FORM 10-Q
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Six Months ended March 31, 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 101, North Highlands, California
95660(Address of Principal executive offices)
Registrant's telephone number, including area code:(916)331-8080
Former name, former address and former fiscal year, if changed since
last year:
Not applicable
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)
March 31 December 31
1995 1994
ASSETS
Cash and cash equivalents $484,129 $505,092
Accounts receivable, net 110,524 152,140
Due from joint venture 1,110,961 1,010,405
Investment property, at cost,
net of accumulated depreciation
and amortization of $1,752,336
and $1,716,603 at March 31, 1995
and December 31, 1994, respec-
tively, and a valuation allowance
of $742,000 6,973,323 7,114,583
Lease commissions, net of accumulated 86,666 86,536
amortization of $110,120 and $105,443
at March 31, 1995 and December 31,
1994, respectively
Other assets, net of accumulated
amortization of $36,173 and
$32,556 at March 31, 1995 and
December 31, 1994, respectively 41,115 41,214
Total assets $8,806,718 $8,909,970
LIABILITIES AND PARTNERS' EQUITY
Note payable $3,571,600 $3,576,940
Accounts payable and accrued
liabilities 13,558 13,981
Tenant deposits 56,225 55,060
Total liabilities 3,641,383 3,645,981
Share of joint venture deficit 345,754 290,314
Partners' Equity:
General partner (47,635) (46,094)
Limited partners 4,867,216 5,019,769
Total partners' equity 4,819,581 4,973,675
Commitments and contingencies
Total liabilities and Partner's Equity $8,806,718 $8,909,970
<FN>
See accompanying notes to the financial statements.
STATEMENT OF OPERATIONS
THREE MONTHS ENDED MARCH 31
1995 1994
Revenues
Rental and other income $250,291 $222,371
Interest income 31,749 20,214
Total revenues 282,040 242,585
Expenses
Operating expenses 56,359 51,330
Repairs and maintenance 31,344 25,021
Property taxes 16,456 17,738
Interest 92,117 67,551
General administrative 40,155 43,854
Depreciation and
amortization 164,264 206,692
Total expenses 400,695 412,186
Loss before joint venture (118,655) (169,601)
Loss on investment in joint venture (35,440) (31,608)
Net income (loss) (154,095) (201,209)
Allocated to general partners (1,541) (2,012)
Allocated to limited partners ($152,554) ($199,197)
Net loss per limited partnership unit ($6.62) ($8.65)
Average units outstanding 23,030 23,030
<FN>
See accompanying notes to the financial statements
Capital Builders Development Properties II
(A California Limited Partnership)
STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED MARCH 31
1995 1994
Cash flows from operating activities:
Net income (loss) ($154,095) ($201,209)
Adjustments to reconcile net loss
to cash flow used in operating
activities:
Depreciation and amortization 164,264 206,692
Loss on joint venture investment 35,440 31,608
Changes in assets and liabilities
Decrease in accounts receivable
receivable 41,616 23,822
Increase in leasing commissions (14,158) (5,654)
Increase in other assets (3,518) (19,757)
(Decrease)/Increase in accounts payable
and accrued liabilities (423) 5,442
Increase in tenant deposits 1,165 846
Net cash provided by operating activities 70,291 41,790
Cash flows from investing activities:
Advances to joint venture (100,556) (5,287)
Improvements to investment properties (5,358) (22,231)
Distribution from joint venture 20,000 5,600
Net cash used in investing activities
(85,914) (21,918)
Cash flows from financing activities:
Payments of debt (5,340) (5,340)
Net cash provided by financing activities
(5,340) (5,340)
Net (decrease)/increase in cash (20,963) 14,532
Cash, beginning of period 505,092 824,405
Cash, end of period $484,129 $838,937
<FN>
See accompanying notes to the financial statements.
Capital Builders Development Properties II
(A California Limited Partnership)
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 arerecorded
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 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 acqui
sition 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 $12,147
and $11,330 for the three months ending March 31, 1995 and 1994,
respectively, while total reimbursement of expenses were $35,987 and
$42,766, 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 March 31, 1995, and
December 31, 1994 are as follows:
March 31, December 31,
1995 1994
Land $2,774,392 $2,774,392
Building and Improvements 4,665,165 4,665,165
Tenant Improvements 1,755,102 1,860,629
Investment property, at cost 9,194,659 9,300,186
Less:accumulated depreciation
and amortization (1,752,336) (1,716,603)
valuation allowance (469,000) (469,000)
Investment property, net $6,973,323 $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 10.5 and 7.5 percent at March 31,
1995 and 1994, approximately the same rate paid for similar borrowings.
The receivable includes $33,179 and $7,624 of accrued interest at March 31,
1995 and December 31, 1994, respectively. Interest income earned on the
note was $25,555 and $15,349 for the three months ended March 31, 1995 and
1994, respectively. The receivable in 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 March 31, 1995 and
December 31, 1994, are as follows:
March 31, December 31,
1995 1994
Assets
Cash $11,208 $ 1,738
Accounts receivable 108,116 111,546
Land and buildings, net 3,465,592 3,528,784
Leasing commissions, net 55,763 63,083
Other assets, net 34,667 37,274
Total assets $3,675,346 $3,742,425
Liabilities and Equity
Notes payable $4,490,160 $4,396,082
Accounts payable and accrued
liabilities 0 15,702
Tenant deposits 49,572 56,426
Capital, CBDP (518,632) (435,471)
Capital, CBDP II (345,754) (290,314)
Total liabilities and equity $3,675,346 $3,742,425
The Statement of Operations for joint venture for the years ended
March 31, are as follows:
Three Months Ended March 31
1995 1994
Revenues
Rental income $ 157,639 $ 158,717
Interest income 503 133
Total income 158,142 158,850
Expenses
Operating expenses 27,993 28,601
Repairs and maintenance 13,494 16,280
Property taxes 10,861 10,581
Interest 111,849 81,805
General and administrative 4,110 1,426
Depreciation and amortization 78,436 99,177
Total expenses 246,743 237,870
Net loss $(88,601) $ (79,020)
Capital Builders Development
Properties II share of net loss $(35,440) $(31,608)
NOTE 6 - NOTE PAYABLE
The note payable represents a $3,625,000 mini-permanent loan which bears
interest at the bank's prime rate (9.0 percent at March 31, 1995) plus 1
1/2 percent and is due October 25, 1997. Payments are monthly interest
only with quarterly principal payments of $5,340 which is sufficient to
amortize the loan over 30 years. The note is collateralized by a first
deed of trust on Phase I land, building and improvements, and is guaranteed
by the General Partner. The loan requires an average compensating balance
of 7 percent of the outstanding commitment. The total reserve account and
compensating balance included in cash and cash equivalents is $250,012 as
of March 31, 1995.
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 $840,699
1996 551,767
1997 408,691
1998 304,484
1999 and thereafter 227,168
Total $2,332,809
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 March 31, 1995, the Partnership had
$484,129 in cash reserves.
It is the Partnership's investment goal to utilize existing capital
resources for the continued lease up (tenant improvements and leasing
commissions) and further development of its investment properties. Funds
for these improvements will come from existing cash reserves, property
income, or from additional borrowings. It is estimated that the remaining
lease up of the currently developed investment property will cost
approximately $39,100.
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 $39,455 (16.3%) for the three
months ended March 31, 1995 as compared to March 31 1994, while expenses
decreased by $11,491 (2.8%). In addition, the loss on the investment in
joint venture increased by $3,832 in 1995 compared to 1994, all resulting
in a decrease in net loss of $47,114 (23.4%) for the three months ended
March 31, 1995 as compared to March 31, 1994.
The increase in revenues is primarily due to an increase in occupancy.
Approximately 14,200 square feet of office and industrial space has been
leased since the first quarter of 1994.
Expenses decreased for the three months ended March 31, 1995 as compared to
March 31, 1994 due to the net effect of:
a) $5,029 (9.8%) increase in operating expenses due to an increase in
occupancy, b) $6,323 (25.3%) increase in repairs and maintenance expenses
due to an increase in suite turnover costs (carpet replacement and
repainting of suites) and an increase in roof leak repairs, c) $24,566
(9.6%) increase in interest due to the increase in the lending bank's prime
rate of 3%, d) $3,329 (7.6%) decrease in general and administrative
expenses due to continual cost cutting programs, and e) $42,428 (20.5%)
decrease in depreciation and amortization is due to an adjustment made in
the first quarter of 1994 that resulted from a change in accounting
estimate of the useful life of tenant improvement costs.
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: May 5, 1995 By: Michael J. Metzger
President
Date: May 5, 1995 By: Kenneth L. Buckler
Chief Financial Officer