<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15 (d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) October 14, 1997
--------------------------------
CAPTEC FRANCHISE CAPITAL PARTNERS L.P. IV
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
DELAWARE 333-9371 38-3304095
- --------------------------------------------------------------------------------------------------------
(State or other jurisdiction of incorporation) (Commission File No.) (IRS Employer Identification No.)
</TABLE>
24 FRANK LLOYD WRIGHT DR. , P.O. BOX 544, ANN ARBOR, MI 48106
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (313) 994-5505
- --------------------------------------------------------------------------------
(800) 522-7832
- --------------
Not Applicable
- --------------------------------------------------------------------------------
(Former name or former address, if changed since last report)
This document contains 5 pages. There are no exhibits attached hereto.
<PAGE> 2
Item 2. Acquisition of Assets
Capitalized terms not otherwise defined herein shall have the same meaning
as in the prospectus of Captec Franchise Capital Partners L.P. IV (the
"Partnership") dated December 23, 1997, as supplemented to date (the
"Prospectus").
On October 14, 1997, the Partnership acquired the land and 7,488 square
foot building comprising a Hollywood Video located at 1491 Main Street,
Hamilton, Ohio. (the "Hollywood Video Property"). The Hollywood Video Property
was constructed for its present use in 1997 and was fully operational at the
time of the purchase. The Hollywood Video Property was purchased from Blue
Freedom Holdings, LLC, a Kentucky limited liability company and leased to
Hollywood Entertainment Corporation, an Oregon corporation ("Hollywood
Entertainment"). The headquarter offices of Hollywood Entertainment are
located at 25600 S.W. Parkway Center Drive, Wilsonville, Oregon. The
Partnership purchased a fee simple interest in the Hollywood Video Property for
a purchase price of $1,386,000 which was negotiated by an affiliate of the
Managing General Partner who considered factors such as the potential value of
the site, the financial condition and business and operating history of
Hollywood Entertainment and demographic data for the area in which the
Hollywood Video Property is located. The purchase price for the Hollywood
Video Property is supported by an independent MAI appraisal. The Partnership
purchased the Hollywood Video Property with cash from offering proceeds. It is
anticipated that the Hollywood Video Property will be leveraged as provided for
in the Prospectus, however, the Partnership presently does not have a financing
commitment.
The Partnership purchased the property subject to a lease between Blue
Freedom Holdings, LLC and Hollywood Entertainment which commenced on July 24,
1997 (the "Hollywood Video Lease"). The Hollywood Video Lease is an absolute
net lease, whereby Hollywood Entertainment is responsible for all expenses
related to the Hollywood Video Property including real estate taxes, insurance,
maintenance and repair costs. The Hollywood Video Lease term expires on July
30, 2012 with three renewal options of five years each. The initial annual
rent is equal to eleven percent (11%) of the purchase price and will be payable
in monthly installments on the first day of each month. Thus, based on the
purchase price of $1,386,000 the rent in the first year of the Hollywood Video
Lease is $152,418 per year, or $12,701.50 per month. The annual rent shall be
adjusted on the first day of the sixty-first month and every sixty months
thereafter by the lesser of the Percentage CPI Increase, as defined in the
Hollywood Video Lease or ten percent (10%).
An Affiliate of the Managing General Partner analyzed demographic,
geographic and market diversification data for the area in which the Hollywood
Video Property is located and reviewed the appraisal of the Hollywood Video
Property and the analysis regarding comparable properties contained therein.
Based upon the foregoing, the General Partners are unaware of any unfavorable
competitive conditions regarding the Hollywood Video Property. The General
Partners believe that the amount of insurance carried by Hollywood
Entertainment is adequate.
The current annual rent per square foot for the Hollywood Video Property
is $20.35 per square foot. The depreciable basis of the Hollywood Video
Property for federal tax purposes is $811,000 and it will be depreciated using
the straight line method over 39 years, a rate of $20,795 per year.
An affiliate of the Managing General Partner has received an Acquisition
Fee from the Partnership in an amount equal to $55,440 and expects to receive an
additional fee of $13,860 from the Partnership after leveraging the Property, as
provided for in the Prospectus. These fees are being paid for services rendered
in connection with the selection, evaluation and acquisition of the Hollywood
Video Property, as provided for in the Partnership Agreement. In addition,
Hollywood Entertainment has paid to the same affiliate a commitment fee equal to
$13,860 as provided for in the Partnership Agreement. The Tenant also paid all
of the expenses incident to the closing of the
2
<PAGE> 3
transaction contemplated by this commitment including, without
limitation, title insurance premiums, recording fees and expenses and transfer
taxes.
The Hollywood Video Lease contains material default provisions that
include, but are not limited to: (i) the vacating or abandonment of the
Hollywood Video Property by Hollywood Entertainment; (ii) the failure by
Hollywood Entertainment to make any payment due under the Hollywood Video
Lease; (iii) the failure by Hollywood Entertainment to observe or perform any
of the covenants, conditions, or provisions of the Hollywood Video Lease; and
(iv) the making by Hollywood Entertainment of any general arrangement or
general assignment for the benefit of creditors. In the event of a material
default by Hollywood Entertainment, the Hollywood Video Lease contains remedy
provisions which are summarized as follows: (i) the Partnership may terminate
the Hollywood Video Lease and take possession of the Hollywood Video Property,
in which case the Partnership would be entitled to damages incurred by reason
of the material default; (ii) the Partnership may maintain Hollywood
Entertainment's right to possession of the Hollywood Video Property, in which
case the Hollywood Video Lease would continue to be in effect; or (iii) the
Partnership may pursue any other legal remedy available.
Item 7. Financial Statements and Exhibits
(b) Pro forma financial information.
FORCASTED STATEMENT OF TAXABLE OPERATING RESULTS
FOR THE TWELVE MONTH PERIOD ENDING OCTOBER 30, 1998
(unaudited)
<TABLE>
<CAPTION>
12 Months
---------
<S> <C>
Revenue:
Base rent $152,418
Expenses:
Asset management fee 1,524
--------
Operating Cash Flow 150,894
Less:
Depreciation 20,795
--------
Net taxable operating Income $130,099
========
</TABLE>
NOTES TO FORECASTED STATEMENT OF TAXABLE OPERATING RESULTS
FOR THE TWELVE MONTH PERIOD ENDING OCTOBER 31, 1998
1. Rental Revenue
Projected revenue is based upon monthly rent of $12,701.50 as stated in
the Hollywood Video Lease.
2. Operating Expense
3
<PAGE> 4
The Hollywood Video Property will be leased under an absolute net lease
whereby Hollywood Entertainment is obligated to pay all expenses related
to the Hollywood Video Property including taxes, insurance, maintenance
and repair costs. The Partnership will not be responsible for operating
expenses attendant to the ownership of the Hollywood Video Property,
except for asset management fees.
3. Asset Management Fee Expense
An asset management fee is payable to an affiliate of the Managing General
Partner in an amount equal to 1% of rental revenue. Payment of such fee
is subordinated to receipt by the Limited Partners of their 10% Current
Preferred Return.
4. Depreciation
The Hollywood Video Property will be depreciated using the straight line
method over 39 years. The depreciable basis of the Hollywood Video
Property for federal tax purposed is $811,000.
4
<PAGE> 5
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 IV
Managing General Partner of
Captec Franchise Capital Partners L.P. IV
By: /s/ W. Ross Martin
-----------------------------------------
W. Ross Martin
Chief Financial Officer and Sr. Vice
President,
a duly authorized officer
Date: October 16, 1997
5
