1
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[ X ] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1998
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OR
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15 (d) OF THE
EXCHANGE ACT
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 38-3160141
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(State or other jurisdiction (IRS Employer
of incorporation or organization) 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)
(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 for 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
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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
PART I FINANCIAL INFORMATION Page
Item 1. Balance Sheets, September 30, 1998 and December 31, 1997.........................1
Statements of Operations for the three and nine month periods
ended September 30, 1998 and 1997................................................2
Statement of Changes in Partners' Capital for the nine month period
ended September 30, 1998 ........................................................3
Statements of Cash Flows for the nine month periods
ended September 30, 1998 and 1997................................................4
Notes to Financial Statements....................................................5
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations........................................................7
PART II OTHER INFORMATION................................................................9
SIGNATURES..................................................................................10
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CAPTEC FRANCHISE CAPITAL PARTNERS L.P. III
BALANCE SHEETS
SEPTEMBER 30, DECEMBER 31,
1998 1997
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(Unaudited)
ASSETS
Cash and cash equivalents $ 512,505 $ 553,680
Investment in property under leases:
Operating leases, net 13,712,549 13,876,649
Financing leases, net 1,496,427 2,062,971
Impaired financing lease, net 50,000 50,000
Accounts receivable 153 11,514
Unbilled rent 537,176 411,111
Due from related parties 327,846 27,491
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Total assets $16,636,656 $16,993,416
=========== ===========
LIABILITIES & PARTNERS' CAPITAL
Liabilities:
Accounts payable $ 12,883 $ 18,031
Due to related parties 103,108 59,383
Security deposits held on leases 59,329 59,329
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Total liabilities 175,320 136,743
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Partners' Capital:
Limited partners' capital accounts 16,416,700 16,824,232
General partners' capital accounts 44,636 32,441
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Total partners' capital 16,461,336 16,856,673
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Total liabilities & partners' capital $16,636,656 $16,993,416
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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
STATEMENTS OF OPERATIONS
Three months ended Nine months ended
September 30, September 30,
-------------------------- --------------------------
Unaudited Unaudited
1998 1997 1998 1997
---------- ---------- ---------- ----------
Operating revenue:
Rental income $ 427,770 $ 404,593 $1,283,310 $1,227,330
Finance income 44,633 83,251 152,473 254,054
---------- ---------- ---------- ----------
Total operating revenue 472,403 487,844 1,435,783 1,481,384
---------- ---------- ---------- ----------
Operating costs and expenses:
Depreciation 54,700 53,772 164,100 154,960
General and administrative 15,401 12,655 61,826 75,779
---------- ---------- ---------- ----------
Total operating costs and expenses 70,101 66,427 225,926 230,739
---------- ---------- ---------- ----------
Income from operations 402,302 421,417 1,209,857 1,250,645
---------- ---------- ---------- ----------
Other income (expense):
Gain on sale of equipment -- 9,299 4,713 9,299
Interest income (expense) 102 (2,559) 418 50,302
Other 3,274 1,851 4,520 2,292
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Total other income, net 3,376 8,591 9,651 61,893
---------- ---------- ---------- ----------
Net income 405,678 430,008 1,219,508 1,312,538
Net income allocable to general partners 4,057 4,300 12,195 13,125
---------- ---------- ---------- ----------
Net income allocable to limited partners $ 401,621 $ 425,708 $1,207,313 $1,299,413
========== ========== ========== ==========
Net income per limited partnership unit $ 20.12 $ 21.29 $ 60.48 $ 64.97
========== ========== ========== ==========
Weighted average number of limited partnership
units outstanding 19,963 20,000 19,963 20,000
========== ========== ========== ==========
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 nine months ended September 30, 1998
(Unaudited)
Limited Limited General Total
Partners' Partners' Partners' Partners'
Units Accounts Accounts Capital
---------- ---------- ---------- ----------
Balance, January 1, 1998 19,963 16,824,232 32,441 16,856,673
Distributions - ($80.89 per unit) (1,614,845) -- (1,614,845)
Net income 1,207,313 12,195 1,219,508
----------- ----------- ----------- ----------
Balance, September 30, 1998 19,963 $16,416,700 $ 44,636 $16,461,336
=========== =========== =========== ===========
The accompanying notes are an integral part of the financial statements.
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CAPTEC FRANCHISE CAPITAL PARTNERS L.P. III
STATEMENTS OF CASH FLOWS
for the nine month periods ended September 30, 1998 and 1997
(Unaudited)
1998 1997
Cash flows from operating activities:
Net Income $ 1,219,508 $ 1,312,538
Adjustments to net income:
Depreciation 164,100 154,960
Gain on sale of equipment (4,713) (9,299)
Increase in unbilled rent (126,065) (130,624)
Decrease in receivables 11,361 3,013
Increase (decrease) in payables (5,147) 84
Increase (decrease) in prepaid rents -- (43,916)
Security deposits received -- (6,624)
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Net cash provided by operating activities 1,259,044 1,280,132
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Cash flows from investing activities:
Purchase of real estate for operating leases -- (1,865,965)
Disposition of real estate for operating leases -- 572,000
Reduction of construction loan draws -- 939,778
Proceeds from sale of equipment 15,842
Reduction of net investment in financing leases 571,256 498,171
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Net cash provided by (used in) investing activities 571,256 159,826
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Cash flows from financing activities:
(Increase) decrease in due from related parties (300,355) 10,364
Increase in due to related parties 43,725 3,682
Distributions to limited partners (1,614,845) (1,596,062)
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Net cash provided by financing activities (1,871,475) (1,582,016)
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Net increase in cash (41,175) (142,058)
Cash, beginning of period 553,680 690,175
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Cash, end of period $ 512,505 $ 548,117
=========== ===========
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. The general partners each contributed $100 in
cash to the Partnership as a capital contribution. 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
interests ("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 September 30, 1998, the Partnership had 19,963 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. In no event will the General Partners be allocated less than one
percent of profits and losses in any year.
The balance sheet of the Partnership as of September 30, 1998 and the
statements of operations and cash flows for the period ending September
30, 1998 and 1997 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.
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CAPTEC FRANCHISE CAPITAL PARTNERS L.P. III
NOTES TO FINANCIAL STATEMENTS
2. LAND AND BUILDING SUBJECT TO OPERATING LEASES:
The net investment in operating leases as of September 30, 1998 is
comprised of the following:
Land $ 5,482,775
Building and improvements 8,751,982
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14,234,757
Less accumulated depreciation (522,208)
Total $ 13,712,549
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3. NET INVESTMENT IN FINANCING LEASES:
The net investment in financing leases as of September 30, 1998 is
comprised of the following:
Minimum lease payments to be received $ 1,653,546
Estimated residual value 213,036
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Gross investment in financing leases 1,866,582
Less unearned income (370,155)
Net investment in financing leases $ 1,496,427
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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.
LIQUIDITY AND CAPITAL COMMITMENTS:
The Partnership commenced the offering (the "Offering") of up to 20,000
limited partnership units ("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 20,000 Units
and funds totaling $20,000,000. Net proceeds after offering expenses were
$17,400,000.
During 1998, the Partnership expects to obtain leverage of up to
approximately $8.5 million. Such leverage, when incurred, will provide
additional funds to be used by the Partnership to purchase properties and
equipment. Presently, the Sponsor is in active negotiations for the financing
commitment for this leverage.
At September 30, 1998, the partnership had $14.2 million invested in eleven
net leased real estate properties and $2.5 million invested in eight equipment
packages. As of September 30, 1998 the Partnership's investments were allocated
approximately 85% to properties and 15% to equipment. This allocation is
expected to change as additional properties and equipment are acquired. The
final asset mix allocation is expected to be at least 75%, but not more than 90%
properties and up to 25%, but not less than 10% equipment.
Once substantially all of the Partnership's funds have been applied as
intended, the Partnership expects to require limited amounts of liquid assets
since the form of lease which it intends to use for its properties and equipment
will require lessees to pay all taxes and assessments, maintenance and repairs
items (except, with respect to double net properties, costs associated with the
maintenance and repair of the exterior walls and roof of the property) and
insurance premiums, including casualty insurance. The general partners expect
that the
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CAPTEC FRANCHISE CAPITAL PARTNERS L.P. III
PART I - FINANCIAL INFORMATION
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.
RESULTS OF OPERATIONS:
THREE MONTHS ENDED SEPTEMBER 30, 1998. During the three months ended
September 30, 1998 (the "Quarter") total operating revenue decreased 3% to
$472,000 as compared to $488,000 for the three months ended September 30, 1997
(the "1997 Quarter"). The decrease in revenues resulted from the sale of
equipment under one financing lease in February, 1998 and the suspension of
revenue associated with the impairment of one financing lease.
Operating expenses were approximately $70,000 for the Quarter as compared
to approximately $66,000 for the 1997 Quarter.
Other income declined to $3,376 in the Quarter from $8,591 in the 1997
Quarter, principally due to the recognition of a gain on sale of equipment in
the 1997 Quarter.
As a result of the foregoing, the Partnership's net income decreased 6% to
$406,000 for the Quarter as compared to $430,000 for the 1997 Quarter.
NINE MONTHS ENDED SEPTEMBER 30, 1998. During the nine months ended
September 30, 1998 ("1998") operating revenue decreased 3% to $1,436,000 as
compared to $1,481,000 for the nine months ended September 30, 1997 ("1997").
The decrease in revenues resulted from the sale of one equipment property in
February, 1998 and the suspension of revenue associated with the impairment of
one financing lease.
Operating expenses were approximately $226,000 for 1998 as compared to
approximately $231,000 for 1997.
Other income decreased to $9,651 in 1998 from approximately $62,000 in
1997, as interest income was earned in 1997 from funds raised and not yet used
to acquire properties.
As a result of the foregoing, the Partnership's net income decreased 7% to
$1,220,000 for 1998 as compared to $1,313,000 for 1997.
DISTRIBUTIONS. The Partnership announced third quarter distributions of
$517,000, of which $447,782 was distributed to its limited partners on October
15, 1998 and the remaining $69,218 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. 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
Item 6. Exhibits and Reports on Form 8-K
(a) The following exhibits are included herein or incorporated by
reference:
Number Exhibit
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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, S. E. C. File No. 33-77510C)
27 Financial Data Schedule
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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 Franchise Capital Corporation III
Managing General Partner of
Captec Franchise Capital Partners L.P. III
By: /w/ W. Ross Martin
----------------------------------------
W. Ross Martin
Chief Financial Officer and Vice President,
a duly authorized officer
Date: November 13, 1998
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INDEX TO EXHIBITS
Number Exhibit
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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, S. E. C. File No. 33-77510C)
27 Financial Data Schedule