FORM 10-Q
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Nine Months ended September 30, 1995 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 I.R.S. Employer
of 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:
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)
BALANCE SHEETS
September 30 December 31
1995 1994
ASSETS
Cash and cash equivalents $54,543 $4,899
Accounts receivable, net 134,718 195,973
Investment property, at cost,
net of accumulated depreciation
and amortization of $2,118,218
and $2,029,925 at September 30,
1995 and December 31, 1994,
respectively, and a valuation
allowance of $742,000 7,597,848 7,944,599
Lease commissions, net of accumulated 100,045 113,694
amortization of $75,928 and $89,681 at
September 30, 1995 and December 31,
1994, respectively
Other assets, net of accumulated
amortization of $70,106 and
$53,668 at September 30, 1995 and
December 31, 1994, respectively 54,130 69,139
Minority Interest 428,154 290,314
Total assets $8,369,438 $8,618,618
LIABILITIES AND PARTNERS' EQUITY
Loan payable to affiliate $1,170,259 $1,010,405
Notes payable 6,682,287 6,699,864
Accounts payable and accrued
liabilities 139,218 117,530
Tenant deposits 109,359 106,309
Total liabilities 8,101,123 7,934,108
Partners' Equity:
General partner (55,141) (50,979)
Limited partners 323,456 735,489
Total partners' equity 268,315 684,510
Commitments and contingencies
Total liabilities and
partners' equity $8,369,438 $8,618,618
STATEMENTS OF OPERATIONS
FOR THE MONTHS ENDED SEPTEMBER 30,
1995 1995 1994 1994
Three Nine Three Nine
Months Months Months Months
Ended Ended Ended Ended
Revenues
Rental and other income $304,978 $946,153 $326,424 $917,845
Interest income 340 1,526 576 1,042
Total revenues 305,318 947,679 327,000 918,887
Expenses
Operating expenses 66,970 182,666 67,442 187,917
Repairs and maintenance 43,021 110,609 32,226 97,786
Property taxes 18,555 66,943 24,199 72,038
Interest 203,204 603,139 171,407 484,957
General and administrative 22,205 75,465 18,869 75,519
Depreciation and
amortization 139,851 438,487 176,220 594,183
Total expenses 493,806 1,477,309 490,363 1,512,400
Loss before minority
interest (188,488) (529,630) (163,363) (593,513)
Minority interest in joint
venture (40,862) (113,439) (24,276) (86,224)
Net loss (147,626) (416,191) (139,087) (507,289)
Allocated to general
partners (1,477) (4,162) (1,391) (5,073)
Allocated to limited
partners ($146,149) ($412,029) ($137,696) ($502,216)
Net loss per limited
partnership unit ($10.60) ($29.88) ($10.00) ($36.43)
Average units outstanding 13,787 13,787 13,787 13,787
STATEMENTS OF CASH FLOWS
FOR THE MONTHS ENDED SEPTEMBER 30,
1995 1995 1994 1994
Three Nine Three Nine
Months Months Months Months
Ended Ended Ended Ended
Cash flows from operating
activities:
Net loss ($147,626) ($416,191) ($139,087) ($507,289)
Adjustments to
reconcile net loss
to cash flow used
in operating
activities:
Depreciation and
amortization 139,851 438,487 176,220 594,183
Minority interest in
joint venture (40,862) (113,439) (24,276) (86,224)
Changes in assets and
liabilities
Decrease/(Increase) in
accounts receivable 54,666 61,255 (5,943) (11,221)
Increase in leasing
commissions (9,355) (15,967) (13,617) (45,782)
Decrease/(Increase) in
other assets 992 (1,430) (289) (42,480)
Increase in accounts
payable and accrued
liabilities 42,991 21,688 29,700 27,703
Increase in tenant
deposits 9,211 3,050 4,970 6,731
Net cash provide by (used
in) operating activities 49,868 (22,547) 27,678 (64,379)
Cash flows from investing
activities:
Improvements to
investment
properties (38,762) (45,686) (45,702) (180,483)
Distribution to
minority interest 0 (24,400) (32,800) (58,400)
Net cash used in investing
activities (38,762) (70,086) (78,502) (238,883)
Cash flows from financing
activities:
(Payments)/Proceeds from
notes payable, net (13,708) (17,577) 20,504 189,407
Proceeds on loans payable
to affiliate 29,961 159,854 55,000 152,782
Net cash provided by
financing activities 16,253 142,277 75,504 342,189
Net increase in cash 27,359 49,644 24,680 38,927
Cash, beginning of period 27,184 4,899 39,466 25,219
Cash, end of period $54,543 $54,543 $64,146 $64,146
NOTES TO FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND
ORGANIZATION
A summary of the significant accounting policies applied in the preparation of
the accompanying financial statements follows:
Basis of Accounting
The financial statements of Capital Builders Development Properties (The
"Partnership") are prepared on the accrual basis and therefore revenue is
recorded as earned and costs and expenses are recorded as incurred. Certain
prior year amounts have been reclassified to conform to current year
classifications.
Principles of Consolidation
The consolidated financial statements include the accounts of the company and
its majority-owned subsidiary (60 percent), Capital Builders Roseville Venture.
The remaining 40 percent is owned by Capital Builders Development Properties II,
a California Limited Partnership and affiliate of the Partnership as they have
the same General Partner. All significant intercompany accounts and
transactions have been eliminated.
Organization
Capital Builders Development Properties, a California Limited Partnership, is
owned under the laws of the State of California. The Managing General Partner
is Capital Builders, Inc., a California corporation (CB). The Associate
General Partners are: 1) the sole shareholder, President and Director of CB, 2)
four founders of CB, two of which are members of the Board of Directors.
The Partnership is in the business of acquiring land for developing commercial
properties for lease and eventual sale.
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, or their net realizable value. 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 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.
NOTE 2 - RELATED PARTY EXPENSE REIMBURSEMENT AND FEE ARRANGEMENT
The Managing General Partner (Capital Builders, Inc.) and the Associate General
Partners are entitled to reimbursement of expenses incurred on behalf of the
Partnership and certain fees from the Partnership. These fees include: a
portion of the sales commissions payable by the partnership with respect to the
sale of the Partnership units; an acquisition fee of up to 12.5 percent of gross
proceeds from the sale of the Partnership units; a property management fee up to
6 percent of gross revenues realized by the Partnership with respect to its
properties; a subordinated real estate commission of up to 3 percent of the
gross sales price of the properties; and a subordinated 25 percent share of the
Partnership's distributions of cash from sales or refinancing. The property
management fee currently being charged is 5 percent of gross revenues collected.
All acquisition fees and expenses, all underwriting commissions, and all
offering and organizational expenses which can be paid are limited to 20 percent
of the gross proceeds from sales of partnership units provided the Partnership
incurs no borrowing to develop its properties. However, these fees may increase
to a maximum of 33 percent of the gross offering proceeds based upon the total
acquisition and development costs, including borrowing. Since the formation of
the partnership, 27.5% of these fees were paid to the partnership's related
parties, leaving a remaining maximum of 5.5% ($379,143) of the gross offering
proceeds. The ultimate amount of these costs will be determined once the
properties are fully developed and leveraged.
The total management fees paid to the Managing General Partner were $45,472 and
$43,021 for the nine months ending September 30, 1995 and 1994, respectively,
while total reimbursement of expenses were $75,377 and $84,009, respectively.
NOTE 3 - INVESTMENT PROPERTIES
The components of the investment property account at September 30, 1995 and
December 31, 1994 are as follows:
September 30, December 31,
1995 1994
Land $ 2,641,557 $ 2,641,557
Building and Improvements 6,321,564 6,308,700
Tenant Improvements 1,494,945 1,766,267
Investment properties, at cost 10,458,066 10,716,524
Less: accumulated depreciation
and amortization (2,118,218) (2,029,925)
valuation allowance (742,000) (742,000)
Investment property, net $ 7,597,848 $ 7,944,599
NOTE 4 - 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 10.25 and 9.25 percent September 30, 1995 and 1994, respectively. Interest
expense incurred on the loan was $84,854 and $55,141 in 1995 and 1994,
respectively. The loan is unsecured and is due and payable on demand.
NOTE 5 - NOTES PAYABLE
Notes payable consists of the following:
September 30, December 31,
1995 1994
Constructi
on loan of
$3,300,000
with
interest
at prime
plus 2
percent
which was
modified
effective
April 1,
1992 as a
new mini-
permanent
loan of
$3,440,000
due April
1, 1997.
The note
bears
interest
at bank
commercial
lending
rate (8.5
percent at
September
30, 1995)
plus 2.5
percent
with a
floor of
8.5
percent
and a
ceiling of
10.75% for
the
remaining
life of
the loan.
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
collateral
ized by a
first deed
of trust
on the
land,
buildings
and
improvemen
ts and is
guaranteed by the General Partner. $3,316,457 $3,314,188
Mini-
permanent
loan of
$3,400,000
has been
modified
effective
June 23,
1994 as a
new mini-
permanent
loan of
$3,400,000
, due June
25, 1999.
The note
requires
monthly
principal
and
interest
payments
and bears
interest
at bank
prime
(8.75
percent at
September
30, 1995)
plus 1.5
percent
with a
floor of
6.75
percent.
The note
is
collateral
ized by a
first deed
of trust
on the
land,
buildings
and
improve
ments, and
is
guaranteed
by the
General Partner. 3,365,830 3,385,676
Total notes payable $6,682,287 $6,699,864
NOTE 6 - 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 theses leases for the years ending December 31 are as follows:
1995 $ 1,175,780
1996 965,869
1997 659,649
1998 478,655
1999 and thereafter 608,044
Total $ 3,887,997
NOTE 7 - 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 has been 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 for the development of an office/industrial
project and 60 percent interest in the development of an office project.
The Partnership's primary current sources of cash are from property rental
income, additional draws on its $3,440,000 mini-permanent loan and loans from
affiliate. As of September 30, 1995, $3,345,000 had been drawn on the loan,
leaving a remaining line of $95,000. The terms of such financing are described
in Note 5 of the Partnership's 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. Funds for these commitments
are obtained from property income, additional advances on the mini-permanent
loan, loans from affiliate or existing cash reserves. The Partnership is
expected to incur $95,000 in lease up and improvement costs on the existing
building which will be funded by additional draws on the mini-permanent loan.
The Partnership's financial resources appear to be adequate to meet current year
obligations, but due to the increase in interest costs and the loss of a major
office tenant at Plaza De Oro (discussed further in MDA's Results of Operations
section), there is the possibility of adverse change in the Partnership's
liquidity. In order to improve and stabilize the Partnership's financial
position management is aggressively marketing Plaza's vacant space and
attempting to refinance existing debt.
Results of Operations
The Partnership's total revenues increased by $28,792 (3.1%) for the nine months
ended September 30, 1995 as compared to September 30, 1994. Total expenses net
of depreciation also increased by $120,605 (13.1%) mainly due to an increase in
interest costs, while depreciation expense decreased by $155,696 (26.2%) for the
nine months ended September 30, 1995 as compared to September 30, 1994. In
addition, the minority interest in net loss has increased by $27,215 (31.6%) in
1995 compared to 1994, all resulting in a decrease in net loss of $91,098 (18%)
for the nine months ended September 30, 1995 as compared to September 30, 1994.
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%.
Expenses net of depreciation increased for the nine months ended September 30,
1995 as compared to September 30, 1994 due to the net effect of:
a) $5,251 (2.8%) decrease in operating expenses due to continual cost cutting
programs, b) $12,823 (13.1%) increase in repairs and maintenance mainly due to
recarpeting and repainting two suites at Capital Professional Center, c) $5,095
(7%) decrease in property taxes due to a decrease in Plaza de Oro's assessed
value, d) $118,182 (24.4%) increase in interest expense due to interest rate
increases (see Notes 4 and 5) on the affiliate loan and mini-permanent loans.
The increase in interest also is the result of additional draws on the affiliate
loan and mini-permanent loans. Management is in the process of attempting to
refinance the mini-permanent loans to take advantage of lower fixed rate
financing currently available.
Total expenses including depreciation decreased by $35,091 for the nine months
ended September 30, 1995 as compared to September 30, 1994. The decrease was
primarily due to a decrease in depreciation expense of $155,696 (26.2%). 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 who's improvements were 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.
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: November 3, 1995 Michael J. Metzger
President
Date: November 3, 1995 Kenneth L. Buckler
Chief Financial Officer