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EXHIBIT 99
CAPTEC NET LEASE REALTY, INC.
24 FRANK LLOYD WRIGHT DRIVE
LOBBY L, 4TH FLOOR - P.O. BOX 544
ANN ARBOR, MI 48106
WWW.CAPTEC.COM
NASDAQ: CRRR
AT THE COMPANY: AT THE FINANCIAL RELATIONS BOARD:
Patrick L. Beach W. Ross Martin Leslie Hunziker Claire Koeneman Judith Sylk-Siegel
President & CEO Chief Financial Officer General Info. Analysts/Investors Media Inquiries
(734) 994-5505 (734) 994-5505 (312) 640-6760 (312) 640-6784 (212) 455-0940
pbeach@captec.com rmartin@captec.com
FOR IMMEDIATE RELEASE
MONDAY, DECEMBER 20, 1999
CAPTEC NET LEASE REALTY TO MERGE AFFILIATES, CREATING LEADING
REAL ESTATE SPECIALTY FINANCE COMPANY;
PLANS TO CONVERT TO C CORP STATUS
STOCK REPURCHASE PROGRAM AUTHORIZED
HIGHLIGHTS
- Mergers Broaden Real Estate Opportunities
- Creates Fully Integrated Management Team
- C Corp Structure Positions Company for Higher Growth and Enhanced
ROE
- Transaction Anticipated to be Substantially Accretive to 2000
Earnings
- New Quarterly Dividend Policy in Effect Upon Completion of
Transaction
ANN ARBOR, MI, DECEMBER 20, 1999 - CAPTEC NET LEASE REALTY, INC. (NASDAQ:CRRR)
today announced a series of strategic actions designed to enhance its growth
opportunities and increase shareholder value. Principal among these is the
signing of a definitive agreement to merge with its affiliates, Captec Financial
Group, Inc. (CFG), a specialty finance company with more than $200 million in
assets that serves the franchise restaurant market, and Captec Net Lease Realty
Advisors, Inc. (Advisor), the company's external advisor. Upon completion of the
merger, the company will assume the name Captec Financial Group, Inc. The
combined company will be a market leading, fully integrated real estate
specialty finance company focused on the net lease and franchise finance
sectors. The company strategy will focus on value-added opportunities through a
combination of investments in restaurant and retail properties net-leased to
national and regional chains as well as the origination, securitization and
servicing of loans to operators of franchised restaurants.
In merging these affiliates, Captec is adopting new business strategies that are
inconsistent with the real estate investment trust (REIT) format. Subject to
shareholder approval of these transactions, Captec plans to change its tax
status from a REIT to C Corporation, allowing significantly greater flexibility
in operating its business, selling assets
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to maximize its return on investment and investing in a broader variety of
assets. Additionally, as a C Corp, Captec will no longer be required to
distribute 95 percent of its taxable income to shareholders, enabling the
company to use retained earnings to expand upon and accelerate its growth
strategies. Under this new business model, Captec does not anticipate any need
in the near future to access the public equity markets to generate a higher
level of growth.
"Our strategic restructuring recognizes that the net lease business is
fundamentally a finance business that can operate more effectively without being
subject to restrictive REIT rules," said Patrick Beach, chairman and chief
executive officer. "Conversion to a C Corp structure will allow us to switch
from a "buy and hold," income-oriented strategy to a profit-maximizing mode
focused on producing significantly higher EPS growth and return on equity (ROE).
CFG's business of originating and securitizing long-term real estate and
enterprise loans complements this strategy. We have significant opportunities to
grow the company, as evidenced by the more than 100 percent growth in our
property development and acquisition pipeline since the beginning of the year.
Unfortunately, REIT regulations and limited capital have kept us from fully
benefiting from these opportunities."
The merger will also result in a fully integrated and focused management team
serving one company, thus eliminating Captec's externally advised structure. The
restructured company intends to pay a quarterly cash dividend of $0.11 per
share, or $0.44 per share annually, once the transaction is completed.
Separately, Captec announced that its board of directors approved a
500,000-share buy back.
NEW STRATEGIC PLAN
Captec's new strategy will be to focus on high-return investments in the net
lease and specialty lending sectors. The combined business will offer a broad
array of products to its customers including real estate net lease and mortgage
financing, construction financing, equipment leasing and lending, and other
synergistic and complementary products. The company will have the opportunity to
utilize CFG's customer base and products to cross-sell Captec's products and
customer base, and to enter into new, related lines of high-margin businesses,
thereby diversifying its revenue stream.
- - Property Investment Business - Captec will continue to own a substantial
portfolio of net leased real estate, including retail and restaurant
properties, which will generate stable earnings. At the same time, Captec
will seek opportunities for increased returns, including funding property
development through its network of preferred developers, acquiring
properties at "wholesale" capitalization rates, selling mature assets from
the existing portfolio, acquiring properties to immediately sell at a
profit, and dealing in credit-tenant leases.
- - Finance Business - As a combined entity with significant equity capital,
Captec can rapidly grow CFG's existing finance business. Through
securitizing the loans it originates, Captec expects to produce significant
profits and "turn" its balance sheet several times each year through the
securitization process. The company also expects to expand into other
similar financial products and markets.
Combined, Captec and CFG currently have a pipeline of more than $550 million of
property acquisition and development opportunities and loan commitments.
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POSITIVE FINANCIAL IMPACT
The company expects the transaction to be substantially accretive to 2000
earnings per share, and to allow Captec to grow at a significantly accelerated
pace going forward. While the company will forego the tax advantage that all
REITs enjoy - the exclusion from paying federal and certain state corporate
income taxes - this benefit should be more than offset by the following
advantages:
- - Removal of REIT distribution requirements allows for a more effective use
of the company's earnings, which can be "recycled" into value-added
investments.
- - Flexibility to operate at higher leverage ratios in line with other
publicly traded finance companies.
- - Ability to "turn" the company's balance sheet by selling properties and
securitizing loans.
- Captec expects to generate proceeds from an aggressive program of
asset dispositions. Management has initially identified approximately
$50 million in properties that it expects to offer for sale early in
2000 in conjunction with the termination of its REIT status, and
intends to accelerate its property sales effort throughout the year.
Captec plans to be a continuous seller of the net lease properties
that it develops and acquires, focusing on buyers in the dynamic 1031
tax-free exchange market. Property sales to date have been limited by
REIT regulations.
- CFG securitizes its loan portfolio periodically to reduce its
financial exposure and to profit from gains on sales. It already has
successfully closed five franchise loan and/or lease securitizations
and expects to close a sixth securitization of over $200 million
during the first quarter of 2000.
"Our shareholders will benefit as a result of the company having more
flexibility to pursue value-added investments including the opportunity to exit
investments when profits can be maximized and subsequently reinvested," said
Beach. "In our current format, we have not been rewarded by the market for the
value we've been creating. With the new structure and strategies in place,
Captec will be able to better demonstrate this value in the form of growth in
earnings per share.
NEW QUARTERLY DIVIDEND POLICY
Due to Captec's emphasis on conserving internal cash flow to finance growth, the
Board expects to pay a quarterly dividend of $0.11 per share, or $0.44 per share
annually, upon consummation of the transaction. Meanwhile, for the 1999 fourth
quarter, a regular cash dividend of $0.38 per share of common stock is expected
to be declared and paid to shareholders of record, in keeping with the company's
present dividend policy.
TRANSACTION TERMS
Pursuant to the definitive agreement, at closing, Captec will issue 2.75 million
common shares to shareholders of CFG and the Advisor plus $2.5 million in cash
payments to certain institutional warrant holders. In addition, the company will
issue up to 2.0 million common shares pursuant to an earn-out agreement if it
achieves certain performance targets. "This earn-out arrangement gives
management proper incentives to achieve substantial EPS growth without diluting
our
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existing shareholders. If we are not able to achieve returns above those which
Captec would realize on its own, then there will be no additional shares
issued," stated Beach.
The merger was structured and negotiated by the Independent Committee of the
Board, which excluded Messrs. Beach, W. Ross Martin and Reid Sherard. Albert T.
Adams, chairman of the Cleveland office of Baker & Hostetler LLP, who has been a
member of the Board since 1998, chaired the Independent Committee. "We have
struggled with the REIT structure at the Board level for some time trying to
reconcile a net lease buy-and-hold strategy with our shareholders' goal of
maximizing value," Adams said. "This strategic restructuring resolves that
dilemma, creating an integrated, high-growth real estate specialty finance
company. The Independent Committee unanimously agreed that this is the right
strategy and direction for the company."
Following the merger and tax reclassification, the company will continue to be
governed by its existing Board of Directors. Chairman and Chief Executive
Officer, Patrick Beach, and Executive Vice President and Chief Financial
Officer, W. Ross Martin, will maintain leadership of the senior management team,
which will include Reid Sherard, senior vice president - sales and marketing,
Thomas Moir, senior vice president - net lease investments and Gary Bruder,
senior vice president - general counsel. "We have a great management team that
has significant experience in all facets of the net lease and specialty finance
business. The fact that our team has worked together for so long will ensure the
effective implementation of our new strategic plan," said Beach. The executive
team of the combined company will be supported by approximately 90 employees.
TIMING AND APPROVALS
The merger and conversion to a C Corp are subject to the approval of the
shareholders of the company and customary closing conditions. Captec expects to
hold a special shareholder meeting during the first quarter of 2000. Captec is
seeking to file a proxy statement by early January.
Captec and CFG were advised in the merger by Prudential Securities Incorporated.
J.C. Bradford & Co. advised and rendered a fairness opinion to Captec's
Independent Committee.
STOCK REPURCHASE PROGRAM
In a separate action, the Board of Directors passed a resolution authorizing the
repurchase of up to 500,000 shares of Captec's outstanding common stock. The
share repurchases are expected to be funded through a combination of currently
available cash and proceeds from property sales. The repurchases may be made
from time to time in the open market or in privately negotiated transactions at
the discretion of management. No minimum number or value of shares to be
repurchased has been fixed.
"We believe that our common stock, at recent levels, represents an excellent
buying opportunity, and we intend to acquire Captec shares from time to time
whenever doing so would be beneficial to our shareholders," said Beach.
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CAPTEC FINANCIAL GROUP
CFG, a privately owned commercial finance company, is one of the largest
providers of financing to the franchise industry. It currently manages more than
$1.3 billion of assets. CFG "banks" the franchise restaurant and retail
petroleum community by offering a broad array of financing products, including
mortgages and leasehold mortgages, business enterprise loans, construction loans
and equipment financing.
CAPTEC NET LEASE REALTY, INC.
Captec Net Lease Realty, Inc. is currently a real estate investment trust (REIT)
that invests in long-term net leased restaurant and retail properties. At
September 30, 1999, Captec owned and/or managed a diversified portfolio of 257
freestanding restaurant, retail and entertainment properties throughout the
United States with an average occupancy rate of 95 percent.
SAFE HARBOR STATEMENT
Statements in this press release, which are not strictly historical, are
"forward-looking" statements. Forward-looking statements involve known and
unknown risks, which may cause the company's actual results in the future to
differ materially from expected results. These risks include, among others,
general economic conditions; local real estate conditions; construction delays
or other delays; and the availability of capital to finance planned growth; the
ability of the company to achieve property disposition targets; competition
within the financial services and real estate markets; the ability of the
company to originate new investments; the ability of the company to maintain
developer/tenant relationships; possible financial difficulties of tenants,
creditors or loan customers resulting in defaulted loans or leases; fluctuations
in interest rates; and fluctuations in debt capital markets as described in the
company's filings with the Securities and Exchange Commission. Consequently,
such forward-looking statements should be regarded solely as reflections of the
company's current operating and development plans and estimates. Actual
operating results may differ materially from what is expressed or forecast in
this press release.
FOR MORE INFORMATION ABOUT CAPTEC TOLL-FREE VIA FAX, DIAL 1-800-PRO-INFO
(1-800-776-4636), FOLLOW THE VOICE MENU PROMPTS AND ENTER THE
COMPANY CODE "CRRR" (2777) ON ANY TOUCH TONE PHONE.
VISIT THE CAPTEC WEB SITE AT: WWW.CAPTEC.COM
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