Captec Franchise Capital Partners L P Iv 10-Q 2001 Q1 Quarterly report

UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549Form 10-Q

QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2001

OR

TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

For the transition period from _____ to _____

Commission file number:333-9371

CAPTEC FRANCHISE CAPITAL PARTNERS L.P. IV(Exact name of registrant as specified in its charter)

Delaware
(State or other jurisdiction of incorporation or organization)

38-3304095
(IRS Employer Identification Number)

24 Frank Lloyd Wright Drive, Lobby L, 4th Floor
P.O. Box 544, Ann Arbor, Michigan 48106-0544
(Address of principal executive offices, including zip code)

(734) 994-5505
(Issuer’s telephone number)

Not Applicable
(Former name, former address and former fiscal year, if changed since last year)

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 filing requirements for the past 90 days.  Yes        No   

APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS

Check whether the registrant filed all documents and reports required to be filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution of securities under a plan confirmed by court:Not applicable

APPLICABLE ONLY TO CORPORATE ISSUERS

State the number of shares outstanding of each of the issuer’s classes of common equity, as of the latest practicable date:Not applicable

TABLE OF CONTENTS

Balance Sheet, March 31, 2001 and December 31, 2000
Statement of Operations for the three months ended March 31, 2001 and 2000
Statement of Changes in Partners' Capital for the three months ended March 31, 2001
Statement of Cash Flows for the three months ended March 31, 2001 and 2000
Notes to Financial Statements
	Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
PART II -- OTHER INFORMATION
Part II – Other Information
Signatures

CAPTEC FRANCHISE CAPITAL PARTNERS L.P. IVIndex to Form 10-Q

Item No.		Page
PART I	FINANCIAL INFORMATION
Item 1.	Financial Statements:
	Balance Sheet, March 31, 2001 and December 31, 2000		3
	Statement of Operations for the three months ended March 31, 2001 and 2000		4
	Statement of Changes in Partners’ Capital for the three months ended March 31, 2001		5
	Statement of Cash Flows for the three months ended March 31, 2001 and 2000		6
	Notes to Financial Statements		7–8
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		9–10
PART II	OTHER INFORMATION
	Other Information		11–12
SIGNATURES			13

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Captec Franchise Capital Partners L.P. IVBalance Sheet

			March 31,		December 31,
			2001		2000
			(Unaudited)
Assets
Cash and cash equivalents			$	10,127	$	78,837
Restricted cash				124,400		100,229
Investment in leases:
	Operating leases, net			29,762,585		29,869,323
	Financing leases, net			5,229,569		5,536,386
Accounts receivable				26,091		26,751
Unbilled rent, net				804,370		730,375
Due from related parties				12,268		966
Deferred financing costs, net				461,275		476,155
		Total assets	$	36,430,685	$	36,819,022
Liabilities & Partners’ Capital
Liabilities:
	Notes payable		$	13,356,964	$	13,389,750
	Accounts payable and accrued expenses			104,077		110,184
	Due to related parties			214,875		253,454
		Total liabilities		13,675,916		13,753,388
Partners’ capital:
Limited partners’ capital accounts				22,753,304		23,069,410
General partner’s capital accounts				1,465		(3,776	)
		Total partners’ capital		22,754,769		23,065,634
		Total liabilities & partners’ capital	$	36,430,685	$	36,819,022

The accompanying notes are an integral part of the financial statements.

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Captec Franchise Capital Partners L.P. IVStatement of Operations
for the three months ended March 31, 2001 and 2000(Unaudited)

			2001			2000
Operating revenue:
	Rental income		$	840,954		$	720,172
	Finance income			128,894			152,487
		Total operating revenue		969,848			872,659
Operating costs and expenses:
	Interest expense			298,462			214,067
	Depreciation			120,738			94,520
	General and administrative			26,071			26,580
		Total operating costs and expenses		445,271			335,167
		Income from operations		524,577			537,492
Other (expense) income:
	(Loss) gain on sale of equipment			(258	)		42,433
	Other			(182	)		—
		Total other (expense) income		(440	)		42,433
Net income				524,137			579,925
Net income allocable to general partner				5,241			5,799
Net income allocable to limited partners			$	518,896		$	574,126
Net income per limited partnership unit			$	17.52		$	19.21
Weighted average number of limited partnership units outstanding				29,625			29,883

The accompanying notes are an integral part of the financial statements.

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Captec Franchise Capital Partners L.P. IVStatement of Changes in Partners’ Capital
for the three months ended March 31, 2001(Unaudited)

	Limited		Limited			General			Total
	Partners'		Partners'			Partner's			Partners'
	Units		Accounts			Accounts			Capital
Balance, December 31, 2000		29,625	$	23,069,410		$	(3,776	)	$	23,065,634
Distributions — ($28.19 per unit)		—		(835,002	)		—			(835,002	)
Net income		—		518,896			5,241			524,137
Balance, March 31, 2001		29,625	$	22,753,304		$	1,465		$	22,754,769

The accompanying notes are an integral part of the financial statements.

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Captec Franchise Capital Partners L.P. IVStatement of Cash Flows
for the three months ended March 31, 2001 and 2000(Unaudited)

			2001			2000
Cash flows from operating activities:
	Net Income		$	524,137		$	579,925
	Adjustments to net income:
		Depreciation		120,738			94,520
		Amortization of debt issuance costs		14,880			14,880
		Loss (gain) on sale of equipment		258			(42,433	)
		Increase in unbilled rent		(73,995	)		(70,059	)
		Decrease in accounts receivable		660			10,367
		Decrease in accounts payable and accrued expenses		(6,107	)		(41,470	)
		(Increase) decrease in restricted cash		(24,171	)		179,606
		(Increase) decrease in due from related parties		(11,302	)		12,267
		Decrease in due to related parties		(38,579	)		(26,396	)
Net cash provided by operating activities				506,519			711,207
Cash flows from investing activities:
	Purchase and construction advances for properties subject to operating leases			(14,000	)		—
	Proceeds from sale of equipment			—			611,121
	Principal payments on financing leases			306,559			354,897
Net cash provided by (used in) investing activities				292,559			966,018
Cash flows from financing activities:
	Repayments of notes payable			(32,786	)		—
	Distributions to limited partners			(835,002	)		(910,000	)
	Distributions to general partner			—			(9,204	)
Net cash (used in) provided by financing activities				(867,788	)		(919,204	)
Net increase in cash and cash equivalents				(68,710	)		758,021
Cash and cash equivalents, beginning of period				78,837			701,725
Cash and cash equivalents, end of period			$	10,127		$	1,459,746

The accompanying notes are an integral part of the financial statements.

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CAPTEC FRANCHISE CAPITAL PARTNERS L.P. IVNOTES TO FINANCIAL STATEMENTS

1.	THE PARTNERSHIP AND ITS SIGNIFICANT ACCOUNTING PRINCIPLES:
	Captec Franchise Capital Partners L.P. IV (the “Partnership”), a Delaware limited partnership, was formed on July 23, 1996 for the purpose of acquiring income-producing commercial real properties and equipment leased on a “triple net” or “double net” basis, primarily to operators of national and regional chain and nationally franchised fast food and family style restaurants, as well as other national and regional retail chains. The general partners of the Partnership upon formation of the Partnership were Captec Franchise Capital Corporation IV (the “Corporation”), a wholly owned subsidiary of Captec Financial Group, Inc. (“Captec”), and Patrick L. Beach, an individual, hereinafter collectively referred to as the Sponsor. Patrick L. Beach is also the Chairman of the Board of Directors, President and Chief Executive Officer of the Corporation and Captec. In August, 1998 the general partnership interest of the Partnership was acquired by Captec Net Lease Realty, Inc., an affiliate of Captec, for $2,912,000.
	The Partnership commenced a public offering of limited partnership interest units on December 23, 1996. A maximum of 30,000 units, priced at $1,000 per unit, were offered on a “best efforts, part or none” basis. The Partnership broke impound on March 5, 1997, and the Partnership immediately commenced operations. The Partnership completed the sale of all 30,000 units in 1998. During 1999 the Partnership repurchased a total of 117 units for $105,399, or 90% of the investor’s capital account. In April 2000 the Partnership repurchased a total of 110 Units for $99,282, or 90% of the investor’s capital account. An additional 148 Units were repurchased in October 2000 for $131,080, or 89% of the investor’s capital account. The repurchase of the units was completed pursuant to the terms of the Repurchase Plan set forth in the Partnership’s Prospectus. At March 31, 2001, the Partnership had 29,625 units issued and outstanding.
	Allocation of profits, losses and cash distributions from operations and cash distributions from sale or refinancing are made pursuant to the terms of the Partnership Agreement. Profits and losses from operations are allocated among the limited partners based upon the number of units owned.
	The balance sheet of the Partnership as of March 31, 2001 and the statements of operations and cash flows for the period ending March 31, 2001 and 2000 have not been audited. In the opinion of the Management, these unaudited financial statements contain all adjustments necessary to present fairly the financial position and results of operations and cash flows of the Partnership for the periods then ended. Results of operations for the interim periods are not necessarily indicative of results for the full year. These unaudited financial statements should be read in conjunction with the financial statements and notes thereto included in the Partnership’s annual report on Form 10-K for the year ended December 31, 2000 filed with the United States Securities and Exchange Commission on March 30, 2001.
2.	LAND AND BUILDING SUBJECT TO OPERATING LEASES:
	The net investment in operating leases as of March 31, 2001 is comprised of the following:

Land	$	11,197,200
Building and improvements		19,549,581
		30,746,781
Less accumulated depreciation		(984,196	)
Total	$	29,762,585

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CAPTEC FRANCHISE CAPITAL PARTNERS L.P. IV
NOTES TO FINANCIAL STATEMENTS (continued)

3.	NET INVESTMENT IN FINANCING LEASES:
	The net investment in financing leases as of March 31, 2001 is comprised of the following:

Minimum lease payments to be received	$	6,832,301
Estimated residual value		232,697
Gross investment in financing leases		7,064,998
Less unearned income		(1,686,352	)
Less direct origination costs		(149,077	)
Net investment in financing leases	$	5,229,569

4.	NOTES PAYABLE:
	In November, 1998, the Partnership entered into a $6.375 million term note, the proceeds of which were used to acquire additional properties. The note has a 10-year term, is collateralized by certain properties subject to operating leases, and bears an interest rate of 8.13% per annum.
	In March, 1999, the Partnership entered into an additional $3.3 million term note. The note also has a 10-year term, is collateralized by certain properties subject to operating leases, and bears an interest rate of 8.5% per annum.
	In October 2000, the Partnership assumed a $3.7 million term note in connection with the acquisition of a United Supermarket property. The note has a 10-year term, and bears an interest rate of 8.35% per annum.
	Debt issuance costs of approximately $595,500 in aggregate were incurred in connection with the issuance of the notes, and are being amortized using the straight-line method over the 10-year term.

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CAPTEC FRANCHISE CAPITAL PARTNERS L.P. IV
PART I – FINANCIAL INFORMATION

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
                RESULTS OF OPERATIONS

When used in this discussion, the words, “intends”, “anticipates”, “expects”, and similar expressions are intended to identify forward-looking statements. Such statements are subject to certain risks and uncertainties which could cause actual results to differ materially from those projected. Such risks and uncertainties include the following: (i) a tenant may default in making rent payments, (ii) a fire or other casualty may interrupt the cash flow stream from a property, (iii) the properties may not be able to be leased at the assumed rental rates, (iv) unexpected expenses may be incurred in the ownership of the properties, and (v) properties may not be able to be sold at the presently anticipated prices and times.

As a result of these and other factors, the Partnership may experience material fluctuations in future operating results on a quarterly or annual basis, which could materially and adversely affect its business, financial condition and operating results. These forward-looking statements speak only as of the date hereof. The Partnership undertakes no obligation to publicly release the results of any revisions to these forward-looking statements which may be made to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events.

RESULTS OF OPERATIONS

Three Months Ended March 31, 2001. During the three months ended March 31, 2001 total operating revenue increased 11.1% to approximately $970,000 as compared to approximately $873,000 for the three months ended March 31, 2000. Rental revenue from operating leases for the three months ended March 31, 2001 increased 16.8% to approximately $841,000 as compared to approximately $720,000 for the three months ended March 31, 2000. Earned income from financing leases for the three months ended March 31, 2001 decreased 15.5% to approximately $129,000 as compared to approximately $152,000 for the three months ended March 31, 2000 due to the sale of one equipment lease and the amortization of principal balances.

Operating expenses were approximately $445,000 for the three months ended March 31, 2001 as compared to approximately $335,000 for the three months ended March 31, 2000. Total operating expenses for the three months ended March 31, 2001 is comprised of approximately $121,000 of depreciation expense, approximately $26,000 of general and administrative expenses, and approximately $298,000 of interest expense. The increase in operating expenses for the three months ended March 31, 2001 as compared to the three months ended March 31, 2000 is due to a full period of depreciation for properties leased in preceding periods and an increase in interest expense related to the $3.75 million term note that the Partnership entered into in October 2000.

Other expenses were $440 for the three months ended March 31, 2001 as compared to other income of approximately $42,000 for the three months ended March 31, 2000. The other income was a result of a gain on the sale of one equipment lease.

As a result of the foregoing, the Partnership’s net income decreased 9.63% to $524,000 for the three months ended March 31, 2001 as compared to $580,000 for the three months ended March 31, 2000.

Distributions. The Partnership announced first quarter distributions of $830,000, of which $722,642 was distributed to its Limited Partners on April 16, 2001 and the remaining $107,358 will be distributed to those limited partners who elected to receive distributions on a monthly basis.

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CAPTEC FRANCHISE CAPITAL PARTNERS L.P. IV
PART I – FINANCIAL INFORMATION

LIQUIDITY AND CAPITAL COMMITMENTS

The Partnership commenced the offering of up to 30,000 limited partnership units registered under the Securities Act of 1933, as amended, by means of a Registration Statement which was declared effective by the Securities and Exchange Commission on December 23, 1996. The Offering reached final funding in December, 1998 with subscriptions for the entire offering of 30,000 units. Net proceeds after offering expenses were approximately $26.1 million.

In December, 1998 the Partnership entered into a $6.375 million term note. The Partnership entered into an additional $3.276 million term note in June, 1999. Proceeds from the notes were used to acquire additional properties. The notes have a 10-year term, are collateralized by certain properties subject to operating leases, and bear interest at rates ranging from 8.13 to 8.5% per annum. Debt issuance costs of approximately $595,500 in aggregate incurred in connection with the issuance of the notes are being amortized into interest expense over the life of the notes using the straight-line method.

The Partnership purchased one net leased real estate property in October 2000. The Partnership assumed a $3.75 million term note in connection with the acquisition. The note has a 10-year term and bears interest at the rate of 8.35% per annum.

At March 31, 2001, the Partnership had invested $31.9 million in 21 net leased real estate properties and $7.7 million in 23 equipment packages. As of March 31, 2001 the Partnership’s investments were allocated approximately 80% to properties and 20% to equipment.

The Partnership expects to require limited amounts of liquid assets since the properties and equipment leases require the lessees to pay all taxes and assessments, maintenance and repair items (except, with respect to double net properties, costs associated with maintenance and repair of the exterior walls and roof of the property) and insurance premiums, including casualty insurance. The general partners expect that the cash flow to be generated by the Partnership’s properties and equipment will be adequate to pay operating expenses and provide distributions to Limited Partners.

10

CAPTEC FRANCHISE CAPITAL PARTNERS L.P. IVPART II – OTHER INFORMATION

ITEM 1.	LEGAL PROCEEDINGS.None.
ITEM 2.	CHANGES IN SECURITIES.None.
ITEM 3.	DEFAULTS UPON SENIOR SECURITIES.None.
ITEM 4.	SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.None.
ITEM 5.	OTHER INFORMATION.None.

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CAPTEC FRANCHISE CAPITAL PARTNERS L.P. IV
PART II – OTHER INFORMATION

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.

(a) The following exhibits are included herein or incorporated by reference:

Number	Exhibit
4	Agreement of Limited Partnership of Registrant. (Incorporated by reference
	from Exhibit B of the final Prospectus dated December 23, 1996, as supplemented and filed with the Securities and Exchange Commission, SEC File No. 333-9371)
4.1	Amended Agreement of Limited Partnership of Registrant. (Incorporated by reference to the corresponding exhibit in the Registrant’s Form 10-K for the year ended December 31, 1998)
10.1	Promissory Note dated December 17, 1998 between Registrant and National Realty Funding L.C. (Incorporated by reference to the corresponding exhibit in the Registrant’s Form 10-K for the year ended December 31, 1998)
10.2	Promissory Note dated June 30, 1999 between Registrant and National Realty Funding L.C. (Incorporated by reference to the corresponding exhibit in the Registrant’s Form 10-Q for the quarter ended June 30, 1999)
27	Financial Data Schedule
99.1	Pages 35-42 of the final Prospectus dated December 23, 1997 as supplemented. (Incorporated by reference from the final Prospectus filed with the Securities and Exchange Commission pursuant to Rule 424(b) promulgated under the Securities Act of 1933, as amended. SEC File No. 333-9371)

(b) Reports on Form 8-K:

There were no reports filed on Form 8-K for the quarter ended March 31, 2001.

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SIGNATURES

Pursuant to the requirements 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.

By:	Captec Net Lease Realty, Inc. Managing General Partner of Captec Franchise Capital Partners L.P. IV
By:	/s/ W. Ross Martin
	W. Ross Martin Executive Vice President, Chief Financial Officer
Date:	May 15, 2001

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