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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, 1995 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.)
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
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, 1995 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.
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 effect 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: 1) the sole shareholder, President and Director of
CB, 2) four founders of CB, two of which are members of the Board of
Directors 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 or
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 acquire land and to develop
research and development, light industrial, commercial retail, or 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. Consistent with the objective of realizing
capital appreciation, it is the intent of the Partnership to distribute a
portion of the permanent loans obtained by the Partnership upon the
completion of development and the leasing of its Properties so as to
provide the Limited Partners with a non-taxable return of capital in an
amount of approximately 30-75% of their Capital Contributions. 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 and the 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 have been 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 percent interest in the profits,
losses and cash distributions of the JV. CB, the Managing General Partner
of the Partnership, has the same rights and obligations with respect to the
JV's operations and management as it may exercise as Managing General
Partner of the Partnership. The JV shall continue in full force and effect
until December 31, 2010 unless dissolved sooner by mutual agreement, sale
of the investment property, default by a joint venture partner or by filing
of bankruptcy by one of the joint partners.
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 percent equity interest in a property called
Highlands 80 Commerce Center ("H80") and a 40 percent joint venture
interest in another property called 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 45,620 square feet of two, one-story light
industrial/office space buildings and Phase III consists of one 29,000
square foot office building. The Partnership is currently proceeding with
the development of Phase II in which its total development costs are
estimated to be approximately $2,762,205. Funds for these improvements
will come from existing cash reserves, property income, and additional
borrowings.
Additional information about the individual properties follows:
H80 CPC
Ownership Percentage: 100% 40%
Acquisition Date: April 30, 1987 April 13, 1987
Location: North Highlands, California Roseville, California
Present Monthly
Effective Average
Base Rent Per Square Foot: $0.89 $1.48
Square Footage Mix:
Office 21,966 40,397
Industrial 87,119
Leased Occupancy at
December 31: 1995 86% 95%
1994 84% 100%
1993 77% 96%
1992 80% 78%
1991 79% 100%
Current Year Depreciation: $553,811 $233,236
Method of Depreciation: Straight Line Straight Line
Depreciation Life: 40 Years-Bldg. Improvements 40 Years-Bldg. Improvements
Life of Lease-Tenant Life of Lease-Tenant
Improvements Improvements
Total cost: $9,300,186 $4,477,876
Encumbrances: $4,986,374 $3,500,000
Additional information about the individual properties follows: (continued)
H80 CPC
Tenant occupying more
than 10 percent of square
footage and nature of ESL, Inc. Coldwell Banker
(Defense Contractors) (Residential Real Estate Brokerage)
USA Properties (Real Estate Developer)
H80 is held subject to an encumbrance which is more fully described under Note 6 of the
Partnership's financial statements included under Item 8 which is incorporated herein by
reference.
CPC is held subject to a permanent loan in the original amount of
$3,500,000. The interest rate is fixed at 8.24% percent and is due and
payable on January 1, 2001. The balance of the loan at December 31, 1995
is $3,500,000. Payments are monthly principal and interest amortized over
25 years. The note is collateralized by a first deed of trust on the
land, building and improvements.
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 year of lease term. Some leases contain options to extend
the term of the lease.
The Partnerships 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, 1995, there were 1,735 holders and 23,030 Limited
Partnership units outstanding.
ITEM 6. SELECTED FINANCIAL DATA
The following constitutes a summary of selected consolidated financial
data for the following periods (000's omitted except net loss per limited
partnership unit):
1995 1994 1993 1992 1991
Revenues $1,208 $1,089 $1,079 $995 $802
Net Loss ($583) ($697) ($1,173) ($643) ($371)
Net Loss per Limited
Partnership Unit ($25.05) ($29.97) ($50.41) ($27.65) ($15.97)
Total Assets $9,934 $8,910 $9,441 $10,610 $10,449
Notes and Loans Payable $4,986 $3,577 $3,598 $3,620 $2,862
(See ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA)
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
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 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 and for the development of
a mixed use commercial project and a 40 percent interest in a commercial
office project.
The Partnership's primary current sources of cash are from cash reserves,
property rental income. As of December 31, 1995, the Partnership had
$462,947 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 two, one-story Light
Industrial/Office space buildings. 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, additional
borrowings, and proceeds from maturing investment securities.
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.
Impairment of Long-Lived Assets
In March 1995, the Financial Accounting Standards Board issued SFAS 121,
[Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed Of.] This statement applies to financial statements
for fiscal years beginning after December 15, 1995. It requires that long-
lived assets and certain identifiable intangibles to be held and used by an
entity be reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. Additionally, this statement requires that long-lived assets
and certain identifiable intangibles to be disposed of be reported at the
lower of carrying amount or fair value less cost to sell. It is
management's opinion that applying the provisions of this statement will
not have a significant effect on the Partnership's financial position.
Results of Operations
1995 vs 1994
The Partnership's total revenues increased by $118,722 (10.9%) in fiscal
year 1995 compared to 1994. Total expenses net of depreciation also
increased by $130,107 (15.2%) mainly due to an increase in interest costs,
while depreciation expense decreased by $158,310 (19.8%) in fiscal year
1995 compared to 1994. In addition, the loss on the investment in joint
venture increased by $32,570 in 1995 compared to 1994, all resulting in a
decrease in net loss of $114,355 (16.4%) from fiscal year 1995 to 1994,
respectively.
The increase in revenues is primarily due to an increase in occupancy and
rental rate increases. Highlands 80 occupancy for the twelve months ended
December 31, 1995 averaged 88% as compared to 84% in 1994.
Expenses net of depreciation increased from the fiscal year 1995 to 1994
due to the net effect of:
a) $16,888 (7.6%) 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) $42,671 (37.9%) 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) $9,756 (12.9%) decrease in property taxes due to a reduction
in the assessed value obtained from Sacramento County, d) $87,477 (27.9%)
increase in interest due to the increase in the lending bank's prime rate
during the holding period of the variable rate loan with Sumitomo Bank and
the increase in the borrowings outstanding in connection with the note
payable refinancing (see Note 6 of the Notes to the Financial Statements
for discussion on Note Payable), e) $7,173 (5.3%) decrease in general
administrative expenses due to improved efficiencies (see Note 2 of the
Notes to the Financial Statements for discussion of reimbursed expenses
paid to Managing General Partner).
Total expenses including depreciation decreased by $28,203 (1.7%) for the
fiscal year 1995 compared to 1994. The decrease was primarily due to a
decrease in depreciation expense of $158,310 (19.8%). The reduction of
depreciation was the result of tenant improvement costs that were amortized
during the first three quarters of 1994 becoming fully amortized in the
third quarter of 1994. Many of the suites with improvements fully
amortized were either leased or their leases renewed without requiring any
major tenant improvement buildout, therefore a minimal amount of
amortization was incurred for these suites in 1995.
1994 vs 1993
The Partnership's total revenues increased by 9,887 (1%) in the fiscal year
1994 compared to 1993 while expenses decreased by $412,343 (20%). The
decrease in expenses was mainly due to the decrease in depreciation and
amortization of $425,332 as mentioned below, while the remaining expenses
increased by $12,989 (1.5%). In addition, the loss on the investment in
joint venture decreased by $53,289 in 1994 compared to 1993, all resulting
in a decrease in net loss of $475,519 (40.5%) from fiscal year 1994 to
1993, respectively.
The increase in revenues was primarily due to rent escalation of existing
leases.
Expenses decreased from the fiscal year 1994 to 1993 due to the net effect
of:
a) $26,858 (10.8%) decrease in operating expenses due to continual cost
cutting programs and a decline in bad debt expenses, b) $17,667 (18.6%)
increase in repairs and maintenance expenses due to a major HVAC
maintenance service program and the repavement and restriping of Phase I's
parking lot, c) $38,317 (14%) increase in interest due to the increase in
the lending bank's prime rate of 2.5%, d) $20,044 (13%) decrease in general
and administrative expenses due to continual cost cutting programs, and e)
$425,332 (34.7%) decrease in depreciation and amortization is due to the
depreciation adjustment made in the fourth quarter of 1993. This
adjustment was made in order for the financial statements to reflect a
change in accounting estimate of the useful life of tenant improvement
costs (see Note 3 of the Notes to the Financial Statements for further
discussion regarding estimates of depreciation and amortization useful
lives).
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEPENDENT AUDITORS' REPORT
FINANCIAL STATEMENTS
BALANCE SHEETS AS OF DECEMBER 31, 1995 AND 1994
STATEMENTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 1995,
1994 AND 1993
STATEMENTS OF PARTNERS' EQUITY FOR THE YEARS ENDED DECEMBER 31,
1995, 1994, AND 1993
STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 1995,
1994 AND 1993
NOTES TO FINANCIAL STATEMENTS
SUPPLEMENTAL SCHEDULES
SCHEDULE III - 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 consolidated balance sheets of Capital
Builders Development Properties II, a California Limited Partnership, as
of December 31, 1995 and 1994, and the related statements of operations,
partners' equity and cash flows for each of the years in the three-year
period ended December 31, 1995. 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
partnerships' 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 generally accepted auditing
standards. 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, 1995 and 1994, and the
results of its operations and its cash flows for each of the years in the
three-year period ended December 31, 1995 in conformity with generally
accepted accounting principles. Also in our opinion, the related
financial statement schedule, when considered in relation to the basic
consolidated financial statement taken as a whole, presents fairly, in all
material respects, the information set forth therein.
As discussed in Notes 1 and 4 to the financial statements, the Partnership
adopted the provisions of Statement of Financial Accounting Standards No.
114, Accounting by Creditors for Impairment of a Loan, as amended by
Statement No. 118, Accounting by Creditors for Impairment of a Loan-
Income Recognition and Disclosures on January 1, 1995.
February 2, 1996 -KPMG Peat Marwick LLP
PART 1 - FINANCIAL INFORMATION
Capital Builders Development Properties II
(A California Limited Partnership)
BALANCE SHEETS
December 31 December 31
1995 1994
ASSETS
Cash and cash equivalents $462,947 $505,092
Investment securities 1,214,118 -- --
Accounts receivable, net 143,626 152,140
Due from joint venture 1,231,089 1,010,405
Investment property, at cost,
net of accumulated depreciation
and amortization of $1,474,003
and $1,716,603 and valuation
allowance of $469,000 at
December 31, 1995 and
1994, respectively 6,694,302 7,114,583
Lease commissions, net of accumulated
amortization of $55,532 and $105,443 at
December 31, 1995 and
1994, respectively 71,477 86,536
Other assets, net of accumulated
amortization of $3,885 and
$32,556 at December 31, 1995 and
1994, respectively 116,694 41,214
Total assets $9,934,253 $8,909,970
LIABILITIES AND PARTNERS' EQUITY
Note payable $4,986,374 $3,576,940
Accounts payable and accrued
liabilities 14,535 13,981
Tenant deposits 54,502 55,060
Share of joint venture deficit 487,968 290,314
Total liabilities 5,543,379 3,936,295
Commitments and contingencies
Partners' Equity:
General partners (51,922) (46,094)
Limited partners 4,442,796 5,019,769
Total partners' equity 4,390,874 4,973,675
Total liabilities and
partners' equity $9,934,253 $8,909,970
See accompanying notes to the financial statements.
Capital Builders Development Properties II
(A California Limited Partnership)
STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31,
1995 1994 1993
Revenues
Rental and other income $1,051,084 $990,657 $999,537
Interest income 156,889 98,594 79,827
Total revenues 1,207,973 1,089,251 1,079,364
Expenses
Operating expenses 238,600 221,712 248,570
Repairs and maintenance 155,292 112,621 94,954
Property taxes 66,134 75,890 71,983
Interest 400,723 313,246 274,929
General and administrative 127,436 134,609 154,653
Depreciation and amortization 641,334 799,644 1,224,976
Total expenses 1,629,519 1,657,722 2,070,065
Loss before joint venture interest (421,546) (568,471) (990,701)
Loss on investment in joint venture (161,255) (128,685) (181,974)
Net loss (582,801) (697,156) (1,172,675)
Allocated to general partners (5,828) (6,971) (11,727)
Allocated to limited partners ($576,973) ($690,185) ($1,160,948)
Net loss per limited partnership unit ($25.05) ($29.97) ($50.41)
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, 1995, 1994 AND 1993
Total
General Limited Partners'
Partners Partners Equity
Balance at December 31, 1992 ($27,396) $6,870,902 $6,843,506
Net loss (11,727) (1,160,948) (1,172,675)
Balance at December 31, 1993 (39,123) 5,709,954 5,670,831
Net loss (6,971) (690,185) (697,156)
Balance at December 31, 1994 (46,094) 5,019,769 4,973,675
Net Loss (5,828) (576,973) (582,801)
Balance at December 31, 1995 ($51,922) $4,442,796 $4,390,874
Capital Builders Development Properties II
(A California Limited Partnership)
STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31,
1995 1994 1993
Cash flows from operating activities:
Net loss ($582,801) ($697,156) ($1,172,675)
Adjustments to reconcile net loss
to cash flow (used in) provided by
operating activities:
Depreciation and amortization 641,334 799,644 1,224,976
Equity in losses of Joint Venture 161,255 128,685 181,974
Uncollected interest earned from Joint
Venture (115,684) - - - - -
Changes in operating assets and liabilities
Decrease/(Increase) in accounts
receivable 8,514 (37,438) 7,227
Increase in leasing commissions (28,785) (51,785) (29,899)
(Increase)/decrease in other assets (119,160) (331) 3,437
Increase/(decrease) in accounts payable
and accrued liabilities 554 3,653 (75,373)
(Decrease)/increase in tenant deposits (558) (8,455) 2,205
Net cash (used in) provided by
operating activities (35,331) 136,817 141,872
Cash flows from investing activities:
Investment in securities (1,214,118) - - - - - - - -
Increase in advances to joint venture (105,000) (180,405) (50,000)
Improvements to investment properties (133,530) (317,966) (172,516)
Distributions from joint venture 36,400 63,601 14,800
Net cash used in investing
activities (1,416,248) (434,770) (207,716)
Cash flows from financing activities:
Proceeds from issuance of debt 1,433,740 ----- -----
Payments of debt (24,306) (21,360) (21,360)
Net cash provided by (used in)
financing activities 1,409,434 (21,360) (21,360)
Net decrease in cash and cash equivalents (42,145) (319,313) (87,204)
Cash and cash equivalents, beginning of
period 505,092 824,405 911,609
Cash and cash equivalents, end of period $462,947 $505,092 $824,405
Supplemental disclosure:
Cash paid for interest $400,723 $313,246 $274,929
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 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 of 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 or
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.
Investment Securities
Investment securities at December 31, 1995 consist of U.S. Treasury Bills.
Under the provisions of Statement of Financial Accounting Standards No.
115, "Accounting for Certain Investments in Debt and Equity Securities",
the Partnership is required to classify any of its debt or equity
securities in one of three categories: trading, available-for-sale, or
held-to-maturity. As of December 31, 1995, the Partnership's securities
consist of held-to-maturity securities having a maturity date of less than
one year. These are securities in which the Partnership has the ability
and intent to hold the security until maturity. As of December 31, 1995,
the amortized cost of the securities approximates estimated market value.
A decline in the market value of any held-to-maturity security below cost
that is deemed other than temporary results in a reduction in carrying
amount to fair value. The impairment is charged to earnings and a new cost
basis for the security is established. Premiums and discounts are
amortized or accredited over the life of the related held-to-maturity
security as an adjustment to yield using the effective interest method.
Interest income is recognized as earned. As of December 31, 1995, there
have been no impairments, premiums or discounts recognized.
Due from Joint Venture
The Partnership adopted the provisions of Statement of Financial Accounting
Standards No. 114 "Accounting by Creditors for Impairment of a Loan", as
amended by SFAS No. 118, "Accounting by Creditors for Impairment of a Loan-
Income Recognition and Disclosure", on January 1, 1995. Management,
considering current information and events regarding the borrowers ability
to repay their obligations, considers a note to be impaired when it is
probable that the Partnership will be unable to collect all amounts due
according to the contractual terms of the note agreement. When a loan is
considered to be impaired, the amount of the impairment is measured based
on the present value of expected future cash flows discounted at the note's
effective interest rate, the fair market value of collateral securing the
note, if any or the note's observable market price. Impairment losses are
included in the allowance for doubtful accounts through a charge to bad
debt expense. Cash receipts on impaired notes receivable are applied to
reduce the principal amount of such notes until the principal has been
recovered and are recognized as interest income, thereafter. Prior periods
have not been restated.
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 less valuation allowance for possible
investment losses. The valuation allowance represents the excess carrying
value of individual properties over their estimated net realizable value.
The additions to the valuation allowance for possible investment losses are
recorded after consideration of various external factors, particularly the
lack of credit available to purchasers of real estate and overbuilt real
estate markets, both of which adversely affect real estate. A gain or loss
will be recorded to the extent that the amounts ultimately realized from
property sales differ from those currently estimated. In the event
economic conditions for real estate continue to decline, additional
valuation losses may be recognized. 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.
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 during the year of 23,030 in 1995, 1994
and 1993.
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.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles 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 percent of gross proceeds from the sale of
the Partnership units; a property management fee up to 6 percent of gross
rental 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
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
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
$51,310, $46,928 and $42,566 for the years ended December 31, 1995, 1994
and 1993, respectively, while total reimbursement of expenses were
$151,877, $163,867 and $173,483, 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 December 31, are as
follows:
1995 1994
Land $ 2,774,392 $2,774,392
Building and Improvements 4,744,102 4,665,165
Tenant Improvements 1,118,811 1,860,629
Investment property, at cost 8,637,305 9,300,186
Less: accumulated depreciation
and amortization (1,474,003) (1,716,603)
valuation allowance (469,000) (469,000)
Investment property, net $ 6,694,302 $7,114,583
Depreciation and Amortization-Change in Estimated Useful Life
During the fourth quarter of 1993, the Partnership changed the estimated
useful lives used to compute amortization of tenant improvements from 40
years to the term of the lease. As a result, all tenant improvements
related to leases in place as of January 1, 1993, are being amortized over
the remaining term of the initial lease periods and tenant improvements
related to vacant spaces as of December 31, 1993 have been fully amortized.
The change better matches the allocation of tenant improvement costs with
their expected benefit and results in useful lives more consistent with the
predominant industry practice.
NOTE 4 - DUE FROM JOINT VENTURE
The receivable represents funds advanced to Capital Builders Roseville
Venture (Note 5) which earns interest at 8.24% and 10% percent at December
31, 1995 and 1994, approximately the same rate paid for other borrowings.
The receivable includes $121,088 in accrued interest at December 31, 1995.
Interest income earned on the note was $115,684, $78,425 and $58,900 for
the years ended December 31, 1995, 1994 and 1993, respectively. The
receivable is unsecured and is due and payable on demand.
As discussed in Note 1, the Partnership adopted the provisions of Statement
of Financial Accounting Standards No. 114, "Accounting by Creditors for
Impairment of a Loan", as amended by SFAS No. 118, "Accounting by Creditors
for Impairment of a Loan-Income Recognition and Disclosures", effective
January 1, 1995.
The note due from joint venture has been evaluated for collectability under
the provisions of this statement. Based on the evaluation performed, no
impairment has been recognized as of December 31, 1995.
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 December 31, are as follows:
1995 1994
Assets
Cash $ 67,628 $ 1,738
Accounts receivable 69,304 111,546
Land and buildings, net 3,318,113 3,528,784
Leasing commissions, net 47,265 63,083
Other assets, net 73,331 37,274
Total assets $3,575,641 $3,742,425
Liabilities and Equity
Note payable $3,500,000 $3,385,676
Loan payable to affiliate 1,231,089 1,010,405
Accounts payable and accrued
liabilities 9,412 15,703
Tenant deposits 55,059 56,426
Capital, CBDP (731,951) (435,471)
Capital, CBDP II (487,968) (290,314)
Total liabilities and capital $3,575,641 $3,742,425
The Statements of Operations for the joint venture for the years ended
December 31, are as follows:
1995 1994 1993
Revenues
Rental income $ 611,202 $ 657,179 $545,622
Interest income 1,468 1,190 3,444
Total income 612,670 658,369 549,066
Expenses
Operating expenses 122,821 137,115 93,463
Repairs and maintenance 75,195 66,557 62,438
Property taxes 43,800 42,885 42,246
Interest 471,939 370,594 326,336
General and administrative 6,768 3,823 5,797
Depreciation and amortization 295,284 359,108 473,270
Total expenses 1,015,807 980,082 1,004,000
Net loss $(403,137) $(321,713) $(454,934)
Capital Builders Development
Properties II share of
net loss $(161,255) $(128,685) $(181,974)
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 22, 1995) plus 1 1/2 percent was refinanced
with a $5,000,000 mini-permanent fixed interest rate loan on September 22,
1995. The loan's fixed interest rate is 8.95% and 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 Phase I land, building and
improvements.
Scheduled principal payments during 1996, 1997, 1998, 1999 and 2000 and
thereafter are $57,503, 62,866, 68,728, 75,138, 82,146, and 4,639,993,
respectively.
NOTE 7 - RECONCILIATION TO INCOME TAX METHOD OF ACCOUNTING
A reconciliation of the financial statement method of accounting to the
Federal income tax method of accounting for the years ended December 31 are
as follows:
1995 1994 1993
Net loss - financial ($582,801) ($697,156) ($1,172,675)
Increases
resulting from:
Book to tax difference in
depreciation and amortization 452,864 589,634 1,041,656
Net loss - tax method ($129,937) ($107,522) ($131,019)
Partners' equity - financial $4,390,874 $4,973,675 $5,670,831
Increases
resulting from:
Book to tax difference in depreciation
and amortization and valuation allowances 2,624,351 2,171,487 1,581,853
Selling expenses for partnership units 1,713,666 1,713,666 1,713,666
Partners' equity - tax $8,728,891 $8,858,828 $8,966,350
Taxable loss per Limited Partnership
unit after giving effect to the taxable
loss allocated to the General Partner ($5.59) ($4.62) ($5.63)
NOTE 8 - RENTAL 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 ending December 31
are as follows:
1996 $ 762,496
1997 467,679
1998 353,685
1999 210,105
2000 24,880
Thereafter 51,387
Total $1,870,232
NOTE 9 - FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used by the Partnership in
estimating its fair value disclosures for financial instruments.
Cash and cash equivalents, Investment securities, Accounts receivable,
net, Due from joint venture, Accounts payable and accrued
liabilities
The carrying amount approximates fair value because of the short
maturity of these instruments.
Note payable
The fair value of the Partnership's Note Payable is 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 as of
December 31, 1995 are as follows:
Carrying Estimated
Amount Fair Value
Assets
Cash and cash equivalents $462,947 $462,947
Investment securities 1,214,118 1,214,118
Accounts receivable, net 143,626 143,626
Due from joint venture 1,231,089 1,231,089
Liabilities
Note payable $4,986,374 $4,986,374
Accounts payable and accrued
liabilities 14,535 14,535
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 operations.
PART III
ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
NONE
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, with its
executive offices at 4700 Roseville Road, Suite 206, North Highlands,
California 95660 (telephone number 916-331-8080). 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.
In addition, CB, in the normal course of business, has guaranteed
certain debt obligations of the partnerships it sponsored aggregating
$3,440,000.
The officers, directors, and key personnel of CB are as follows:
Name Office
Michael J. Metzger President and Director
James F. Elder Director
Michael C. Elder Director
James F. Elder. Mr. Elder, 52, is a founder of CB and remains active
as a Director in the review of company operations. Mr. Elder is the
Chairman and Chief Executive Officer of SuperBus, Inc., a bus
manufacturing company, where he has been active since 1986. Mr.
Elder was previously Executive Vice President of CB from 1980 through
1986. Mr. Elder was also a founder and Director of The Elder-Nelson
Company, and its subsidiaries Elder-Nelson Equities Corp., the
Underwriter, in which he was active from 1977 to 1993. Mr. Elder was
previously with a Newport Beach based securities and insurance
services firm from 1969 to 1977. Mr. Elder holds a BA degree in
Business as well as licenses in Real Estate, Securities and
Insurance.
Michael C. Elder. Mr. Elder, 48, is a founder and Vice President of
CB and remains active as a Director in the review of company
operations. Mr. Elder was also a founder, the President and Director
of The Elder-Nelson Company and its subsidiary Elder-Nelson Equities
Corporation, the Underwriter, in which he was active from 1977 to
1993. Mr. Elder is the brother of James F. Elder; and was also with
a Newport Beach based securities and insurance services firm from
1970 to 1977. Mr. Elder holds a B.A. degree in Business
Administration as well as licenses in Real Estate, Securities and
Insurance.
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 $51,310 in 1995, consisting entirely
of property management fees which are calculated as 5 percent of
gross rental revenues collected. Michael J. Metzger. Mr. Metzger,
51, 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 licenses in
Real Estate, Securities and Insurance.
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 $151,877 in
1995.
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 percent 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, 1995, the Managing General Partner
and/or its affiliate received $151,877 for reimbursement of
administrative services and $51,310 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
__________________ President March 10, 1996
Michael J. Metzger
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 March 28, 1996
Michael J. Metzger Partner; President and
Director of Capital Builders,
Inc. ("CB")
____________________ Associate General March 28, 1996
James F. Elder Partner and Director
of CB
____________________ Associate General March 28, 1996
Michael C. Elder Partner and Director
of CB
____________________ Chief Financial March 28, 1996
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, 1996.