FORM 10-Q
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Nine Months ended September 30, 1995 Commission File Number 33-4682
CAPITAL BUILDERS DEVELOPMENT PROPERTIES II,
A CALIFORNIA LIMITED PARTNERSHIP
(Exact name of registrant as specified in its charter)
California 77-0111643
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 ___
Capital Builders Development Properties II
(A California Limited Partnership)
BALANCE SHEETS
September 30 December 31
1995 1994
ASSETS
Cash and cash equivalents $1,821,940 $505,092
Accounts receivable, net 114,230 152,140
Due from joint venture 1,170,744 1,010,405
Investment property, at cost,
net of accumulated depreciation
and amortization of $1,768,360
and $1,716,603 at September 30, 1995
and December 31, 1994, respec-
tively, and a valuation allowance
of $742,000 6,760,687 7,114,583
Lease commissions, net of accumulated 80,222 86,536
amortization of $79,481 and $105,443 at
September 30, 1995 and December 31,
1994, respectively
Other assets, net of accumulated
amortization of $72,352 and
$32,556 at September 30, 1995 and
December 31, 1994, respectively 117,810 41,214
Total assets $10,065,633 $8,909,970
LIABILITIES AND PARTNERS' EQUITY
Note payable $5,000,000 $3,576,940
Accounts payable and accrued
liabilities 41,790 13,981
Tenant deposits 56,320 55,060
Total liabilities 5,098,110 3,645,981
Share of joint venture deficit 428,153 290,314
Partners' Equity:
General partner (50,437) (46,094)
Limited partners 4,589,807 5,019,769
Total partners' equity 4,539,370 4,973,675
Commitments and contingencies
Total liabilities and
partners' equity $10,065,633 $8,909,970
STATEMENT 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 $258,578 $792,770 $209,747 $741,563
Interest income 37,511 104,776 25,985 69,716
Total revenues 296,089 897,546 235,732 811,279
Expenses
Operating expenses 75,513 177,689 56,249 165,892
Repairs and maintenance 52,624 112,961 23,503 75,419
Property taxes 5,386 45,970 19,605 55,978
Interest 100,823 288,879 82,302 226,415
General administrative 30,359 96,172 28,527 104,355
Depreciation and
amortization 155,672 496,743 216,792 620,642
Total expenses 420,377 1,218,414 426,978 1,248,701
Loss before joint venture (124,288) (320,868) (191,246) (437,422)
Loss on investment in joint
venture (40,863) (113,439) (24,275) (86,223)
Net income (loss) (165,151) (434,307) (215,521) (523,645)
Allocated to general partners (1,651) (4,343) (2,155) (5,236)
Allocated to limited partners ($163,500) ($429,964) ($213,366) ($518,409)
Net loss per limited partnership
unit ($7.10) ($18.67) ($9.26) ($22.51)
Average units outstanding 23,030 23,030 23,030 23,030
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 ($165,151) ($434,307) ($215,521) ($523,645)
Adjustments to reconcile net loss
to cash flow used in operating
activities:
Depreciation and amortization 155,672 496,743 216,792 620,642
Loss on joint venture investment 40,862 113,439 24,275 86,223
Changes in assets and liabilities
Decrease/(Increase) in accounts
receivable 37,778 37,910 (11,866) (543)
Increase in leasing commissions (9,368) (26,633) (22,956) (51,785)
Increase in other assets (114,096) (116,391) (261) (1,804)
Increase/(Decrease) in accounts payable
and accrued liabilities 19,937 27,809 (40,631) 21,373
Increase/(Decrease) in tenant deposits 1,217 1,260 (1,562) (5,404)
Net cash provided by
operating activities (33,149) 99,830 (51,730) 145,057
Cash flows from investing activities:
Advances to joint venture (30,446) (160,339) (55,000) (152,782)
Improvements to investment properties (49,411) (70,103) (88,556) (315,232)
Distribution from joint venture 0 24,400 32,800 58,400
Net cash used in investing
activities (79,857) (206,042) (110,756) (409,614)
Cash flows from financing activities:
Payments of debt 0 (10,680) (5,340) (16,020)
Proceeds from refinancing 1,433,740 1,433,740
Net cash provided by
financing activities 1,433,740 1,423,060 (5,340) (16,020)
Net (decrease)/increase in cash 1,320,734 1,316,848 (167,826) (280,577)
Cash, beginning of period 501,206 505,092 711,654 824,405
Cash, end of period $1,821,940 $1,821,940 $543,828 $543,828
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 II (The
"Partnership") are prepared on the accrual basis of accounting and therefore
revenue is recorded as earned and costs and expenses are recorded as incurred.
Organization
Capital Builders Development Properties II, 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 note.
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.
Investment in Joint Venture
Partnership investments of 20 to 50 percent are accounted for by the equity
method. Under this method, the investments are recorded at initial cost and
increased for partnership income and decreased for partnership losses and
distributions.
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 23,030 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 six 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% ($633,325) 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 $38,315 and
$36,524 for the nine months ending September 30, 1995 and 1994, respectively,
while total reimbursement of expenses were $111,962 and $118,046, respectively.
The Managing General Partner will reduce its future participation in proceeds
from sales by an amount equal to the loss on the abandonment of option fees in
1988 ($110,000) and interest on the amount at a rate equal to that of the
borrowed funds rate as determined by construction or permanent funds utilized by
the Partnership.
NOTE 3 - INVESTMENT PROPERTY
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 $2,774,392 $2,774,392
Building and Improvements 4,706,259 4,665,165
Tenant Improvements 1,517,396 1,860,629
Investment property, at cost 8,998,047 9,300,186
Less: accumulated depreciation
and amortization (1,768,360) (1,716,603)
valuation allowance (469,000) (469,000)
Investment property, net $6,760,687 $7,114,583
======== ========
NOTE 4 - DUE FROM JOINT VENTURE
The receivable represents funds advanced to Capital Builders Roseville Venture
(Note 5) which earns interest at 10.25 and 9.25 percent at September 30, 1995
and 1994, approximately the same rate paid for similar borrowings. The
receivable includes $92,962 and $0 of accrued interest at September 30, 1995 and
December 31, 1994, respectively. Interest income earned on the note was $84,854
and $55,141 for the nine months ended September 30, 1995 and 1994, respectively.
The receivable is unsecured and is due and payable on demand.
NOTE 5 - INVESTMENT IN JOINT VENTURE
The investment in joint venture represents a 40 percent equity interest in a
joint venture with Capital Builders Development Property, a related partnership
which has the same general partner. The investment is accounted for on the
equity method.
The balance sheets of the joint venture as of September 30, 1995 and December
31, 1994, are as follows:
September 30, December 31,
1995 1994
Assets
Cash $ 27,104 $ 1,738
Accounts receivable 71,427 111,546
Land and buildings, net 3,370,072 3,528,784
Leasing commissions, net 53,745 63,083
Other assets, net 31,698 37,274
Total assets $3,554,046 $3,742,425
======== ========
Liabilities and Equity
Notes payable $4,536,089 $4,396,082
Accounts payable and accrued
liabilities 33,282 15,702
Tenant deposits 55,058 56,426
Capital, CBDP (642,229) (435,471)
Capital, CBDP II (428,154) (290,314)
Total liabilities and equity $3,554,046 $3,742,425
======== ========
The Statement of Operations for joint venture for the years ended September 30,
are as follows:
Nine Months Ended September 30
1995 1994
Revenues
Rental income $ 455,333 $ 499,100
Interest income 1,230 693
Total income 456,563 499,793
Expenses
Operating expenses 89,610 87,793
Repairs and maintenance 59,559 50,557
Property taxes 32,583 32,024
Interest 347,043 267,083
General and administrative 6,521 2,048
Depreciation and amortization 204,844 275,845
Total expenses 740,160 715,350
Net loss $(283,597) $(215,557)
======== ========
Capital Builders Development
Properties II share of net loss$ (113,439) $ (86,223)
======== =========
NOTE 6 - NOTE PAYABLE
The mini-permanent loan of $3,625,000 with interest at the bank's prime rate
(8.75 percent at September 30, 1995) plus 1 1/2 percent was refinanced with a
$5,000,000 mini-permanent fixed interest rate loan on September 29, 1995. The
loan's fixed interest rate is 8.89% and requires monthly principal and interest
payments of $41,789, which is sufficient to amortize the loan over 25 years. The
loan is due September 28, 2002. The note is collateralized by a first deed of
trust on Phase I land, building and improvements, and is guaranteed by the
General Partner.
NOTE 7 - RENTAL LEASES
The Partnership leases its properties under long term non-cancelable operating
leases to various tenants. The facilities are leased through agreements for
rents based on the square footage leased. Minimum annual base rental payments
under these leases for the years ending December 31 are as follows:
1995 $ 962,615
1996 756,030
1997 464,136
1998 353,682
1999 and thereafter 286,370
Total $2,822,833
========
NOTE 8 - COMMITMENTS AND CONTINGENCIES
The Partnership is involved in litigation primarily arising in the normal course
of its business. In the opinion of management, the Partnership's recovery of
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 October 6, 1986 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 $11,515,000 (represented by 23,030 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 40 percent interest in the development of an office project.
The Partnership's primary current sources of cash are from cash reserves and
property rental income. As of September 30, 1995, the Partnership had
$1,821,940 in cash reserves.
It is the Partnership's investment goal to utilize existing capital resources
for continued leasing operations (tenant improvements and leasing commissions)
and further development of its investment properties. The Partnership is
currently proceeding with the development of Phase II, consisting of
approximately 45,620 square feet of one-story Light Industrial/Office space.
The total development cost of Phase II is estimated to be approximately
$2,762,205. Funds for these improvements will come from existing cash reserves,
property income, or from additional borrowings.
The Partnership's ability to maintain or improve cash flow is dependent upon its
ability to maintain and improve the occupancy of its investment properties. The
Partnership's financial resources appear to be adequate to meet current year's
obligations and no adverse change in liquidity is foreseen.
Results of Operations
The Partnership's total revenues increased by $86,267 (10.6%) for the nine
months ended September 30, 1995 as compared to September 30 1994. Total
expenses net of depreciation also increased by $93,612 (14.9%), mainly due to an
increase in interest costs, while depreciation expense decreased by $123,899
(20%) for the nine months ended September 30, 1995 as compared to September 30,
1994. In addition, the loss on the investment in joint venture increased by
$27,216 in 1995 compared to 1994, all resulting in a decrease in net loss of
$89,338 (17%) for the nine months ended September 30, 1995 as compared to
September 30, 1994.
The increase in revenues is primarily due to an increase in occupancy and rental
rate increases. Highlands 80 occupancy for the nine months ended September 30,
1995 averaged 90% as compared to 84% in 1994.
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) $11,797 (7.1%) increase in operating expenses due to an increase in occupancy
and the addition of two large tenants in which janitorial and utilities were
provided for in 1995, b) $37,542 (49.8%) increase in repairs and maintenance
expenses mainly due to the recarpeting and repainting of the office building's
common area, and also due to an increase in suite turnover costs (carpet
replacement and repainting of suites), c) $10,008 (17.8%) decrease in property
taxes due to a reduction in the assessed value obtained from Sacramento County,
d) $62,464 (27.6%) increase in interest due to the increase in the lending
bank's prime rate of 3%, e) $8,183 (7.8%) decrease in general and administrative
expenses due to improved efficiencies (see Note 2 for reduction in reimbursed
expenses paid to Managing General Partner).
Total expenses including depreciation decreased by $30,287 (2.4%) 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 $123,899 (20%). The
reduction of depreciation was the result of tenant improvement costs, that were
amortized during the first three 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 II
a California Limited Partnership
By: Capital Builders, Inc.
Its Corporate General Partner
Date: November 3, 1995 By: Michael J. Metzger
President
Date: November 3, 1995 By: Kenneth L. Buckler
Chief Financial