<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 June 30, 1998
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OR
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number: 1045281
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CAPTEC NET LEASE REALTY, INC.
-----------------------------
(Exact name of registrant as specified in its charter)
Delaware 38-3368333
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(State or other jurisdiction (IRS Employer
of incorporation or organization) Identification Number)
24 Frank Lloyd Wright Drive, Ann Arbor, Michigan 48106
------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(734) 994-5505
--------------
(Registrant'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 CORPORATE ISSUERS: Indicate the number of shares
outstanding of each of the registrant's classes of common equity, as of August
14, 1998 (the latest practicable date).
Common Stock, $.01 par value 9,508,108
---------------------------- ---------
(Class) (Number of shares)
1
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CAPTEC NET LEASE REALTY, INC.
CONTENTS
<TABLE>
<CAPTION>
ITEM NO. PAGE
- -------- ----
<S> <C> <C>
PART I FINANCIAL INFORMATION
1 Financial Statements:
Balance Sheet 3
Statements of Operations 4
Statement of Changes in Stockholders' Equity 5
Statements of Cash Flows 6
Notes to Financial Statements 7 - 9
2 Management's Discussion and Analysis of
Financial Condition and Results of Operations 10 - 13
3 Quantitative and Qualitative Disclosures about Market Risk 13
PART II OTHER INFORMATION
Other Information 14
</TABLE>
2
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CAPTEC NET LEASE REALTY, INC.
(A DELAWARE CORPORATION)
BALANCE SHEET
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1998 1997
---- ----
ASSETS (unaudited)
- ------
<S> <C> <C>
Cash and cash equivalents $ 840,742 $ 3,528,129
Investments:
Properties subject to operating leases, net 215,349,475 151,491,551
Loans to affiliates, collateralized by mortgage loans 8,531,486 13,061,845
Other loans - 703,950
Other loans, related party 412,895 421,920
Financing leases, net 1,122,269 1,274,044
------------- -------------
Total investments 225,416,125 166,953,310
Short-term loans to affiliates 11,979,864 7,449,505
Unbilled rent 3,316,575 2,271,043
Accounts receivable 469,255 651,481
Due from affiliates 55,347 186,625
Other assets 2,202,993 661,875
------------- -------------
Total assets $ 244,280,901 $ 181,701,968
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Notes payable $ 104,984,988 $ 42,746,189
Accounts payable 336,314 1,434,668
Due to affiliates 124,828 -
Dividends payable - 1,854,082
Federal income tax payable 719,000 719,000
Security deposits held on leases 194,406 141,892
------------- -------------
Total liabilities 106,359,536 46,895,831
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Stockholders' Equity:
Common stock, ($.01 par value) authorized: 40,000,000
shares; issued and outstanding: 9,508,108 95,081 95,081
Paid in capital 134,711,056 134,711,056
Retained earnings 3,115,228 -
------------- -------------
Total stockholders' equity 137,921,365 134,806,137
------------- -------------
Total liabilities and stockholders' equity $ 244,280,901 $ 181,701,968
============= =============
</TABLE>
3
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CAPTEC NET LEASE REALTY, INC.
(A DELAWARE CORPORATION)
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
-------------------------------- -----------------------------
PREDECESSOR PREDECESSOR
1998 1997 1998 1997
---- ---- ---- ----
(unaudited) (unaudited)
<S> <C> <C> <C> <C>
Revenue:
Rental income $ 5,442,628 $ 2,731,348 $ 10,262,098 $ 4,996,677
Interest income on loans to affiliates 253,709 247,281 550,119 507,770
Interest income on short-term loans to affiliates 199,162 105,735 358,628 246,972
Interest and other income 517,120 88,904 865,378 132,740
------------ ------------ ------------ ------------
Total revenue 6,412,619 3,173,268 12,036,223 5,884,159
------------ ------------ ------------ ------------
Expenses:
Interest 1,344,283 1,519,494 2,414,604 2,707,201
Management fees, affiliates 287,796 573,798 541,111 823,798
General and administrative 447,587 166,162 797,952 250,928
Depreciation and amortization 687,500 364,480 1,348,619 677,649
------------ ------------ ------------ ------------
Total expenses 2,767,166 2,623,934 5,102,286 4,459,576
------------ ------------ ------------ ------------
Income before gain (loss) on sale of
properties and income tax 3,645,453 549,334 6,933,937 1,424,583
Gain (loss) on sale of properties (205,581) - (253,169) (58,687)
------------ ------------ ------------ ------------
Income before income tax 3,439,872 549,334 6,680,768 1,365,896
Provision for income tax - (39,000) - (39,000)
------------ ------------ ------------ ------------
Net income $ 3,439,872 588,334 $ 6,680,768 1,404,896
============ ============
Redeemable preferred stock dividend requirements 2,625,000 3,750,000
------------ ------------
Loss attributable to common stock $ (2,036,666) $ (2,345,104)
============ ============
Income (Loss) per common share:
Basic $ 0.36 $ (2.08) $ 0.70 $ (2.39)
============ ============ ============ ============
Diluted $ 0.36 $ 0.70
============ ============
Weighted average number of common shares
outstanding 9,508,108 980,330 9,508,108 980,330
============ ============ ============ ============
</TABLE>
4
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CAPTEC NET LEASE REALTY, INC.
(A DELAWARE CORPORATION)
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE SIX MONTHS ENDED JUNE 30, 1998
(unaudited)
<TABLE>
<CAPTION>
Total
Common Paid-In Retained Stockholders'
Stock Capital Earnings Equity
----- ------- -------- ------
<S> <C> <C> <C> <C>
BALANCE, JANUARY 1, 1998 $ 95,081 $ 134,711,056 $ - $ 134,806,137
Net income - - 6,680,768 6,680,768
Common stock dividends ($0.375 per share) - - (3,565,540) (3,565,540)
-------- ------------- ----------- -----------
BALANCE, JUNE 30, 1998 $ 95,081 $ 134,711,056 $ 3,115,228 $ 137,921,365
======== ============= =========== =============
</TABLE>
5
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CAPTEC NET LEASE REALTY, INC.
(A DELAWARE CORPORATION)
STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 1998 AND 1997
(unaudited)
<TABLE>
<CAPTION>
Predecessor
1998 1997
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 6,680,768 $ 1,404,896
Adjustments to net income:
Depreciation and amortization 1,348,619 677,649
Amortization of debt issuance costs 176,480 262,500
Loss on sale of property 253,169 58,687
Increase in unbilled rent (1,045,532) (797,601)
Increase in receivables and other assets 226,463 135,482
Increase (decrease) in payables (1,098,354) 470,635
------------ ------------
Net cash provided by operating activities 6,541,613 2,212,248
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of properties (66,468,325) (25,976,893)
Advances on loans to affiliates, collateralized by
mortgage loans - (5,123,234)
Acquisition of financing leases - (370,164)
Advances on short-term loans to affiliates (4,530,359) -
Collections on short-term loans to affiliates - 1,767,705
Proceeds from the sale of property 1,093,613 200,522
Collections on loans to affiliates, collateralized by
mortgage loans 4,530,359 2,540,234
Collection of principal on other loans 712,975 25,729
Collection of principal on financing leases -
Change in lease security deposits 52,514 19,081
------------ ------------
Net cash used in investing activities (64,609,223) (26,917,020)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Dividends paid on common stock (5,419,622) -
Proceeds from the issuance of notes payable 104,984,988 24,803,825
Debt issuance costs (1,438,954) -
Principal payments of notes payable (42,746,189) (42,193)
Dividends paid on redeemable preferred stock - (2,375,000)
------------ -------------
Net cash provided by financing activities 55,380,223 22,386,632
------------ ------------
NET CASH FLOWS (2,687,387) (2,318,140)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 3,528,129 3,862,159
------------ ------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 840,742 $ 1,544,019
============ ============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest $ 2,403,133 $ 2,292,606
============ ============
</TABLE>
6
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CAPTEC NET LEASE REALTY, INC.
NOTES TO FINANCIAL STATEMENTS
1. THE COMPANY AND ITS SIGNIFICANT ACCOUNTING PRINCIPLES:
a. MERGER: Captec Net Lease Realty, Inc., a Delaware corporation ("Captec"
or the "Company") was formed in August 1997 to continue and expand the
acquisition and investment activities of Captec Net Lease Realty, Inc., a
Michigan corporation ("Net Lease Michigan"), and Captec Net Lease Realty
Advisors, Inc., a Michigan corporation ("Advisors Michigan"). Net Lease
Michigan was formed in October 1994 for the purpose of investing in
long-term net leased restaurant and retail real estate and commenced
operations in February 1995. Advisors Michigan was formed in October 1994
for the purpose of providing certain advisory services to Net Lease
Michigan and also commenced operations in February 1995. The Company
completed its initial public offering (the "Offering") in November 1997 and
has subsequently operated as a real estate investment trust ("REIT").
In connection with the Offering, Net Lease Michigan and Advisors Michigan
were merged into the Company effective September 30, 1997 in exchange for
1,315,440 shares of the Company's common stock, par value $.01 (the "Common
Stock") and 50,000 shares of redeemable preferred stock. Subsequently, a
reverse split of .745249 shares for each share of Common Stock was
effected, resulting in 980,330 shares outstanding. The accompanying
financial statements account for the merger as a purchase of Net Lease
Michigan by Advisors Michigan in accordance with Accounting Principles
Board Opinion No. 16. Accordingly, the cost of the acquisition was
$5,161,000 (318,607 split adjusted shares issued to the shareholders of
Advisors Michigan at an assumed fair value of $16.20 per share) and the
assets acquired and liabilities assumed of Net Lease Michigan were recorded
at their estimated fair values (resulting in an increase to historical
recorded value of properties subject to operating leases of $5,161,000). In
addition, as the principal business activities of the Company consist of
the activities performed by Net Lease Michigan, Net Lease Michigan is
deemed to be the "predecessor" company for financial reporting purposes and
the accompanying statements of operations and cash flows for the period
ended June 30, 1997 are of Net Lease Michigan.
b. UNAUDITED INTERIM FINANCIAL INFORMATION: The balance sheet as of June
30, 1998 and the statements of operations and cash flows for the three
months and six months ended June 30, 1998 and 1997 have not been audited.
In the opinion of management, all adjustments (consisting of normal
recurring accruals) considered necessary for a fair presentation have been
reflected therein. Results of operations for the interim periods are not
necessarily indicative of results for the full year.
7
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CAPTEC NET LEASE REALTY, INC.
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
2. PROPERTIES SUBJECT TO OPERATING LEASES:
The Company's real estate portfolio is leased to tenants under long-term
net operating leases. The lease agreements generally provide for monthly
rents based upon a percentage of the property's cost. The initial term of
the leases typically ranges from 15 to 20 years, although the Company in
certain cases will enter into leases with terms that are shorter or longer.
Most leases also provide for one or more five year renewal options. In
addition, certain leases provide the tenant one or more options to purchase
the properties at a predetermined price, generally only during stated
window periods during the fifth to seventh lease years.
The Company's investment in real estate includes capitalized acquisition
and interest costs which have been allocated between land and buildings and
improvements on a pro rata basis. The net investment in properties subject
to operating leases as of June 30, 1998 is comprised of the following:
Land $ 76,313,520
Buildings and improvements 126,019,922
Construction draws on properties 16,174,426
------------
218,507,868
Less accumulated depreciation (3,158,393)
------------
Total $215,349,475
============
The Company periodically invests in properties under construction. All
construction draws are subject to the terms of a standard lease agreement
with the Company which fully obligates the tenant to the long-term lease
for all amounts advanced under construction draws.
3. NOTES PAYABLE:
In February 1998, the Company entered into a credit facility (the "Credit
Facility"), which is used to provide funds for the acquisition of
properties and working capital, and repaid all amounts outstanding under
the Company's prior credit facility. Under the Credit Facility, which has a
three year term, the Company may borrow up to $175.0 million subject to
certain borrowing base restrictions that are dependent on cash basis lease
revenue. At June 30, 1998, the Company had borrowing capacity under the
borrowing base formula of approximately $113.0 million, $105.0 million of
which was drawn upon. By formula the borrowing base increases as new
leases commence, thereby creating additional availability under the
Credit Facility. The Credit Facility contains covenants which, among other
restrictions, require the Company to maintain a minimum net worth, a
maximum leverage ratio, and specified interest coverage and fixed charge
coverage ratios. The Credit Facility bears interest at an annual rate of
LIBOR plus a spread ranging from 1.25% to 1.50%, set quarterly depending on
the Company's leverage ratio. Commitment fees and closing expenses paid in
conjunction with the Credit Facility have been capitalized in other assets
and are being amortized and classified as interest expense over the initial
term of the Credit Facility.
8
<PAGE> 9
CAPTEC NET LEASE REALTY, INC.
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
4. INCOME TAX:
The Company has elected to be taxed as a REIT effective September 1, 1997
under the Internal Revenue Code of 1986, as amended (the "Code"). As
a result, the Company generally will not be subject to federal income
taxation at the corporate level provided it distributes annually at least
95.0% of its REIT taxable income, as defined in the Code, to its
stockholders and satisfies certain other requirements.
5. EARNINGS PER SHARE:
Stock options representing 650,000 shares of Common Stock currently
outstanding under the Company's Long-Term Incentive Plan were excluded
from the computation of diluted earnings per share because their exercise
price was in excess of the average market price of the Company's Common
Stock during the three months and six months ended June 30, 1998.
6. DERIVATIVE FINANCIAL INSTRUMENTS:
The Company uses derivative financial instruments to manage interest rate
exposures which exist as a part of its ongoing business operations. At June
30, 1998 the Company had interest rate swap contracts outstanding with a
total notional amount of $50 million, and interest rate cap contracts
outstanding with a total notional amount of $25 million.
On June 15, 1998, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 133, "Accounting for
Derivative Instruments and Hedging Activities" ("FAS 133"). FAS 133 is
effective for all fiscal quarters of all fiscal years beginning after June
15, 1999 (January 1, 2000 for the Company). FAS 133 requires that all
derivative instruments be recorded on the balance sheet at their fair
value. Changes in the fair value of derivatives are recorded each period
in current earnings or other comprehensive income, depending on whether a
derivative is designated as part of a hedge transaction, and if it is, the
type of hedge transaction. Management of the Company has not yet
determined the impact that the adoption of FAS 133 will have on its
earnings or statement of financial position.
7. SUBSEQUENT EVENTS:
In August, 1998, the Company purchased the general partnership interests in
affiliated limited partnerships which are engaged in substantially the same
business as the Company. The Company acquired the interests for $4.4
million in the aggregate, $4.0 million of which was used to offset amounts
included in short-term loans to affiliates.
In July, 1998, the Company declared dividends to its shareholders of
$3,565,540, or $0.375 per share of common stock, payable on July 15, 1998.
9
<PAGE> 10
PART I - FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
OVERVIEW
The Company acquires, develops and owns freestanding properties which are
leased on a long-term triple-net basis to operators of national and
regional chain restaurants and retailers. Triple-net leases generally
impose on the lessee all of the obligations of repairs, maintenance, real
property taxes, assessments, utilities and insurance. The Company's leases
typically provide for minimum rent plus specified fixed periodic rent
increases or, in certain limited circumstances, indexation to CPI and/or
percentage rent.
As of June 30, 1998, Captec owned 156 properties, located in 31 states,
with a cost basis of $218.5 million. The properties are leased to 47
operators of 30 distinct restaurant concepts such as Applebee's, Boston
Market and Denny's; 12 retailers such as Athlete's Foot, Blockbuster Video
and Office Depot; and 2 automotive dealers operating under the BMW and
Nissan brands. The restaurant, retail and automobile dealership markets
represent 76%, 20%, and 4%, respectively, of annual rental revenue from
the aggregate portfolio as of June 30, 1998.
The Company completed the Offering in November 1997. Subsequent to the
Offering, the Company has operated and elected to be taxed as a REIT.
RESULTS OF OPERATIONS
THREE MONTHS ENDED JUNE 30, 1998. During the three months ended June 30,
1998 (the "Quarter"), total revenue increased 102% to $6.4 million as
compared to $3.2 million for the three months ended June 30, 1997 (the
"1997 Quarter"). Rental revenue increased 99% to $5.4 million for the
Quarter as compared to $2.7 million for the 1997 Quarter. The increase in
rental revenue resulted principally from the acquisition of 26 net leased
properties for the Quarter and the benefit of a full period of rental
revenue from properties acquired and leased in preceding periods. Interest
and other income on investments, including interest income on loans to
affiliates, increased by 119% to $970,000 for the Quarter as compared to
$442,000 for the 1997 Quarter, primarily as a result of fee income earned
from affiliated limited partnerships.
Interest expense decreased by 12% to $1.3 million for the Quarter as
compared to $1.5 million for the 1997 Quarter. The decrease was primarily
due to the reduction of debt in November, 1997 related to the Offering,
offset by interest on $105.0 million of additional debt used to fund the
acquisition of properties since the Offering. General and administrative
expenses, including management fees to affiliates, were $735,000 for the
Quarter as compared to $740,000 for the 1997 Quarter, as the commencement
of salaries and benefits and other incremental costs related to operating
as a public REIT were offset by reductions in management fees paid to
affiliates. Depreciation and amortization increased 89% to $688,000 for the
Quarter as compared to $364,000 for the 1997 Quarter, primarily due to the
continued acquisition of net leased properties and the effect of a full
period of depreciation of properties acquired and leased in the preceding
periods.
10
<PAGE> 11
As a result of a termination of a direct financing lease, the Company
incurred a loss of $206,000 on the disposition of the related assets.
As a result of the foregoing, the Company's net income increased 485% to
$3.4 million for the Quarter as compared to $588,000 for the 1997 Quarter.
SIX MONTHS ENDED JUNE 30, 1998. During the six months ended June 30, 1998
("1998"), total revenue increased 105% to $12.0 million as compared to
$5.9 million for the six months ended June 30, 1997 ("1997"). Rental
revenue increased 105% to $10.3 million for 1998 as compared to $5.0
million for 1997. The increase in rental revenue resulted principally from
the acquisition of 45 net leased properties in 1998 and the benefit of a
full period of rental revenue from properties acquired and leased in
preceding periods. Interest and other income on investments, including
interest income on loans to affiliates, increased by 100% to $1.8 million
for 1998 as compared to $887,000 for 1997, primarily as a result of fee
income earned from the affiliated limited partnerships.
Interest expense decreased by 11% to $2.4 million in 1998 as compared to
$2.7 million for 1997. The decrease was primarily due to the reduction of
debt in November, 1997 related to the Offering, offset by interest on
$105.0 million of additional debt used to fund the acquisition of
properties since the Offering. General and administrative expenses,
including management fees to affiliates, increased 25% to $1.3 million for
1998 as compared to $1.1 million for 1997, primarily due to the
commencement of salaries and benefits and other incremental costs related
to operating as a public REIT, offset by reductions in management fees
paid to affiliates. Depreciation and amortization increased 99% to $1.3
million for 1998 as compared to $678,000 for 1997, primarily due to the
continued acquisition of net leased properties and the effect of a full
period of depreciation of properties acquired and leased in the preceding
periods.
As a result of the foregoing, the Company's net income increased 376% to
$6.7 million for 1998 as compared to $1.4 million for 1997.
LIQUIDITY AND CAPITAL RESOURCES
The Company's principal use of funds is for property development and
acquisition, payment of interest on its outstanding indebtedness, and
payment of operating expenses and dividends. Historically, interest
expense, operating expenses and dividends have been paid out of cash flows
from operations. Property acquisitions have typically been funded out of
proceeds from equity offerings and borrowings. The Company expects to meet
its liquidity requirements (principally property development and
acquisition) through a variety of future sources of capital, including
long-term secured and unsecured indebtedness and the issuance of
additional equity or debt securities. In addition, in the third quarter the
Company expects to begin receiving principal repayments of certain loans
to Affiliates in amounts estimated to total up to $11.0 million.
The Company's leases generally provide for specified periodic rent
increases including fixed increase amounts, and in limited circumstances
indexation to CPI and/or percentage rent. In addition, most of the
Company's leases require the lessee to pay all operating costs and
expenses including repairs, maintenance, real property taxes, assessments,
utilities and insurance, thereby substantially reducing the Company's
exposure to increases in costs and operating expenses. Based upon these
factors, the Company does not anticipate significant capital demands
related to the management of its properties.
11
<PAGE> 12
At June 30, 1998, the Company had cash and cash equivalents of $840,000.
For 1998, the Company generated cash from operations of $6.5 million as
compared to $2.2 million for 1997. Cash generated from operations provides
funds for distributions to shareholders in the form of quarterly
dividends. Any excess cash from operations may also be used for investment
in properties.
CREDIT FACILITY. On February 26, 1998 the Company entered into the Credit
Facility which is used to provide funds for the acquisition of properties
and working capital, and repaid all amounts outstanding under the prior
credit facility.
The Credit Facility has a three year term and borrowings are subject to
borrowing base restrictions that are dependent on cash basis lease
revenue. At June 30, 1998, the Company had borrowing capacity under the
borrowing base formula of approximately $113.0 million, $105.0 million of
which was drawn upon. By formula the borrowing base increases as new
leases commence, thereby creating additional availability under the
Credit Facility. The Credit Facility contains covenants which, among
other restrictions, require the Company to maintain a minimum net worth, a
maximum leverage ratio, and specified interest and fixed charge coverage
ratios.
The Credit Facility bears interest at an annual rate of LIBOR plus a
spread ranging from 1.25% to 1.50%, set quarterly depending on the
Company's leverage ratio, or at the Company's option, the bank's base
rate. At June 30, 1998, the spread over LIBOR was 1.40%. The Credit
Facility will expire in February 2001 and may be renewed annually
thereafter, one year in advance of maturity subject to the consent of the
lender. Upon expiration, the entire outstanding balance of the Credit
Facility will mature and become immediately due and payable. At that time,
the Company expects to refinance such debt either through additional debt
financings secured by individual properties or groups of properties, by
unsecured private or public debt offerings or by additional equity
offerings.
PROPERTY ACQUISITIONS AND COMMITMENTS. During 1998, the Company acquired
$53.9 million of completed properties and the balance of investments in
properties under construction increased $12.6 million, resulting in a net
increase in investments in properties of $66.5 million.
As of June 30, 1998 the Company had entered into commitments to acquire 49
properties totaling $87.6 million. The commitments are subject to various
conditions to closing which are described in the contracts or letters of
intent relating to these properties. The Company expects to finance its
acquisition commitments through a variety of future sources of capital,
including borrowings under the Credit Facility, other long-term secured
and unsecured indebtedness and the issuance of additional equity or debt
securities.
In addition, in the ordinary course of business the Company is in
negotiations regarding the proposed acquisition of other properties and
related co-development opportunities. The Company may enter into
commitments to acquire some of these prospective properties in the future.
Property acquisition commitments arising out of these negotiations are
expected to generate the primary demand for additional capital in the
future.
12
<PAGE> 13
DIVIDENDS. The Company intends to pay a regular quarterly dividend on its
common stock of $.375 per share (which if annualized would be $1.50 per
share). Dividends of $3,565,540 were paid on April 16, 1998, and July
14,1998, related to the first and second quarter declared dividends,
respectively. The Company expects to pay future dividends from cash
available for distributions, which the Company believes will exceed
historical cash available for distributions due to the reduction in debt
service and preferred stock dividend requirements, the decrease in
advisory fee rates and the anticipated growth of the portfolio of net
leased properties. The Company believes that cash from operations will be
sufficient to allow the Company to make distributions necessary to enable
the Company to continue to qualify as a REIT.
The Company historically has paid quarterly dividends on its redeemable
preferred stock. After payment of the accrued preferred stock dividends
and the redemption and exchange of the Company's outstanding redeemable
preferred stock from the proceeds of the Offering, the Company's preferred
stock dividend requirement has been eliminated.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not Applicable
13
<PAGE> 14
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.
The Company held its annual meeting of stockholders ( the "Meeting") on
May 8, 1998. The Company's stockholders elected Patrick L. Beach, W. Ross
Martin, H. Reid Sherard, Richard J. Peters, Creed L. Ford, III, William H.
Krul, II and Lee C. Howley (collectively, the "Nominees") to the Company's
Board of Directors. The following lists the number of shares of Common
Stock voted for and withheld from each of the Nominees.
NOMINEES Votes for Votes Withheld
---------------- ---------- ---------------
Patrick L. Beach 6,447,776 100,590
W. Ross Martin 6,446,626 101,740
H. Reid Sherard 6,446,626 101,740
Richard J. Peters 6,447,776 100,590
Creed L. Ford, II 6,447,476 100,890
William H. Krul, II 6,447,776 100,590
Lee C. Howley 6,447,776 100,590
ITEM 5. OTHER INFORMATION. None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
Exhibit 27.1 Financial Data Schedule.
FORWARD LOOKING STATEMENTS
This Form 10-Q contains certain "forward looking statements" which
represent the Company's expectations or beliefs, including, but not
limited to, statements concerning industry performance and the Company's
operations, performance, financial condition, plans, growth and
strategies. Any statements contained in this Form 10-Q which are not
statements of historical fact may be deemed to be forward-looking
statements. Without limiting the generality of the foregoing, words such
as "may," "will," "expect," "anticipate," intent," "could," estimate" or
continue" or the negative or other variations thereof or comparable
terminology are intended to identify forward-looking statements. These
statements by their nature involve substantial risks and uncertainties,
certain of which are beyond the Company's control, and actual results may
differ materially depending on a variety of important factors many of
which are beyond the control of the Company.
14
<PAGE> 15
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.
CAPTEC NET LEASE REALTY, INC.
August 14, 1998 By: /s/ Patrick L. Beach
------------------------
Patrick L. Beach
Chief Executive Officer and President
August 14, 1998 By: /s/ W. Ross Martin
------------------------
W. Ross Martin
Chief Financial Officer and
Executive Vice President
15
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