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U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
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FORM 10-K
(MARK ONE)
[X] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 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)
<TABLE>
<S> <C>
DELAWARE 38-3304095
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
24 FRANK LLOYD WRIGHT DRIVE, LOBBY L, 4TH
FLOOR,
P.O. BOX 544, ANN ARBOR, MICHIGAN 48106-0544
(Address of principal executive offices) (Zip Code)
</TABLE>
Issuer's telephone number, including area code:
(734) 994-5505
<TABLE>
<S> <C>
Securities registered under Section 12(b) of the Exchange
Act: None
Securities registered under Section 12(g) of the Exchange
Act: None
(Title of Class)
</TABLE>
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 such
filing requirements for the past 90 days.
Yes ___ No _____
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
At December 31, 1999 subscriptions for 30,000 units of limited partnership
interest (the "Units") had been accepted, representing an aggregate amount of
$30,000,000. The aggregate sales price does not reflect market value and it
reflects only the price at which the Units were offered to the public.
Currently, there is no market for the Units and no market is expected to
develop.
DOCUMENTS INCORPORATED BY REFERENCE
A portion of the Prospectus of the Registrant dated December 23, 1996, as
supplemented and filed pursuant to Rule 424(b) under the Securities Act of 1933,
as amended, S.E.C. File No. 333-9371, and is incorporated by reference in Parts
I and III of this Annual Report on Form 10-K.
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<PAGE> 2
PART I
ITEM 1. BUSINESS
Captec Franchise Capital Partners L.P. IV (the "Partnership") is a Delaware
limited partnership formed on July 23, 1996 for the purpose of acquiring
income-producing commercial real properties and equipment which are 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 pursuant to leases requiring the lessee to pay all taxes,
assessments, utilities, insurance, maintenance, and repair costs associated with
such properties or leases differing only in that the Partnership is responsible
for the maintenance of the exterior walls and roof of the property. The
Partnership also acquires properties that are leased to prominent national and
regional retail concerns. The general partners upon formation of the Partnership
were Captec Franchise Capital Corporation IV ("Captec") and Patrick L. Beach, an
individual. In August, 1998, the general partnership interest in the Partnership
was acquired by Captec Net Lease Realty, Inc. ("Captec Net Lease"), an affiliate
of Captec, for $2,912,000. Captec Net Lease, Captec, and Mr. Beach are
collectively referred to as the "General Partners."
The Partnership commenced a public offering (the "Offering") of up to
30,000 units of limited partnership interest (the "Units") registered under the
Securities Act of 1933, as amended, by means of a Registration Statement on Form
S-11 which was declared effective by the Securities and Exchange Commission on
December 23, 1996. Capitalized terms not defined herein shall have the meaning
ascribed to them in the Partnership's Prospectus dated December 23, 1996.
Through December 31, 1998, the Partnership had accepted subscriptions for the
entire offering of 30,000 Units from 1,587 investors. During April 1999 the
Partnership repurchased a total of 3 Units for $2,571, or 90% of the investor's
capital account. An additional 114 Units were repurchased on October 1, 1999 for
$102,828, or 90% of the investor's capital account. The repurchase of the Units
was completed pursuant to the terms of the Repurchase Plan set forth in the
Partnership's Prospectus. At December 31, 1999, the Partnership had 29,883 Units
issued and outstanding.
The principal investment objectives of the Partnership are: (i)
preservation and protection of capital; (ii) distribution of cash flow generated
by the Partnership's leases; (iii) capital appreciation of Partnership
properties; (iv) generation of increased income and protection against inflation
through escalation of base rents or participation in gross revenues of lessees
of Partnership properties; and (v) deferred taxation of Partnership cash
distributions for Limited Partners.
The Partnership expects to have not less than 75%, but not more than 90% of
total investments in properties and up to 25%, but not less than 10% in
equipment. The Partnership does not intend to have more than 25% of properties
to be leased to retail concerns. The properties generally will be leased on
terms which provide for a base minimum annual rent with fixed increases on
specific dates or indexation of rent to indices such as the Consumer Price
Index. The equipment will be leased only pursuant to leases under which the
present value of non-cancelable rental payments payable during the initial term
of the lease is at least sufficient to permit a lessor to recover the purchase
price of the equipment.
The Partnership has no employees. The General Partners and their
affiliates, however, are permitted to perform services for the Partnership.
ITEM 2. DESCRIPTION OF PROPERTIES
As of December 31, 1999, the Partnership had a portfolio of 20 properties
located in 10 states, with a cost basis of $26.8 million and 24 equipment leases
with an original investment of $8.5 million. The properties are leased to 10
operators of restaurant concepts and three retail operators.
As of December 31, 1999, leases to S&A Restaurants Corporation, Kona
Restaurant Group, Inc. and Hollywood Entertainment Corp. represented 23.5%,
21.1% and 11.7% of the annualized rent from the properties, respectively.
Equipment leases to Champps Americana, Inc. represented 23.1% of the annualized
rent from the equipment. Any failure of these leases could materially affect the
Partnership's income.
<PAGE> 3
All of the properties in the Partnership are performing at December 31,
1999. In October of 1998, Boston Chicken Inc. and the majority of its
subsidiaries filed for Chapter 11 bankruptcy protection. The Partnership has one
lease to a Boston Chicken franchisee who did file bankruptcy. This lease was
assumed under the bankruptcy court with slightly modified terms. Annualized rent
from this lease was $86,040 at December 31, 1999.
The following is a summary description of the property and equipment leases
as of December 31, 1999.
<TABLE>
<CAPTION>
TOTAL ASSET
COST
INCLUDING DATE OF
DATE OF DATE OF ACQUISITION ASSET STATE MONTHLY NEXT RENT
LESSEE NAME CONCEPT NAME COMMENCE EXPIRATION FEES LOCATION RENT INCREASE
----------- ------------ -------- ---------- ----------- ----------- ------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
PROPERTIES
Finest Foodservice, LLC........ Boston Market 4/1/1997 4/1/2012 $ 1,012,200 CO $ 7,170 4/1/2002
Hollywood Entertainment
Corp......................... Hollywood Video 11/1/1997 7/1/2012 1,455,300 OH 12,702 7/1/2003(1)
Blockbuster Entertainment
Corp......................... Blockbuster Video 9/1/1997 8/1/2007 1,170,000 GA 9,831 8/1/2002
Kona Restaurant Group, Inc..... Carino's 8/1/1997 8/1/2014 1,680,000 TX 14,667 8/1/2000
Capital Foods, Inc............. Arby's 12/1/1998 12/1/2018 819,000 OH 7,495 12/1/2000
Taco Two of Bakersfield........ Del Taco 2/1/1999 2/1/2019 1,239,000 CA 10,571 2/1/2002
Kona Restaurant Group, Inc..... Kona Steakhouse 8/1/1999 8/1/2016 1,801,622 TX 15,728 8/1/2002
Kona Restaurant Group, Inc..... Johnny Carino's 8/1/1999 8/1/2016 1,675,622 TX 14,628 8/1/2002
Hollywood Entertainment
Corp......................... Hollywood Video 10/1/1998 11/1/2012 1,454,880 OH 12,268 10/1/2002(3)
S&A Restaurant Corporation..... Steak & Ale 7/1/1998 7/1/2018 2,100,000 MI 17,084 7/1/2002
S&A Restaurant Corporation..... Steak & Ale 7/1/1998 7/1/2018 2,441,250 PA 19,860 7/1/2002
S&A Restaurant Corporation..... Bennigan's 7/1/1998 7/1/2018 1,627,500 VA 13,240 7/1/2002
Slaymaker Group, Inc........... Wingers 3/1/1999 3/1/2019 941,850 AZ 8,036 3/1/2004
Slaymaker Group, Inc........... Wingers 2/1/1999 2/1/2019 948,150 AZ 8,089 2/1/2004
TEC Foods...................... Taco Bell 1/1/1999 1/1/2009 766,500 MI 6,235 1/1/2002
TEC Foods...................... Taco Bell 1/1/1999 1/1/2019 766,500 MI 6,235 1/1/2002
RTM, Inc....................... Arby's 9/1/1998 9/1/2018 840,000 MI 6,334 9/1/2001
Romacorp, Inc.................. Tony Roma's 1/1/1999 1/1/2014 1,942,500 TX 15,417 1/1/2002
DRM, Inc....................... Arby's 1/1/2000 1/1/2020 987,000 IA 8,029 1/1/2005
Sterling Jewelers, Inc......... Jared 2/1/1999 2/1/2019 1,131,620 TX 11,667 2/1/2004
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26,800,494
225,286
EQUIPMENT
J.M.C. Limited Partnership..... Applebee's 3/1/1997 3/1/2004 422,100 UT 6,838
DenAmerica Corp................ Black Eye Pea 4/15/1997 4/15/2004 367,500 TX 5,866
Shells Seafood Restaurants,
Inc.......................... Shells Seafood 6/1/1997 6/1/2002 124,591 FL 2,648
Shells Seafood Restaurants,
Inc.......................... Shells Seafood 6/1/1997 6/1/2002 98,133 FL 2,086
Champps Americana, Inc......... Champps 4/1/1998 4/1/2003 896,229 IL 17,651
Champps Americana, Inc......... Champps 7/1/1998 7/1/2003 1,089,914 MI 21,466
Corral South Store #4, Inc..... Golden Corral 6/15/1997 6/15/2002 531,508 FL 10,934
Girardi-Riva Enterprises,
Inc.......................... Arby's 2/1/1998 2/1/2005 252,269 WA 4,108
Girardi-Riva Enterprises,
Inc.......................... Arby's 7/1/1997 7/1/2004 167,445 WA 2,727
Morgan's Restaurants of PA,
Inc.......................... KFC 10/15/1997 10/15/2004 242,571 PA 3,766
Virginia QSC, LLC.............. Burger King 11/1/1997 11/1/2004 296,443 VA 4,862
BBI Acquisition Co............. Breck. Brewery 8/1/1997 8/1/2004 830,550 CO 13,605
J-Four, Inc.................... KFC 2/1/1998 2/1/2003 292,691 NY, NH, MA 5,882
GC of Charlottesville.......... Golden Corral 5/1/1998 5/1/2005 418,870 VA 6,439
Taco Two of Bakersfield........ Del Taco 1/1/1999 1/1/2006 319,528 CA 5,087
Circle Rest. Co., Inc.......... Arby's 10/1/1998 10/1/2003 98,425 CO 2,015
RTM Georgia.................... TJ Cinnamons 4/1/1998 4/1/2003 236,250 9 sites 4,590
RTMSC, Inc..................... TJ Cinnamons 4/1/1998 4/1/2003 210,000 8 sites 4,080
RTM, Inc....................... Arby's 10/1/1998 10/1/2003 73,446 AL 1,427
RTM, Inc....................... Arby's 10/1/1998 10/1/2003 74,327 GA 1,444
El Chico Restaurants, Inc...... El Chico 9/1/1998 9/1/2003 487,516 TX 9,797
El Chico Restaurants, Inc...... El Chico 9/1/1998 9/1/2003 436,688 TX 8,775
Cypress Rests. Inc............. Denny's 9/1/1998 9/1/2005 367,500 TX 5,537
DJ Enterprises, Inc............ Taco Bell 10/1/1998 7/1/2001 180,600 FL 5,831
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8,515,094
157,461
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$35,315,588
$382,747
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<CAPTION>
ANNUAL
RATE OF
INCREASE
LESSEE NAME (2) SQ. FT.
----------- -------- -------
<S> <C> <C>
PROPERTIES
Finest Foodservice, LLC........ 1.93% 3,035
Hollywood Entertainment
Corp......................... 1.92% 7,488
Blockbuster Entertainment
Corp......................... 2.29% 6,500
Kona Restaurant Group, Inc..... 1.64% 6,257
Capital Foods, Inc............. 2.50% 2,950
Taco Two of Bakersfield........ 1.32% 2,164
Kona Restaurant Group, Inc..... 1.63% 6,335
Kona Restaurant Group, Inc..... 1.63% 7,814
Hollywood Entertainment
Corp......................... n/a 7,488
S&A Restaurant Corporation..... 1.96% 7,724
S&A Restaurant Corporation..... 1.96% 7,239
S&A Restaurant Corporation..... 1.96% 5,210
Slaymaker Group, Inc........... 1.92% 3,172
Slaymaker Group, Inc........... 1.92% 3,240
TEC Foods...................... 0.66% 2,252
TEC Foods...................... 0.66% 2,269
RTM, Inc....................... 0.99% 5,909
Romacorp, Inc.................. 1.96% 6,385
DRM, Inc....................... 1.92% 3,094
Sterling Jewelers, Inc......... 1.92% 5,800
EQUIPMENT
J.M.C. Limited Partnership.....
DenAmerica Corp................
Shells Seafood Restaurants,
Inc..........................
Shells Seafood Restaurants,
Inc..........................
Champps Americana, Inc.........
Champps Americana, Inc.........
Corral South Store #4, Inc.....
Girardi-Riva Enterprises,
Inc..........................
Girardi-Riva Enterprises,
Inc..........................
Morgan's Restaurants of PA,
Inc..........................
Virginia QSC, LLC..............
BBI Acquisition Co.............
J-Four, Inc....................
GC of Charlottesville..........
Taco Two of Bakersfield........
Circle Rest. Co., Inc..........
RTM Georgia....................
RTMSC, Inc.....................
RTM, Inc.......................
RTM, Inc.......................
El Chico Restaurants, Inc......
El Chico Restaurants, Inc......
Cypress Rests. Inc.............
DJ Enterprises, Inc............
</TABLE>
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(1) Rent Increase equals the lesser of CPI or 10%.
(2) Rate of increase calculated on a compounded annual basis.
(3) Rent Increase is based on CPI increase.
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REAL ESTATE
General Real Estate Lease Provisions: All of the properties are subject to
leases which are triple net leases whereby the tenant is responsible for all
expenses related to the cost of operating the properties including real estate
taxes, insurance, maintenance and repair costs.
The General Partners or their affiliates analyzed demographic, geographic
and market diversification data for the areas in which each of the properties
are located and reviewed the appraisals of the properties and the analysis
regarding comparable properties contained therein. All of the purchase prices
were negotiated by General Partners or their affiliates, considering factors
such as the potential value of the site, the financial condition and business
and operating history of the tenants and demographic data for the areas in which
the properties are located.
The lessees generally pay all expenses incident to the closing of these
transactions including, the Partnership's attorney's fees, title insurance
premiums, recording fees and expenses and transfer.
EQUIPMENT
General Equipment Lease Provisions: All of the equipment leases are on the
Partnership's standard form of lease whereby the lessee is responsible for all
expenses related to the equipment including taxes, insurance, maintenance and
repair costs. Prior to entering into the leases, an affiliate of the General
Partner considered factors such as the financial condition and business and
operating history of the lessees and demographic data for the area in which the
equipment is located. All of the equipment was purchased with cash from offering
proceeds. The General Partner believes that the amount of insurance carried by
each lessee is adequate.
SUMMARY OF INVESTMENT OBJECTIVES AND POLICIES
The Partnership acquires income-producing property and equipment which are
leased primarily to operators of nationally franchised fast-food, family style
and dinner house restaurants as well as other franchised service-type businesses
such as automotive and specialty retail franchises. Properties are selected for
acquisition based on an examination and evaluation by the General Partners or an
affiliate of the potential value of the site, the financial condition and
business history of the proposed lessee, the demographics of the area in which
the property is located, the proposed purchase price and lease terms, geographic
and market diversification, and potential operating results. Similar analyses
are utilized in selecting equipment. The Partnership anticipates that only fee
interests in real property will be acquired, although other interests (including
acquisitions of buildings, with the underlying land being subject to a long-term
ground lease) may be acquired if it is deemed to be advantageous to the
Partnership.
In making investments, the General Partners consider relevant factors,
including the condition and proposed use of the property and/or equipment,
income-producing capacity, the financial condition of the lessee, and with
respect to properties, the prospects for long-term appreciation. In no event
will property or equipment be acquired unless a satisfactory lease commitment
has been obtained from a suitable lessee as further described below.
In selecting specific properties, the General Partners generally require
the following:
(i) Base annual rent will provide a specified minimum return on the
contract purchase price of the property; the majority of the leases will
provide for fixed increases on specific dates or indexation of rents to
indices such as the Consumer Price Index. Leases may also provide for
percentage rents calculated to provide rents equal to a percentage of the
lessee's gross sales if greater than the base rent; and
(ii) The initial lease will have a term of between ten and twenty
years.
In selecting specific equipment, the General Partners typically require the
following:
(i) Full Payout Leases providing for fixed rents structured to return
100% of the cost of the equipment plus yield a return equivalent to market
interest rates over the lease term; and
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<PAGE> 5
(ii) The leases are expected to have terms of five to seven years with
residual values of equipment at the end of such terms expected to be
minimal (approximately 10% of original cost).
The determination of whether particular properties or equipment should be
sold or otherwise disposed of will be made after consideration of relevant
factors, including performance or projected performance of the property or
equipment and market conditions, with a view toward achieving the principal
investment objectives of the Partnership.
ITEM 3. LEGAL PROCEEDINGS
The Partnership is not a party to any material legal proceeding nor, to the
best of its knowledge, are any such proceedings either pending or threatened.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during 1999.
PART II
ITEM 5. MARKET FOR REGISTRANT'S LIMITED PARTNERSHIP INTERESTS AND RELATED
SECURITY HOLDER MATTERS
The Units are not readily transferable. There is no public market for the
Units and it is not currently expected that any will develop. There are
restrictions upon the transferability of Units, including the requirement that
the General Partners consent to any transferee becoming a substituted Limited
Partner (which consent may be granted or withheld at the sole discretion of the
General Partners). In addition, restrictions on transfer may be imposed under
state securities laws.
The Revenue Act of 1987 contains provisions which may have an adverse
impact on investors in certain "publicly traded partnerships." If the
Partnership were to be classified as a "publicly traded partnership," income
attributable to the Units would be characterized as portfolio income and the
gross income attributable to Units acquired by tax-exempt entities would be
unrelated business income, with the result that the Units could be less
marketable. The General Partners will, if necessary, take appropriate steps to
ensure that the Partnership will not be deemed a "publicly traded partnership."
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ITEM 6. SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1999 1998 1997
------------ ------------ ------------
<S> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA:
Operating revenue:
Rental income...................................... $ 2,672,588 $ 1,243,403 $ 295,367
Finance income..................................... 805,410 548,342 201,314
----------- ------------ -----------
Total operating revenue.................... 3,477,998 1,791,745 496,681
Operating costs and expenses:
Interest expense................................... 788,199 23,603 --
Depreciation....................................... 327,803 131,565 32,988
General and administrative......................... 108,023 80,536 31,296
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Total operating costs and expenses......... 1,224,025 235,704 64,284
----------- ------------ -----------
Income from operations............................... 2,253,973 1,556,041 432,397
Other income (expense):
Interest income.................................... 29,143 254,673 92,048
Gain on sale of real estate........................ 5,858 -- --
Other.............................................. 5,055 35 1,598
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Total other income......................... 40,056 254,708 93,646
----------- ------------ -----------
Net income........................................... 2,294,029 1,810,749 526,043
Net income allocable to general partner.............. 22,940 18,107 5,260
----------- ------------ -----------
Net income allocable to limited partners............. $ 2,271,089 $ 1,792,642 $ 520,783
=========== ============ ===========
Net income per limited partnership unit.............. $ 75.78 $ 72.37 $ 74.10
Weighted average number of limited partnership units
outstanding........................................ 29,969 24,769 7,028
OTHER DATA:
Cash flow from operating activities.................. $ 3,306,697 $ 715,635 $ 659,537
Cash flow from investing activities.................. $(4,000,047) $(20,428,353) $(8,677,520)
Cash flow from financing activities.................. $ (507,083) $ 16,606,682 $13,026,177
BALANCE SHEET DATA:
Cash and cash equivalents............................ $ 915,760 $ 2,890,347 $ 5,008,194
Investment in leases................................. $32,619,423 $ 28,941,321 $ 8,644,533
Total assets......................................... $34,533,478 $ 32,659,591 $13,731,578
Total liabilities.................................... $ 9,832,387 $ 6,671,410 $ 179,058
Total partners' capital.............................. $24,701,091 $ 25,988,181 $13,552,520
</TABLE>
ITEM 7. 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.
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<PAGE> 7
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.
RESULTS OF OPERATIONS -- 1999 TO 1998
For the year ended December 31, 1999, operating revenue increased 94% to
$3.5 million as compared to $1.8 million for the year ended December 31, 1998.
Rental income from operating leases for 1999 increased 115% to $2.7 million as
compared to $1.2 million for 1998 due to the acquisition or completed
construction funding of seven properties and the benefit of a full year of
rental income from properties acquired and leased in preceding periods. Earned
income from financing leases for 1999 increased 47% to $805,000 as compared to
$548,000 for 1998 as a result of the addition of one real estate property
treated as a direct finance lease and from the benefit of a full year of finance
income from leases originated in preceding periods.
General and administrative expenses increased 34% to $108,000 for 1999 as
compared to $81,000 for 1998. A significant factor for the increase is due to
management fees that are incurred and payable to the General Partner. During
1999 the Partnership incurred $40,000 in management fees as compared to $23,300
in 1998 due solely to the increased acquisition of net leased properties during
1999. Depreciation expense increased 148% to $328,000 for 1999 as compared to
$132,000 for 1998 due to the acquisition of net leased properties and the effect
of a full period of depreciation of properties acquired and leased in the
preceding year. Interest expense increased to $788,000 during 1999 as compared
to $24,000 for 1998. The increase is the result of the $6.4 million term note
that the Partnership entered into in December 1998 and the $3.3 million term
note that the Partnership entered into in March 1999.
Interest and other income decreased 87% to $34,000 for 1999 as compared to
$255,000 for 1998 primarily as a result of idle funds being invested in
properties and no longer earning interest.
During 1999, the Partnership recognized a gain of $5,858 on the sale of
real estate. Proceeds of approximately $953,000 were reinvested in another real
estate property.
As a result of the foregoing, the Partnership's net income for 1999
increased 27% to approximately $2.3 million as compared to $1.8 million in 1998.
The Partnership is not subject to income taxation as all of its income and
expenses flow through to the Partners. During the year ended December 31, 1999,
the Partnership made distributions to limited partners totaling $3.4 million, as
compared to $2.1 million for the preceding year.
RESULTS OF OPERATIONS -- 1998 TO 1997
Total revenue increased to $1.8 million for the year ended December 31,
1998 as compared to $497,000 for 1997. Rental revenue increased to $1.2 million
for 1998 as compared to $295,000 for 1997. The increase in rental revenue
resulted principally from the acquisition of 13 properties and the benefit of a
full period of rental revenue from the 5 properties acquired and leased in the
preceding year. Finance income increased to $548,000 in 1998 as compared to
$201,000 in 1997 as a result of the acquisition of 15 equipment packages in 1998
and the benefit of a full period of finance income from the 9 equipment packages
acquired in the preceding year.
Depreciation expense increased to $132,000 for 1998 as compared to $33,000
for 1997 due to the acquisition of net leased properties and the effect of a
full period of depreciation of properties acquired and leased in the preceding
year. General and administrative expenses increased to $81,000 for 1998 as
compared to $31,000 for 1997. A significant factor for the increase is due to
management fees that are incurred and payable to the General Partner. During
1998 the Partnership incurred $23,000 in management fees as compared to $6,300
in 1997 due solely to the increased acquisition of net leased properties during
1998. Interest expense increased to $24,000 during 1998 as compared to $0 for
1997. The increase is the result of the $6.4 million term note that the
Partnership entered into in December 1998. The Partnership incurred
approximately $339,000 of debt issuance costs associated with the issuance of
the term note, which are being amortized over the life of the note into interest
expense using the straight-line method.
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<PAGE> 8
Interest and other income increased to $255,000 for 1998 as compared to
$94,000 for 1997 due to an increase in the amount of investments in idle funds
during the year.
As a result of the foregoing, the Partnership earned net income of
approximately $1.8 million in 1998 as compared to $526,000 in 1997.
During the year ended December 31, 1998, the Partnership made distributions
to limited partners totaling $2.1 million, as compared with $359,000 for the
preceding year.
LIQUIDITY AND CAPITAL RESOURCES
The Partnership commenced the Offering of up to 30,000 Units registered
under the Securities Act of 1933, as amended, by means of a Registration
Statement filed on Form S-11 which was declared effective by the Securities and
Exchange Commission on December 23, 1996.
The Partnership accepted subscriptions for the Minimum Number of Units on
March 5, 1997 and immediately commenced operations. The offering reached final
funding in December 1998 with subscriptions for the entire 30,000 Units. Net
proceeds after offering expenses were approximately $26.1 million.
In December 1998, the Partnership entered into a $6.4 million term note.
The Partnership entered into an additional $3.3 million term note in March 1999.
Proceeds from the notes were used to acquire additional properties. The notes
have a 10 year term, are collateralized by certain properties subject to
operating leases, and bear interest at rates ranging from 8.13 to 8.5% per
annum. Debt issuance costs of approximately $595,000 in aggregate incurred in
connection with the issuance of the notes are being amortized into interest
expense over the life of the notes using the straight-line method.
During 1999, the Partnership purchased three real estate properties and
completed the funding of five properties under construction. The Partnership
acquired or completed construction funding of properties subject to real estate
leases at a total cost of approximately $8.5 million. One real estate property,
acquired for approximately $1.1 million, is accounted for as a direct finance
lease. As of December 31, 1999, the Partnership had $26.8 million invested in 20
net leased real estate properties and $8.5 million invested in 24 equipment
packages.
The Partnership expects that only limited amounts of liquid assets will be
required for existing properties since the form of lease which it uses for its
properties and equipment requires lessees to pay all taxes and assessments,
maintenance and repairs 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 provide adequate liquidity and
capital resources to pay operating expenses and provide distributions to Limited
Partners.
ITEM 7A. QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK. None
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See Index to Financial Statements on Page F-I of this Form 10-K for
Financial Statements and Financial Statement Schedules, where applicable.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
7
<PAGE> 9
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The Partnership does not have directors or officers.
ITEM 11. EXECUTIVE COMPENSATION
The Partnership has no officers or directors
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
To the best knowledge of the Partnership, as of December 31, 1999 no person
known by the Partnership, beneficially owned more than 5% of the outstanding
Units.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
During 1999 and 1998, the General Partners received acquisition fees from
the Partnership in an amount equal to $279,146 and $1,088,073, respectively, for
services rendered in connection with the selection, evaluation and acquisition
of properties and equipment, as provided in the Partnership Agreement.
The General Partners believe that the Asset Management Agreement entered
into is on terms no less favorable to the Partnership than those customary for
similar services by independent firms in the relevant geographic area. The Asset
Management Agreement provides for termination by a majority vote of the Limited
Partners, without penalty, upon 60 days prior written notice. During 1999 and
1998 the Partnership incurred $39,507 and $22,934 respectively, of management
fees to the General Partner.
In connection with the Offering and throughout all stages of the
Partnership's operations, the General Partners and their affiliates will receive
compensation as described more fully in the "Compensation Table" on pages 35
through 42 of the Partnership's Prospectus. All of the General Partners' fees
with the exception of acquisition fees will be subordinated to receipt by the
Limited Partners of preferential distributions. Acquisition fees will be payable
whether or not funds are available for distribution to the Limited Partners. The
General Partners may, under certain circumstances, benefit from the continued
holding of Partnership properties and/or equipment, while investors may be
better served by a sale or other disposition of such properties and/or
equipment. Furthermore, the receipt of certain fees and reimbursements is
dependent upon the ability of the General Partners to timely invest net offering
proceeds. Therefore, the interest of the General Partners in receiving such fees
may conflict with the interest of the Limited Partners. The General Partners and
their affiliates believe that their actions and decisions will be made in a
manner consistent with their fiduciary duty to the Partnership.
The agreements and arrangements, including those relating to compensation,
between the Partnership and the General Partners or any of their affiliates have
not and will not be the result of arm's-length negotiations although the General
Partners believe that such agreements and arrangements will approximate those
which would be arrived at through arm's-length negotiations. While the
Partnership will make no loans to the General Partners or their affiliates, the
Partnership may borrow money from the General Partners or their affiliates but
only on such terms as to interest rate, security, fees and other charges at
least as favorable to the Partnership as are charged by unaffiliated lending
institutions in the same locality on comparable loans for the same purpose. The
General Partners and their affiliates are not prohibited from providing services
to, and otherwise dealing or doing business with, persons (for example,
franchisees), who may deal with the Partnership. However, the Partnership
Agreement prohibits receipt of rebates or participation in any reciprocal
business arrangements which would have the effect of circumventing any of the
provisions of the Partnership Agreement.
8
<PAGE> 10
ITEM 14. EXHIBITS AND REPORTS ON FORM 8-K
(a) The following exhibits are included herein or incorporated by
reference:
<TABLE>
<CAPTION>
NUMBER EXHIBIT
- ------ -------
<C> <S>
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 fiscal 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 fiscal 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.)
</TABLE>
(b) Reports on Form 8-K:
There were no reports filed on Form 8-K for the fourth quarter ended
December 31, 1999.
9
<PAGE> 11
SIGNATURES
In accordance with Section 13 or 15(d) of the Securities Exchange Act of
1934, as amended, the registrant has caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
CAPTEC FRANCHISE CAPITAL
PARTNERS L.P. IV
By: Captec Net Lease Realty, Inc.,
Managing General Partner
By: /s/ W. ROSS MARTIN
------------------------------------
W. Ross Martin
Executive Vice President,
Chief Financial Officer
Date: March 30, 2000
In accordance with the Securities Exchange Act of 1934, this report has
been signed below by the following persons on behalf of the registrant and in
the capacities and on the dates indicated.
By: /s/ PATRICK L. BEACH
--------------------------------------------------------
Patrick L. Beach
Chairman of the Board of Directors,
President and Chief Executive Officer
of Captec Net Lease Realty, Inc.
Date: March 30, 2000
By: /s/ W. ROSS MARTIN
--------------------------------------------------------
W. Ross Martin
Executive Vice President,
Chief Financial Officer
of Captec Net Lease Realty, Inc.
Date: March 30, 2000
10
<PAGE> 12
INDEX TO FINANCIAL STATEMENTS
CAPTEC FRANCHISE CAPITAL PARTNERS L.P. IV
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Accountants........................... F(a)-1
Financial Statements:
Balance Sheet............................................. F(a)-2
Statement of Operations................................... F(a)-3
Statement of Changes in Partners' Capital................. F(a)-4
Statement of Cash Flows................................... F(a)-5
Notes to Financial Statements............................. F(a)-6
Report of Independent Accountants........................... F(a)-11
Schedule III -- Properties and Accumulated Depreciation as
of December 31, 1999...................................... F(a)-12
</TABLE>
i
<PAGE> 13
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors of
Captec Net Lease Realty, Inc.
Managing General Partner of
Captec Franchise Capital Partners L.P. IV:
In our opinion, the accompanying balance sheets and the related statements
of operations, partners capital and of cash flows present fairly, in all
material respects, the financial position of Captec Franchise Capital Partners
L.P. IV at December 31, 1999 and 1998, and the results of its operations and its
cash flows for the years ended December 31, 1999, 1998 and 1997, in conformity
with accounting principles generally accepted in the United States. These
financial statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
auditing standards generally accepted in the United States, which require that
we plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for the opinion expressed above.
/s/ PricewaterhouseCoopers LLP
Detroit, Michigan
March 6, 2000
F(a)-1
<PAGE> 14
CAPTEC FRANCHISE CAPITAL PARTNERS L.P. IV
BALANCE SHEET
December 31, 1999 and 1998
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
ASSETS
Cash and cash equivalents................................... $ 701,725 $ 1,902,158
Restricted cash............................................. 214,035 988,189
Investment in leases:
Operating leases, net..................................... 25,199,728 21,433,864
Financing leases, net..................................... 7,419,695 7,507,457
Accounts receivable......................................... 32,647 130,234
Unbilled rent, net.......................................... 389,496 128,842
Due from related parties.................................... 40,477 175,617
Deferred financing costs, net............................... 535,675 393,230
----------- -----------
Total assets........................................... $34,533,478 $32,659,591
=========== ===========
LIABILITIES AND PARTNERS' CAPITAL
Liabilities:
Notes payable............................................. $ 9,651,000 $ 6,375,000
Accounts payable and accrued expenses..................... 128,274 46,701
Due to related parties.................................... 53,113 249,709
----------- -----------
Total liabilities...................................... 9,832,387 6,671,410
----------- -----------
Partners' capital:
Limited partners' capital accounts.......................... 24,717,802 25,964,614
General partner's capital accounts.......................... (16,711) 23,567
----------- -----------
Total partners' capital................................ 24,701,091 25,988,181
----------- -----------
Total liabilities and partners' capital................ $34,533,478 $32,659,591
=========== ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F(a)-2
<PAGE> 15
CAPTEC FRANCHISE CAPITAL PARTNERS L.P. IV
STATEMENT OF OPERATIONS
for the Years Ended December 31, 1999, 1998 and 1997
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Operating revenue:
Rental income............................................ $2,672,588 $1,243,403 $295,367
Finance income........................................... 805,410 548,342 201,314
---------- ---------- --------
Total operating revenue.......................... 3,477,998 1,791,745 496,681
Operating costs and expenses:
Interest expense......................................... 788,199 23,603 --
Depreciation............................................. 327,803 131,565 32,988
General and administrative............................... 108,023 80,536 31,296
---------- ---------- --------
Total operating costs and expenses............... 1,224,025 235,704 64,284
---------- ---------- --------
Income from operations........................... 2,253,973 1,556,041 432,397
Other income:
Interest income.......................................... 29,143 254,673 92,048
Gain on sale of real estate.............................. 5,858 -- --
Other.................................................... 5,055 35 1,598
---------- ---------- --------
Total other income............................... 40,056 254,708 93,646
---------- ---------- --------
Net income................................................. 2,294,029 1,810,749 526,043
Net income allocable to general partner.................... 22,940 18,107 5,260
---------- ---------- --------
Net income allocable to limited partners................... $2,271,089 $1,792,642 $520,783
========== ========== ========
Net income per limited partnership unit.................... $ 75.78 $ 72.37 $ 74.10
========== ========== ========
Weighted average number of limited partnership units
outstanding.............................................. 29,969 24,769 7,028
========== ========== ========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F(a)-3
<PAGE> 16
CAPTEC FRANCHISE CAPITAL PARTNERS L.P. IV
STATEMENT OF CHANGES IN PARTNERS' CAPITAL
for the years ended December 31, 1999, 1998 and 1997
<TABLE>
<CAPTION>
LIMITED LIMITED GENERAL TOTAL
PARTNERS' PARTNERS' PARTNER'S PARTNERS'
UNITS ACCOUNTS ACCOUNTS CAPITAL
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Balance, January 1, 1997........................ -- $ 100 $ 200 $ 300
Issuance of 15,392 limited partnership units.... 15,392 13,385,077 -- 13,385,077
Distributions -- ($23.32 per unit).............. -- (358,900) -- (358,900)
Net income...................................... -- 520,783 5,260 526,043
------ ----------- -------- -----------
Balance, December 31, 1997...................... 15,392 $13,547,060 $ 5,460 13,552,520
Issuance of 14,608 limited partnership units.... 14,608 12,713,912 -- 12,713,912
Distributions -- ($69.63 per unit).............. -- (2,089,000) -- (2,089,000)
Net income...................................... -- 1,792,642 18,107 1,810,749
------ ----------- -------- -----------
Balance, December 31, 1998...................... 30,000 $25,964,614 $ 23,567 $25,988,181
Repurchase of limited partnership units......... (117) (105,399) -- (105,399)
Distributions -- ($114.20 per unit)............. -- (3,412,501) (63,219) (3,475,720)
Net income...................................... -- 2,271,089 22,940 2,294,029
------ ----------- -------- -----------
Balance, December 31, 1999...................... 29,883 $24,717,802 $(16,711) $24,701,091
====== =========== ======== ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F(a)-4
<PAGE> 17
CAPTEC FRANCHISE CAPITAL PARTNERS L.P. IV
STATEMENT OF CASH FLOWS
for the years ended December 31, 1999, 1998 and 1997
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities:
Net Income......................................... $ 2,294,029 $ 1,810,749 $ 526,043
Adjustments to net income:
Depreciation.................................... 327,803 131,565 32,987
Amortization of debt issuance costs............. 59,519 -- --
Gain on sale of real estate..................... (5,858) -- --
Decrease in prepaid expenses.................... -- -- 339
Increase in unbilled rent....................... (260,654) (102,859) (25,983)
Decrease (increase) in accounts receivable...... 97,587 (126,747) (3,487)
Increase (decrease) in accounts payable and
accrued expenses.............................. 81,573 (2,674) 49,336
Decrease (increase) in due from related
parties....................................... 135,140 (126,236) (49,381)
Increase (decrease) in due to related parties... (196,596) 120,026 129,683
Decrease (increase) in restricted cash.......... 774,154 (988,189) --
----------- ------------ -----------
Net cash provided by operating activities............ 3,306,697 715,635 659,537
----------- ------------ -----------
Cash flows from investing activities:
Purchase and construction cost of properties
subject to operating leases..................... (5,040,449) (15,759,559) (5,838,857)
Proceeds from disposition of properties subject to
operating leases................................ 952,639 -- --
Purchase of equipment and real estate subject to
financing leases................................ (1,131,619) (5,473,417) (3,051,499)
Principal collections on financing leases.......... 1,219,382 804,623 212,836
----------- ------------ -----------
Net cash used in investing activities................ (4,000,047) (20,428,353) (8,677,520)
----------- ------------ -----------
Cash flows from financing activities:
Proceeds from issuance of notes payable............ 3,276,000 6,375,000 --
Debt issuance costs................................ (201,964) (393,230) --
Issuance of limited partnership units.............. -- 14,598,683 15,380,902
Offering costs..................................... -- (1,884,771) (1,995,825)
Repurchase of limited partnership units............ (105,399) -- --
Distributions to limited partners.................. (3,412,501) (2,089,000) (358,900)
Distributions to general partner................... (63,219) -- --
----------- ------------ -----------
Net cash (used in) provided by financing
activities......................................... (507,083) 16,606,682 13,026,177
----------- ------------ -----------
Net (decrease) increase in cash and cash
equivalents........................................ (1,200,433) (3,106,036) 5,008,194
Cash and cash equivalents, beginning of period....... 1,902,158 5,008,194 --
----------- ------------ -----------
Cash and cash equivalents, end of period............. $ 701,725 $ 1,902,158 $ 5,008,194
=========== ============ ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F(a)-5
<PAGE> 18
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 organized 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 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, 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.
The Partnership commenced a public offering of 30,000 limited partnership
interests ("Units"), priced at $1,000 per unit, on December 31, 1996. The
Partnership commenced operations on March 5, 1997. At December 31, 1998, the
Partnership had accepted subscriptions for all 30,000 Units. On April 1, 1999
the Partnership repurchased a total of 3 Units for $2,571, or 90% of the
investor's capital account. An additional 114 Units were repurchased on October
1, 1999 for $102,828, or 90% of the investor's capital account. The repurchase
of the Units was completed pursuant to the terms of the Repurchase Plan set
forth in the Partnership's Prospectus. At December 31, 1999, the Partnership had
29,883 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.
Following is a summary of the Partnership's significant accounting
policies:
A. CASH AND CASH EQUIVALENTS: The Partnership considers all highly
liquid investments purchased with an original maturity of three months or
less to be cash equivalents.
B. RESTRICTED CASH: The Partnership is required to maintain a cash
balance in an escrow account until specific post closing requirements have
been satisfied related to the note payable.
C. RENTAL INCOME FROM OPERATING LEASES: The Partnership's operating
leases have scheduled rent increases which occur at various dates
throughout the lease terms. The Partnership recognizes the total rent, as
stipulated by the lease agreement, as income on a straight-line basis over
the term of each lease. To the extent rental income on the straight-line
basis exceeds rents billable per the lease agreement, an amount is recorded
as unbilled rent. In addition to scheduled rent increases, certain of the
Partnership's leases also have percentage and overage rent clauses, which
the Partnership recognizes after the tenants' reported sales have exceeded
the applicable sales breakpoint.
D. LAND AND BUILDING SUBJECT TO OPERATING LEASES: Land and buildings
subject to operating leases are stated at cost less accumulated
depreciation. Buildings are depreciated on the straight-line method over
their estimated useful lives (40 years). The Partnership periodically
reviews its real estate portfolio for impairment whenever events or changes
in circumstances indicate that the carrying amount of the property may not
be recoverable. If an impairment loss were indicated using undiscounted
cash flows, the loss is measured as the amount by which the carrying amount
of the asset exceeds the estimated fair or present value of the asset.
E. NET INVESTMENT IN FINANCING LEASES: Net investment in financing
leases primarily represents equipment used in restaurant operations and are
leased under a triple-net basis. Leases classified as financing leases are
stated as the sum of the minimum lease payments plus the unguaranteed
residual value accruing to the benefit of the lessor, less unearned income.
Unearned income is amortized to income over the lease term so as to produce
a constant periodic rate of return on the net investment in the
F(a)-6
<PAGE> 19
CAPTEC FRANCHISE CAPITAL PARTNERS L.P. IV
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
1. THE PARTNERSHIP AND ITS SIGNIFICANT ACCOUNTING PRINCIPLES -- CONTINUED:
lease. Direct origination costs are deferred and amortized over the life of
the lease as an adjustment to yield. Financing leases delinquent for 90 or
more days are determined to be impaired, and income accrual is suspended at
that time. A loss reserve is calculated based on the estimated amounts
recoverable. At December 31, 1999 no financing leases have been determined
to be impaired and, thus, the Partnership has not provided for an allowance
for uncollectible amounts associated with its financing leases.
F. NOTE PAYABLE: The fair value of fixed rate debt approximates the
book value, and is estimated based on current rates offered for notes
payable of the equivalent remaining maturity.
G. NET INCOME PER LIMITED PARTNERSHIP INTEREST: Net income per limited
partnership interest is calculated using the weighted average number of
limited partnership units outstanding during the period and the limited
partners' allocable share of the net income.
H. INCOME TAXES: No provision for income taxes is included in the
accompanying financial statements, as the Partnership's results of
operations are passed through to the partners for inclusion in their
respective income tax returns.
I. ESTIMATES: The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date
of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from
those estimates.
J. RECLASSIFICATIONS: Certain prior period financial statement amounts
have been reclassified to conform to the 1999 presentations.
2. DISTRIBUTIONS:
Cash flows of the Partnership are allocated 99% to the limited partners and
1% to the General Partner, except that the General Partner's share is
subordinated to a 10% per annum cumulative, non-compounded preferred return to
the limited partners. Net sale or refinancing proceeds of the Partnership will
be allocated 90% to the limited partners 10% to the General Partner, except that
the General Partner's share will be subordinated to a 10.5% per annum
cumulative, non-compounded return on their Adjusted Investment plus return of
the original contributions to the limited partners.
Distributions of cash flow from operations are paid quarterly in arrears.
3. RELATED PARTY TRANSACTIONS AND AGREEMENTS:
Organization and offering expenses, excluding selling commissions, were
paid initially by the General Partners and/or their affiliates and subsequently
reimbursed by the Partnership in an amount equal to up to 3% of the gross
proceeds of the offering (less any amounts paid directly by the Partnership). In
addition, the General Partner and/or its affiliates were paid a non-accountable
expense allowance by the Partnership in an amount equal to 2% of the gross
proceeds of the offering. The General Partner and/or its affiliates were
reimbursed $752,350 and $710,310 during 1998 and 1997, respectively. These costs
were treated as capital issuance costs and have been netted against the limited
partners' capital accounts.
The Partnership paid to Participating Dealers, including affiliates of the
general partners, selling commissions in an amount equal to 8% of the purchase
price of all Units placed by them directly. There were $1,156,562 and $1,223,946
of selling commissions incurred during 1998 and 1997, respectively. These costs
were treated as capital issuance costs and have been netted against the limited
partners' capital accounts.
F(a)-7
<PAGE> 20
CAPTEC FRANCHISE CAPITAL PARTNERS L.P. IV
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
3. RELATED PARTY TRANSACTIONS AND AGREEMENTS -- CONTINUED:
Pursuant to the Partnership Agreement, acquisition fees of 4%, plus an
additional .00624% for each 1% of indebtedness incurred in acquiring properties
and equipment, of the aggregate purchase prices of properties and equipment (not
to exceed a total 5% acquisition fee) are incurred to the General Partner. The
Partnership incurred $279,146, $1,088,073 and $341,936 in acquisition fees
during 1999, 1998, and 1997, respectively. The acquisition fees were capitalized
as part of the Partnership's investment in land and buildings subject to
operating leases and net investment in financing leases.
The Partnership has entered into an asset management agreement with the
General Partner and its affiliates, whereby the General Partner and the General
Partner's affiliates provide various property and equipment management services
for the Partnership. A subordinated asset management fee is charged, in an
amount equal to 1% of the gross rental revenues derived from the properties and
equipment. Payment of the asset management fee is subordinated to receipt by the
limited partners of annual distributions equal to a cumulative, non-compounded
return of 10% per annum on their adjusted invested capital. Management fees of
$39,507, $22,934 and $6,297 were incurred during 1999, 1998 and 1997,
respectively.
The Partnership Agreement provides for the General Partner to receive
liquidation fees limited to the lesser of 3% of the gross sales price or 50% of
the customary real estate commissions in the event of a real estate liquidation.
This fee is payable only after the limited partners have received distributions
equal to a cumulative, non-compounded return of 10.5% per annum, cumulative
non-compounded preferred return on their adjusted invested capital plus
distributions of sale or refinancing proceeds equal to 100% of their original
contributions. The Partnership's Prospectus provides for the reinvestment of net
sale proceeds during the four year period beginning on the date the Partnership
terminated the offering, December 23, 1998.
4. LAND AND BUILDING SUBJECT TO OPERATING LEASES:
The net investment in operating leases as of December 31, 1999 and 1998 is
comprised of the following:
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Land................................................ $10,635,450 $ 8,116,644
Building and improvements........................... 15,033,424 10,546,486
Construction draws.................................. -0- 2,935,286
----------- -----------
25,668,874 21,598,416
Less accumulated depreciation....................... (469,146) (164,552)
----------- -----------
$25,199,728 $21,433,864
=========== ===========
</TABLE>
All construction draws are subject to the terms of a standard lease
agreement with the Partnership, which fully obligates the tenant under the
long-term lease to all construction related cost amounts advanced through
construction draws including interest during the construction period. Upon
completion of construction and when the tenant lease payments begin, the
construction draws are then capitalized as land and building.
F(a)-8
<PAGE> 21
CAPTEC FRANCHISE CAPITAL PARTNERS L.P. IV
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
4. LAND AND BUILDING SUBJECT TO OPERATING LEASES -- CONTINUED:
The following is a schedule of future minimum lease payments to be received
on the operating leases as of December 31, 1999:
<TABLE>
<S> <C>
2000........................................................ $2,570,330
2001........................................................ 2,596,534
2002........................................................ 2,659,522
2003........................................................ 2,688,166
2004........................................................ 2,744,715
Thereafter.................................................. 34,981,424
-----------
Total.................................................. $48,240,691
===========
</TABLE>
During 1999, the Partnership recognized a gain of $5,858 on the sale of
real estate. The Partnership received proceeds of $952,639. The carrying amount
of the real estate was $946,781.
5. NET INVESTMENT IN FINANCING LEASES:
The net investment in financing leases as of December 31, 1999 and 1998 is
comprised of the following:
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Minimum lease payments to be received................ $10,230,685 $9,002,591
Estimated residual value............................. 232,697 232,697
----------- ----------
Gross investment in financing leases................. 10,463,382 9,235,288
Less unearned income................................. (2,709,359) (1,430,986)
Less direct origination costs........................ (334,328) (296,845)
----------- ----------
Net investment in financing leases................... $ 7,419,695 $7,507,457
=========== ==========
</TABLE>
The following is a schedule of future minimum lease payments to be received
on the financing leases as of December 31, 1999:
<TABLE>
<S> <C>
2000........................................................ $2,017,868
2001........................................................ 1,994,550
2002........................................................ 1,834,218
2003........................................................ 1,229,649
2004........................................................ 594,602
Thereafter.................................................. 2,559,798
-----------
Total.................................................. $10,230,685
===========
</TABLE>
6. NOTES PAYABLE:
In December 1998, the Partnership entered into a $6.4 million term note,
the proceeds of which were used to acquire properties. The note has a 10-year
term, is collateralized 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 has a 10-year term, is collaterized by certain properties subject
to operating leases, and bears an interest rate of 8.5% per annum.
F(a)-9
<PAGE> 22
CAPTEC FRANCHISE CAPITAL PARTNERS L.P. IV
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
6. NOTES PAYABLE -- CONTINUED:
At December 31, 1999, annual maturities on the notes in aggregate are as
follows:
<TABLE>
<S> <C>
2000........................................................ $ --
2001........................................................ 164,043
2002........................................................ 211,879
2003........................................................ 230,037
2004........................................................ 249,752
Thereafter.................................................. 8,795,289
----------
Total............................................. $9,651,000
==========
</TABLE>
Debt issuance costs of $595,194 in aggregate were incurred in connection
with the issuance of the notes, and are being amortized to interest expense
using the straight-line method over the 10-year term.
7. SUBSEQUENT EVENT:
Based upon the results of operations for the three month period ended
December 31, 1999, the Partnership declared distributions of $910,000 to its
limited partners on January 15, 2000.
F(a)-10
<PAGE> 23
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors of
Captec Net Lease Realty, Inc.
Managing General Partner of
Captec Franchise Capital Partners L.P. IV:
In connection with our audit of the financial statements of Captec
Franchise Capital Partners L.P. IV as of December 31, 1999, 1998 and 1997, which
financial statements are included in this Form 10-K, we have also audited the
financial statement schedule listed in the index to Financial Statements
contained in this Form 10-K.
In our opinion, this financial statement schedule, when considered in
relation to the basic financial statements taken as a whole, presents fairly, in
all material aspects, the information required to be included therein.
/s/ PricewaterhouseCoopers LLP
Detroit, Michigan
March 6, 2000
F(a)-11
<PAGE> 24
EXHIBIT INDEX
<TABLE>
<CAPTION>
NUMBER EXHIBIT PAGE
- ------ ------- ----
<C> <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, 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 fiscal 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 fiscal 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.)
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 915,760
<SECURITIES> 0
<RECEIVABLES> 73,124
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 988,884
<PP&E> 33,088,569
<DEPRECIATION> (469,146)
<TOTAL-ASSETS> 34,533,478
<CURRENT-LIABILITIES> 181,387
<BONDS> 9,651,000
0
0
<COMMON> 0
<OTHER-SE> 24,701,091
<TOTAL-LIABILITY-AND-EQUITY> 34,533,478
<SALES> 0
<TOTAL-REVENUES> 3,518,054
<CGS> 0
<TOTAL-COSTS> 435,826
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 788,199
<INCOME-PRETAX> 2,294,029
<INCOME-TAX> 0
<INCOME-CONTINUING> 2,294,029
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,294,029
<EPS-BASIC> 0
<EPS-DILUTED> 0
</TABLE>
