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25
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, 1999 33-4682
CAPITAL BUILDERS DEVELOPMENT PROPERTIES II,
A CALIFORNIA LIMITED PARTNERSHIP
(Exact name of registrant as specified in its charter)
California 77-0111643
(tate 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, 1999 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 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 four 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, 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, 30,000 square foot two-story office building.
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: $0.95 $1.64
Square Footage Mix:
Office 21,967 40,397
Industrial 132,890
Leased Occupancy at
December 31: 1999 80% 100%
1998 68% 91%
1997 75% 100%
1996 78% 95%
1995 86% 95%
Current Year Depreciation: $309,336 $92,384
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: $10,193,663 $4,724,075
Encumbrances: $6,009,885 $3,303,049
Tenant occupying more
than 10% of square None Coldwell Banker
footage and nature of business: Residential Real
Estate Brokerage)
First American
Title Ins. Co.
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, 1999, there were 1,649 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):
1999 1998 1997 1996 1995
Revenues $2,145 $1,985 $1,728 $1,224 $1,208
Net Loss ($247) ($323) ($217) ($268) ($583)
Net Loss per Limited
Partnership Unit ($10.63) ($13.90) ($9.33) ($11.54) ($25.05)
Total Assets $12,808 $12,799 $13,077 $9,953 $9,934
Notes and Loans
Payable $9,313 $9,094 $8,950 $4,928 $4,986
(See ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA)
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Year 2000 Issue
The Partnership did not incur any Year 2000 issues that materially
effected the Partnership's operations.
On December 3, 1999, the Securities 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 is required to be
adopted no later than the first quarter of the fiscal year beginning
after December 15, 1999. Management believes that the adoption of SAB
101 will not have a material impact on the financial statements.
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.
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, 1999, the Partnership had
$216,269 in cash and $990,219 in available construction loan draws for
Phase II. The construction loan was extended and now has an
expiration date of March 1, 2000. It is Management's plan to extend
the loan with the current lender for an additional six month term. It
is also 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.
During the twelve months ended December 31, 1999, a decrease in cash
of $71,623 occurred. This was primarily the result of cash used in
investing activities exceeding the proceeds obtained from the Phase II
construction loan and positive cash flow from operations.
Management anticipates cash provided from operations to continue to
improve in future quarters with the additional lease-up of the
Highlands 80 project. The Partnership's properties' occupancy rates
as of December 31, 1999 are 80% for Highlands 80 and 100% for Capital
Professional Center.
The Partnership will continue to incur improvement costs as its
properties are leased up. The total projected tenant improvement
costs remaining to be incurred during 2000 are estimated to be
$561,000. These costs will be funded with existing cash, construction
loan draws and property operations.
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 2000's obligations and
no adverse change in liquidity is foreseen.
Results of Operations
1999 vs 1998
During the twelve months 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 and rent increases at Capital Professional Center.
Expenses increased for the twelve months 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.
1998 vs 1997
The Partnership's total revenues increased by $257,154 (14.9%) in 1998
compared to 1997. Total expenses increased by $386,294 (20.1%) in
1998 compared to 1997. In addition, the loss on the investment in
joint venture decreased by $22,806 (100%) in 1998 compared to 1997,
all resulting in an increase in net loss of $106,334 (49%).
The increase in revenues is primarily due to an increase in occupied
space at Highlands 80 and the Partnership's acquisition of the
remaining 60% interest of Capital Builders Roseville Venture (Capital
Professional Center). Since the purchase on May 1, 1997, property
income earned by Capital Professional Center has been fully recognized
by the Partnership. Prior to the purchase, the Partnership recognized
only a 40% share of net income (loss) from Capital Professional Center
as income (loss) in Joint Venture.
Expenses increased in 1998, as compared to 1997, due to the net effect
of:
a) the purchase of the 60% interest in Capital Builders Roseville
Venture, resulting in an increase in project operating expenses of
$216,157.
b) $13,213 (7.8%) increase in repairs and maintenance due to higher
landscape and HVAC maintenance costs primarily at Highlands 80 due to
its Phase II completion.
c) $9,512 (12.8%) increase in property taxes due to Highlands 80
Phase II completion.
d) $69,107 (15.9%) increase in interest due to loan costs associated
with Highlands 80, Phase II completion.
e) $26,019 (17.4%) increase in general and administration at the
Partnership level due to the increase in ownership of Capital
Professional Center and the development of Highlands 80, Phase II.
f) $46,452 (13.7%) 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
$1,289,781 and $937,659 at December 31, 1999 and 1998, respectively.
The increase from 1998 to 1999 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, 1999 AND 1998
STATEMENTS OF OPERATIONS 12
FOR THE YEARS ENDED
DECEMBER 31, 1999, 1998, AND 1997
STATEMENTS OF PARTNERS' EQUITY 13
FOR THE YEARS ENDED
DECEMBER 31, 1999, 1998, AND 1997
STATEMENTS OF CASH FLOWS 14
FOR THE YEARS ENDED
DECEMBER 31, 1999, 1998, AND 1997
NOTES TO FINANCIAL STATEMENTS 15-20
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, 1999 and 1998, and the related statements of operations,
partners' equity and cash flows for each of the years in the three-
year period ended December 31, 1999. 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 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, 1999 and 1998,
and the results of its operations and its cash flows for each of the
years in the three-year period ended December 31, 1999 in conformity
with generally accepted accounting principles. 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
January 28, 2000
PART 1 - FINANCIAL INFORMATION
Capital Builders Development Properties
II
(A California Limited Partnership)
BALANCE SHEETS
December 31 December 31
1999 1998
ASSETS
Cash $216,269 $287,892
Accounts receivable, net 144,583 130,875
Investment property, at cost, net of
accumulated depreciation of $2,714,863
and $2,280,524 at December 31, 1999 and
1998, respectively 12,202,875 12,142,911
Lease commissions, net of accumulated
amortization of $284,126 and $211,911 at
December 31, 1999 and 1998, respectively 170,305 156,213
Other assets, net of accumulated
amortization of $66,264 and $26,188 at
December 31, 1999 and 1998, respectively 74,337 81,348
Total assets $12,808,369 $12,799,239
LIABILITIES AND PARTNERS' EQUITY
Notes payable $9,312,934 $9,093,517
Accounts payable and accrued
liabilities 46,045 28,602
Tenant deposits 114,613 95,093
Total liabilities 9,473,592 9,217,212
Commitments and contingencies
Partners' Equity:
General Partners (62,483) (60,010)
Limited Partners 3,397,260 3,642,037
Total Partners' equity 3,334,777 3,582,027
Total liabilities and Partners'
equity $12,808,369 $12,799,239
See accompanying notes to the financial statements.
Capital Builders Development
Properties II
(A California Limited
Partnership)
STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31,
1999 1998 1997
Revenues
Rental and other income $2,134,714 $1,967,779 $1,599,917
Interest income 10,653 17,529 128,237
Total revenues 2,145,367 1,985,308 1,728,154
Expenses
Operating expenses 422,170 401,914 368,434
Repairs and maintenance 298,646 285,929 236,623
Property taxes 144,896 136,658 108,220
Interest 802,904 784,448 620,946
General and administrative 177,372 183,179 157,160
Depreciation and amortization 546,629 516,532 430,983
Total expenses 2,392,617 2,308,660 1,922,366
Loss before joint venture
interest (247,250) (323,352) (194,212)
Loss on investment in joint
venture - - - - - - - - (22,806)
Net loss (247,250) (323,352) (217,018)
Allocated to General Partners (2,473) (3,233) (2,170)
Allocated to Limited Partners ($244,777) ($320,119) ($214,848)
Net loss per Limited Partnership
Unit ($10.63) ($13.90) ($9.33)
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, 1999, 1998, AND 1997
Total
General Limited Partners'
Partners Partners Equity
Balance at December 31, 1996 ($54,607) $4,177,004 $4,122,397
Net loss (2,170) (214,848) (217,018)
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
See accompanying notes to the financial statements.
Capital Builders Development
Properties II
(A California Limited
Partnership)
STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31,
1999 1998 1997
Cash flows from operating
activities:
Net loss ($247,250) ($323,352) ($217,018)
Adjustments to reconcile
net loss to cash flow provided
by (used in) operating
activities:
Depreciation and amortization 546,629 516,532 430,983
Equity in losses of Joint
Venture - - - - - - - - - - 22,806
Uncollected interest earned
from Joint Venture - - - - - - - - - - (114,046)
Changes in operating assets
and liabilities:
(Increase) Decrease in
accounts receivable (13,708) 32,863 (60,266)
Increase in leasing
commissions (86,307) (67,353) (88,736)
(Increase) Decrease in other
assets (33,064) (7,753) 9,204
Increase (Decrease) in
accounts payable and
accrued liabilities 17,443 (99,175) 2,444
Increase (Decrease) in tenant
deposits 19,520 1,403 (6,845)
Net cash provided by
(used in) operating activities 203,263 53,165 (21,474)
Cash flows from investing
activities:
Acquisition of remaining
joint venture interest, net
of cash acquired - - - - - - - - - - (14,380)
Improvements to investment
properties (494,303) (163,044) (993,321)
Net cash used in
investing activities (494,303) (163,044) (1,007,701)
Cash flows from financing
activities:
Proceeds from issuance of
debt 352,123 260,600 677,059
Payments of debt (132,706) (117,455) (95,086)
Net cash provided by
financing activities 219,417 143,145 581,973
Net (decrease) increase in cash (71,623) 33,266 (447,202)
Cash, beginning of period 287,892 254,626 701,828
Cash, end of period $216,269 $287,892 $254,626
Supplemental Disclosure of
Acquisition of Remaining 60%
Joint Venture Interest
Fair Value of Assets Acquired - - - - - - - - - - $5,095,204
Fair Value of Liabilities to
outside parties - - - - - - - - - - (3,439,957)
Fair Value of Affiliate Loan - - - - - - - - - - (1,570,134)
Net Equity - - - - - - - - - - $85,113
Cash paid for 60% interest in
Joint Venture - - - - - - - - - - 51,068
Cash Acquired - - - - - - - - - - (36,688)
Net cash paid for
acquisition - - - - - - - - - - $14,380
Cash Paid for Interest $802,904 $784,448 $584,613
See accompanying notes to the financial statements.
Capital Builders Development Properties II
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999, 1998, AND 1997
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 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.
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 ended
December 31 of 23,030 in 1999, 1998, and 1997.
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 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% 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
$104,642, $97,913 and $78,045 for the years ended December 31, 1999,
1998, and 1997, respectively, while total reimbursement of expenses
was $194,584, $190,533 and $201,441, 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:
1999 1998
Land $4,053,799 $4,053,799
Building and Improvements 9,132,132 9,132,132
Tenant Improvements 1,731,807 1,237,504
Investment property, at cost 14,917,738 14,423,435
Less: accumulated depreciation
and amortization (2,714,863) (2,280,524)
Investment property, net $12,202,875 $12,142,911
NOTE 4 - NOTES PAYABLE
Notes Payable consist of the following at December 31,:
1999 1998
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. $4,720,104 $4,796,368
A construction loan of $2,280,000 with a
variable interest rate of prime plus 1.5%
(10% as of December 31, 1999). The loan
requires monthly interest only payments,
and its due date was extended to March 1,
2000. The note provides for future draws
of $990,219 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. 1,289,781 937,659
A mini-permanent loan with a fixed
interest rate of 8.24% and requiring
monthly principal and interest payments
of $27,541, which is sufficient to
amortize the loan over 25 years. The
loan is due January 1, 2001. The note is
collateralized by a First Deed Of Trust
on Capital Professional Center's (CPC)
land, buildings and improvements.
Restrictive covenants of this loan
include maintaining a cash flow coverage
ratio related to the CPC property. 3,303,049 3,359,490
Total Notes Payable $9,312,934 $9,093,517
Scheduled principal payments during 2000, 2001 and 2002 are
$1,433,129, $3,331,654, and $4,548,151, 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:
2000 $1,971,955
2001 1,422,988
2002 919,870
2003 485,960
2004 318,907
Total $5,119,680
NOTE 6 - 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:
1999 1998 1997
Net loss - Statements of Operations($247,250) ($323,352) ($217,018)
Adjustments
resulting from:
Difference in depreciation
and amortization 90,987 87,705 (76,317)
Net loss - tax return ($156,263) ($235,648) ($293,335)
Partners' equity - Statements of
Partners' Equity (Deficit) $3,334,777 $3,582,027 $3,905,379
Increases
resulting from:
Difference in depreciation and
amortization and valuation
allowance 2,963,536 2,872,549 2,784,844
Selling expenses for
Partnership units 1,713,666 1,713,666 1,713,666
Partners' equity - tax return $8,011,979 $8,168,242 $8,403,889
Taxable loss per Limited
Partnership unit after giving
effect to the taxable loss
allocated to the General Partner ($6.72) ($10.13) ($12.60)
NOTE 7 - FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used by the Partnership in
estimating its fair value disclosures for financial instruments.
Note 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
as of December 31, are as follows:
1999 1998
Carrying Estimated Carrying Estimated
Amount Fair Value Amount Fair Value
Liabilities
Note payable $4,720,104 $4,720,104 $4,796,368 $4,796,368
Note payable $1,289,781 $1,289,781 $937,659 $937,659
Note payable $3,303,049 $3,303,049 $3,359,490 $3,359,490
NOTE 8 - 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.
NOTE 9 - PROSPECTIVE ACCOUNTING PRONOUNCEMENTS
Revenue Recognition in Financial Statements
On December 3, 1999, the Securities 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 is required to be
adopted no later than the first quarter of the fiscal year beginning
after December 15, 1999. Management believes that the adoption of SAB
101 will not have a material impact on the financial statements.
Accounting for Derivative Instruments and Hedging Activity
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 - SUBSEQUENT EVENT
Subsequent to December 31, 1999, the construction loan of $2,280,000,
discussed in Note 4, was extended to June 2, 2000. Management is
currently negotiating a further extension.
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 $104,642 in 1999 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 $194,584 in 1999.
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, 1999, the Managing General Partner
and/or its affiliate received $194,584 for reimbursement of
administrative services and $104,642 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, 2000.