<PAGE> 1
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1999
------------------
OR
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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
--------
(State or other jurisdiction of incorporation or organization)
38-3304095
----------
(IRS Employer 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, including zip code)
(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 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>
ITEM NO. PAGE
-------- ----
<S> <C> <C>
PART I FINANCIAL INFORMATION
Item 1. Financial Statements:
Balance Sheet, September 30, 1999 and December 31, 1998 3
Statement of Operations for the three and nine months
ended September 30, 1999 and 1998 4
Statement of Changes in Partners' Capital for the nine months
ended September 30, 1999 5
Statement of Cash Flows for the nine months
ended September 30, 1999 and 1998 6
Notes to Financial Statements 7 - 8
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 9 - 10
PART II OTHER INFORMATION
Other Information 11 - 12
SIGNATURES 13
</TABLE>
2
<PAGE> 3
CAPTEC FRANCHISE CAPITAL PARTNERS L.P. IV
BALANCE SHEET
<TABLE>
<CAPTION>
(Unaudited)
SEPTEMBER 30, DECEMBER 31,
1999 1998
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 794,703 $ 1,902,158
Restricted cash 171,749 988,189
Investment in property under leases:
Operating leases, net 25,296,573 21,433,864
Financing leases, net 7,736,123 7,507,457
Accounts receivable 45,647 130,234
Unbilled rent, net 305,459 128,842
Due from related parties 15,323 175,617
Deferred financing costs, net 544,315 393,230
------------- -------------
Total assets $ 34,909,892 $ 32,659,591
============= =============
LIABILITIES & PARTNERS' CAPITAL
Liabilities:
Accounts payable and accrued expenses $ 119,787 $ 46,701
Due to related parties 8,320 249,709
Notes payable 9,651,000 6,375,000
------------- -------------
Total liabilities 9,779,107 6,671,410
------------- -------------
Partners' capital:
Limited partners' capital accounts 25,144,041 25,964,614
General partner's capital accounts (13,256) 23,567
------------- -------------
Total partners' capital 25,130,785 25,988,181
------------- -------------
Total liabilities & partners' capital $ 34,909,892 $ 32,659,591
============= =============
</TABLE>
The accompanying notes are an integral part of the financial statements.
3
<PAGE> 4
CAPTEC FRANCHISE CAPITAL PARTNERS L.P. IV
STATEMENT OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30, September 30,
--------------------- ---------------------
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Operating revenue:
Rental income $ 719,665 $ 376,664 $1,968,676 $ 754,095
Finance income 202,353 169,512 613,755 385,379
Interest and other income 2,887 65,181 28,595 246,019
---------- ---------- ---------- ----------
Total revenue 924,905 611,357 2,611,026 1,385,493
---------- ---------- ---------- ----------
Operating costs and expenses:
Depreciation 89,696 40,955 237,738 80,484
General and administrative 25,049 12,399 88,047 58,261
Amortization of debt issuance costs 14,679 -- 44,134 --
Interest expense 199,187 -- 529,493 --
---------- ---------- ---------- ----------
Total costs and expenses 328,611 53,354 899,412 138,745
---------- ---------- ---------- ----------
Net income 596,294 558,003 1,711,614 1,246,748
Net income allocable to general partner 5,963 5,580 17,116 12,467
---------- ---------- ---------- ----------
Net income allocable to limited partners $ 590,331 $ 552,423 $1,694,498 $1,234,281
========== ========== ========== ==========
Net income per limited partnership unit $ 19.68 $ 19.51 $ 56.49 $ 53.49
========== ========== ========== ==========
Weighted average number of limited partnership
units outstanding 29,997 28,318 29,999 23,074
</TABLE>
The accompanying notes are an integral part of the financial statements.
4
<PAGE> 5
CAPTEC FRANCHISE CAPITAL PARTNERS L.P. IV
STATEMENT OF CHANGES IN PARTNERS' CAPITAL
for the nine months ended September 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 - ($83.76 per unit) -- (2,512,500) (53,939) (2,566,439)
Repurchase of limited partnership units (3) (2,571) (2,571)
Net income -- 1,694,498 17,116 1,711,614
------ ------------ ------------ ------------
Balance, September 30, 1999 29,997 $ 25,144,041 $ (13,256) $ 25,130,785
====== ============ ============ ============
</TABLE>
The accompanying notes are an integral part of the financial statements.
5
<PAGE> 6
CAPTEC FRANCHISE CAPITAL PARTNERS L.P. IV
STATEMENT OF CASH FLOWS
for the nine months ended September 30, 1999 and 1998
(Unaudited)
<TABLE>
<CAPTION>
1999 1998
<S> <C> <C>
Cash flows from operating activities:
Net Income $ 1,711,614 $ 1,246,748
Adjustments to net income:
Depreciation 237,738 80,484
Amortization of debt issuance costs 44,134 --
Increase in unbilled rent (176,617) (66,588)
Decrease in accounts receivable 84,587 2,059
Increase (decrease) in accounts payable and accrued expenses 73,086 (38,003)
Decrease (increase) in due from related parties 160,294 (427,308)
Decrease in due to related parties (241,389) (48,934)
Decrease in restricted cash 816,440 --
------------ ------------
Net cash provided by operating activities 2,709,887 748,458
------------ ------------
Cash flows from investing activities:
Purchase and construction advances for properties
subject to operating leases (4,100,447) (10,891,985)
Purchase of equipment and real estate subject to financing leases (1,131,619) (5,454,039)
Principal collections on financing leases 902,953 506,041
------------ ------------
Net cash used in investing activities (4,329,113) (15,839,983)
------------ ------------
Cash flows from financing activities:
Proceeds from issuance of notes payable 3,276,000 --
Debt issuance costs (195,219) --
Issuance of limited partnership units -- 14,160,652
Offering costs -- (1,824,672)
Repurchase of limited partnership units (2,571) --
Distributions to limited partners (2,512,500) (1,369,001)
Distributions to general partner (53,939) --
------------ ------------
Net cash provided by financing activities 511,771 10,966,979
------------ ------------
Net (decrease) in cash and cash equivalents (1,107,455) (4,124,546)
Cash and cash equivalents, beginning of period 1,902,158 5,008,194
------------ ------------
Cash and cash equivalents, end of period $ 794,703 $ 883,648
============ ============
</TABLE>
The accompanying notes are an integral part of the financial statements.
6
<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 of the Partnership 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 September 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 September 30, 1999 and the
statements of operations and cash flows for the period ending September 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 for the
full year.
2. LAND AND BUILDING SUBJECT TO OPERATING LEASES:
The net investment in operating leases as of September 30, 1999 is
comprised of the following:
<TABLE>
<S> <C>
Land $ 10,952,550
Building and improvements 14,726,823
------------
25,679,373
Less accumulated depreciation (382,800)
------------
Total $ 25,296,573
============
</TABLE>
7
<PAGE> 8
CAPTEC FRANCHISE CAPITAL PARTNERS L.P. IV
NOTES TO FINANCIAL STATEMENTS
3. NET INVESTMENT IN FINANCING LEASES:
The net investment in financing leases as of September 30, 1999 is
comprised of the following:
<TABLE>
<S> <C>
Minimum lease payments to be received $ 10,738,076
Estimated residual value 232,697
------------
Gross investment in financing leases 10,970,773
Less unearned income (3,234,650)
------------
Net investment in financing leases $ 7,736,123
============
</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 $588,500 in aggregate were incurred in
connection with the issuance of the notes, and are being amortized using
the straight-line method over the 10-year term.
8
<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 Offering
reached final funding in December, 1998 with subscriptions for the entire
offering of 30,000 Units. Net proceeds after offering expenses were
approximately $26.1 million.
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 a 10-year term, are collaterized by certain properties subject to operating
leases, and bear interest at rates ranging from 8.13 to 8.5% per annum.
During the nine months ended September 30, 1999, the Partnership purchased two
real estate properties and completed the funding of five properties under
construction. The Partnership acquired the properties subject to real estate
leases at a total cost of approximately $7.6 million. One real estate property,
acquired for approximately $1.1 million, is accounted for as a direct finance
lease.
At September 30, 1999 the Partnership had a portfolio of 20 properties located
in 10 states, with a cost of $26.8 million, and 24 equipment leases with an
original investment of $8.5 million. As of September 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
properties and equipment leases require the lessees to pay all taxes and
assessments, maintenance and repair items (except, with respect to double net
properties, costs associated with 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.
9
<PAGE> 10
CAPTEC FRANCHISE CAPITAL PARTNERS L.P. IV
PART I - FINANCIAL INFORMATION
RESULTS OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 1999. During the three months ended September
30, 1999 (the "Quarter") total revenue increased 51% to $925,000 as compared to
$611,000 for the three months ended September 30, 1998 (the "1998 Quarter").
Rental revenue from operating leases for the Quarter increased 91% to $720,000
as compared to $377,000 for the 1998 Quarter primarily from the benefit of a
full period of rental revenue from properties acquired and leased in preceding
periods. Earned income from financing leases for the Quarter increased 20% to
$202,000 as compared to $169,000 for the 1998 Quarter primarily as a result of
the acquisition of a real estate property accounted for as a direct financing
lease. Interest and other income for the Quarter decreased 95% to $3,000 as
compared to $65,000 for the 1998 Quarter as a result of idle funds being
invested in properties and equipment and no longer earning interest.
Operating expenses were approximately $329,000 for the Quarter as compared to
$53,000 for the 1998 Quarter. Total operating expenses for the Quarter is
comprised of $90,000 of depreciation expense, $25,000 of general and
administrative expenses, $15,000 of amortization costs, and $199,000 of interest
expense. The increase in operating expenses for the Quarter as compared to the
1998 Quarter is due to interest expense and amortization related to the debt
financing and increased depreciation expense for new property acquisitions.
As a result of the foregoing, the Partnership's net income increased 7% to
$596,000 for the Quarter as compared to $558,000 for the 1998 Quarter.
NINE MONTHS ENDED SEPTEMBER 30, 1999. During the nine months ended September 30,
1999 ("1999") total revenue increased 89% to $2,611,000 as compared to
$1,385,000 for the nine months ended September 30, 1998 ("1998"). Rental revenue
from operating leases for 1999 increased 161% to $1,969,000 as compared to
$754,000 for 1998. Earned income from financing leases for 1999 increased 59% to
$614,000 as compared to $385,000 for 1998. The increase in revenues in 1999
resulted from the acquisition of approximately $5.2 million of properties during
the past 12 months and the benefit of a full period of revenue from properties
acquired and leased in preceding periods. Interest and other income for 1999
decreased 89% to $28,000 as compared to $246,000 for 1998 as a result of idle
funds being invested in properties and equipment and no longer earning interest.
Operating expenses were approximately $899,000 for 1999 as compared to $139,000
for 1998. Total operating expenses for 1999 is comprised of $238,000 of
depreciation expense, $88,000 of general and administrative expenses, $44,000 of
amortization costs, and $529,000 of interest expense. The increase in operating
expenses for 1999 as compared to 1998 is primarily due to interest expense and
amortization related to the debt financing and increased depreciation expense
for new property acquisitions.
As a result of the foregoing, the Partnership's net income increased 37% to
$1,712,000 for 1999 as compared to $1,247,000 for 1998.
DISTRIBUTIONS. The Partnership announced third quarter distributions of
$900,000, of which $781,368 was distributed to its Limited Partners on October
15, 1999 and the remaining $118,632 will be distributed to those limited
partners who elected to receive distributions on a monthly basis.
10
<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.
11
<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:
<TABLE>
<CAPTION>
Number Exhibit
------ -------
<S> <C>
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, SEC 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. SEC File No. 333-9371)
(b) Reports on Form 8-K:
</TABLE>
There were no reports filed on Form 8-K for the third quarter ended September
30, 1999.
12
<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: November 15, 1999
13
<PAGE> 14
Exhibit Index
------------
<TABLE>
<CAPTION>
Exhibit No. Description
- ----------- -----------
<S> <C>
27 Financial Data Schedule
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 966,452
<SECURITIES> 0
<RECEIVABLES> 60,970
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1,027,422
<PP&E> 33,415,496
<DEPRECIATION> (382,800)
<TOTAL-ASSETS> 34,909,892
<CURRENT-LIABILITIES> 128,107
<BONDS> 9,651,000
0
0
<COMMON> 0
<OTHER-SE> 25,130,785
<TOTAL-LIABILITY-AND-EQUITY> 34,909,892
<SALES> 0
<TOTAL-REVENUES> 2,611,026
<CGS> 0
<TOTAL-COSTS> 369,919
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 529,493
<INCOME-PRETAX> 1,711,614
<INCOME-TAX> 0
<INCOME-CONTINUING> 1,711,614
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,711,614
<EPS-BASIC> 0
<EPS-DILUTED> 0
</TABLE>
