1
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[ X ] QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1999
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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: 333-9371
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Captec Franchise Capital Partners L.P. IV
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(Exact name of registrant as specified in its charter)
Delaware 38-3304095
- --------------------------------- ----------------------------
(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
----- -----
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
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CAPTEC FRANCHISE CAPITAL PARTNERS L.P. IV
INDEX TO FORM 10-Q
PART I FINANCIAL INFORMATION Page
Item 1. Balance Sheets, March 31, 1999 and December 31,1998.................................... 1
Statements of Operations for the three months
ended March 31, 1999 and 1998.......................................................... 2
Statement of Changes in Partners' Capital for the three months
ended March 31, 1999 .................................................................. 3
Statements of Cash Flows for the three months
ended March 31, 1999 and 1998.......................................................... 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....................................................................................... 11
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CAPTEC FRANCHISE CAPITAL PARTNERS L.P. IV
BALANCE SHEET
(Unaudited)
MARCH 31, DECEMBER 31,
1999 1998
ASSETS
Cash and cash equivalents $ 2,053,337 $ 1,902,158
Restricted cash 1,739,409 988,189
Investment in property under leases:
Operating leases, net 22,666,435 21,433,864
Financing leases, net 8,337,552 7,507,457
Accounts receivable 131,860 130,234
Unbilled rent, net 171,715 128,842
Due from related parties 150,506 175,617
Deferred financing costs, net 550,751 393,230
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Total assets $35,801,565 $32,659,591
=========== ===========
LIABILITIES & PARTNERS' CAPITAL
Liabilities:
Accounts payable and accrued expenses $ 138,839 $ 46,701
Due to related parties 263,091 249,709
Notes Payable 9,651,000 6,375,000
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Total liabilities 10,052,930 6,671,410
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Partners' Capital:
Limited partners' capital accounts 25,719,338 25,964,614
General partners' capital accounts 29,297 23,567
----------- -----------
Total partners' capital 25,748,635 25,988,181
----------- -----------
Total liabilities & partners' capital $35,801,565 $32,659,591
=========== ===========
The accompanying notes are an integral part of the financial statements.
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CAPTEC FRANCHISE CAPITAL PARTNERS L.P. IV
STATEMENT OF OPERATIONS
for the three months ended March 31, 1999 and 1998
(Unaudited)
1999 1998
Operating revenue:
Rental income $605,860 $177,783
Finance income 200,815 90,322
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Total operating revenue 806,675 268,105
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Operating costs and expenses:
Depreciation 72,611 19,764
General and administrative 19,676 27,769
Amortization of debt issuance costs 14,122 --
Interest expense 131,119 --
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Total operating costs and expenses 237,528 47,533
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Income from operations 569,147 220,572
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Other income:
Interest income 2,832 79,819
Other 975 --
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Total other income 3,807 79,819
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Net income 572,954 300,391
Net income allocable to general partner 5,730 3,004
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Net income allocable to limited partners $567,224 $297,387
======== ========
Net income per limited partnership unit $ 18.91 $ 16.99
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Weighted average number of limited partnership
units outstanding 30,000 17,508
======== ========
The accompanying notes are an integral part of the financial statements.
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CAPTEC FRANCHISE CAPITAL PARTNERS L.P. IV
STATEMENT OF CHANGES IN PARTNERS' CAPITAL
for the three months ended March 31, 1999
(Unaudited)
Limited Limited General Total
Partners' Partners' Partners' Partners'
Units Accounts Accounts Capital
----- ------------ ------------ ------------
Balance, December 31, 1998 30,000 25,964,614 23,567 25,988,181
Distributions - ($27.08 per unit) -- (812,500) -- (812,500)
Net income -- 567,224 5,730 572,954
------ ------------ ------------ ------------
Balance, March 31, 1999 30,000 $ 25,719,338 $ 29,297 $ 25,748,635
====== ============ ============ ============
The accompanying notes are an integral part of the financial statements.
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CAPTEC FRANCHISE CAPITAL PARTNERS L.P. IV
STATEMENT OF CASH FLOWS
for the three months ended March 31, 1999 and 1998
(Unaudited)
1999 1998
Cash flows from operating activities:
Net Income $ 572,954 $ 300,391
Adjustments to net income:
Depreciation 72,611 19,764
Amortization of debt issuance costs 14,122 --
Decrease in prepaid expenses -- --
(Increase) in unbilled rent (42,873) (7,400)
(Increase) in accounts receivable (1,626) (12,519)
Increase (decrease) in accounts payable and accrued expenses 92,137 (2,812)
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Net cash provided by operating activities 707,325 297,424
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Cash flows from investing activities:
Purchase and construction advances of real estate
for operating leases (1,305,181) (413,342)
Purchase of equipment for financing leases (1,131,619) (1,427,462)
Principal payments on financing leases 301,525 128,326
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Net cash used in investing activities (2,135,275) (1,712,478)
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Cash flows from financing activities:
Decrease (increase) in due from related parties 25,111 (34,497)
Increase in due to related parties 13,381 30,686
Proceeds from issuance of notes payable 3,276,000 --
Debt issuance costs (171,643) --
Issuance of limited partnership units -- 4,717,201
Offering costs -- (606,864)
Distributions to limited partners (812,500) (349,999)
(Increase) in restricted cash (751,220) --
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Net cash provided by financing activities 1,579,129 3,756,527
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Net (decrease) increase in cash and cash equivalents 151,179 2,341,473
Cash and cash equivalents, beginning of period 1,902,158 5,008,194
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Cash and cash equivalents, end of period $ 2,053,337 $ 7,349,667
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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. IV
NOTES 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 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
interests ("Units") on December 23, 1996. A minimum of 2,000 Units and 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. At
March 31, 1999, the Partnership had 30,000 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, 1999 and the
statements of operations and cash flows for the period ending March 31,
1999 and 1998 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 expected for the full year.
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CAPTEC FRANCHISE CAPITAL PARTNERS L.P. IV
NOTES TO FINANCIAL STATEMENTS
2. LAND AND BUILDING SUBJECT TO OPERATING LEASES:
The net investment in operating leases as of March 31, 1999 is comprised
of the following:
Land $ 9,561,038
Building and improvements 12,221,093
Construction draws on properties 1,121,467
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22,903,598
Less accumulated depreciation (237,163)
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Total $ 22,666,435
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3. NET INVESTMENT IN FINANCING LEASES:
The net investment in financing leases as of March 31, 1999 is comprised
of the following:
Minimum lease payments to be received $ 11,748,952
Estimated residual value 232,697
------------
Gross investment in financing leases 11,981,649
Less unearned income (3,644,097)
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Net investment in financing leases $ 8,337,552
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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 collaterized 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 collaterized by certain
properties subject to operating leases, and bears an interest rate of
8.5% per annum.
Debt issuance costs of approximately $565,000 in aggregate were incurred
in connection with the issuance of the notes, and will be amortized using
the straight-line method to interest expense 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.
LIQUIDITY AND CAPITAL COMMITMENTS.
The Partnership commenced the offering (the "Offering") of up to 30,000
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 December 23, 1996. The Partnership
invests in income-producing commercial properties and equipment leased primarily
to operators of national chain and nationally franchised fast-food, family style
and dinner house restaurants as well as other franchised or chain businesses or
retail concerns, pursuant to triple net leases or double net leases.
As of December 31, 1998, the Partnership had accepted subscriptions for
the entire offering of 30,000 Units. After payment of approximately $3.9 million
in offering expenses, net proceeds available for investment from the sale of
units was approximately $26.1 million. As of March 31, 1999 the partnership has
invested approximately $24.0 million in 20 properties, including two properties
in the construction phase, and approximately $8.5 million in 24 equipment
leases.
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
March, 1999. Proceeds from the notes were used to acquire additional properties.
The notes have 10 year terms, are collaterized by certain properties subject to
operating leases, and bear interest at rates ranging from 8.13 to 8.5% per
annum.
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CAPTEC FRANCHISE CAPITAL PARTNERS L.P. IV
PART I - FINANCIAL INFORMATION
During the three months ending March 31, 1999, the Partnership
purchased two real estate properties and completely funded two properties under
construction at December 31, 1998. The Partnership acquired the properties
subject to real estate leases at a total cost, including acquisition fees, of
approximately $1.9 million, and funded approximately $543,000 to complete the
two acquisitions under construction. One real estate property, acquired for
approximately $1.1 million, is accounted for as a direct finance lease.
As of March 31, 1999 the Partnership's investments were allocated
approximately 74% to properties and 26% 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 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.
For the three months ended March 31, 1999, the Partnership earned
revenues of approximately $810,000 as compared to $268,000 for the three months
ended March 31, 1998. Total revenue for the period ended March 31, 1999 is
comprised of $606,000 of rental income, $201,000 of equipment lease finance
income, and $3,000 of interest and miscellaneous income. The increase in
revenues in 1999 resulted from the acquisition of properties during the past 12
months and the benefit of a full period of revenue from properties acquired and
leased in preceding periods.
For the three months ended March 31, 1999, the Partnership incurred
expenses of approximately $238,000 as compared to $48,000 for the three months
ended March 31, 1998. Total expenses for the period ended March 31, 1999 is
comprised of $72,000 of depreciation expense, $20,000 of general and
administrative expenses, $14,000 of amortization costs, and $131,000 of interest
expense.
As a result of the above the Partnership earned net income of
approximately $573,000 for the three months ended March 31, 1999.
DISTRIBUTIONS.
The Partnership declared first quarter distributions totaling $820,000,
of which $712,000 was distributed to its limited partners on April 16, 1999 and
the remaining $108,000 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 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
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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, S. E. C. 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 March 30, 1999 between
Registrant and National Realty Funding L.C.
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. S.E.C. File No. 333-9371.)
(b) Reports on Form 8-K:
There were no reports filed on Form 8-K for the first quarter ended
March 31, 1999.
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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 14, 1999
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Exhibit Index
Number Exhibit
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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, S. E. C. 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 March 30, 1999 between
Registrant and National Realty Funding L.C.
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. S.E.C. File No. 333-9371.)