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5
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[X] Annual Report Pursuant to Section 13 or 15(d)
of the Securities and Exchange Act of 1934
For the fiscal year ended Commission File Number
December 31, 2000 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 incorporation or organization) Identification No.)
1130 Iron Point Road, Suite 170, Folsom, California 95630
(Address of principal executive offices) Zip Code
Registrant's telephone number, including area code: (916) 353-
0500
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act:
Limited Partnership Units
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. X Yes No
As of December 31, 2000 the aggregate Limited Partnership Units
held by nonaffiliates of the registrant was 23,030. There is no
market for the Units.
Documents Incorporated by Reference
Limited Partnership Agreement dated February 6, 1986, filed as
Exhibit 3.3, and the Amendment to the Limited Partnership
Agreement dated May 22, 1986 filed as Exhibit 3.4 to Registration
Statement No. 33-4682 of Capital Builders Development Properties
II, A California Limited Partnership, are hereby incorporated by
reference into Part IV of this Form 10K.
Forward-Looking Statements
When used in this annual report, the words "believes,"
"anticipates" and similar expressions are intended to identify
forward-looking statements. Such statements are subject to
certain risks and uncertainties which could cause actual results
to differ materially from those projected, including, but not
limited to, those set forth in the sections entitled "Potential
Factors Affecting Future Operating Results" and "Qualitative and
Quantitative Disclosures About Market Risks" below. Readers are
cautioned not to place undue reliance on these forward-looking
statements which speak only as of the case hereof. The
Partnership undertakes no obligation to publicly release the
result of any revisions to these forward-looking statements which
may be made to reflect events or circumstances after the date
hereof or to reflect the occurrence of unanticipated events.
PART I
ITEM 1. BUSINESS
(a) General Development of Business
Capital Builders Development Properties II (the "Partnership") is
a publicly held limited partnership organized under the
provisions of the California Revised Limited Partnership Act
pursuant to the Limited Partnership Agreement dated February 6,
1986, as amended (the "Agreement"). The Partnership commenced on
May 22, 1986 and shall continue in full force and be effective
until December 31, 2021 unless dissolved sooner by certain events
as described in the Agreement. The Managing General Partner is
Capital Builders, Inc., a California Corporation (CB). The
Associate General Partners are the sole shareholder, President
and Director of CB, and two founders of CB.
On October 6, 1986 the Partnership sold 2,407 Limited Partnership
Units for a total of $1,203,500. From October 6, 1986, through
May 21, 1988, the Partnership sold an additional 20,623 Units for
a total of 23,030 Units. On May 21, 1988, the Partnership was
closed to capital raising activity with a total of $11,515,000
proceeds raised from the offering. The General Partners have
contributed capital in the amount of $1,000 to the Partnership
for a 1% interest in the profits, losses, tax credits and
distributions of the Partnership.
(b) Financial Information about Industry Segments
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 and
organizations (including similar partnerships, 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.
(c) Narrative Description of the Business
The Partnership's business objective is to complete the
development of its existing land with light industrial and office
buildings for lease and eventual sale. The primary investment
objective of the Partnership is to realize capital appreciation
from the sale of the Properties developed by it some three to
five years after such Properties have been placed in service. A
secondary investment objective is to generate cash from the
leasing of Partnership Properties pending their sale for
distribution to the Limited Partners, although it is not
presently anticipated that the amount of such cash available for
distribution to the Limited Partners will be significant. Since
the Partnership has not sold its investment properties, it has
not achieved its investment goals as yet. Although investor
returns cannot be accurately determined until the investment
properties are sold, due to the additional time required to lease
up the investment properties, the decline in real estate values
during the California recession, and although the real estate
market has shown recovery from the previous California recession,
it is anticipated that ultimate returns will be less than
initially projected. Funds obtained by the Partnership from the
sale of Limited Partnership Units were used to acquire equity
interest in one piece of land for development and a 40% equity
interest in another for development in accordance with its
investment objective.
On April 10, 1987, the Partnership entered into a joint venture
called Capital Builders Roseville Venture ("JV") with Capital
Builders Development Properties ("CBDP"), a California limited
partnership. The Partnership and CBDP are affiliates as they
have the same General Partner, but there are no direct
transactions between the respective Partnerships. The
Partnership contributed $900,000 resulting in a 40% interest in
the profits, losses and cash distributions of the JV. CB, the
Managing General Partner of the Partnership, had the same rights
and obligations with respect to the JV's operations and
management as it could exercise as Managing General Partner of
the Partnership. The JV was dissolved as of May 1, 1997 when the
Partnership purchased the remaining 60% interest in the JV.
The acquisition of the real estate is consistent with the
Partnership objectives which are to acquire, develop, hold,
maintain, lease, sell, or otherwise dispose of real property
within the Western United States (including the states of
California, Oregon, Washington, Arizona, Nevada, New Mexico,
Utah, Colorado, Hawaii, and Alaska), including without
limitation, the acquisition of undeveloped land for development
and construction of research and development, light industrial,
commercial/retail, or office buildings thereon, and the
acquisition of partially completed commercial real property
developments for completion of development.
Although the Associate General Partners, Officers, and Directors
of the Managing General Partners are experienced in real property
operation and management, they also may utilize independent
advisors, agents, and workers, in addition to the Partnership
employees, to assist them in the operation, leasing, maintenance
and improvement of the Partnership's properties.
The Partnership has no full time employees but is managed by CB,
the Managing General Partner.
ITEM 2. PROPERTIES
The Partnership owns 100% equity interest in two properties,
Highlands 80 Commerce Center ("H80") and Capital Professional
Center ("CPC"). H80 is a three phase development. Phase I is a
109,000 square foot office/industrial project consisting of five
multi-tenant buildings. Phase II consists of approximately
45,921 square feet of two, one-story light industrial/office
space buildings and Phase III will consist of one, 27,663 square
foot, two-story office building. Phase III is scheduled to start
construction by the end of the second quarter of 2001.
CPC is a 40,400 square foot office project consisting of two
multi-tenant buildings which are completely developed and have
achieved a stabilized occupancy.
Additional information about the individual properties follows:
H80 CPC
Ownership Percentage: 100% 100%
Acquisition Date: April 30, 1987 Apr 10, 1987
40% Ownership
May 1, 1997
60%Ownership
Location: North Highlands, Roseville,
California California
Present Monthly
Effective Average
Base Rent Per Square Foot: $1.05 $1.71
Square Footage Mix:
Office 21,967 40,397
Industrial 132,890
Leased Occupancy at
December 31:
2000 83% 100%
1999 80% 100%
1998 68% 91%
1997 75% 100%
1996 78% 95%
Current Year Depreciation: $359,928 $94,598
Method of Depreciation: Straight Line Straight Line
Depreciation Life: 40 Years 40 Years
Bldg. Improvements Bldg. Improvements
Life of Lease Life of Lease
Tenant Improvements Tenant Improvements
Total cost: $9,960,246 $4,596,131
Encumbrances: $6,050,908 $4,200,000
Tenant occupying more Valley Coldwell Banker
than 10% of square Communications Residential
footage and nature Real Estate
of business: Brokerage)
First American
Title Ins. Co.
Martin, Rivett &
Olson, Inc.
H80 and CPC are subject to encumbrances which are more fully
described under Note 4 of the Partnership's financial statements
included under Item 8 which is incorporated herein by reference.
Both properties are being leased to a wide variety of tenants in
a diversity of industries. Leases are typically three to five
years in term and provide for free rent periods, at inception,
equal to approximately one month per three years of lease term.
Some leases contain options to extend the term of the lease.
The Partnership's investment properties are located in major
urban areas and, therefore, must compete with properties of
greater and lesser quality. Such competition is based primarily
on rent, location, services and amenities. The properties are
suitable for their current and anticipated use.
ITEM 3. LEGAL PROCEEDINGS
NONE
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
NONE
PART II
ITEM 5. MARKET FOR REGISTRANT'S LIMITED PARTNERSHIP INTERESTS
AND RELATED SECURITY HOLDER MATTERS
There is no public trading market for the Partnership's Limited
Partnership Units and it is not anticipated that a public trading
market will develop. Furthermore, the Partnership Agreement
prohibits Limited Partners from transferring Limited Partnership
Interests if such transfers would result in the dissolution of
the Partnership for tax purposes under Section 708 of the
Internal Revenue Code.
As of December 31, 2000, there were 1,599 holders and 23,030
Limited Partnership Units outstanding.
ITEM 6. SELECTED FINANCIAL DATA
The following constitutes a summary of selected financial data
for the following periods (000's omitted except net loss per
Limited Partnership Unit):
2000 1999 1998 1997 1996
Revenues $2,414 $2,145 $1,985 $1,728 $1,224
Net Loss ($102) ($247) ($323) ($217) ($268)
Net Loss per Limited
Partnership Unit ($4.37) ($10.63) ($13.90) ($9.33) ($11.54)
Total Assets $13,626 $12,808 $12,799 $13,077 $9,953
Notes and Loans
Payable $10,251 $9,313 $9,094 $8,950 $4,928
(See ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA)
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Accounting Pronouncements
On December 3, 1999, the U.S. Securities and Exchange Commission
staff issued Staff Accounting Bulletin No. 101, Revenue
Recognition in Financial Statements (SAB 101). SAB 101
summarizes certain of the staff's views in applying generally
accepted accounting principles to revenue recognition in
financial statements. SAB 101 was adopted on January 1, 2000.
The adoption of SAB 101 did not have a material impact on the
financial statements.
Liquidity and Capital Resources
The Partnership commenced operations on May 22, 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 raised $11,515,000 (represented by 23,030 Limited
Partnership Units). Cash generated from the sale of Limited
Partnership Units was used to acquire land and for the
development of a mixed use commercial project and a 40% interest
in a commercial office project. In May 1997, the remaining 60%
interest in the project was acquired.
The Partnership's primary current sources of cash are from cash
balances, property rental income and construction financing for
Phase II improvements. As of December 31, 2000, the Partnership
had $1,232,514 in cash and $515,820 in available construction
loan draws for Highlands 80 Phase II. The Highlands 80
construction loan was extended and now has an expiration date of
June 3, 2002. 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 Highlands 80 Phase III. Additionally, Management
was successful in securing a new mortgage loan for the
Partnership's Capital Professional Center project. Of the
$1,232,514 in cash, approximately $950,000 was obtained through
the refinancing of Capital Professional Center. Both of the
Partnership's projects have achieved occupancy and rental rates
sufficient to meet its expected current and future debt service
obligations.
The Partnership's scheduled principal and interest payments
during 2001, 2002, 2003, 2004, 2005 and thereafter are
$2,303,644, $5,312,497, $387,996, $387,996, $387,996 and
$3,900,355, respectively.
Management intends to begin development of Highlands 80 Phase III
(a 27,663 square foot, 2-story full service office building)
during the first quarter of 2001. The project's site and shell
are estimated to be completed by the third quarter of 2001. The
initial construction of Highlands 80 Phase III will be funded
with a portion of its existing cash balance. It is Management's
intention to modify the project's existing Phase II construction
loan with the current lender to include the additional costs for
Phase III. Management is still in the process of finalizing the
construction contract with the General Contractor, and therefore
the total costs have not yet been determined.
During the year ended December 31, 2000, cash increased by
$1,016,245. This was primarily the result of cash obtained from
the refinancing of Capital Professional Center ($950,000) and
cash flow from operations from the Partnership's projects.
During the year ended December 31, 2000, the Partnership paid
$115,635 in management fees to its Managing General Partner.
Management fees are classified on the Statements of Operations as
an Operating Expense. These fees are not recorded as a contra
account against revenue due to the fact that they are a normal
property operating expense. These fees would be incurred whether
they are charged by the affiliate General Partner or by an
outside management company. The General Partner is currently
charging 5% of collected revenue.
Management anticipates cash provided from operations to continue
to improve in future quarters with the additional lease-up of the
Highlands 80 Phase II and III. The Partnership's properties'
occupancy rates as of December 31, 2000 are 83% for Highlands 80
and 100% for Capital Professional Center. Subsequent to December
31, 2000, Management was successful in leasing an additional
9,000 square feet in one of the Highlands 80 Phase II buildings.
This will bring Highlands 80 to a 89% occupancy.
The Partnership will continue to incur improvement costs as its
properties are leased up. The total projected tenant improvement
costs expected to be incurred during 2001 are estimated to be
$354,500. These costs will be funded with construction loan
draws.
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. Management believes the
Partnership's financial resources should be adequate to meet
2001's obligations and no adverse change in liquidity is
foreseen. The Partnership's properties' current market values
are in excess of its total liabilities. The Partnership should
therefore meet its current and long-term obligations so long as
the properties' occupancy and rental rates are maintained and the
real estate investment market remains stable.
Results of Operations
2000 vs 1999
During the year ended December 31, 2000 as compared to December
31, 1999, the Partnership's total revenues increased by $268,276
(12.5%), while its expenses also increased by $122,690 (5.1%),
resulting in a decrease in net loss of $145,586 (58.9%).
The increase in revenue is primarily due to an increase in
occupancy for Highlands 80 ($185,914) and rent increases at
Capital Professional Center ($78,083).
Expenses increased for the year ended December 31, 2000, as
compared to December 31, 1999, due to the net effect of:
a) $15,461 (3.7%) increase in operating expenses due to general
inflation for utility costs.
b) $14,680 (4.9%) increase in repairs and maintenance due to
suite turnover costs incurred for lease renewals at Highlands 80;
c) $11,790 (8.1%) increase in property taxes primarily due to
the additional buildout of Highlands 80 tenant improvements;
d) $44,978 (5.6%) increase in interest due to loan costs
associated with Highlands 80 and Phase II tenant improvement loan
draws;
e) $4,037 (2.3%) increase in general and administrative due to
general cost/wage inflation; and
f) $31,744 (5.8%) increase in amortization and depreciation due
to an increase in amortized loan fees related to the Highlands 80
Phase II loan extensions.
1999 vs 1998
During the year ended December 31, 1999 as compared to December
31, 1998, the Partnership's total revenues increased by $160,059
(8.1%), while its expenses increased by $83,957 (3.6%), resulting
in a decrease in net loss of $76,102 (23.5%).
The increase in revenue is primarily due to an increase in
occupancy for Highlands 80 ($139,806) and rent increases at
Capital Professional Center ($27,129). Interest income for the
Partnership decreased by $6,876.
Expenses increased for the year ended December 31, 1999, as
compared to December 31, 1998, due to the net effect of:
a) $20,256 (5%) increase in operating expenses due to an
increase in utility and marketing costs;
b) $12,717 (4.4%) increase in repairs and maintenance due to
parking lot resurfacing, lobby repainting and recarpeting at
Capital Professional Center, plus suite turnover costs at
Highlands 80 for space leased during the first quarter;
c) $8,238 (6%) increase in property taxes primarily due to the
additional buildout of Highlands 80 tenant improvements;
d) $18,456 (2.4%) increase in interest due to loan costs
associated with Highlands 80, Phase II completion;
e) $5,807 (3.2%) decrease in general and administration due to
cost reductions; and
f) $30,097 (5.8%) increase in depreciation at Highlands 80 due to
the Phase II completion.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET
RISKS
The Partnership does not have a material market risk due to
financial instruments held by the Partnership. The Partnership's
only variable rate instrument consists of a construction loan in
the amount of $1,414,180 and $1,289,781 at December 31, 2000 and
December 31, 1999, respectively. The increase from 1999 to 2000
is due to additional draws for construction
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Page Number
INDEPENDENT AUDITORS' REPORT 10
FINANCIAL STATEMENTS
11
BALANCE SHEETS
AS OF DECEMBER 31, 2000 AND 1999
STATEMENTS OF OPERATIONS 12
FOR THE YEARS ENDED
DECEMBER 31, 2000, 1999, AND 1998
STATEMENTS OF PARTNERS' EQUITY 13
FOR THE YEARS ENDED
DECEMBER 31, 2000, 1999, AND 1998
STATEMENTS OF CASH FLOWS 14
FOR THE YEARS ENDED
DECEMBER 31, 2000, 1999, AND 1998
NOTES TO FINANCIAL STATEMENTS 15-21
SUPPLEMENTAL SCHEDULES
SCHEDULE III 25
REAL ESTATE AND ACCUMULATED DEPRECIATION
Financial schedules not included have been omitted because of
the absence of conditions under which they are required or
because the information is included elsewhere in this report.
Independent Auditors' Report
The Partners
Capital Builders Development Properties II:
We have audited the accompanying balance sheets of Capital
Builders Development Properties II, a California Limited
Partnership, as of December 31, 2000 and 1999, and the related
statements of operations, partners' equity and cash flows for
each of the years in the three-year period ended December 31,
2000. In connection with our audits of the financial
statements, we also have audited the financial statement
schedule as listed in the accompanying index. These financial
statements and financial statement schedule are the
responsibility of the partnership's management. Our
responsibility is to express an opinion on these financial
statements and financial statement schedule based on our audits.
We conducted our audits in accordance with auditing standards
generally accepted in the United States of America. Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by
management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the financial position
of Capital Builders Development Properties II as of December 31,
2000 and 1999, and the results of its operations and its cash
flows for each of the years in the three-year period ended
December 31, 2000 in conformity with accounting principles
generally accepted in the United States of America. Also in our
opinion, the related financial statement schedule, when
considered in relation to the basic financial statements taken
as a whole, presents fairly, in all material respects, the
information set forth therein.
Sacramento, California KPMG LLP
February 2, 2001
PART 1 - FINANCIAL INFORMATION
Capital Builders Development
Properties II
(A California Limited Partnership)
BALANCE SHEETS
December 31, December 31,
2000 1999
ASSETS
Cash $1,232,514 $216,269
Accounts receivable, net 177,630 144,583
Investment property, at cost, net
of accumulated depreciation of
$2,648,467 and $2,714,863 at
December 31, 2000 and 1999,
respectively 11,907,910 12,202,875
Lease commissions, net of
accumulated amortization of $198,454
and $284,126 at December 31, 2000 and
1999, respectively 167,767 170,305
Other assets, net of accumulated
amortization of $115,668 and $66,264
at December 31, 2000 and 1999,
respectively 140,547 74,337
Total assets $13,626,368 $12,808,369
LIABILITIES AND PARTNERS' EQUITY
Notes payable $10,250,908 $9,312,934
Accounts payable and accrued
liabilities 30,058 46,045
Tenant deposits 112,289 114,613
Total liabilities 10,393,255 9,473,592
Commitments and contingencies
Partners' Equity:
General Partners (63,500) (62,483)
Limited Partners 3,296,613 3,397,260
Total Partners' equity 3,233,113 3,334,777
Total liabilities and
Partners' equity $13,626,368 $12,808,369
See accompanying notes to the financial statements.
Capital Builders Development
Properties II
(A California Limited
Partnership)
STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31,
2000 1999 1998
Revenues
Rental and other income $2,398,711 $2,134,714 $1,967,779
Interest income 14,932 10,653 17,529
Total revenues 2,413,643 2,145,367 1,985,308
Expenses
Operating expenses 437,631 422,170 401,914
Repairs and maintenance 313,326 298,646 285,929
Property taxes 156,686 144,896 136,658
Interest 847,882 802,904 784,448
General and administrative 181,409 177,372 183,179
Depreciation and
amortization 578,373 546,629 516,532
Total expenses 2,515,307 2,392,617 2,308,660
Net loss (101,664) (247,250) (323,352)
Allocated to General Partners (1,017) (2,473) (3,233)
Allocated to Limited Partners ($100,647) ($244,777) ($320,119)
Net loss per Limited
Partnership Unit ($4.37) ($10.63) ($13.90)
Average Units outstanding 23,030 23,030 23,030
See accompanying notes to the financial statements.
Capital Builders Development Properties II
(A California Limited Partnership)
STATEMENTS OF PARTNERS' EQUITY
YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
Total
General Limited Partners'
Partners Partners Equity
Balance at December 31, 1997 ($56,777) $3,962,156 $3,905,379
Net Loss (3,233) (320,119) (323,352)
Balance at December 31, 1998 (60,010) 3,642,037 3,582,027
Net Loss (2,473) (244,777) (247,250)
Balance at December 31, 1999 (62,483) 3,397,260 3,334,777
Net loss (1,017) (100,647) (101,664)
Balance at December 31, 2000 ($63,500) $3,296,613 $3,233,113
See accompanying notes to the financial statements.
Capital Builders Development
Properties II
(A California Limited
Partnership)
STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31,
2000 1999 1998
Cash flows from operating
activities:
Net loss ($101,664) ($247,250) ($323,352)
Adjustments to reconcile
net loss to cash flow provided
by operating activities:
Depreciation and amortization 578,373 546,629 516,532
Changes in operating assets
and liabilities:
(Increase) Decrease in
accounts receivable (33,047) (13,708) 32,863
Increase in leasing
commissions (71,905) (86,307) (67,353)
Decrease (Increase) in other
assets 1,260 (33,064) (7,753)
(Decrease) Increase in
accounts payable
and accrued liabilities (15,987) 17,443 (99,175)
(Decrease) Increase in tenant
deposits (2,324) 19,520 1,403
Net cash provided by
operating activities 354,706 203,263 53,165
Cash flows from investing
activities:
Improvements to investment
properties (159,561) (494,303) (163,044)
Net cash used in
investing activities (159,561) (494,303) (163,044)
Cash flows from financing
activities:
Proceeds from issuance of
debt 1,074,407 352,123 260,600
Payments of debt (136,433) (132,706) (117,455)
Payments of loan fees (116,874) - - - - - - - - - -
Net cash provided by
financing activities 821,100 219,417 143,145
Net increase (decrease) in cash 1,016,245 (71,623) 33,266
Cash, beginning of period 216,269 287,892 254,626
Cash, end of period $1,232,514 $216,269 $287,892
Cash paid for Interest $847,882 $802,904 $784,448
Non cash financing activity:
Refinance of mini-permanent
loan with mortgage loan $3,249,992 - - - - - - - - - -
See accompanying notes to the financial statements.
Capital Builders Development Properties II
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2000, 1999 AND 1998
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 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 and
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
Long-lived assets and certain identifiable intangibles are
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.
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.
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 costs associated with obtaining leases with
terms in excess of one year. The Partnership capitalizes these
costs and amortizes them on a straight line basis over their
related lease term.
Income Taxes
The Partnership has no provision 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 of 23,030 during
the years ending December 31, 2000 , 1999 and 1998.
Statement of Cash Flows
For purposes of the 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
accounting principles generally accepted in the United States of
America 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 - 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%
of gross proceeds from the sale of the Partnership Units; a
property management fee up to 6% of gross rental 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% ($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 $115,635, $104,642 and $97,913 for the years ended December
31, 2000, 1999 and 1998, respectively, while total reimbursement
of expenses was $226,652, $194,584 and $190,533 respectively.
Management fees are classified on the Statements of Operations as
an Operating Expense. These fees are a normal cost of property
operations and would be incurred whether they are charged by the
affiliate General Partner or an outside management company.
Reimbursement of expenses are also a normal operating cost of the
Partnership. These expenses are primarily for investor services,
preparation of SEC filings, audit coordination and other
Partnership management functions. Expense reimbursements are
classified as General and Administrative expenses on the
Statement of Operations.
In accordance with the Partnership Agreement, the General Partner
may hire outside consultants or perform the necessary accounting,
reporting and investor service functions internally, and pass
through the associated costs. It has been determined that if
outside consultants were to perform these functions, the related
costs would be substantially higher to the Partnership.
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 December 31,
are as follows:
2000 1999
Land $ 4,053,799 $ 4,053,799
Building and Improvements 9,201,129 9,132,132
Tenant Improvements 1,301,449 1,731,807
Investment property, at cost 14,556,377 14,917,738
Less: accumulated depreciation
and amortization (2,648,467) (2,714,863)
Investment property, net $11,907,910 $12,202,875
NOTE 4 - NOTES PAYABLE
Notes Payable consist of the following at December 31,:
2000 1999
A mini-permanent loan of $5,000,000
with a fixed 8.95% interest rate.
The loan requires monthly principal
and interest payments of $41,789
which is sufficient to amortize the
loan over 25 years. The loan is due
October 1, 2002. The note is
collateralized by a First Deed Of
Trust on Highlands 80 Phase I land,
buildings and improvements. $4,636,728 $4,720,104
A construction loan of $1,930,000
with a variable interest rate of
prime plus 1.5% (11% as of December
31, 2000). The loan requires monthly
interest only payments, and its due
date was extended to June 3, 2001.
The Note provides for a future
extension date of June 3, 2002 and
future draws of $515,820 for tenant
improvement construction costs and
leasing commissions for future lease-
up of Phase II. The note is
collateralized by a First Deed of
Trust on Highlands 80 Phase II land,
buildings and improvements. 1,414,180 1,289,781
A mortgage loan of $4,200,000 with a
fixed interest rate of 7.97% and
requiring monthly principal and
interest payments of $32,333, which
is sufficient to amortize the loan
over 25 years. The loan is due
January 10, 2006. The note is
collateralized by a First Deed Of
Trust on Capital Professional
Center's (CPC) land, buildings and
improvements. 4,200,000 - - - - -
A mini-permanent loan that had a
fixed interest rate of 8.24% and
required monthly principal and
interest payments of $27,541, which
was sufficient to amortize the loan
over 25 years. The loan was due
January 1, 2001. The note was
collateralized by a First Deed of
Trust on Capital Professional
Center's (CPC) land, buildings and
improvements. This loan was paid off
with proceeds obtained from the new
$4,200,000 mortgage loan. - - - - - 3,303,049
Total Notes Payable $10,250,908 $9,312,934
The Partnership is in compliance with all restrictive debt
covenants as of December 31, 2000.
Scheduled principal payments during 2001, 2002, 2003, 2004, 2005
and thereafter are $1,559,229, $4,606,724, $64,324, $70,106,
75,904 and $3,874,621, respectively.
NOTE 5 - 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 ended December 31 are as follows:
2001 $ 2,078,074
2002 1,546,675
2003 1,032,251
2004 550,826
2005 119,326
Total $ 5,327,152
NOTE 6 - SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
YEAR 2000 March 31 June 30 September 30 December 31
Revenues $575,903 $601,934 $582,473 $653,333
Net (loss)/income ($54,671) $20,439 ($65,018) ($2,414)
Net (loss)/income
per limited
partnership unit ($2.35) $0.88 ($2.80) ($0.10)
YEAR 1999 March 31 June 30 September 30 December 31
Revenues $494,299 $548,363 $538,699 $564,006
Net loss ($141,382) ($24,362) ($33,809) ($47,697)
Net loss per
limited
partnership unit ($6.08) ($1.05) ($1.45) ($2.05)
NOTE 7 - RECONCILIATION TO INCOME TAX METHOD OF ACCOUNTING
A reconciliation of the net loss as reflected on the
accompanying Statements of Operations to that reflected on the
Federal income tax return for the years ended December 31 is as
follows:
2000 1999 1998
Net loss - Statements
of Operations ($101,664) ($247,250) ($323,352)
Adjustments
resulting from:
Difference in depreciation
and amortization 5,276 90,987 87,705
Net loss - tax return ($96,388) ($156,263) ($235,648)
Partners' equity - Statements
of Partners' Equity $3,233,113 $3,334,777 $3,582,027
Increases
resulting from:
Difference in depreciation
and amortization and
valuation allowance 2,968,812 2,963,536 2,872,549
Selling expenses for
Partnership units 1,713,666 1,713,666 1,713,666
Partners' equity - tax
return $7,915,591 $8,011,979 $8,168,242
Taxable loss per Limited
Partnership unit after
giving effect to the
taxable loss allocated
to the General Partner ($4.18 ($6.72) ($10.13)
NOTE 8 - FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used by the
Partnership in estimating its fair value disclosures for
financial instruments.
Notes payable
The fair value of the Partnership's Notes Payable are
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:
December 31, 2000 December 31, 1999
Carrying Estimated Carrying Estimated
Amount Fair Value Amount Fair Value
Liabilities
Note payable $4,636,728 $4,636,728 $4,720,104 $4,720,104
Note payable $1,414,180 $1,414,180 $1,289,781 $1,289,781
Note payable $4,200,000 $4,200,000 $3,303,049 $3,303,049
NOTE 9 - ACCOUNTING FOR DERIVATIVE INVESTMENTS AND HEDGING
ACTIVITIES
In June 1998, the FASB issued SFAS No. 133, Accounting for
Derivative Instruments and Hedging Activities. SFAS No. 133 as
amended is effective for all fiscal quarters of fiscal years
beginning after June 15, 2000. Management believes that the
adoption of SFAS No. 133 will not have a material impact on the
financial statements due to the Partnership's inability to invest
in such instruments as stated in the Partnership agreement.
NOTE 10 - COMMITMENTS AND CONTINGENCIES
The Partnership is involved in litigation 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
results of operations.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS AND
FINANCIAL DISCLOSURE
NONE
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The Partnership has no directors. The Partnership is managed by
Capital Builders, Inc. ("CB"), the Managing General Partner. The
following are the names and other information relating to the
Managing General Partner. No expiration date has been set for
the term during which the Managing General Partner is to serve.
MANAGING GENERAL PARTNER
The Partnership is being managed by CB, the Managing General
Partner. CB is a California corporation organized in May 1978.
CB relocated on October 8, 1999 and moved its executive offices
at 1130 Iron Point Road, Suite 170, Folsom, California 95630
(telephone number 916-353-0500). To date, CB has organized ten
partnerships to engage in commercial real estate development. As
the General Partner, CB may be responsible for certain
liabilities that a partnership it manages is unable to pay.
The officers, directors, and key personnel of CB are as follows:
Name Office
Michael J. Metzger President and Director
Mark J. Leggio Director
Ellen Wilcox Director
Michael J. Metzger: Mr. Metzger is responsible for the general
management of CB. Mr. Metzger assumed responsibility for the
management of CB in December 1986. He was formerly the Executive
Vice President of The Elder-Nelson Company (EN) and its
subsidiary, the Elder-Nelson Equities Corporation - affiliated
companies which provided underwriting and administrative services
to CB. Prior to joining EN in 1977, Mr. Metzger was
Partner/General Manager for two years in his family's real estate
contracting, development and syndication business. Mr. Metzger
has also had five years of experience in manufacturing management
and served as an Army Officer for four years. Mr. Metzger holds
a B.S. degree in Business and Industrial Management as well as a
license in Real Estate, and former licenses in Securities and
Insurance.
Ellen Wilcox: Ellen Wilcox is a Registered Investment Advisor in
California and the former Owner/Manager of Wilcox Financial
Services. She is licensed in General Securities and Insurance
through Linsco/Private Ledger, an NASD Registered Broker/Dealer.
As an Investment Advisor and Broker, Ms. Wilcox provides a full
range of investment products and services to individuals and
small business owners. She has been actively providing such
services since 1986. Ms. Wilcox teaches classes on retirement
planning, investment strategies, and basic money management. She
is a popular speaker and lecturer on financial topics, has
authored many published articles, and has appeared on several
radio shows.
Mark J. Leggio: Mark Leggio is the Owner of Mark J. Leggio, CPA.
He provides tax accounting and business consultation services to
a wide variety of small and mid-size businesses. From 1978 to
1995 he worked for KPMG LLP and was a partner when he left. Mr.
Leggio holds a Bachelor of Science degree in Accounting from the
University of Southern California, where he graduated cum laude.
ITEM 11. EXECUTIVE COMPENSATION
The Partnership does not have any officers or employees and,
therefore, does not pay compensation to such persons. The
Partnership's business is conducted by the Managing General
Partner which is entitled under Article IV of the Partnership
Agreement to receive underwriting commissions, acquisition fees,
property management fees, subordinated real estate commission,
share of distribution and an interest in the Partnership. The
Managing General Partner's fees totaled $115,635 in 2000,
consisting entirely of property management fees which are
calculated as 5% of gross rental revenues collected.
In addition to the fees described above, the General Partner is
entitled to reimbursement for out of pocket expenses incurred on
behalf of the Partnership. Such expenses aggregated $226,652 in
2000.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
The Managing General Partner contributed $1,000 to the
Partnership Capital accounts, however, no securities were issued
in respect thereof. No person is known to the Partnership to own
beneficially more than 5% of the Units.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Partnership agreement (see Part IV, Item 14(a)(4) Exhibits)
which was executed in 1985, authorized the compensation set forth
below to be paid to the Managing General Partner and to
affiliates of the Managing General Partner.
During the year ended December 31, 2000, the Managing General
Partner and/or its affiliate received $226,652 for reimbursement
of administrative services and $115,635 for property management
and administrative fees.
PART IV
ITEM 14. EXHIBITS FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON
FORM 8-K
EXHIBIT
NUMBER EXHIBIT
(a) 1,2 See Item 8 of this Form 10-K for the
Consolidated Financial Statements of the
Partnership, Notes thereto, and Supplementary
Schedules. An index to Financial Statements and
Schedules is included and incorporated herein by
reference.
4 Limited Partnership Agreement dated February
6, 1986 filed as exhibit 3.3 and the Amendment to
the Limited Partnership Agreement dated May 22,
1986, filed as exhibit 3.4 to Registration
Statement No. 2-96042 of Capital Builders
Development Properties II, a California Limited
Partnership are hereby incorporated by reference.
11 Statement regarding computation of per Unit
earnings is not included because the computation
can be clearly determined from the material
contained in this report.
(b) Reports on Form 8-K
The Partnership filed an 8-K dated November
11, 1992.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant has duly
caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Capital Builders Development Properties II
a California Limited Partnership
By CAPITAL BUILDERS, INC.,
The Managing General Partner,
For and On Behalf of the
Capital Builders Development Properties II
A California Limited Partnership
Michael J. Metzger, President Date
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following
persons on behalf of the registrant and in the capacities and
on the date indicated.
Signature Title Date
Associate General
Michael J. Metzger Partner; President and
Director of Capital Builders,
Inc. ("CB")
Chief Financial
Kenneth L. Buckler Officer of CB
SUPPLEMENTAL INFORMATION TO BE FURNISHED WITH REPORTS PURSUANT TO
SECTION 15(d) OF THE ACT BY REGISTRANTS WHICH HAVE NOT REGISTERED
SECURITIES PURSUANT TO SECTION 12 OF THE ACT.
The Partnership has not sent an annual report or proxy statements
to the Limited Partners and does not intend to send a proxy
statement to the Limited Partners. The Partnership will send the
Limited Partners an annual report and will furnish the Commission
with copies of the annual report on or before April 30, 2001.
Capital
Builders
Development
Properties II
A California
Limited
Partnership
and Subsidiary
SCHEDULE III -
REAL ESTATE
AND
ACCUMULATED
DEPRECIATION
December 31,
2000
Column A Column B Column C Column D
Cost
Capitalized
Description Encumbrances Initial Cost Subsequent
to
Acquisition
Improvements Carrying
Land (1) (1) Costs
Commercial
Office Bldg.
Highlands 80 $6,050,908 $2,115,148 $7,794,874 $50,225
Roseville 4,200,000 986,715 3,520,089 89,326
Commercial
Office Bldg. $10,250,908 $3,101,863 $11,314,963 $139,551
Balance at
beginning of
period
Additions
Deletions (2)
Balance at end
of period
Column A Column E
Description Gross
Carrying
Amount at
End of
Period
Buildings &
Improvements
Land(1) (1) Total (1)
Commercial
Office Bldg.
Highlands 80 $2,622,014 $7,338,233 $9,960,247
Roseville 1,431,785 3,164,345 4,596,130
Commercial
Office Bldg. $4,053,799 $10,502,578 $14,556,377
Column E
Total
1998 1999 2000
Balance at
beginning of
period $14,493,041 $14,423,435 $14,917,738
Additions 163,044 494,303 159,561
Deletions (2) (232,650) 0 (520,922)
Balance at end
of period $14,423,435 $14,917,738 $14,556,377
Column A Column F Column G Column H Column I
Accumulated Date of Date Depreciation
Description Depreciation Construction Acquired Life
Commercial
Office Bldg.
40 Years
Highlands 80 $2,074,876 1987 1987 (Bldg.)
40 Years
Roseville 573,591 1987 1987 (Bldg.)
Life of
Commercial Lease Tenant
Office Bldg. $2,648,467 Imp.)
Column F
Total
1998 1999 2000
Balance at
beginning of
period $2,061,160 $2,280,524 $2,714,863
Additions 452,014 434,339 454,526
Deletions (2) (232,650) 0 (520,922)
Balance at end
of period $2,280,524 $2,714,863 $2,648,467
1) Valuation
allowance for
possible
investment
loss of
$469,000 at
December 31,
1995 was
charged
against the
cost basis of
the land and
building and
improvements
on a pro rata
basis in
accordance
with the
provisions of
SFAS No. 121
which was
adopted on
January 1,
1996.
2) Deletions
represent the
write-off of
fully
amortized
tenant
improvement
costs.