-----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, E/LQmkh/8kIO/oMX6zg7fDdf6f+CoXNBnvfaqD6HqepWJy13wZXtidKqNXlAIvLo i7ub3Qq7lb5x2Ob8YJaixw== 0000791452-97-000002.txt : 19970520 0000791452-97-000002.hdr.sgml : 19970520 ACCESSION NUMBER: 0000791452-97-000002 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19970331 FILED AS OF DATE: 19970515 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: 97609225 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 7 FORM 10-Q UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 Three Months ended March 31, 1997 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
March 31 December 31 1997 1996 < S > ASSETS Cash and cash equivalents $ $ 51,111 49,335 Accounts receivable, net 121,025 135,406 Investment property, at cost, net of accumulated depreciation and amortization of $2,194,473 and $2,107,769 at March 31, 1997 and December 31, 1996, 7,166,005 7,252,601 respectively Lease commissions, net of accumulated amortization of $112,768 and 99,983 at March 31, 1997, and December 31, 1996, respectively 130,688 126,701 Other assets, net of accumulated amortization of $98,755 and $91,673 at March 31, 1997, and December 31, 1996, respectively 65,265 66,404 Minority Interest 713,964 695,094 Total assets $ $ 8,248,058 8,325,541 LIABILITIES AND PARTNERS' EQUITY Loan payable to affiliate $ $ 1,546,120 1,514,788 Notes payable 6,815,323 6,838,732 Accounts payable and accrued liabilities 177,231 160,718 Tenant deposits 107,880 115,332 Total liabilities $ $ 8,646,554 8,629,570 Commitments and contingencies Partners' Equity: General partner (60,864) (60,864) Limited partners (337,632) (243,165) Total partners' $ $ equity (398,496) (304,029) Total liabilities and partner's $ $ equity 8,248,058 8,325,541 See accompanying notes to the financial statements.
CONSOLIDATED STATEMENTS OF OPERATIONS THREE MONTHS ENDED MARCH 31,
1997 1996 Revenues Rental and other income $ $ 354,191 297,913 Interest income 286 455 Total revenues 354,477 298,368 Expenses Operating expenses $ $ 71,053 62,892 Repairs and maintenance 43,494 32,039 Property taxes 23,417 24,372 Interest 187,923 183,852 General and administrative 35,364 39,664 Depreciation and amortization 106,569 121,084 Total expenses 467,820 463,903 Loss before minority interest (113,343) (165,535) Minority interest in net loss of joint venture (18,876) (26,504) Net loss (94,467) (139,031) Allocated to general partners (945) (1,390) Allocated to limited partners $ (93,522) $(137,641) Net loss per limited partnership $ $ unit (6.78) (9.98) Average units outstanding 13,787 13,787 See accompanying notes to the financial statements.
CONSOLID ATED STATEMEN TS OF CASH FLOWS THREE MONTHS ENDED MARCH 31,
1997 1996 Cash flows from operatin g activiti es: Net Loss $ (94,467) $ (139,031) Adjustme nts to reconcil e net loss to cash flow provided by/(used in) operatin g activiti es: 106,569 121,084 Deprecia tion and amortiza tion (18,876) (26,504) Minority interest in joint venture Unpaid interest on loan payable to 31,333 - - - - - affiliat e Changes in assets and liabilit ies 14,381 1,494 Decrease in accounts receivab le (15,771) (23,165) Increase in leasing commissi ons (6,939) 508 (Increas e)/Decre ase in other assets Increase in accounts 16,514 83,999 payable and accrued liabilit ies (7,452) (7,841) Decrease in tenant deposits Net cash provided by operating activities 25,292 10,544 Cash flows from investin g activiti es: (108) (40,405) Improvem ents to investme nt properti es Net cash used in investing (108) (40,405) Cash flows from financin g activiti es: (23,408) (18,803) Payments on notes payable - - - - - (22,480) Distribu tion to minority interest Net cash used in financing activities (23,408) (41,283) Net 1,776 (71,144) Increase /(Decrea se) in cash Cash, 49,335 90,399 beginnin g of period Cash, $ 51,111 $ 19,255 end of period See accompan ying notes to the financia l statemen ts.
Capital Builders Development Properties (A California Limited Partnership) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS March 31, 1997 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. 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 1997 and 1996. 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 Subsequent to March 31, 1997, Management was successful in its plan to refinance Plaza de Oro's current Note Payable. The new financing consists of a $3,350,000, five year, mini-permanent, 9.25% fixed interest rate loan, secured by Phase I (existing building and improvements), and a $200,000, nine month, prime +1.5% variable loan secured by Phase II (undeveloped pad). The new lower interest rate loans will improve the Partnership's ability to generate future cash flow, but future cash flow still remains dependent upon its ability to maintain and improve the occupancy of its investment properties. Additionally, with the land loan becoming due prior to year-end, it will be necessary to refinance or extend the loan prior to year-end. 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 $18,553 and $14,073 for the three months ending March 31, 1997 and 1996, respectively, while total reimbursement of expenses were $28,594 and $28,862, respectively. NOTE 4 - INVESTMENT PROPERTIES The components of the investment property account are as follows: March 31, December 31, 1997 1996 Land $2,423,706 $2,423,706 Building and Improvements 5,802,229 5,802,208 Tenant Improvements 1,134,543 1,134,456 Investment properties, at cost 9,360,478 9,360,370 Less: accumulated depreciation and amortization (2,194,473) (2,107,769) Investment property, net $7,166,005 $7,252,601 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 March 31, 1997 and 1996, respectively. Interest expense incurred on the loan was $31,333 and $25,291 in 1997 and 1996, respectively. The loan is unsecured and is due and payable on demand. NOTE 6 - NOTES PAYABLE Notes payable consist of the following at: March 31, December 31, 1997 1996 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. $3,371,418 $3,383,141 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. 3,443,905 3,455,591 Total notes payable $6,815,323 $6,838,732 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 - 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 are as follows: March 31, December 31, 1997 1996 Carrying Estimated Carrying Estimated Amount Fair Value Amount Fair Value Assets Cash and cash equivalents $51,111 $51,111 $49,335 $49,335 Liabilities Loan payable to affiliate $1,546,120 (A) $1,514,788 (A) Note payable 3,371,418 3,371,418 3,383,141 3,383,141 Note payable 3,443,905 3,443,905 3,455,591 3,455,591 (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. 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. During the three months ending March 31, 1997, the Partnership's management was successful in maintaining Plaza de Oro's occupancy at 97% and maintaining Capital Professional Center's occupancy at 95%. As a result, the Partnership incurred $15,771 in leasing commissions and $108 in tenant improvement costs. These costs were $7,394 and $40,297 lower, respectively, than 1996 costs, mainly due to both of the property's stabilized occupancy during 1997. This required fewer commissions to be paid and less tenant improvement concessions to be given. It is anticipated that during the next three quarters of 1997, approximately $13,000 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 the three months ending March 31, 1997, Capital Builders Roseville Venture accrued $31,333 in interest costs on its affiliate loan. The accrual of interest on the Partnership's affiliate loan was incurred to supplement the funding of 1997 operating expenditures, tenant improvements, and leasing commissions for Capital Professional Center. Due to the increasing affiliate loan balance and the burden of serving the loan, Management is evaluating the effect of dissolving the Roseville Joint Venture through the purchase of the Partnership's 60% ownership interest by CBDP II. This purchase would be accomplished by converting the entire affiliate loan balance owed to CBDP II to equity, and any remaining equity would be split proportionately among the Partnership and CBDP II according to the Joint Venture Agreement. Capital Professional Center was appraised on March 14, 1997 by an independent certified appraiser for the amount of $5,150,000. The Partnership's ability to meet current year obligations has improved during 1997 as a result of maintaining occupancies at both Plaza de Oro and Capital Professional Center, as well as the refinancing of its current Note Payable as of April 1, 1997. The Partnership appears to be able to meet current year obligations, provided it is successful in refinancing or extending Plaza de Oro's undeveloped pad loan, which was obtained subsequent to March 31, 1997, but will be due September 24, 1997, as well as having the properties maintain their current occupancy rates and income stream. It is Management's plan to actively market and attempt to locate a potential tenant for the undeveloped 9,800 square foot building on Plaza de Oro's Phase II land. If a tenant is identified and a lease is signed, this will allow the Partnership to obtain additional financing, construct the building, and convert the loan to a mini- permanent loan. Management is also searching for joint venture equity partners to potentially finance the additional construction costs. Results of Operations The Partnership's total revenues increased by $56,109 (18.8%) for the three months ended March 31, 1997, as compared to March 31, 1996, while expenses also increased by $3,917 (.8%) for the same respective period. In addition, the minority interest in net loss has decreased by $7,628 (28.8%) in 1997 compared to 1996, all resulting in a decrease in net loss of $44,564 (32.1%) for months ended March 31, 1997 as compared to March 31, 1996. The increase in revenues is due primarily to the successful lease-up of Plaza de Oro, which as of March 31, 1997 was 97% occupied. Total expenses, including depreciation, increased by $3,917 for the three months ended March 31, 1997, as compared to March 31, 1996, due to the net effect of: a) $8,161 (13%) increase in operating expenses due to an increase in utilities and management fees resulting from the increase in occupancy at Plaza de Oro's office building, b) $11,455 (35.8%) increase in repairs and maintenance due to an increase in janitorial costs resulting from an increase in occupancy and suite turnover costs, c) $4,071 (2.2%) increase in interest due to the increase in the affiliate loan balance, d) $4,300 (10.8%) decrease in general and administration costs due to the timing of accounting costs, and, e) $14,515 (12%) decrease in depreciation due to tenant improvement costs that were amortized during the first quarter of 1996 became fully amortized by the end of 1996. 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: May 19, 1997 By: Michael J. Metzger President Date: May 19, 1997 By: Kenneth L. Buckler Chief Financial Officer EX-27 2
5 3-MOS DEC-31-1997 MAR-31-1997 51,111 0 121,025 0 0 172,136 9,360,478 2,194,473 8,248,058 177,231 0 0 0 0 0 8,248,058 0 354,477 0 0 279,897 0 187,923 0 0 0 0 0 0 (94,467) 0 0
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