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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15 (d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) October 16, 1996
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CAPTEC FRANCHISE CAPITAL PARTNERS L.P. III
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(Exact name of registrant as specified in its charter)
DELAWARE 33-77510C 38-3160141
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(State or other jurisdiction (Commission File No.) (IRS Employer
of incorporation) Identification No.)
24 FRANK LLOYD WRIGHT DR., P.O. BOX 544, ANN ARBOR, MI 48106
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(Address of principal executive offices) (Zip Code)
Registrant's telephone
number, including area code: (313) 994-5505 or (800) 522-7832
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Not Applicable
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(Former name or former address, if changed since last report)
This document contains 9 pages. There are no exhibits attached hereto.
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Item 5. Other Events.
Capitalized terms not otherwise defined herein shall have the same meaning as
in the prospectus of Captec Franchise Capital Partners L.P. III (the
"Partnership") dated August 12, 1994 as supplemented to date (the
"Prospectus").
Kettle Restaurant (Land and Building)
On August 1, 1996, the Partnership acquired the land and 3,012 square foot
building comprising a Kettle restaurant located at 5720 Northamton Road,
Virginia Beach, Virginia (the "Virginia Beach Property"). The Partnership
purchased a fee simple interest in the Virginia Beach Property from Captec Net
Lease Realty, Inc., an affiliate of the General Partner, for Seven Hundred
Eighty-Nine Thousand Five Hundred Forty-Three Dollars ($789,543) (the "Purchase
Price"). On August 1, 1996, the Partnership took assignment of the lease
entered into between the Partnership and Captec Net Lease Realty, Inc. and
Denamerica Inc., a Delaware corporation (the "Tenant") dated August 25, 1995
(the "Lease"). The Lease provides for a one-time increase in the Purchase
Price by up to Two Hundred Fifty Thousand Dollars ($250,000) to cover costs
actually incurred and paid by Tenant to third parties for additional
improvements to the Virginia Beach Property completed and paid for on or before
December 31, 1996. The Tenant intends to convert the Virginia Beach Property
to a Denny's Restaurant and operate it under the Denny's name. The
headquarters of the Tenant are located at 7373 North Scottsdale Rd., Suite
D-120, Scottsdale, Arizona. The Tenant franchises and operates casual dining
restaurants under the primary trade name of Denny's.
The Lease is an absolute net lease whereby the Tenant is responsible for all
expenses related to the Virginia Beach Property including real estate taxes,
insurance, maintenance and repair costs. The Tenant shall convert the Virginia
Beach Property for operation as a Denny's restaurant as soon as practicable and
in no event later than eighteen (18) months after the date of the Lease. If
the Tenant fails to convert, the Landlord may (1) declare the Tenant in default
under the Lease, (2) require Tenant to substitute another franchised operation
in exchange for the Virginia Beach Property, or (3) require Tenant to
repurchase the Virginia Beach Property. The Lease term expires on August 31,
2015, with two renewal options of five years each. The initial annual rent is
equal to 10.8% of the purchase price and will be payable in monthly
installments on the first day of each month. The annual rent on the Virginia
Beach Property is $85,271 or $7,106 per month. The annual rent shall increase
by 10% on September 1, 2000 and every five years thereafter. The annual rent
per square foot on the Virginia Beach Property is $28.31. The depreciable
basis of the Virginia Beach Property is $316,543 and will be depreciated using
the straight-line method over 39 years at a rate of $8,116.49 per year. The
1995 tax rate for the county in which the Virginia Beach Property is located is
$1.14 per $100 of current appraised value. The current annual realty taxes are
$4,121.
The Tenant has an option to purchase the Virginia Beach Property commencing on
September 1, 2000 and expiring 90 days thereafter for the greater of: (1) the
then fair market value or (b) the annual rent payable during the sixth year of
the lease divided by ninety-eight one-thousandths (.098).
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An affiliate of the Managing General Partner has received an Acquisition Fee
from the Partnership in an amount equal to $31,582 and expects to receive an
additional fee of $7,895 from the Partnership after leveraging the Virginia
Beach Property, as provided for in the Prospectus. These fees are being paid
for services rendered in connection with the selection, evaluation and
acquisition of the Virginia Property, as provided for in the Partnership
Agreement. In addition, the Tenant has paid to the same affiliate a commitment
fee equal to $7,895. The Tenant has paid the following expenses incident to
the closing of the transaction: the Partnership's attorney's fees and title
insurance premiums. The Partnership paid $4,628 in transfer taxes and
recording fees. The Tenant has deposited with the Partnership $7,106 as
security for Tenant's faithful performance of the Tenant's obligations under
the Lease.
Golden Corral Restaurant (Land and Improvements)
On August 6, 1996, the Partnership acquired the land with all improvements to
be located thereon, located at 4532 South Florida Avenue, Lakeland, Florida
(the "Lakeland Property"). The Partnership purchased the Lakeland Property
from and leased back to Corral South Store 3, Inc., a Florida corporation (the
"Tenant"). The Tenant operates casual dining restaurants under the primary
trade name of Golden Corral Restaurants. The headquarters of the Tenant are
located at 2665 Oak Ridge Court, Ft. Meyers, Florida. The Partnership
purchased a fee simple interest in the Lakeland Property. The purchase price
will equal the lowest of (i) One Million Six Hundred Thousand ($1,600,000);
(ii) actual certified costs, or (iii) the appraised value set forth in the
required MAI appraisal ("Purchase Price"). The initial disbursement of $654,000
was paid with cash from offering proceeds with the remaining funds to be
disbursed according to a disbursement agreement dated August 6, 1996 (the
"Disbursement Agreement"). The Tenant shall commence construction of an
approximate 8,825 square foot building on or before August 31, 1996 and shall
complete construction of the building on or before December 31, 1996.
The Lease is an absolute net lease whereby the Tenant is responsible for all
expenses related to the Lakeland Property including real estate taxes,
insurance, maintenance and repair costs. The interim term of the Lease shall
commence on August 6, 1996 and shall expire on the last day of the month in
which the final disbursement is made but in no event beyond December 31, 1996
("Interim Term"). The base term of the Lease shall commence on the day
following the expiration of the Interim Term and shall expire 15 years
thereafter ("Base Term"). The Tenant has two renewal options of five years
each.
During the Interim Term of the Lease, Interim Rent shall be payable monthly in
an amount equal to: (i) the Applicable Rental Percentage multiplied by the
Purchase Price and the Soft Costs advanced as of the first disbursement plus
(ii) the Applicable Rental Percentage multiplied by the average daily balance
of total funds disbursed to the Tenant for Hard Costs and soft Costs related to
the construction of the Improvements calculated as of the end of the
immediately preceding calendar month. The Applicable Rental Percentage is
defined as (i) the "Prime Rate" plus two percent; (ii) divided by 12. Interim
Rent shall be paid to the Partnership from funds held by the Partnership for
disbursement of costs related to the construction of the improvements. Upon
commencement of the Base Term, the annual rent will be payable in monthly
installments on the first day of each month in an amount equal to ten and
90/100 percent (10.90%) of the total of all funds advanced by the Partnership.
Thus, based on the Purchase Price of $1,600,000, the annual rent on the
Lakeland Property is $174,400 or $14,533 per month. The annual rent shall
increase by 8% on the fifth anniversary date of the Base
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Term and every five years thereafter by 8%. The annual rent per square foot on
the Lakeland Property is $19.76. The estimated depreciable basis of the
Lakeland Property is $1,135,000 and will be depreciated using the straight-line
method over 39 years at a rate of approximately $29,102 per year. The 1996 tax
rate for the county in which the Lakeland Property is located is $2.1413 per
$100 of current assessed value. The 1995 annual realty taxes were $5,699
however, the current assessment on the Lakeland Property for realty tax
purposes is for the land only. It is anticipated that there will be a new
assessment to reflect the improvements to the land.
The Tenant's obligations under the Lease are guaranteed for the benefit of the
Partnership by David C. Brown, an individual. David C. Brown is the sole
stockholder of the Tenant corporation. The Tenant has an option to purchase
the Lakeland Property commencing on the sixty-first month of the Base Term of
the Lease. The option price that Tenant shall pay shall equal the scheduled
minimum annual rent during the fifth year of the Base Term divided by 0.10.
The tax rate for the county in which the Lakeland Property is located is
$2.1413 per $100 of current appraised value. The estimated annual realty taxes
are $5,699; however, the current assessment on the Lakeland Property for realty
tax purposes is for the land only. It is anticipated that there will be a new
assessment to reflect the improvements to the land.
An affiliate of the Managing General Partner has received and Acquisition Fee
from the Partnership in an amount equal to $26,160 and expects to receive an
additional fee of $37,840 from the Partnership when the maximum funding is
reached. The Partnership will also pay an additional acquisition fee of
$16,000 after leveraging the Lakeland Property, as provided for in the
Prospectus. These fees are being paid for services rendered in connection with
the selection, evaluation and acquisition of the Lakeland Property, as provided
for in the Partnership Agreement. In addition, the Tenant has paid to the same
affiliate a commitment fee equal to $16,000 and a construction funding fee
equal to one half percent (.5%) of the maximum Purchase Price or $8,000. The
Tenant has paid all of the expenses incident to the closing of the transaction
contemplated by this commitment including, without limitation, the
Partnership's attorney's fees, title insurance premiums, recording fees and
expenses and transfer taxes.
Jack-In-The-Box (Land and Building)
On September 27, 1996 the Partnership acquired the land and a 2860 square foot
building comprising a Jack-In-The-Box restaurant located at 320 Grapevine
Highway, Hurst, Texas (the "Jack-In-The-Box Property"). The Jack-In-The-Box
Property was constructed for its present use in May 1996 and was fully
operational at the time of the purchase. The Jack-In-The-Box Property was
purchased from and leased back to Foodmaker, Inc., a Delaware corporation (the
"Tenant"). The Tenant operates and franchises casual dining restaurants under
the primary trade name of Jack-In-The-Box. The headquarters of the Tenant are
located at 9330 Balboa Ave., San Diego, CA. The Partnership purchased a fee
simple interest in the Jack-In-The-Box Property for the purchase price of
$965,000 which was negotiated by an affiliate of the Managing General Partner
which considered factors such as the potential value of the site, the financial
condition and business and operating history of the Tenant and demographic data
for the area in which the Jack-In-The-Box Property is located. The purchase
price for the Jack-In-The-Box Property is supported by an independent MAI
appraisal. The Partnership purchased the Jack-In-The-Box Property with cash
from offering proceeds. It is anticipated that the Jack-
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In-The-Box Property will be leveraged as provided for in the Prospectus,
however, the Partnership presently does not have a financing commitment.
The Tenant and the Partnership have entered into the Partnership's standard
form of lease (the "Lease"), which is an absolute net lease, whereby the Tenant
is responsible for all expenses related to the Jack-In-The-Box Property
including real estate taxes, insurance, maintenance and repair costs. The
Lease term expires on September 30, 2014 with four renewal options of five
years each. The initial annual rent is equal to 10.5% of the purchase price
and will be payable in monthly installments on the first day of each month.
Thus, based on the purchase price of $965,000, the annual rent in the first
five years of the Lease is $101,325 per year, or $8,444 per month. The Minimum
Annual Rent shall be increased on October 1, 2001 and every five years
thereafter by the greater of : a) the percentage increase in the Consumer Price
Index over the five year period preceding the increase date; or (b) ten percent
(10%).
The Tenant has a continuing right of first refusal to purchase the
Jack-In-The-Box Property in accordance with the same terms and conditions set
forth in a bona fide offer in which the Partnership desires to accept. The
current annual rent per square foot on the Jack-In-The-Box Property is $35.43.
The depreciable basis of the Jack-In-The-Box Property is $585,000 and is being
depreciated on the straight-line basis over a period of 39 years at a rate of
$15,000 per year. The 1995 tax rate for the county and city in which the
Jack-In-The-Box Property is located is $2.6089 per $100 of current appraised
value. The 1995 current annual realty taxes are $21,965.63; however, the
current assessment on the Jack-In-The-Box Property for realty tax purposes is
for the land only. It is anticipated that there will be a new assessment to
reflect the improvements to the land.
An affiliate of the Managing General Partner has received an Acquisition Fee
from the Partnership in an amount equal to $38,600 and expects to receive an
additional fee of $9,650 from the Partnership after leveraging the
Jack-In-The-Box Property, as provided for in the Prospectus. These fees are
being paid for services rendered in connection with the selection, evaluation
and acquisition of the Jack-In-The-Box Property, as provided for in the
Partnership Agreement. In addition, the Tenant has paid, to the same
affiliate, a commitment fee equal to $9,650, as provided for in the Partnership
Agreement. The Tenant also paid all of the expenses incident to the closing of
the transaction contemplated by this commitment including, without limitation,
the Partnership's attorney's fees, title insurance premiums, recording fees and
expenses and transfer taxes
Hollywood Video (Land and Building)
On August 4, 1996 the Partnership acquired the land and a 7,500 square foot
building comprising a Hollywood Video located at 3400 West Owen K. Garriott
Road, Enid, Oklahoma (the "Hollywood Video Property"). The Hollywood Video
Property was constructed for its present use in June 1996 and was fully
operational at the time of the purchase. The Hollywood Video Property was
purchased from Terry S. Ward and the Partnership assumed a lease between Caltex
Entertainment, Ltd., a Texas Limited Partnership and Hollywood Entertainment
Corp., an Oregon corporation (the "Tenant"). The Tenant operates video rental
stores under the trade name of Hollywood Video. The headquarters of the Tenant
are located at 10300 S. W. Allen Blvd., Beaverton, Oregon 97005. The
Partnership purchased a fee simple interest in the Hollywood Video Property for
the purchase price of $1,050,000 which was negotiated by an affiliate of the
Managing General Partner which considered factors such as the potential value
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of the site, the financial condition and business and operating history of the
Tenant and demographic data for the area in which the Hollywood Video Property
is located. The purchase price for the Hollywood Video Property is supported
by an independent MAI appraisal.
The Lease dated January 15, 1996 between Caltex Entertainment, Ltd. and
Hollywood Entertainment Corporation, which the Partnership assumed on July 31,
1996 (the "Lease"), is an absolute net lease, whereby the Tenant is responsible
for all expenses related to the Hollywood Video Property including real estate
taxes, insurance, maintenance and repair costs. The Lease term expires on May
10, 2011 with two renewal options of five years each. The initial annual rent
is equal to 11.25% of the purchase price and will be payable in monthly
installments on the first day of each month. Thus, based on the purchase price
of $1,050,000, the rent in the first five years of the Lease is $118,125 per
year, or $9,844 per month. The rent shall be increased on May 10, 2001 and on
the first day of each renewal term by the percentage increase in the Consumer
Price Index over the five year period preceding the increase date, provided
that the increase does not exceed 12%. In the event the Consumer Price Index
has decreased, the rent shall remain unchanged. The current annual rent per
square foot of the Hollywood Video Property is $15.75. The depreciable basis
of the Hollywood Video Property is $842,700 and will be depreciated using the
straight-line method over 39 years at a rate of $21,608 per year. The estimated
1997 tax rate for the county in which the Hollywood Video Property is located
is $8.005 per $100 of current assessed value. The estimated current annual
realty taxes are $1,977, however, the current assessment on the Hollywood Video
Property for realty tax purposes is for the land only. It is anticipated that
there will be a new assessment to reflect the improvements to the land.
An affiliate of the Managing General Partner has received an Acquisition Fee
from the Partnership in an amount equal to $42,000 and expects to receive an
additional fee of $10,500 from the Partnership after leveraging the Hollywood
Video Property, as provided for in the Prospectus. These fees are being paid
for services rendered in connection with the selection, evaluation and
acquisition of the Hollywood Video Property, as provided for in the Partnership
Agreement. In addition, the Tenant has paid, to the same affiliate, a
commitment fee equal to $9,650, as provided for in the Partnership Agreement.
The Tenant also paid all of the expenses incident to the closing of the
transaction contemplated by this commitment including, without limitation, the
Partnership's attorney's fees, title insurance premiums, recording fees and
expenses and transfer taxes
Black-Eyed Pea (Land and Building)
On September 30, 1996 the Partnership acquired the land and a 5,445 square foot
building comprising a Jack-In-The-Box restaurant located at 1905 Preston
Boulevard, Plano, Texas (the "Black-Eyed Pea Property"). The Black-Eyed Pea
Property was constructed for its present use in September 1996 and was fully
operational at the time of the purchase. The Black-Eyed Pea Property was
purchased from and leased back to DenAmerica Corp., a Delaware corporation
(the "Tenant"). The Tenant operates and franchises casual dining restaurants
under the primary trade names of Denny's and Black-Eyed Pea. The headquarters
of the Tenant are located at 7373 North Scottsdale Road, Suite D-120,
Scottsdale, Arizona. The Partnership purchased a fee simple interest in the
Black-Eyed Pea Property for the purchase price of $1,486,768 which was
negotiated by an affiliate of the Managing General Partner which considered
factors such as the potential value of the site, the financial condition and
business and operating history of the Tenant and demographic data for the area
in which the Black-Eyed
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Pea Property is located. The purchase price for the Black-Eyed Pea Property is
supported by an independent MAI appraisal. The Partnership purchased the
Black-Eyed Pea Property with cash from offering proceeds. It is anticipated
that the Black-Eyed Pea Property will be leveraged as provided for in the
Prospectus, however, the Partnership presently does not have a financing
commitment.
The Tenant and the Partnership have entered into the Partnership's standard
form of lease (the "Lease"), which is an absolute net lease, whereby the Tenant
is responsible for all expenses related to the Black-Eyed Pea Property
including real estate taxes, insurance, maintenance and repair costs. The
Lease term expires on September 30, 2016 with two renewal options of five years
each.
The initial annual rent is equal to 10.625% of the purchase price and will be
payable in monthly installments on the first day of each month. Thus, based on
the purchase price of $1,486,768, the rent in the first year of the Lease is
$157,969 ("Minimum Annual Rent"), or $13,164 per month. The Minimum Annual
Rent shall be increased on October 1, 2003 and every five years thereafter by
the percentage increase in the Consumer Price Index over the five year period
preceding the increase date; provided that the increase does not exceed ten
percent (10%). The current annual rent per square foot on the Black-Eyed Pea
Property is $29.01. The depreciable basis of the Black-Eyed Pea Property is
$661,768 and is being depreciated on the straight-line basis over a period of
39 years at a rate of $16,968 per year. The 1995 tax rate for the county and
city in which the Black-Eyed Pea Property is located is $2.3464 per $100 of
current appraised value. The current annual realty taxes are $20,273; however,
the current assessment on the Black-Eyed Pea Property for realty tax purposes
is for the land only. It is anticipated that there will be a new assessment to
reflect the improvements to the land.
An affiliate of the Managing General Partner has received an Acquisition Fee
from the Partnership in an amount equal to $59,470 and expects to receive an
additional fee of $14,868 from the Partnership after leveraging the Black-Eyed
Pea Property, as provided for in the Prospectus. These fees are being paid for
services rendered in connection with the selection, evaluation and acquisition
of the Black-Eyed Pea Property, as provided for in the Partnership Agreement.
In addition, the Tenant has paid, to the same affiliate, a commitment fee equal
to $14,868 as provided for in the Partnership Agreement. The Tenant also paid
all of the expenses incident to the closing of the transaction including,
without limitation, the Partnership's attorney's fees, title insurance
premiums, recording fees and expenses and transfer taxes
General Lease Provisions:
An affiliate of the Managing General Partner analyzed demographic, geographic
and market diversification data for the areas in which the Virginia Beach
Property, the Lakeland Property, the Jack-In-The Box Property, the Hollywood
Video Property and the Black-Eyed Pea Property (collectively referred to as the
"Properties") are located and reviewed the appraisals of the Properties and the
analysis regarding comparable Properties contained therein. Based upon the
foregoing, the General Partners are unaware of any unfavorable competitive
conditions regarding the Properties. The General Partners believe that the
amount of insurance carried by the Tenants is adequate. The Partnership
purchased the Properties with cash from offering proceeds. It is anticipated
that the Properties will be leveraged as provided for in the Prospectus,
however, the Partnership presently does not have a financing commitment.
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The Leases contain material default provisions that include, but are not
limited to : (1) the vacating or abandonment of the Properties by the Tenants;
(2) the failure by the Tenants to make any payment due under the Leases; (3)
the failure by the Tenants to observe or perform any of the covenants,
conditions, or provisions of the Leases; (4) the making by the Tenants of any
general arrangement or general assignment for the benefit of creditors. In the
event of a material default by the Tenant, the Leases contain remedy provisions
which are summarized as follows: (1) the Partnership may terminate the Leases
and take possession of the Property, in which case the Partnership would be
entitled to damages incurred by reason of the material default; (2) the
Partnership may maintain the Tenant's right to possession of the Properties, in
which case the Leases would continue to be in effect; of (3) the Partnership
may pursue any other legal remedy available.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
By: Captec Franchise Capital Corporation III
Managing General Partner of
Captec Franchise Capital Partners L.P. III
By: /s/ W. Ross Martin
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W. Ross Martin
Vice President and Vice President,
a duly authorized officer
Date: October 16 1996
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