<PAGE> 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 JUNE 30, 1999
-------------------------------------------------
OR
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15 (d) OF THE
EXCHANGE ACT
FOR THE TRANSITION PERIOD FROM TO
------------------- ----------------------------
COMMISSION FILE NUMBER: 333-9371
---------------------------------------------------------
Captec Franchise Capital Partners L.P. IV
- --------------------------------------------------------------------------------
(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
- --------------------------------------------------------------------------------
(Address of principal executive offices)
(734) 994-5505
- --------------------------------------------------------------------------------
(Issuer's telephone number)
Not Applicable
- --------------------------------------------------------------------------------
(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
<PAGE> 2
CAPTEC FRANCHISE CAPITAL PARTNERS L.P. IV
INDEX TO FORM 10-Q
<TABLE>
<CAPTION>
PART I FINANCIAL INFORMATION Page
<S> <C>
Item 1. Balance Sheet, June 30, 1999 and December 31,1998......................................1
Statement of Operations for the three and six months
ended June 30, 1999 and 1998...........................................................2
Statement of Changes in Partners' Capital for the six months
ended June 30, 1999 ...................................................................3
Statement of Cash Flows for the six months
ended June 30, 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
</TABLE>
i
<PAGE> 3
CAPTEC FRANCHISE CAPITAL PARTNERS L.P. IV
BALANCE SHEET
<TABLE>
<CAPTION>
(Unaudited)
June 30, December 31,
1999 1998
Assets
<S> <C> <C>
Cash and cash equivalents $ 1,298,964 $ 1,902,158
Restricted cash 145,918 988,189
Investment in property under leases:
Operating leases, net 25,093,249 21,433,864
Financing leases, net 8,039,464 7,507,457
Accounts receivable 59,884 130,234
Unbilled rent, net 232,675 128,842
Due from related parties 15,323 175,617
Deferred financing costs, net 559,633 393,230
------------ -----------
Total assets $ 35,445,110 $32,659,591
============ ===========
Liabilities & Partners' Capital
Liabilities:
Accounts payable and accrued expenses $ 153,655 $ 46,701
Due to related parties 207,815 249,709
Notes payable 9,651,000 6,375,000
------------ -----------
Total liabilities 10,012,470 6,671,410
------------ -----------
Partners' capital:
Limited partners' capital accounts 25,433,711 25,964,614
General partner's capital accounts (1,071) 23,567
------------ -----------
Total partners' capital 25,432,640 25,988,181
------------ -----------
Total liabilities & partners' capital $ 35,445,110 $32,659,591
============ ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
1
<PAGE> 4
CAPTEC FRANCHISE CAPITAL PARTNERS L.P. IV
STATEMENT OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Three months ended Six months ended
June 30, June 30,
------------------------ --------------------------
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Operating revenue:
Rental income $643,151 $199,649 $1,249,011 $377,432
Finance income 210,587 125,545 411,402 215,867
-------- -------- ---------- --------
Total operating revenue 853,738 325,194 1,660,413 593,299
-------- -------- ---------- --------
Operating costs and expenses:
Depreciation 75,432 19,764 148,043 39,528
General and administrative 43,322 18,093 62,998 45,862
Amortization of debt issuance costs 15,333 - 29,454 -
Interest expense 199,187 - 330,306 -
-------- -------- ---------- --------
Total operating costs and expenses 333,274 37,857 570,801 85,390
-------- -------- ---------- --------
Income from operations 520,464 287,337 1,089,612 507,909
-------- -------- ---------- --------
Other income:
Interest income 20,448 100,985 23,280 180,804
Other 1,452 35 2,428 35
-------- -------- ---------- --------
Total other income 21,900 101,020 25,708 180,839
-------- -------- ---------- --------
Net income 542,364 388,357 1,115,320 688,748
Net income allocable to general partner 5,424 3,884 11,153 6,887
-------- -------- ---------- --------
Net income allocable to limited partners $536,940 $384,473 $1,104,167 $681,861
-------- -------- ---------- --------
Net income per limited partnership unit $ 17.90 $ 16.51 $ 36.81 $ 33.40
======== ======== ========== ========
Weighted average number of limited partnership
units outstanding 29,997 23,282 29,999 20,413
</TABLE>
The accompanying notes are an integral part of the financial statements.
2
<PAGE> 5
CAPTEC FRANCHISE CAPITAL PARTNERS L.P. IV
STATEMENT OF CHANGES IN PARTNERS' CAPITAL
for the six months ended June 30, 1999
(Unaudited)
<TABLE>
<CAPTION>
Limited Limited General Total
Partners' Partners' Partner's Partners'
Units Accounts Accounts Capital
-------- --------- --------- ---------
<S> <C> <C> <C> <C>
Balance, December 31, 1998 30,000 25,964,614 23,567 25,988,181
Distributions - ($54.42 per unit) - (1,632,499) (35,791) (1,668,290)
Repurchase of limited partnership units (3) (2,571) (2,571)
Net income - 1,104,167 11,153 1,115,320
------- ------------ -------- ------------
Balance, June 30, 1999 29,997 $ 25,433,711 $ (1,071) $ 25,432,640
======= ============ ======== ============
</TABLE>
The accompanying notes are an integral part of the financial statements.
3
<PAGE> 6
CAPTEC FRANCHISE CAPITAL PARTNERS L.P. IV
STATEMENT OF CASH FLOWS
for the six months ended June 30, 1999 and 1998
(Unaudited)
<TABLE>
<CAPTION>
1999 1998
<S> <C> <C>
Cash flows from operating activities:
Net Income $ 1,115,320 $ 688,748
Adjustments to net income:
Depreciation 148,043 39,528
Amortization of debt issuance costs 29,454 -
Increase in unbilled rent (103,833) (26,835)
Decrease (increase) in accounts receivable 70,350 (7,901)
Increase (decrease) in accounts payable and accrued expenses 106,954 (12,780)
----------- ------------
Net cash provided by operating activities 1,366,288 680,760
----------- ------------
Cash flows from investing activities:
Purchase and construction advances for properties
subject to operating leases (3,807,428) (6,535,831)
Purchase of equipment and real estate subject to financing leases (1,131,619) (2,921,877)
Principal collections on financing leases 599,612 288,970
----------- ------------
Net cash used in investing activities (4,339,435) (9,168,738)
----------- ------------
Cash flows from financing activities:
Decrease (increase) in due from related parties 160,294 (63,443)
(Decrease) Increase in due to related parties (41,894) 32,323
Proceeds from issuance of notes payable 3,276,000 -
Debt issuance costs (195,857) -
Issuance of limited partnership units - 10,939,743
Offering costs - (1,411,444)
Repurchase of limited partnership units (2,571) -
Distributions to limited partners (1,632,499) (787,001)
Distributions to general partner (35,791) -
Decrease in restricted cash 842,271 -
----------- ------------
Net cash provided by financing activities 2,369,953 8,710,178
----------- ------------
Net (decrease) increase in cash and cash equivalents (603,194) 222,200
Cash and cash equivalents, beginning of period 1,902,158 5,008,194
----------- ------------
Cash and cash equivalents, end of period $ 1,298,964 $ 5,230,394
=========== ============
</TABLE>
The accompanying notes are an integral part of the financial statements.
4
<PAGE> 7
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 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. The Partnership completed
the sale of all 30,000 Units in 1998. On April 1, 1999 the Partnership
repurchased a total of 2.86 Units for $2,570.64, or 90% of the investor's
capital account, pursuant to the terms of the Repurchase Plan set forth
in the Partnership's Prospectus. At June 30, 1999, the Partnership had
29,997 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, 1999 and the
statements of operations and cash flows for the period ending June 30,
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.
5
<PAGE> 8
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 June 30, 1999 is comprised
of the following:
<TABLE>
<S> <C>
Land $ 9,924,600
Building and improvements 12,277,530
Construction draws on properties 3,184,223
------------
25,386,353
Less accumulated depreciation (293,104)
------------
Total $ 25,093,249
============
</TABLE>
3. NET INVESTMENT IN FINANCING LEASES:
The net investment in financing leases as of June 30, 1999 is comprised
of the following:
<TABLE>
<S> <C>
Minimum lease payments to be received $ 11,241,568
Estimated residual value 232,697
------------
Gross investment in financing leases 11,474,265
Less unearned income (3,434,801)
------------
Net investment in financing leases $ 8,039,464
============
</TABLE>
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 $589,087 in aggregate were incurred
in connection with the issuance of the notes, and are being amortized
using the straight-line method to interest expense over the 10 year term.
6
<PAGE> 9
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 June 30, 1999 the partnership has
invested approximately $26.5 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.
7
<PAGE> 10
CAPTEC FRANCHISE CAPITAL PARTNERS L.P. IV
PART I - FINANCIAL INFORMATION
During the six months ending June 30, 1999, the Partnership purchased
two real estate properties and completed the funding of three properties under
construction at December 31, 1998. The Partnership also funded two real estate
properties presently under construction. The Partnership acquired the properties
subject to real estate leases at a total cost of approximately $2.8 million, and
funded approximately $2.1 million to complete the properties under construction.
One real estate property, acquired for approximately $1.1 million, is accounted
for as a direct finance lease. The Partnership has remaining commitments of
approximately $290,000 to complete the construction properties. As of June 30,
1999 the Partnership's investments were allocated approximately 76% to
properties and 24% to equipment.
The Partnership expects to require limited amounts of liquid assets
since the property and equipment leases require the 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 six months ended June 30, 1999, the Partnership earned revenues
of approximately $1,686,000 as compared to $774,000 for the six months ended
June 30, 1998. Total revenue for the period ended June 30, 1999 is comprised of
$1,249,000 of rental income, $411,000 of equipment lease finance income, $23,000
of interest income, and $3,000 of other 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 six months ended June 30, 1999, the Partnership incurred
expenses of approximately $571,000 as compared to $85,000 for the six months
ended June 30, 1998. Total expenses for the period ended June 30, 1999 is
comprised of $148,000 of depreciation expense, $63,000 of general and
administrative expenses, $30,000 of amortization costs, and $330,000 of interest
expense.
As a result of the above the Partnership earned net income of
approximately $1,115,000 for the six months ended June 30, 1999.
DISTRIBUTIONS.
The Partnership declared second quarter distributions totaling
$880,000, of which $705,419 was distributed to its limited partners on July 15,
1999 and the remaining $174,581 will be distributed to those limited partners
who elected to receive distributions on a monthly basis.
8
<PAGE> 11
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
9
<PAGE> 12
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
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.
(Incorporated by reference to the corresponding
exhibit in the Registrant's Form 10-Q for the quarter
ended March 31, 1999)
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 second quarter ended
June 30, 1999.
10
<PAGE> 13
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: August 13, 1999
11
<PAGE> 14
Exhibit Index
Exhibit No. Description
- ----------- -----------
27 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> APR-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 1,444,882
<SECURITIES> 0
<RECEIVABLES> 307,882
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1,752,764
<PP&E> 33,425,817
<DEPRECIATION> (293,104)
<TOTAL-ASSETS> 35,445,110
<CURRENT-LIABILITIES> 361,470
<BONDS> 9,651,000
0
0
<COMMON> 0
<OTHER-SE> 25,432,640
<TOTAL-LIABILITY-AND-EQUITY> 35,445,110
<SALES> 853,738
<TOTAL-REVENUES> 875,638
<CGS> 0
<TOTAL-COSTS> 134,087
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 199,187
<INCOME-PRETAX> 542,364
<INCOME-TAX> 0
<INCOME-CONTINUING> 542,364
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 542,364
<EPS-BASIC> 0
<EPS-DILUTED> 0
</TABLE>
