax difference in depreciation and amortization and valuation allowance 2,181,286 2,066,363 1,800,733 Selling expenses for Partnership units 1,012,108 1,012,108 1,012,108 Partners' equity - tax $2,889,365 $3,168,552 $3,497,351 Taxable loss per Limited Partnership unit after giving effect to the taxable loss allocated to the General Partner ($20.05) ($23.61) ($21.17)
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. Cash and cash equivalents The carrying amount approximates fair value because of the liquid nature of the instrument. 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 December 31 are as follows:
1996 1995 Carrying Estimated Carrying Estimated Amount Fair Value Amount Fair Value Assets Cash and cash equivalents $49,335 $49,335 $90,399 $90,399 Liabilities Loan payable to affiliate $1,514,788 (A) $1,231,089 (A) Note payable 3,383,141 3,383,141 3,371,227 (B) Note payable 3,455,591 3,455,591 3,500,000 3,500,000 (A) It is not practicable to determine the fair value of the loan payable to affiliate due to the related party nature of the arrangement. (B) It is not practicable to determine the fair value of the note payable as it will require restructuring in order for the project to meet the future obligations of the note.
NOTE 10 - COMMITMENTS AND CONTINGENCIES The Partnership is involved in litigation 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. PART III ITEM 9. DISAGREEMENTS ON ACCOUNTING 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, with its executive offices at 4700 Roseville Road, Suite 206, North Highlands, California 95660 [telephone number (916)331-8080]. 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 $3,440,000. 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 licenses in Real Estate, Securities and Insurance. Ellen Wilcox: Ellen Wilcox is the Owner/Manager of Wilcox Financial Services, a Registered Investment Advisor in San Carlos CA. 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. In addition, he is the founding shareholder and chief financial officer of Green Planet Juicery, Inc., located in the Sacramento area. From 1978 to 1995 he worked for KPMG Peat Marwick and was a managing 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 with a 4.0 grade point average in his major. 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 $62,154 in 1996, consisting 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 $114,512 in 1996. 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, 1996, the Managing General Partner and/or its affiliate received $114,512 for reimbursement of administrative services and $62,154 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 Consolidated 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, 1996.
Capital Builders Development Properties A California Limited Partnership and Subsidiary SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION December 31, 1996 Column A Column Column Column D Column E Column F Column Column Column B C G H I Cost AccumulDate of Date Depreci Captiali ated ation zed Description Encumbr InitialSubseque Gross Depreciation Constru Acquire Life ances Cost nt to Carrying ction d Acquisti Amount at End on of Period Carry Buildin ing gs & Land Improvem Costs Land ImproveTotal(1 (1) ents(1) ments ) Commercial 40 Office Bldg. Years (Bldg) Rancho $ $ $ $ $ $ $ $ 1987 1985 Life of Cordova 3,383,1 1,143,1 4,025,13 19,48 1,353,1 3,834,6 5,187,7 1,098,6 Lease 41 65 6 2 79 04 83 47 (Tenant Imp.) 40 Years (Bldg) Roseville 1987 1987 Life of 3,455,9 986,715 3,096,54 89,32 1,070,5 3,102,0 4,172,5 1,009,1 Lease 11 6 6 27 60 87 22 (Tenant Imp.) $ $ $ $ $ $ $ $ 6,839,0 2,129,8 7,121,68 108,8 2,423,7 6,936,6 9,360,3 2,107,7 52 80 2 08 06 64 70 69 Column Column E Total F Total 1994 1995 1996 1994 1995 1996 Balance at $ $ $ $ $ $ beginning of 10,339, 9,974,5 9,582,2 1,927,1 2,029,9 2,097,0 period 717 24 74 04 25 79 Additions 211,959 74,760 158,391 679,973 534,164 390,985 Deletions (2) (577,15 (467,01 (380,29 (577,15 (467,01 (380,29 2) 0) 5) 2) 0) 5) Balance at $ $ $ $ $ $ end of 9,974,5 9,582,2 9,360,3 2,029,9 2,097,0 2,107,7 period 24 74 70 25 79 69 1) Valuation allowance for possible investment loss of $742,000 at December 31, 1995 was charged against the cost basis of the land and building and improvements on a pro rata basis in accordance with the provisions of SFAS No. 121 which was adopted on January 1, 1996. 2) Deletions represent the write- off of fully amortized tenant improvement costs.
EX-27 2
5 12-MOS DEC-31-1996 DEC-31-1996 49335 0 135406 0 0 184741 9360370 2107769 8325541 160718 0 0 0 0 0 8315541 0 1340741 0 0 1073058 0 744438 (394110) 0 0 0 0 0 (394110) 0 0
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