FORM 10-Q
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Six Months ended: June 30, 1995
Commission File Number: 33-4682
CAPITAL BUILDERS DEVELOPMENT PROPERTIES II,
A CALIFORNIA LIMITED PARTNERSHIP
State or other jurisdiction of organization: CALIFORNIA
I.R.S. Employer Identification Number: 77-0111643
Address of Principal Executive Offices:
4700 ROSEVILLE ROAD, SUITE 206, NORTH HIGHLANDS,
CALIFORNIA 95660
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,
CA 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 ___
Capital Builders Development Properties II
(A California Limited Partnership)
BALANCE SHEETS
June 30 December 31
1995 1994
ASSETS
Cash and cash equivalents $501,206 $505,092
Accounts receivable, net 152,008 152,140
Due from joint venture 1,140,298 1,010,405
Investment property, at cost,
net of accumulated depreciation
and amortization of $1,727,670
and $1,716,603 at June 30, 1995
and December 31, 1994, respec-
tively, and a valuation allowance
of $742,000 6,825,535 7,114,583
Lease commissions, net of accumulated 79,704 86,536
amortization of $96,034 and $105,443
at June 30, 1995 and December 31,
1994, respectively
Other assets, net of accumulated
amortization of $39,790 and
$32,556 at June 30, 1995 and
December 31, 1994, respectively 36,275 41,214
Total assets $8,735,026 $8,909,970
LIABILITIES AND PARTNERS' EQUITY
Note payable $3,566,260 $3,576,940
Accounts payable and accrued
liabilities 21,853 13,981
Tenant deposits 55,103 55,060
Total liabilities 3,643,216 3,645,981
Share of joint venture deficit 387,291 290,314
Partners' Equity:
General partner (48,786) (46,094)
Limited partners 4,753,305 5,019,769
Total partners' equity 4,704,519 4,973,675
Commitments and contingencies
Total liabilities and
partners' equity $8,735,026 $8,909,970
STATEMENT OF OPERATIONS
FOR THE MONTHS ENDED JUNE 30,
1995 1995 1994 1994
Three Six Three Six
Months Months Months Months
Ended Ended Ended Ended
Revenues
Rental and other income $283,901 $534,192 $309,445 $531,816
Interest income 35,516 67,265 23,517 43,731
Total revenues 319,417 601,457 332,962 575,547
Expenses
Operating expenses 57,427 113,786 58,313 109,643
Repairs and maintenance 28,993 60,337 26,895 51,916
Property taxes 12,518 28,974 18,635 36,373
Interest 95,939 188,056 76,562 144,113
General administrative 25,658 65,813 31,974 75,828
Depreciation and
amortization 176,807 341,071 197,158 403,850
Total expenses 397,342 798,037 409,537 821,723
Loss before joint venture (77,925) (196,580) (76,575) (246,176)
Loss on investment in
joint venture (37,136) (72,576) (30,340) (61,948)
Net income (loss) (115,061) (269,156) (106,915) (308,124)
Allocated to general
partners (1,151) (2,692) (1,069) (3,081)
Allocated to limited
partners ($113,910) ($266,464) ($105,846) ($305,043)
Net loss per limited
partnership unit ($4.95) ($11.57) ($4.59) ($13.24)
Average units outstanding 23,030 23,030 23,030 23,030
STATEMENTS OF CASH FLOWS
FOR THE MONTHS ENDED JUNE 30,
1995 1995 1994 1994
Three Six Three Six
Months Months Months Months
Ended Ended Ended Ended
Cash flows from
operating activities:
Net loss ($115,061) ($269,156) ($106,915) ($308,124)
Adjustments to reconcile net loss
to cash flow used in operating
activities:
Depreciation and amortization 176,807 341,071 197,158 403,850
Loss on joint venture investment 37,137 72,577 30,340 61,948
Changes in assets and liabilities
(Increase)/Decrease in accounts receivable
receivable (41,484) 132 (12,499) 11,323
Increase in leasing commissions (3,107) (17,265) (23,175) (28,829)
Increase/(Decrease)in other assets 1,223 (2,295) 18,214 (1,543)
Increase in accounts payable
and accrued liabilities 8,295 7,872 56,562 62,004
(Decrease)/Increase in tenant deposits(1,122) 43 (4,688) (3,842)
Net cash provided by
operating activities 62,688 132,979 154,997 196,787
Cash flows from investing activities:
Advances to joint venture (29,337) (129,893) (92,495) (97,782)
Improvements to investment properties (15,334) (20,692) (204,445) (226,676)
Distribution from joint venture 4,400 24,400 20,000 25,600
Net cash used in investing activities (40,271) (126,185) (276,940) (298,858)
Cash flows from financing activities:
Payments of debt (5,340) (10,680) (5,340) (10,680)
Net cash provided by financing activities(5,340) (10,680) (5,340) (10,680)
Net (decrease)/increase in cash 17,077 (3,886) (127,283) (112,751)
Cash, beginning of period 484,129 505,092 838,937 824,405
Cash, end of period $501,206 $501,206 $711,654 $711,654
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 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% ($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 $25,373 and $26,223 for the
six months ending June 30, 1995 and 1994,
respectively, while total reimbursement of
expenses were $67,568 and $84,633, 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
June 30, 1995 and December 31, 1994 are as follows:
June 30, December 31,
1995 1994
Land $2,774,392 $2,774,392
Building and Improvements 4,680,155 4,665,165
Tenant Improvements 1,567,658 1,860,629
Investment property, at cost 9,022,205 9,300,186
Less:
accumulated depreciation
and amortization (1,727,670) (1,716,603)
valuation allowance (469,000) (469,000)
Investment property, net $6,825,535 $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 8.75 percent at June
30, 1995 and 1994, approximately the same rate
paid for similar borrowings. The receivable
includes $62,516 and $7,624 of accrued interest at
June 30, 1995 and December 31, 1994, respectively.
Interest income earned on the note was $54,892 and
$34,132 for the six months ended June 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 June
30, 1995 and December 31, 1994, are as follows:
June 30, December 31,
1995 1994
Assets
Cash $ 22,041 $1,738
Accounts receivable 80,443 111,546
Land and buildings, net 3,411,316 3,528,784
Leasing commissions, net 53,232 63,083
Other assets, net 34,479 37,274
Total assets $3,601,511 $3,742,425
Liabilities and Equity
Notes payable $4,515,452 $4,396,082
Accounts payable and accrued
liabilities 5,757 15,702
Tenant deposits 48,529 56,426
Capital, CBDP (580,936) 435,471)
Capital, CBDP II (387,291) (290,314)
Total liabilities and equity $3,601,511 $3,742,425
The Statement of Operations for joint venture for
the years ended June 30, are as follows:
Six Months Ended June 30
1995 1994
Revenues
Rental income $ 303,411 $ 320,377
Interest income 1,029 240
Total income 304,440 320,617
Expenses
Operating expenses 55,073 55,865
Repairs and maintenance 30,957 33,047
Property taxes 21,722 21,163
Interest 229,915 172,833
General and administrative 4,799 1,697
Depreciation and amortization 143,414 190,880
Total expenses 485,880 475,485
Net loss $(181,440) $(154,868)
Capital Builders Development Properties II
share of net loss $ (72,576) $ (61,948)
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 June 30, 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 $249,638 as of June 30, 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 June 30, 1995, the Partnership had $501,206
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
$25,910 (4.5%) for the six months ended June 30,
1995 as compared to June 30 1994. Total expenses
net of depreciation also increased by $39,093
(9.3%), mainly due to an increase in interest
costs, while depreciation expense decreased by
$62,779 (15.5%) for the six months ended June 30,
1995 as compared to June 30, 1994. In addition,
the loss on the investment in joint venture
increased by $10,628 in 1995 compared to 1994, all
resulting in a decrease in net loss of $38,968
(12.7%) for the six months ended June 30, 1995 as
compared to June 30, 1994.
The increase in revenues is primarily due to
rental rate increases and a slight increase in
occupancy.
Expenses net of depreciation increased for the six
months ended June 30, 1995 as compared to June 30,
1994 due to the net effect of:
a) $4,143 (3.8%) increase in operating expenses
due to an increase in occupancy, b) $8,421 (16.2%)
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) $7,399 (20.3%)
decrease in property taxes due to a reduction in
assessed value obtained from Sacramento County, d)
$43,943 (30.4%) increase in interest due to the
increase in the lending bank's prime rate of 3%,
e) $10,015 (13.2%) 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
$23,686 (2.8%) for the six months ended June 30,
1995 as compared to June 30, 1994. The decrease
was due to a decrease in depreciation expense of
$62,779 (15.5%). 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 II
a California Limited Partnership
By: Capital Builders, Inc.
Its Corporate General Partner
Date: August 11, 1995
By: Michael J. Metzger
President
Date: August 11, 1995
By: Kenneth L. Buckler
Chief Financial Officer