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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
[ X ] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2000
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OR
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number: 33-77510-C
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CAPTEC FRANCHISE CAPITAL PARTNERS L.P. III
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(Exact name of registrant as specified in its charter)
Delaware
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(State or other jurisdiction of incorporation or organization)
38-3160141
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(IRS Employer Identification Number)
24 Frank Lloyd Wright Drive, Lobby L, 4th Floor
P.O. Box 544, Ann Arbor, Michigan 48106-0544
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(Address of principal executive offices, including zip code)
(734) 994-5505
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(Issuer's telephone number)
Not Applicable
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(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 [X] 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
Transitional Small Business Disclosure Format (check one) Yes No X
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CAPTEC FRANCHISE CAPITAL PARTNERS L.P. III
INDEX TO FORM 10-QSB
ITEM NO. PAGE
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PART I FINANCIAL INFORMATION
Item 1. Financial Statements:
Balance Sheet, June 30, 2000 and December 31, 1999 3
Statement of Operations for the three and six months
ended June 30, 2000 and 1999 4
Statement of Changes in Partners' Capital for the six months
ended June 30, 2000 5
Statement of Cash Flows for the six months
ended June 30, 2000 and 1999 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. III
BALANCE SHEET
(Unaudited)
JUNE 30, DECEMBER 31,
2000 1999
ASSETS
Cash and cash equivalents $ 422,076 $ 327,903
Restricted cash 261,584 266,452
Investment in property under leases:
Operating leases, net 18,957,415 19,104,889
Financing leases, net 2,261,908 2,574,417
Impaired financing leases, net 27,492 27,492
Accounts receivable 8,886 56,405
Unbilled rent, net 946,687 816,948
Due from related parties 12,832 17,184
Deferred financing costs, net 401,444 430,118
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Total assets $ 23,300,324 $ 23,621,808
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LIABILITIES & PARTNERS' CAPITAL
Liabilities:
Notes payable $ 8,194,000 $ 8,194,000
Accounts payable and accrued expenses 61,269 73,796
Due to related parties 17,414 40,214
Security deposits held on leases 54,774 54,774
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Total liabilities 8,327,457 8,362,784
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Partners' capital:
Limited partners' capital accounts 14,952,672 15,240,812
General partner's capital accounts 20,195 18,212
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Total partners' capital 14,972,867 15,259,024
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Total liabilities & partners' capital $ 23,300,324 $ 23,621,808
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The accompanying notes are an integral part of the financial statements.
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CAPTEC FRANCHISE CAPITAL PARTNERS L.P. III
STATEMENT OF OPERATIONS
(Unaudited)
Three months ended Six months ended
June 30, June 30,
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2000 1999 2000 1999
---- ---- ---- ----
Operating revenue:
Rental income $584,084 $ 589,773 $1,158,628 $ 1,132,962
Finance income 51,266 60,946 106,730 77,146
-------- --------- ---------- -----------
Total operating revenue 635,350 650,719 1,265,358 1,210,108
Operating costs and expenses:
Interest expense 186,445 184,515 372,890 326,510
Depreciation 73,737 75,263 147,474 144,171
General and administrative 11,514 25,611 32,009 43,145
-------- --------- ---------- -----------
Total operating costs and expenses 271,696 285,389 552,373 513,826
-------- --------- ---------- -----------
Income from operations 363,654 365,330 712,985 696,282
Other income (expense):
Interest and other income -- 364 -- 2,266
Gain on sale of equipment 15,000 3,288 15,000 3,288
Loss on sale of real estate -- (168,226) -- (168,226)
Other 3,271 3,308 2,910 6,047
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Total other income (expense) 18,271 (161,266) 17,910 (156,625)
-------- --------- ---------- -----------
Net income 381,925 204,064 730,895 539,657
Net income allocable to general partner 3,819 2,041 7,309 5,397
-------- --------- ---------- -----------
Net income allocable to limited partners $378,106 $ 202,023 $ 723,586 $ 534,260
======== ========= ========== ===========
Net income per limited partnership unit $ 19.02 $ 10.12 $ 36.39 $ 26.76
======== ========= ========== ===========
Weighted average number of limited partnership
units outstanding 19,884 19,963 19,884 19,963
The accompanying notes are an integral part of the financial statements.
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CAPTEC FRANCHISE CAPITAL PARTNERS L.P. III
STATEMENT OF CHANGES IN PARTNERS' CAPITAL
for the six months ended June 30, 2000
(Unaudited)
Limited Limited General Total
Partners' Partners' Partner's Partners'
Units Accounts Accounts Capital
----- -------- -------- -------
Balance, December 31, 1999 19,884 $ 15,240,812 $ 18,212 $15,259,024
Distributions - ($50.88 per unit) - (1,011,726) (5,326) (1,017,052)
Net income - 723,586 7,309 730,895
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Balance, June 30, 2000 19,884 $ 14,952,672 $ 20,195 $14,972,867
======= ============ ======== ===========
The accompanying notes are an integral part of the financial statements.
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CAPTEC FRANCHISE CAPITAL PARTNERS L.P. III
STATEMENT OF CASH FLOWS
for the six months ended June 30, 2000 and 1999
(Unaudited)
2000 1999
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Cash flows from operating activities:
Net Income $ 730,895 $ 539,657
Adjustments to net income:
Depreciation 147,474 144,171
Amortization of debt issuance costs 28,675 23,726
Gain on sale of equipment (15,000) (3,288)
Loss on sale of real estate -- 130,172
Increase in unbilled rent (129,739) (123,784)
Decrease (increase) in accounts receivable 47,519 (38,863)
Decrease in accounts payable and accrued expenses (12,527) (63,406)
Decrease in restricted cash 4,868 24,357
Decrease in due from related parties 4,352 76,564
Decrease in due to related parties (22,800) (22,265)
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Net cash provided by operating activities 783,717 687,041
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Cash flows from investing activities:
Purchase and construction advances for properties subject
to operating leases -- (421,108)
Proceeds from disposition of properties subject to operating leases -- 941,378
Proceeds from sale of equipment 75,000 30,000
Purchase of equipment for financing leases -- (1,955,999)
Principal payments on financing leases 252,508 247,503
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Net cash used in investing activities 327,508 (1,158,226)
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Cash flows from financing activities:
Proceeds from issuance of notes payable -- 1,994,000
Debt issuance costs -- (84,459)
Distributions to limited partners (1,011,726) (962,834)
Distributions to general partner (5,326) (24,932)
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Net cash provided by financing activities (1,017,052) 921,775
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Net (decrease) increase in cash and cash equivalents 94,173 450,590
Cash and cash equivalents, beginning of period 327,903 493,136
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Cash and cash equivalents, end of period $ 422,076 $ 943,726
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The accompanying notes are an integral part of the financial statements.
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CAPTEC FRANCHISE CAPITAL PARTNERS L.P. III
NOTES TO FINANCIAL STATEMENTS
1. THE PARTNERSHIP AND ITS SIGNIFICANT ACCOUNTING PRINCIPLES:
Captec Franchise Capital Partners L.P. III (the "Partnership"), a
Delaware limited partnership, was formed on February 18, 1994 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
III (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 $1,483,000.
The Partnership commenced a public offering of 20,000 limited
partnership interest units on August 12, 1994 and reached final funding
in August, 1996. Net proceeds after offering expenses were
approximately $17.4 million. During 1997, the Partnership repurchased a
total of 37 units. At June 30, 2000, the Partnership had 19,884 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 June 30, 2000 and the
statements of operations and cash flows for the periods ending June 30,
2000 and 1999 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-KSB for the year
ended December 31, 1999 filed with the United States Securities and
Exchange Commission on March 30, 2000.
2. LAND AND BUILDING SUBJECT TO OPERATING LEASES:
The net investment in operating leases as of June 30, 2000 is comprised
of the following:
Land $ 8,163,346
Building and improvements 11,796,894
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19,960,240
Less accumulated depreciation (1,002,825)
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Total $ 18,957,415
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CAPTEC FRANCHISE CAPITAL PARTNERS L.P. III
NOTES TO FINANCIAL STATEMENTS
3. NET INVESTMENT IN FINANCING LEASES:
The net investment in financing leases as of June 30, 2000 is comprised
of the following:
Minimum lease payments to be received $ 2,696,005
Estimated residual value 117,101
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Gross investment in financing leases 2,813,106
Less unearned income (454,617)
Less direct origination costs (96,581)
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Net investment in financing leases $ 2,261,908
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4. NOTES PAYABLE:
In November, 1998, the Partnership entered into a $6.2 million term
note, the proceeds of which were used to acquire additional properties.
The note has a 10-year term, is collaterized by certain properties
subject to operating leases, and bears an interest rate of 8.37% per
annum.
In March, 1999, the Partnership entered into an additional $2.0 million
term note. The note also has a 10-year term, is collaterized by certain
properties subject to operating leases, and bears an interest rate of
8.5% per annum.
Debt issuance costs of approximately $478,000 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. III
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 JUNE 30, 2000. During the three months ended June 30, 2000
total operating revenue decreased 2% to $635,000 as compared to $651,000 for the
three months ended June 30, 1999. Rental revenue from operating leases for the
three months ended June 30, 2000 decreased 1% to $584,000 as compared to
$590,000 for the three months ended June 30, 1999. Earned income from financing
leases for the three months ended June 30, 2000 decreased 16% to $51,000 as
compared to $61,000 for the three months ended June 30, 1999 as a result of the
disposition of one equipment lease in August, 1999 and one equipment lease in
April, 2000 as well as amortization of principal balances.
Operating expenses were approximately $272,000 for the three months ended June
30, 2000 as compared to $285,000 for the three months ended June 30, 1999. Total
operating expenses for the three months ended June 30, 2000 is comprised of
$74,000 of depreciation expense, $12,000 of general and administrative expenses,
and $186,000 of interest expense. The decrease in operating expenses for the
three months ended June 30, 2000 as compared to the three months ended June 30,
1999 is primarily due to cost savings achieved in general and administrative
expenses.
Other income for the three months ended June 30, 2000 is comprised primarily of
a $15,000 gain on the sale of equipment. Other expense for the three months
ended June 30, 1999 is comprised primarily of a net loss of approximately
$164,000 on the disposition of vacant property and impaired equipment leases.
As a result of the foregoing, the Partnership's net income increased 87% to
$382,000 for the three months ended June 30, 2000 as compared to $204,000 for
the three months ended June 30, 1999.
SIX MONTHS ENDED JUNE 30, 2000. During the six months ended June 30, 2000 total
operating revenue increased 5% to $1,265,000 as compared to $1,210,000 for the
six months ended June 30, 1999. Rental revenue from operating leases for the six
months ended June 30, 2000 increased 2% to $1,159,000 as compared to $1,133,000
for the six months ended June 30, 1999 primarily from the benefit of a full
period of rental revenue from properties acquired and leased in preceeding
periods. Earned income from financing leases for the six months ended June 30,
2000 increased 38% to $107,000 as compared to
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CAPTEC FRANCHISE CAPITAL PARTNERS L.P. III
PART I - FINANCIAL INFORMATION
$77,000 for the six months ended June 30, 1999 as a result of the addition of
seven equipment leases in the preceding periods offset by the loss of income
from one equipment lease sold in August, 1999 and amortization of principal
balances.
Operating expenses were approximately $552,000 for the six months ended June 30,
2000 as compared to $514,000 for the six months ended June 30, 1999. Total
operating expenses for the six months ended June 30, 2000 is comprised of
$147,000 of depreciation expense, $32,000 of general and administrative
expenses, and $373,000 of interest expense. The increase in operating expenses
for the six months ended June 30, 2000 as compared to the six months ended June
30, 1999 is primarily due to additional interest expense for the note payable
issued in March, 1999.
Other income for the six months ended June 30, 2000 is comprised primarily of a
$15,000 gain on the sale of equipment. Other expense for the three months ended
June 30, 1999 is comprised primarily of a net loss of approximately $164,000 on
the disposition of vacant property and impaired equipment leases.
As a result of the foregoing, the Partnership's net income increased 35% to
$731,000 for the six months ended June 30, 2000 as compared to $540,000 for the
six months ended June 30, 1999.
DISTRIBUTIONS. The Partnership announced second quarter distributions of
$613,382, including net sale proceeds of $123,382, of which $543,401 was
distributed to its Limited Partners on July 15, 2000. The balance of $69,981 was
distributed to those partners who elected to receive distributions on a monthly
basis on May 15, 2000 and June 15, 2000.
LIQUIDITY AND CAPITAL COMMITMENTS
The Partnership commenced the offering of up to 20,000 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 August 12, 1994. The offering reached final funding on
August 12, 1996 with subscriptions for the entire offering of 20,000 units. Net
proceeds after offering expenses were approximately $17.4 million.
In November, 1998 the Partnership entered into a $6.2 million term note. The
Partnership entered into an additional $2.0 million term note in March, 1999.
Proceeds from the notes were used to acquire additional properties. The notes
have a 10-year term, are collaterized by certain properties subject to operating
leases, and bear interest at rates ranging from 8.37 to 8.5% per annum. Debt
issuance costs of approximately $478,000 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.
At June 30, 2000 the Partnership had a portfolio of 15 properties located in 10
states, with a cost of $20.0 million, and 11 performing equipment leases with an
original investment of $3.5 million. As of June 30, 2000 the Partnership's
investments were allocated approximately 85% to properties and 15% 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.
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CAPTEC FRANCHISE CAPITAL PARTNERS L.P. III
PART 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. III
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 August 12, 1994, as supplemented and
filed with the Securities and Exchange Commission, SEC
File No. 33-77510C)
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 November 28, 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 March 31, 1999 between Registrant
and National Realty Funding L.C. (Incorporated by
reference to the corresponding exhibit in the Registrant's
Form 10-QSB for the quarter ended March 31, 1999)
27 Financial Data Schedule
99.1 Pages 12-16 of the final Prospectus dated August 12, 1994,
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.
33-77510C)
(b) Reports on Form 8-K:
There were no reports filed on Form 8-K for the quarter ended June 30, 2000.
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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. III
By: /s/ W. Ross Martin
--------------------------------------------
W. Ross Martin
Executive Vice President,
Chief Financial Officer
Date: August 14, 2000
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EXHIBIT INDEX
Number Exhibit
4 Agreement of Limited Partnership of Registrant.
(Incorporated by reference from Exhibit B of the final
Prospectus dated August 12, 1994, as supplemented and
filed with the Securities and Exchange Commission, SEC
File No. 33-77510C)
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 November 28, 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 March 31, 1999 between Registrant
and National Realty Funding L.C. (Incorporated by
reference to the corresponding exhibit in the Registrant's
Form 10-QSB for the quarter ended March 31, 1999)
27 Financial Data Schedule
99.1 Pages 12-16 of the final Prospectus dated August 12, 1994,
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.
33-77510C)
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