ITEM 1. BUSINESS
(a) General Development of Business
Capital Builders Development Properties II (the "Partnership") is a publicly held limited partnership organized under the provisions of the California Revised Limited Partnership Act pursuant to the Limited Partnership Agreement dated February 6, 1986, as amended (the "Agreement"). The Partnership commenced on May 22, 1986 and shall continue in full force and be effective until December 31, 2021 unless dissolved sooner by certain events as described in the Agreement. The Managing General Partner is Capital Builders, Inc., a California Corporation (CB). The Associate General Partners are the sole shareholder, President and Director of CB, and two founders of CB.
On October 6, 1986 the Partnership sold 2,407 Limited Partnership Units for a total of $1,203,500. From October 6, 1986, through May 21, 1988, the Partnership sold an additional 20,623 Units for a total of 23,030 Units. On May 21, 1988, the Partnership was closed to capital raising activity with a total of $11,515,000 proceeds raised from the offering. The General Partners have contributed capital in the amount of $1,000 to the Partnership for a 1% interest in the profits, losses, tax credits and distributions of the Partnership.
(b) Financial Information about Industry Segments
The Partnership is in the business of real estate development and is not a significant factor in its industry. The Partnership's investment properties are located near major urban areas and, accordingly, compete not only with similar properties in their immediate areas but with hundreds of properties throughout the urban areas. Such competition is primarily on the basis of locations, rents, services and amenities. In addition, the Partnership competes with significant numbers of individuals and organizations (including similar partnerships, real estate investment trusts and financial institutions) with respect to the purchase and sale of land, primarily on the basis of the prices and terms of such transactions.
(c) Narrative Description of the Business
The Partnership's business objective is to complete the development of its existing land with light industrial and office buildings for lease and eventual sale. The primary investment objective of the Partnership is to realize capital appreciation from the sale of the Properties developed by it some three to five years after such Properties have been placed in service. A secondary investment objective is to generate cash from the leasing of Partnership Properties pending their sale for distribution to the Limited Partners, although it is not presently anticipated that the amount of such cash available for distribution to the Limited Partners will be significant. Since the Partnership has not sold its investment properties, it has not achieved its investment goals as yet. Although investor returns cannot be accurately determined until the investment properties are sold, due to the additional time required to lease up the investment properties, the decline in real estate values during the California recession, and although the real estate market has shown recovery from the previous California recession, it is anticipated that ultimate returns will be less than initially projected. Funds obtained by the Partnership from the sale of Limited Partnership Units were used to acquire equity interest in one piece of land for development and a 40% equity interest in another for development in accordance with its investment objective.
On April 10, 1987, the Partnership entered into a joint venture called Capital Builders Roseville Venture ("JV") with Capital Builders Development Properties ("CBDP"), a California limited partnership. The Partnership and CBDP are affiliates as they have the same General Partner, but there are no direct transactions between the respective Partnerships. The Partnership contributed $900,000 resulting in a 40% interest in the profits, losses and cash distributions of the JV. CB, the Managing General Partner of the Partnership, had the same rights and obligations with respect to the JV's operations and management as it could exercise as Managing General Partner of the Partnership. The JV was dissolved as of May 1, 1997 when the Partnership purchased the remaining 60% interest in the JV.
The acquisition of the real estate is consistent with the Partnership objectives which are to acquire, develop, hold, maintain, lease, sell, or otherwise dispose of real property within the Western United States (including the states of California, Oregon, Washington, Arizona, Nevada, New Mexico, Utah, Colorado, Hawaii, and Alaska), including without limitation, the acquisition of undeveloped land for development and construction of research and development, light industrial, commercial/retail, or office buildings thereon, and the acquisition of partially completed commercial real property developments for completion of development.
Although the Associate General Partners, Officers, and Directors of the Managing General Partners are experienced in real property operation and management, they also may utilize independent advisors, agents, and workers, in addition to the Partnership employees, to assist them in the operation, leasing, maintenance and improvement of the Partnership's properties.
The Partnership has no full time employees but is managed by CB, the Managing General Partner.
ITEM 2.
ITEM 2. PROPERTIES
The Partnership owns 100% equity interest in two properties, Highlands 80 Commerce Center ("H80") and Capital Professional Center ("CPC"). H80 is a three phase development. Phase I is a 109,000 square foot office/industrial project consisting of five multi-tenant buildings. Phase II consists of approximately 45,921 square feet of two, one-story light industrial/office space buildings and Phase III will consist of one, 27,663 square foot, two-story office building. Phase III is scheduled to start construction by the end of the second quarter of 2001.
CPC is a 40,400 square foot office project consisting of two multi-tenant buildings which are completely developed and have achieved a stabilized occupancy.
Additional information about the individual properties follows:
H80 CPC
Ownership Percentage: 100% 100%
Acquisition Date: April 30, 1987 Apr 10, 1987 40% Ownership
May 1, 1997 60%Ownership
Location: North Highlands, Roseville, California California Present Monthly Effective Average Base Rent Per Square Foot: $1.05 $1.71
Square Footage Mix: Office 21,967 40,397 Industrial 132,890
Leased Occupancy at December 31: 2000 83% 100% 1999 80% 100% 1998 68% 91% 1997 75% 100% 1996 78% 95%
Current Year Depreciation: $359,928 $94,598
Method of Depreciation: Straight Line Straight Line
Depreciation Life: 40 Years 40 Years Bldg. Improvements Bldg. Improvements Life of Lease Life of Lease Tenant Improvements Tenant Improvements
Total cost: $9,960,246 $4,596,131
Encumbrances: $6,050,908 $4,200,000
Tenant occupying more Valley Coldwell Banker than 10% of square Communications Residential footage and nature Real Estate of business: Brokerage) First American Title Ins. Co. Martin, Rivett & Olson, Inc.
H80 and CPC are subject to encumbrances which are more fully described under Note 4 of the Partnership's financial statements included under Item 8 which is incorporated herein by reference.
Both properties are being leased to a wide variety of tenants in a diversity of industries. Leases are typically three to five years in term and provide for free rent periods, at inception, equal to approximately one month per three years of lease term. Some leases contain options to extend the term of the lease.
The Partnership's investment properties are located in major urban areas and, therefore, must compete with properties of greater and lesser quality. Such competition is based primarily on rent, location, services and amenities. The properties are suitable for their current and anticipated use.
ITEM 3.
ITEM 3. LEGAL PROCEEDINGS
NONE
ITEM 4.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
NONE
PART II
ITEM 5.
ITEM 5. MARKET FOR REGISTRANT'S LIMITED PARTNERSHIP INTERESTS AND RELATED SECURITY HOLDER MATTERS
There is no public trading market for the Partnership's Limited Partnership Units and it is not anticipated that a public trading market will develop. Furthermore, the Partnership Agreement prohibits Limited Partners from transferring Limited Partnership Interests if such transfers would result in the dissolution of the Partnership for tax purposes under Section 708 of the Internal Revenue Code.
As of December 31, 2000, there were 1,599 holders and 23,030 Limited Partnership Units outstanding.
ITEM 6.
ITEM 6. SELECTED FINANCIAL DATA
The following constitutes a summary of selected financial data for the following periods (000's omitted except net loss per Limited Partnership Unit): 2000 1999 1998 1997 1996 Revenues $2,414 $2,145 $1,985 $1,728 $1,224 Net Loss ($102) ($247) ($323) ($217) ($268) Net Loss per Limited Partnership Unit ($4.37) ($10.63) ($13.90) ($9.33) ($11.54) Total Assets $13,626 $12,808 $12,799 $13,077 $9,953 Notes and Loans Payable $10,251 $9,313 $9,094 $8,950 $4,928 (See ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA)
ITEM 7.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Accounting Pronouncements
On December 3, 1999, the U.S. Securities and Exchange Commission staff issued Staff Accounting Bulletin No. 101, Revenue Recognition in Financial Statements (SAB 101). SAB 101 summarizes certain of the staff's views in applying generally accepted accounting principles to revenue recognition in financial statements. SAB 101 was adopted on January 1, 2000. The adoption of SAB 101 did not have a material impact on the financial statements.
Liquidity and Capital Resources
The Partnership commenced operations on May 22, 1986 upon the sale of the minimum number of Limited Partnership Units. The Partnership's initial source of cash was from the sale of Limited Partnership Units. Through the offering of Units, the Partnership raised $11,515,000 (represented by 23,030 Limited Partnership Units). Cash generated from the sale of Limited Partnership Units was used to acquire land and for the development of a mixed use commercial project and a 40% interest in a commercial office project. In May 1997, the remaining 60% interest in the project was acquired.
The Partnership's primary current sources of cash are from cash balances, property rental income and construction financing for Phase II improvements. As of December 31, 2000, the Partnership had $1,232,514 in cash and $515,820 in available construction loan draws for Highlands 80 Phase II. The Highlands 80 construction loan was extended and now has an expiration date of June 3, 2002. It is the Partnership's investment goal to utilize existing capital resources for continued leasing operations (tenant improvements and leasing commissions) and further development of Highlands 80 Phase III. Additionally, Management was successful in securing a new mortgage loan for the Partnership's Capital Professional Center project. Of the $1,232,514 in cash, approximately $950,000 was obtained through the refinancing of Capital Professional Center. Both of the Partnership's projects have achieved occupancy and rental rates sufficient to meet its expected current and future debt service obligations.
The Partnership's scheduled principal and interest payments during 2001, 2002, 2003, 2004, 2005 and thereafter are $2,303,644, $5,312,497, $387,996, $387,996, $387,996 and $3,900,355, respectively.
Management intends to begin development of Highlands 80 Phase III (a 27,663 square foot, 2-story full service office building) during the first quarter of 2001. The project's site and shell are estimated to be completed by the third quarter of 2001. The initial construction of Highlands 80 Phase III will be funded with a portion of its existing cash balance. It is Management's intention to modify the project's existing Phase II construction loan with the current lender to include the additional costs for Phase III. Management is still in the process of finalizing the construction contract with the General Contractor, and therefore the total costs have not yet been determined.
During the year ended December 31, 2000, cash increased by $1,016,245. This was primarily the result of cash obtained from the refinancing of Capital Professional Center ($950,000) and cash flow from operations from the Partnership's projects.
During the year ended December 31, 2000, the Partnership paid $115,635 in management fees to its Managing General Partner. Management fees are classified on the Statements of Operations as an Operating Expense. These fees are not recorded as a contra account against revenue due to the fact that they are a normal property operating expense. These fees would be incurred whether they are charged by the affiliate General Partner or by an outside management company. The General Partner is currently charging 5% of collected revenue.
Management anticipates cash provided from operations to continue to improve in future quarters with the additional lease-up of the Highlands 80 Phase II and III. The Partnership's properties' occupancy rates as of December 31, 2000 are 83% for Highlands 80 and 100% for Capital Professional Center. Subsequent to December 31, 2000, Management was successful in leasing an additional 9,000 square feet in one of the Highlands 80 Phase II buildings. This will bring Highlands 80 to a 89% occupancy.
The Partnership will continue to incur improvement costs as its properties are leased up. The total projected tenant improvement costs expected to be incurred during 2001 are estimated to be $354,500. These costs will be funded with construction loan draws.
The Partnership's ability to maintain or improve cash flow is dependent upon its ability to maintain and improve the occupancy of its investment properties. Management believes the Partnership's financial resources should be adequate to meet 2001's obligations and no adverse change in liquidity is foreseen. The Partnership's properties' current market values are in excess of its total liabilities. The Partnership should therefore meet its current and long-term obligations so long as the properties' occupancy and rental rates are maintained and the real estate investment market remains stable.
Results of Operations
2000 vs 1999
During the year ended December 31, 2000 as compared to December 31, 1999, the Partnership's total revenues increased by $268,276 (12.5%), while its expenses also increased by $122,690 (5.1%), resulting in a decrease in net loss of $145,586 (58.9%).
The increase in revenue is primarily due to an increase in occupancy for Highlands 80 ($185,914) and rent increases at Capital Professional Center ($78,083).
Expenses increased for the year ended December 31, 2000, as compared to December 31, 1999, due to the net effect of: a) $15,461 (3.7%) increase in operating expenses due to general inflation for utility costs. b) $14,680 (4.9%) increase in repairs and maintenance due to suite turnover costs incurred for lease renewals at Highlands 80; c) $11,790 (8.1%) increase in property taxes primarily due to the additional buildout of Highlands 80 tenant improvements; d) $44,978 (5.6%) increase in interest due to loan costs associated with Highlands 80 and Phase II tenant improvement loan draws; e) $4,037 (2.3%) increase in general and administrative due to general cost/wage inflation; and f) $31,744 (5.8%) increase in amortization and depreciation due to an increase in amortized loan fees related to the Highlands 80 Phase II loan extensions.
1999 vs 1998
During the year ended December 31, 1999 as compared to December 31, 1998, the Partnership's total revenues increased by $160,059 (8.1%), while its expenses increased by $83,957 (3.6%), resulting in a decrease in net loss of $76,102 (23.5%).
The increase in revenue is primarily due to an increase in occupancy for Highlands 80 ($139,806) and rent increases at Capital Professional Center ($27,129). Interest income for the Partnership decreased by $6,876.
Expenses increased for the year ended December 31, 1999, as compared to December 31, 1998, due to the net effect of: a) $20,256 (5%) increase in operating expenses due to an increase in utility and marketing costs; b) $12,717 (4.4%) increase in repairs and maintenance due to parking lot resurfacing, lobby repainting and recarpeting at Capital Professional Center, plus suite turnover costs at Highlands 80 for space leased during the first quarter; c) $8,238 (6%) increase in property taxes primarily due to the additional buildout of Highlands 80 tenant improvements; d) $18,456 (2.4%) increase in interest due to loan costs associated with Highlands 80, Phase II completion; e) $5,807 (3.2%) decrease in general and administration due to cost reductions; and f) $30,097 (5.8%) increase in depreciation at Highlands 80 due to the Phase II completion.
ITEM 7A.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISKS
The Partnership does not have a material market risk due to financial instruments held by the Partnership. The Partnership's only variable rate instrument consists of a construction loan in the amount of $1,414,180 and $1,289,781 at December 31, 2000 and December 31, 1999, respectively. The increase from 1999 to 2000 is due to additional draws for construction
ITEM 8.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Page Number
INDEPENDENT AUDITORS' REPORT 10
FINANCIAL STATEMENTS BALANCE SHEETS AS OF DECEMBER 31, 2000 AND 1999
STATEMENTS OF OPERATIONS 12 FOR THE YEARS ENDED DECEMBER 31, 2000, 1999, AND 1998
STATEMENTS OF PARTNERS' EQUITY 13 FOR THE YEARS ENDED DECEMBER 31, 2000, 1999, AND 1998
STATEMENTS OF CASH FLOWS 14 FOR THE YEARS ENDED DECEMBER 31, 2000, 1999, AND 1998
NOTES TO FINANCIAL STATEMENTS 15-21 SUPPLEMENTAL SCHEDULES
SCHEDULE III 25 REAL ESTATE AND ACCUMULATED DEPRECIATION Financial schedules not included have been omitted because of the absence of conditions under which they are required or because the information is included elsewhere in this report.
Independent Auditors' Report
The Partners Capital Builders Development Properties II:
We have audited the accompanying balance sheets of Capital Builders Development Properties II, a California Limited Partnership, as of December 31, 2000 and 1999, and the related statements of operations, partners' equity and cash flows for each of the years in the three-year period ended December 31, 2000. In connection with our audits of the financial statements, we also have audited the financial statement schedule as listed in the accompanying index. These financial statements and financial statement schedule are the responsibility of the partnership's management. Our responsibility is to express an opinion on these financial statements and financial statement schedule based on our audits.
We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Capital Builders Development Properties II as of December 31, 2000 and 1999, and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 2000 in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein.
Sacramento, California KPMG LLP February 2, 2001
PART 1 - FINANCIAL INFORMATION
Capital Builders Development Properties II (A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2000, 1999 AND 1998
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND ORGANIZATION
A summary of the significant accounting policies applied in the preparation of the accompanying financial statements follows:
Basis of Accounting
The financial statements of Capital Builders Development Properties II (The "Partnership") are prepared on the accrual basis of accounting and therefore revenue is recorded as earned and costs and expenses are recorded as incurred.
Organization
Capital Builders Development Properties II, a California Limited Partnership, is owned under the laws of the State of California. The Managing General Partner is Capital Builders, Inc., a California corporation (CB).
The Partnership is in the business of real estate development and is not a significant factor in its industry. The Partnership's investment properties are located near major urban areas and, accordingly, compete not only with similar properties in their immediate areas but with hundreds of properties throughout the urban areas. Such competition is primarily on the basis of locations, rents, services and amenities. In addition, the Partnership competes with significant numbers of individuals and organizations (including similar companies, real estate investment trusts and financial institutions) with respect to the purchase and sale of land, primarily on the basis of the prices and terms of such transactions.
Investment Properties
Long-lived assets and certain identifiable intangibles are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to future net cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceed the fair value of the assets. Assets to be disposed of are reported at the lower of the carrying amount or fair value less costs to sell.
The Partnership's investment property consists of commercial land, buildings and leasehold improvements that are carried net of accumulated depreciation. Depreciation is provided for in amounts sufficient to relate the cost of depreciable assets to operations over their estimated service lives of three to forty years. The straight-line method of depreciation is followed for financial reporting purposes.
Other Assets
Included in other assets are loan fees. Loan fees are amortized over the life of the related note.
Lease Commissions
Lease commissions are costs associated with obtaining leases with terms in excess of one year. The Partnership capitalizes these costs and amortizes them on a straight line basis over their related lease term.
Income Taxes
The Partnership has no provision for income taxes since all income or losses are reported separately on the individual Partners' tax returns.
Revenue Recognition
Rental income is recognized on a straight-line basis over the life of the lease, which may differ from the scheduled rental payments.
Net Loss per Limited Partnership Unit
The net loss per Limited Partnership Unit is computed based on the weighted average number of Units outstanding of 23,030 during the years ending December 31, 2000 , 1999 and 1998.
Statement of Cash Flows
For purposes of the statement of cash flows, the Partnership considers all short-term investments with a maturity, at date of purchase, of three months or less to be cash equivalents.
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
NOTE 2 - RELATED PARTY EXPENSE REIMBURSEMENT AND FEE ARRANGEMENT
The Managing General Partner (Capital Builders, Inc.) and the Associate General Partners are entitled to reimbursement of expenses incurred on behalf of the Partnership and certain fees from the Partnership. These fees include: a portion of the sales commissions payable by the Partnership with respect to the sale of the Partnership Units; an acquisition fee of up to 12.5% of gross proceeds from the sale of the Partnership Units; a property management fee up to 6% of gross rental revenues realized by the Partnership with respect to its properties; a subordinated real estate commission of up to 3% of the gross sales price of the properties; and a subordinated 25% share of the Partnership's distributions of cash from sales or refinancing. The property management fee currently being charged is 5% of gross rental revenues collected.
All acquisition fees and expenses, all underwriting commissions, and all offering and organizational expenses which can be paid are limited to 20% of the gross proceeds from sales of Partnership Units provided the Partnership incurs no borrowing to develop its properties. However, these fees may increase to a maximum of 33% of the gross offering proceeds based upon the total acquisition and development costs, including borrowing. Since the formation of the Partnership, 27.5% of these fees were paid to the Partnership's related parties, leaving a remaining maximum of 5.5% ($633,325) of the gross offering proceeds. The ultimate amount of these costs will be determined once the properties are fully developed and leveraged.
The total management fees paid to the Managing General Partner were $115,635, $104,642 and $97,913 for the years ended December 31, 2000, 1999 and 1998, respectively, while total reimbursement of expenses was $226,652, $194,584 and $190,533 respectively.
Management fees are classified on the Statements of Operations as an Operating Expense. These fees are a normal cost of property operations and would be incurred whether they are charged by the affiliate General Partner or an outside management company. Reimbursement of expenses are also a normal operating cost of the Partnership. These expenses are primarily for investor services, preparation of SEC filings, audit coordination and other Partnership management functions. Expense reimbursements are classified as General and Administrative expenses on the Statement of Operations.
In accordance with the Partnership Agreement, the General Partner may hire outside consultants or perform the necessary accounting, reporting and investor service functions internally, and pass through the associated costs. It has been determined that if outside consultants were to perform these functions, the related costs would be substantially higher to the Partnership.
The Managing General Partner will reduce its future participation in proceeds from sales by an amount equal to the loss on the abandonment of option fees in 1988 ($110,000) and interest on the amount at a rate equal to that of the borrowed funds rate as determined by construction or permanent funds utilized by the Partnership.
NOTE 3 - INVESTMENT PROPERTY
The components of the investment property account at December 31, are as follows:
2000 1999 Land $ 4,053,799 $ 4,053,799 Building and Improvements 9,201,129 9,132,132 Tenant Improvements 1,301,449 1,731,807 Investment property, at cost 14,556,377 14,917,738 Less: accumulated depreciation and amortization (2,648,467) (2,714,863)
Investment property, net $11,907,910 $12,202,875
NOTE 4 - NOTES PAYABLE
Notes Payable consist of the following at December 31,:
2000 1999 A mini-permanent loan of $5,000,000 with a fixed 8.95% interest rate. The loan requires monthly principal and interest payments of $41,789 which is sufficient to amortize the loan over 25 years. The loan is due October 1, 2002. The note is collateralized by a First Deed Of Trust on Highlands 80 Phase I land, buildings and improvements. $4,636,728 $4,720,104
A construction loan of $1,930,000 with a variable interest rate of prime plus 1.5% (11% as of December 31, 2000). The loan requires monthly interest only payments, and its due date was extended to June 3, 2001. The Note provides for a future extension date of June 3, 2002 and future draws of $515,820 for tenant improvement construction costs and leasing commissions for future lease- up of Phase II. The note is collateralized by a First Deed of Trust on Highlands 80 Phase II land, buildings and improvements. 1,414,180 1,289,781
A mortgage loan of $4,200,000 with a fixed interest rate of 7.97% and requiring monthly principal and interest payments of $32,333, which is sufficient to amortize the loan over 25 years. The loan is due January 10, 2006. The note is collateralized by a First Deed Of Trust on Capital Professional Center's (CPC) land, buildings and improvements. 4,200,000 - - - - -
A mini-permanent loan that had a fixed interest rate of 8.24% and required monthly principal and interest payments of $27,541, which was sufficient to amortize the loan over 25 years. The loan was due January 1, 2001. The note was collateralized by a First Deed of Trust on Capital Professional Center's (CPC) land, buildings and improvements. This loan was paid off with proceeds obtained from the new $4,200,000 mortgage loan. - - - - - 3,303,049
Total Notes Payable $10,250,908 $9,312,934
The Partnership is in compliance with all restrictive debt covenants as of December 31, 2000.
Scheduled principal payments during 2001, 2002, 2003, 2004, 2005 and thereafter are $1,559,229, $4,606,724, $64,324, $70,106, 75,904 and $3,874,621, respectively.
NOTE 5 - LEASES
The Partnership leases its properties under long term noncancelable operating leases to various tenants. The facilities are leased through agreements for rents based on the square footage leased. Minimum annual base rental payments under these leases for the years ended December 31 are as follows: 2001 $ 2,078,074 2002 1,546,675 2003 1,032,251 2004 550,826 2005 119,326 Total $ 5,327,152
NOTE 6 - SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
YEAR 2000 March 31 June 30 September 30 December 31
Revenues $575,903 $601,934 $582,473 $653,333
Net (loss)/income ($54,671) $20,439 ($65,018) ($2,414)
Net (loss)/income per limited partnership unit ($2.35) $0.88 ($2.80) ($0.10)
YEAR 1999 March 31 June 30 September 30 December 31
Revenues $494,299 $548,363 $538,699 $564,006
Net loss ($141,382) ($24,362) ($33,809) ($47,697)
Net loss per limited partnership unit ($6.08) ($1.05) ($1.45) ($2.05)
NOTE 7 - RECONCILIATION TO INCOME TAX METHOD OF ACCOUNTING
A reconciliation of the net loss as reflected on the accompanying Statements of Operations to that reflected on the Federal income tax return for the years ended December 31 is as follows: 2000 1999 1998
Net loss - Statements of Operations ($101,664) ($247,250) ($323,352)
Adjustments resulting from: Difference in depreciation and amortization 5,276 90,987 87,705
Net loss - tax return ($96,388) ($156,263) ($235,648)
Partners' equity - Statements of Partners' Equity $3,233,113 $3,334,777 $3,582,027
Increases resulting from: Difference in depreciation and amortization and valuation allowance 2,968,812 2,963,536 2,872,549
Selling expenses for Partnership units 1,713,666 1,713,666 1,713,666
Partners' equity - tax return $7,915,591 $8,011,979 $8,168,242
Taxable loss per Limited Partnership unit after giving effect to the taxable loss allocated to the General Partner ($4.18 ($6.72) ($10.13)
NOTE 8 - FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used by the Partnership in estimating its fair value disclosures for financial instruments.
Notes payable The fair value of the Partnership's Notes Payable are estimated based on the quoted market prices for the same or similar issues or on the current rates offered to the Partnership for debt of the same remaining maturities.
The estimated fair values of the Partnership's financial instruments are as follows:
December 31, 2000 December 31, 1999 Carrying Estimated Carrying Estimated Amount Fair Value Amount Fair Value Liabilities Note payable $4,636,728 $4,636,728 $4,720,104 $4,720,104 Note payable $1,414,180 $1,414,180 $1,289,781 $1,289,781 Note payable $4,200,000 $4,200,000 $3,303,049 $3,303,049
NOTE 9 - ACCOUNTING FOR DERIVATIVE INVESTMENTS AND HEDGING ACTIVITIES
In June 1998, the FASB issued SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities. SFAS No. 133 as amended is effective for all fiscal quarters of fiscal years beginning after June 15, 2000. Management believes that the adoption of SFAS No. 133 will not have a material impact on the financial statements due to the Partnership's inability to invest in such instruments as stated in the Partnership agreement.
NOTE 10 - COMMITMENTS AND CONTINGENCIES
The Partnership is involved in litigation arising in the normal course of its business. In the opinion of management, the Partnership's recovery or liability if any, under any pending litigation would not materially affect its financial condition or results of operations.
ITEM 9.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS AND FINANCIAL DISCLOSURE
NONE
PART III
ITEM 10.
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.
ITEM 11. EXECUTIVE COMPENSATION
The Partnership does not have any officers or employees and, therefore, does not pay compensation to such persons. The Partnership's business is conducted by the Managing General Partner which is entitled under Article IV of the Partnership Agreement to receive underwriting commissions, acquisition fees, property management fees, subordinated real estate commission, share of distribution and an interest in the Partnership. The Managing General Partner's fees totaled $115,635 in 2000, consisting entirely of property management fees which are calculated as 5% of gross rental revenues collected.
In addition to the fees described above, the General Partner is entitled to reimbursement for out of pocket expenses incurred on behalf of the Partnership. Such expenses aggregated $226,652 in 2000.
ITEM 12.
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.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Partnership agreement (see Part IV, Item 14(a)(4) Exhibits) which was executed in 1985, authorized the compensation set forth below to be paid to the Managing General Partner and to affiliates of the Managing General Partner.
During the year ended December 31, 2000, the Managing General Partner and/or its affiliate received $226,652 for reimbursement of administrative services and $115,635 for property management and administrative fees.
PART IV
ITEM 14.
ITEM 14. EXHIBITS FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
EXHIBIT NUMBER EXHIBIT
(a) 1,2 See Item 8 of this Form 10-K for the Consolidated Financial Statements of the Partnership, Notes thereto, and Supplementary Schedules. An index to Financial Statements and Schedules is included and incorporated herein by reference.
4 Limited Partnership Agreement dated February 6, 1986 filed as exhibit 3.3 and the Amendment to the Limited Partnership Agreement dated May 22, 1986, filed as exhibit 3.4 to Registration Statement No. 2-96042 of Capital Builders Development Properties II, a California Limited Partnership are hereby incorporated by reference.
11 Statement regarding computation of per Unit earnings is not included because the computation can be clearly determined from the material contained in this report.
(b) Reports on Form 8-K
The Partnership filed an 8-K dated November 11, 1992. SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Capital Builders Development Properties II a California Limited Partnership
By CAPITAL BUILDERS, INC., The Managing General Partner, For and On Behalf of the Capital Builders Development Properties II A California Limited Partnership
Michael J. Metzger, President Date
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the date indicated.
Signature Title Date
Associate General Michael J. Metzger Partner; President and Director of Capital Builders, Inc. ("CB")
Chief Financial Kenneth L. Buckler Officer of CB
SUPPLEMENTAL INFORMATION TO BE FURNISHED WITH REPORTS PURSUANT TO SECTION 15(d) OF THE ACT BY REGISTRANTS WHICH HAVE NOT REGISTERED SECURITIES PURSUANT TO SECTION 12 OF THE ACT.
The Partnership has not sent an annual report or proxy statements to the Limited Partners and does not intend to send a proxy statement to the Limited Partners. The Partnership will send the Limited Partners an annual report and will furnish the Commission with copies of the annual report on or before April 30, 2001.