UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
X Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 [Fee Required] For the fiscal year ended December 31, 1995
or
Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 [No Fee Required] For the transition period from to
Commission file number: 0-11059
BURGER KING LIMITED PARTNERSHIP II
Exact name of registrant as specified in its charter
New York 13-3133321
State or other jurisdiction of
incorporation or organization I.R.S. Employer Identification No.
Attn: Andre Anderson, 3 World Financial Center,
29th Floor, New York, NY 10285-2900
Address of principal executive offices zip code
Registrant's telephone number, including area code: (212) 526-3237
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: Units of Limited
Partnership Interest
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 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 X No
No market for the limited partnership interests exists and therefore a market
value for the interests cannot be determined.
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 the 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
DOCUMENTS INCORPORATED BY REFERENCE
Annual Report to Unitholders for the year ended December 31, 1995 (Portions of
parts I, II, III and IV)
Proxy Statement used in connection with solicitation of Unitholders on March
25, 1996, filed with the Securities and Exchange Commission on March 25, 1996.
PART I
Item 1. Business.
(a)General Development of Business
Burger King Limited Partnership II (the "Partnership") was formed as a limited
partnership on August 23, 1982 under the partnership laws of the State of New
York. The general partner of the Partnership is BK II Properties Inc.
(formerly Shearson/BK Properties, Inc.), a New York corporation (the "General
Partner") and an affiliate of Lehman Brothers Inc. ("Lehman") formerly Shearson
Lehman Brothers, Inc. ("Shearson"), (see Item 10). The Partnership engages in
the business of acquiring, constructing, improving, holding and maintaining
Burger King restaurants (each referred to as a "Property", collectively, the
"Properties"). The Properties are leased on a long-term net basis to
franchisees of Burger King Corporation ("Burger King").
(b)Financial Information About Industry Segment
The Partnership's sole business is leasing the Properties to franchisees of
Burger King. All of the Partnership's revenues, operating profit or losses and
assets relate solely to such industry segment.
(c)Narrative Description of Business
The Properties consist of the buildings, the fixtures and improvements and, in
some cases, the underlying land. The Properties are net leased to franchisees
of Burger King. For a Property located on land owned by the Partnership, the
annual rent is the greater of (i) 14.5% of the Partnership's investment (which
equals the cost of land acquisition plus construction costs, as estimated at
the date the lease is executed, and capitalized interest) or (ii) 8.5% of the
Property's annual gross sales. For a Property located on land leased by the
Partnership, the annual rent is the greater of (i) 14.5% of the Partnership's
investment plus the annual ground rent paid by the Partnership to Burger King
which, in turn, pays rent to the owner of the underlying land or (ii) 8.5% of
the Property's annual gross sales. The Partnership's principal investment
objectives are to:
(1) provide regular cash distributions, a portion of which will be "tax
sheltered"; and
(2) provide realization of the long-term appreciation in the value of the
Properties, consistent in all cases with the preservation of partners' capital.
Burger King had the option, which it did not exercise, to purchase the
Properties at fair market value through January 3, 1993. Upon expiration of
Burger King's option, the General Partner began marketing all of its remaining
Properties for sale. The Partnership has agreed to sell 17 of the Properties
owned in fee simple and to assign all of its rights in 11 of the Properties
subject to ground leases to U.S. Restaurant Properties Operating L.P., a
Delaware limited partnership (the "Buyer"), pursuant to an Agreement of
Purchase and Sale, dated as of October 11, 1995, as amended as of January 9,
1996 (the "Purchase Agreement"). For additional information concerning the
sale of the remaining Properties pursuant to the Purchase Agreement (the
"Proposed Sale"), reference is made to Item 7 captioned "Management's
Discussion and Analysis of Financial Conditions and Results of Operations," and
the Investor Message section of the Partnership's 1995 Annual Report to
Unitholders, which is filed as an exhibit under Item 14 and incorporated
herein by reference.
Employees
The Partnership has no employees.
Competition
Percentage rents received by the Partnership from the leases with the
franchisees at the Properties (the "Leases") are based on food and beverage
sales generated by the Properties. Competition in the fast food industry has
generally become more intense as the number of chains competing for the
consumer's business has increased. For most chains, in 1996, the primary
source of revenue growth is projected to be the development of new restaurants
or the acquisition of existing restaurants. As a result, intense price
competition and aggressive marketing promotions have become essential
ingredients in the effort to increase sales from existing restaurants. Other
factors which influence sales include, but are not limited to, product quality,
customer service, and the diversity of menu offerings.
Item 2. Properties.
Incorporated by reference to the section captioned "Partnership's Restaurants"
on the Table of Contents page and Note 4 captioned "Real Estate" in the Notes
to the Financial Statements of the Partnership's 1995 Annual Report to
Unitholders.
Item 3. Legal Proceedings.
None.
Item 4. Submission of Matters to a Vote of Security Holders.
Pursuant to Section 8.3 of the Agreement of Limited Partnership dated as of
August 23, 1982, as amended as of October 19, 1982 (the "Partnership
Agreement"), the limited partners of the Partnership (the "Unitholders") have
the right to vote (assuming certain conditions described in the Partnership
Agreement are met) only upon certain matters and Unitholders voting a majority
in interest may, without the concurrence of the General Partner, cause, among
other things, the disapproval of any sale of all or substantially all of the
assets of the Partnership in a single sale. The Proposed Sale would constitute
a sale of all or substantially all of the Partnership's assets. Accordingly,
Unitholders have the right to disapprove the Proposed Sale.
A proxy statement was mailed to the Unitholders on March 25, 1996 (the "Proxy
Statement"), which describes the terms of the Proposed Sale and presents the
Unitholders with the opportunity to call a meeting to consider whether to
disapprove the Proposed Sale. In order to effect a vote to disapprove the
Proposed Sale, Unitholders holding 10% or more in interest of the outstanding
limited partnership units of the Partnership (the "Units") must submit written
requests for a meeting of the Unitholders pursuant to the Partnership
Agreement. While the General Partner may call a meeting of the Unitholders for
any purpose, the General Partner believes that the Proposed Sale is in the best
interest of the Unitholders and has, therefore, determined not to call a
meeting for the purpose of considering the disapproval of the Proposed Sale.
However, if the Partnership receives written requests from Unitholders holding
10% or more in interest of the Units on or before April 30, 1996, the General
Partner will be required to call a meeting of the Unitholders to consider the
disapproval of the Proposed Sale. If a meeting of the Unitholders is called,
and the Proposed Sale is disapproved by a majority in interest of the
Unitholders, the Purchase Agreement will be terminated pursuant to its terms,
and the Partnership will continue to operate the Properties and distribute the
cash flow from operations to the Unitholders in accordance with the Partnership
Agreement. If, however, a meeting of the Unitholders is called, and
Unitholders holding less than a majority in interest vote to disapprove the
Proposed Sale, the Proposed Sale will be consummated pursuant to the terms and
subject to the conditions set forth in the Purchase Agreement.
Reference is made to Item 7 "Management's Discussion and Analysis of Financial
Conditions and Results of Operations" for additional information concerning the
Partnership's efforts to sell the remaining 29 Properties.
PART II
Item 5. Market for the Partnership's Limited Partnership Interests and Related
Security Holder Matters.
(a) Market Information
There is no established trading market for the Units.
(b) Holders
As of December 31, 1995, there were 1,962 Unitholders.
(c) Distributions
The following table illustrates the per Unit quarterly cash distributions
paid to Unitholders during the past two years.
Quarter Declared 1995 1994
First Quarter $ 30.43 $ 28.61
Second Quarter 39.91 (1) 30.67
Third Quarter 34.49 29.98
Fourth Quarter 31.18 33.19
Total Cash Distributions $ 136.01 $ 122.45
(1) Includes a distribution of $10.01 from the sale of a Property
located in Ferguson, MO.
Reference is also made to Note 3 captioned "Partnership Allocations"
and Note 8 captioned "Distributions" of the Notes to the Financial
Statements in the Partnership's 1995 Annual Report to Unitholders for
additional information concerning cash distributions paid by the
Partnership.
Item 6. Selected Financial Data.
The information set forth below should be read in conjunction with the
Partnership's Financial Statements and notes thereto and "Management's
Discussion and Analysis of Financial Condition and Results of Operations," also
included elsewhere herein.
1995 1994 1993 1992 1991
Rental income $2,685,255 $2,611,183 $2,501,191 $2,520,824 $2,506,977
Gain on sale
of Property 49,818 - 44,107 51,598 150,000
Net income 1,721,520 1,672,606 1,656,527 1,552,589 1,684,347
Net income per
Unit 108.49 105.03 104.12 97.53 106.03
Total assets at
year end 6,503,011 6,722,402 6,934,572 7,472,869 7,983,525
Cash
distributions
per Unit 136.01(a) 122.45 121.29(b) 130.87(c) 118.89 (d)
a Includes a $10.01 per Unit distribution from the sale of a Property
located in Ferguson, MO.
b Includes an $8.72 per Unit distribution from the sale of a Property
located in Downey, CA.
c Includes an $8.54 per Unit distribution from the sale of a Property
located in Mt. Pleasant, WI.
d Includes an $11.42 per Unit distribution from the sale of a Property
located in Mt. Pleasant, WI.
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
Liquidity and Capital Resources
At December 31, 1995, the Partnership had cash and cash equivalents of $653,171
compared to $680,377 at December 31, 1994. The $27,206 decrease is the result
of a decrease in cash flow from operations during the fourth quarter of 1995
compared to the same period in 1994. Cash consists of the Partnership's
working capital and undistributed cash from operations.
On June 30, 1995, the Partnership sold a Property located in Ferguson, Missouri
for net proceeds of $151,691, resulting in a gain of $49,818.
The Partnership has agreed, subject to the satisfaction of certain conditions,
to sell the Partnership's remaining Properties to the Buyer, pursuant to the
Purchase Agreement. Pursuant to the terms of the Purchase Agreement, the Buyer
agreed to acquire the Properties for consideration in the amount of $17,025,000
in cash (the "Purchase Price"), subject to adjustments and prorations for base
and percentage rents, as well as certain other charges payable in respect of
the Properties, and adjustments in respect of certain closing costs. The
Purchase Price is also subject to an increase of $200,000 to an aggregate of
$17,225,000 if the Partnership elects to include a restaurant located in
Marietta, Georgia (the "Marietta Property") in the Proposed Sale. The General
Partner is pursuing parties that may have an interest in purchasing the
Marietta Property for a price in excess of $200,000. If the General Partner is
unable to locate a potential purchaser at an appropriate price, the Partnership
would, in all likelihood, include the Marietta Property in the Proposed Sale.
Pursuant to the terms of the Partnership Agreement, the Unitholders have the
right to call a meeting for the purpose of voting whether to disapprove the
Proposed Sale. See Item 4 captioned "Submission of Matters to a Vote of
Security Holders" for additional information.
The General Partner believes that the Proposed Sale should maximize the
Partnership's realization of the appreciation in the value of the Properties.
The Leases were originally for 20-year terms and, for the most part, currently
have approximately seven or eight years remaining. The remaining terms of the
Leases are one of the primary factors that a prospective buyer will evaluate in
pricing the Properties. As the Leases approach maturity, prospective buyers
are likely to attribute a greater discount in the value of the Properties and,
therefore, if the Partnership continues to hold the Properties, the General
Partner believes that the Properties' fair market value may decrease.
The General Partner also believes that the Proposed Sale is an extremely
attractive opportunity for the Partnership. The Partnership received offers
from a number of prospective buyers, and the Purchase Price offered by the
Buyer represents what the General Partner believes is currently the highest
attainable sale price for the Properties. The Purchase Price of $17,025,000 is
$2,603,000 higher than the Properties' aggregate appraised value of $14,422,000
as of December 31, 1994, which appraised value was disclosed in the
Partnership's 1994 Annual Report.
Rent receivable and other assets totalled $232,047 at December 31, 1995
compared to $121,417 at December 31, 1994. The increase is attributable to
deferred legal costs related to the Proposed Sale and to an increase in
percentage rents earned during 1995.
Accounts payable and accrued expenses totalled $271,548 at December 31, 1995
compared to $44,073 at December 31, 1994. The increase is primarily
attributable to legal costs incurred by the Partnership in connection with the
Proposed Sale.
Distributions payable at December 31, 1995 totalled $553,173. Such amount was
subsequently paid to the partners on January 30, 1996.
Results of Operations
1995 vs. 1994
For the year ended December 31, 1995, the Partnership's operations generated
net income totalling $1,721,520 compared to $1,672,606 for the year ended
December 31, 1994. The increase in net income is primarily attributable to the
sale of a Property located in Ferguson, Missouri during the second quarter of
1995 which resulted in a gain of $49,818 (see Note 4 to the Financial
Statements).
Rental income totalled $2,685,255 for the year ended December 31, 1995 compared
to $2,611,183 for the year ended December 31, 1994. The slight increase is
primarily attributable to an increase in percentage rent resulting from higher
sales at the Properties during 1995.
For the year ended December 31, 1995, interest income totalled $32,828 compared
to $19,959 for the year ended December 31, 1994. The increase is primarily
attributable to the Partnership maintaining a larger invested cash balance and
an increase in interest rates earned on the invested cash balance during 1995.
For the year ended December 31, 1995, general and administrative expenses
totalled $255,268 compared to $98,438 for the year ended December 31, 1994.
The increase is primarily attributable to legal costs incurred by the
Partnership in connection with the Proxy Statement mailed to Limited Partners
in March 1996.
1994 vs. 1993
For the year ended December 31, 1994, the Partnership reported net income of
$1,672,606 compared to $1,656,527 for the year ended December 31, 1993. The
increase was primarily attributable to higher rental income in 1994 as a result
of an increase in food and beverage sales at the Properties. During the first
quarter of 1993, the sale of a Property located in Downey, California resulted
in a gain of $44,107. Please refer to the Notes to the Financial Statements in
the Partnership's 1995 Annual Report to Unitholders for additional information
regarding the sale of the Property located in Downey, California.
Expenses for the year ended December 31, 1994 were $960,336 compared to
$905,887 for the year ended December 31, 1993. The increase is primarily
attributable to an increase in general and administrative expenses due to
environmental consulting, and to a lesser extent, increases in ground lease
rent and management fees. The increases in ground lease rent and management
fees correspond to rent escalations and increased percentage rental income,
respectively.
Item 8. Financial Statements and Supplementary Data.
Incorporated by reference to the Partnership's 1995 Annual Report to
Unitholders.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
None.
PART III
Item 10. Directors and Executive Officers of the Partnership.
The General Partner is a New York corporation and an affiliate of Lehman.
On July 31, 1993, Shearson sold certain of its domestic retail brokerage and
asset management businesses to Smith Barney, Harris Upham & Co. Incorporated
("Smith Barney"). Subsequent to this sale, Shearson changed its name to Lehman
Brothers Inc. The transaction did not affect the ownership of the Partnership
or the General Partner. However, the assets acquired by Smith Barney included
the name "Shearson." Consequently, effective January 24, 1994, the General
Partner changed its name from Shearson/BK Properties, Inc. to BK II Properties
Inc. to delete any reference to "Shearson."
The Partnership has no officers and directors. The General Partner manages and
controls the affairs of the Partnership and has general responsibility and
authority in all matters affecting its business. Certain officers and the
director of the General Partner are now serving (or in the past have served) as
officers or directors of entities which act as general partners of a number of
real estate limited partnerships which have sought protection under the
provisions of the Federal Bankruptcy Code. The partnerships which have filed
bankruptcy petitions own real estate which has been adversely affected by the
economic conditions in the markets in which that real estate is located and,
consequently, the partnerships sought the protection of the bankruptcy laws to
protect the partnerships' assets from loss through foreclosure.
The directors and executive officers of the General Partner as of December 31,
1995, are set forth below. There are no family relationships between or among
any officer and any other officer or director.
Name Age Office
Rocco F. Andriola 37 Director, President and Chief Financial Officer
Kenneth Boyle 32 Vice President
Mark J. Marcucci 33 Vice President
Timothy Needham 27 Vice President
The foregoing director has been elected to serve as director until the next
annual meeting of the General Partner. The business experience of the director
and each of the officers of the General Partner of the Partnership is as
follows:
Rocco F. Andriola is a Senior Vice President of Lehman Brothers in its
Diversified Asset Group. Since joining Lehman Brothers in 1986, Mr. Andriola
has been involved in a wide range of restructuring and asset management
activities involving real estate and other direct investment transactions.
From 1986-89, Mr. Andriola served as a Vice President in the Corporate
Transactions Group of Shearson Lehman Brothers' office of the general counsel.
Prior to joining Lehman Brothers, Mr. Andriola practiced corporate and
securities law at Donovan Leisure Newton & Irvine in New York. Mr. Andriola
received a B.A. degree from Fordham University, a J.D. degree from New York
University School of Law, and an LL.M degree in Corporate Law from New York
University's Graduate School of Law.
Kenneth Boyle is a Vice President of Lehman Brothers' Diversified Asset Group.
Mr. Boyle joined Lehman Brothers in January 1991. Mr. Boyle is a Certified
Public Accountant and was employed by the accounting firm of KPMG Peat Marwick
LLP from 1985 to 1990. Mr. Boyle graduated from the State University of New
York at Binghamton with a B.S. degree in Accounting.
Mark J. Marcucci is a Vice President of Lehman Brothers in its Diversified
Asset Group. Since joining Lehman Brothers in 1988, Mr. Marcucci's
responsibilities have been concentrated in the restructuring, asset management,
leasing, financing, refinancing and disposition of commercial office and
residential real estate. Prior to joining Lehman Brothers, Mr. Marcucci was
employed in a corporate lending capacity at Republic National Bank of New York.
Mr. Marcucci received a B.B.A. in Finance from Hofstra University and a Master
of Science in Real Estate from New York University. In addition, Mr. Marcucci
holds both Series 7 and Series 63 securities licenses.
Timothy E. Needham is an Associate of Lehman Brothers and assists in the
management of commercial real estate in the Diversified Asset Group. Mr.
Needham joined Lehman Brothers in September 1995. Prior to joining Lehman
Brothers Mr. Needham was a consultant with KPMG Peat Marwick LLP in the Banking
and Investment Services Group from 1994-1995. Mr. Needham received his M.B.A.
from the American Graduate School of International Management in December of
1993. Previous to entering graduate school, Mr. Needham worked in Tokyo, for
approximately one year doing market research for a Japanese firm (1991). In
addition, Mr. Needham is a candidate for the designation of Chartered Financial
Analyst.
Item 11. Executive Compensation.
Officers and the director of the General Partner are employees of Lehman and
are not compensated by the Partnership or the General Partner for services
rendered in connection with the Partnership.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
(a) Security ownership of certain beneficial owners
The Partnership knows of no person who beneficially owns more than 5%
of the Units.
(b) Security ownership of management - Under the terms of the Partnership
Agreement, the Partnership's affairs are managed by the General Partner. The
General Partner owns the equivalent of one Unit. No directors or officers of
the General Partner own any Units.
(c) Changes in control
None.
Item 13. Certain Relationships and Related Transactions.
(a) Transactions with Management and Others
Incorporated by reference to Note 7 "Transactions with Affiliates" in
the Notes to the Financial Statements of the Partnership's 1995 Annual
Report to Unitholders.
(b) Certain Business Relationships
There have been no business transactions between the director and
officers of the General Partner and the Partnership.
(c) Indebtedness of Management
No management person is indebted in any amount to the Partnership.
(d) Transactions with Promoters
There have been no transactions with promoters.
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.
(a) The following are filed as part of this report:
1. Financial Statements
BURGER KING LIMITED PARTNERSHIP II
(a New York limited partnership)
INDEX TO FINANCIAL STATEMENTS
Independent Auditors' Report (1)
Balance Sheets at December 31, 1995 and 1994 (1)
Statements of Operations for the years ended
December 31, 1995, 1994 and 1993 (1)
Statements of Partners' Capital (Deficit)
for the years ended December 31, 1995, 1994 and 1993 (1)
Statements of Cash Flows for the years ended
December 31, 1995, 1994 and 1993 (1)
Notes to Financial Statements (1)
(1) Incorporated by reference to the Partnership's 1995 Annual
Report filed as an exhibit to the Form 10-K.
2. Financial Statement Schedule
Independent Auditors' Report on Schedule III (F-1)
Schedule III - Real Estate and Accumulated
Depreciation (F-2)
3. Exhibits
(10.1) Agreement of Purchase and Sale made as of October 11,
1995, by and between the Partnership and U.S. Restaurant Properties Operating
L.P. (incorporated by reference to Exhibit 10 to Partnership's Form 10-Q for
the quarter ended September 30, 1995).
(10.2) Amendment No. 1 to Agreement of Purchase and Sale, dated
January 9, 1996, between the Partnership and U.S. Restaurant Properties
Operating L.P. (incorporated by reference to Appendix A to the Partnership's
Proxy Statement dated March 25, 1996).
(13) 1995 Annual Report to the Unitholders
(27) Financial Data Schedule
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the last quarter of
the year ended December 31, 1995.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
Dated: March 29, 1996
BURGER KING LIMITED PARTNERSHIP II
BY: BK II Properties Inc.
General Partner
BY: /s/Rocco F. Andriola
Name: Rocco F. Andriola
Title: Director, President and
Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant in the capacities and on the dates indicated.
BK II PROPERTIES INC.
General Partner
Date: March 29, 1996
BY: /s/Rocco F. Andriola
Rocco F. Andriola
Director, President and
Chief Financial Officer
Date: March 29, 1996
BY: /s/Kenneth Boyle
Kenneth Boyle
Vice President
Date: March 29, 1996
BY: /s/Mark J. Marcucci
Mark J. Marcucci
Vice President
Date: March 29, 1996
BY: /s/Timothy Needham
Timothy Needham
Vice President
___________________INDEPENDENT AUDITORS' REPORT ________________________
The Partners
Burger King Limited Partnership II:
Under date of February 2, 1996, except as to Note 5, which is as of March 25,
1996, we reported on the balance sheets of Burger King Limited Partnership II
(a New York limited partnership) as of December 31, 1995 and 1994, and the
related statements of operations, partners' capital (deficit) and cash flows
for each of the years in the three-year period ended December 31, 1995, as
contained in the 1995 annual report to unit holders. These financial
statements and our report thereon are incorporated by reference in the annual
report on Form 10-K for the year 1995. In connection with our audits of the
aforementioned financial statements, we also have audited the related financial
statement schedule as listed in the accompanying index. This financial
statement schedule is the responsibility of the Partnership's management. Our
responsibility is to express an opinion on the financial statement schedule
based on our audits.
In our opinion, the financial statement schedule, when considered in relation
to the basic financial statements taken as a whole, presents fairly, in all
material respects, the information set forth therein.
KPMG PEAT MARWICK LLP
Boston, Massachusetts
February 2, 1996, except as to Note 5,
which is as of March 25, 1996
BURGER KING LIMITED PARTNERSHIP II
(a New York limited partnership)
Schedule III - Real Estate and Accumulated Depreciation
December 31, 1995
Costs Capitalized
Subsequent
Initial Costs To Acquisition
----------------------------- -----------------
Buildings and Buildings and
Description (A) Encumbrances Land Improvements Improvements
Redlands, CA $ - $ 230,000 $ 257,052 $ -
Garland, TX - 161,000 243,740 -
Nederland, TX - 300,000 342,229 -
St. Peters, MO - 215,000 301,636 -
Marietta, GA - 205,000 245,615 -
Corpus Christi, TX - 215,000 267,272 -
Pelham, AL - 144,444 262,154 -
Milan, TN - 117,000 258,015 -
Greenville, NC - 169,600 258,754 -
Phoenix, AZ - 225,000 249,631 -
Wilmington, NC - (B) 249,393 -
South Bend, IN - 240,000 262,797 -
Riverdale, GA - 230,000 263,130 -
Kansas City, KS - (B) 259,081 -
Erlanger, KY - (B) 222,691 -
Ceres, CA - 216,000 284,204 -
Orange, CA - (B) 229,192 -
Statesboro, GA - (B) 238,748 -
Plano, TX - (B) 258,457 -
Columbus, MS - 185,000 292,222 -
Marietta/Johnson, GA - 200,000 230,977 -
Vernon, CT - (B) 336,348 -
Hot Springs, AK - 200,000 318,240 -
Springfield, MA - (B) 284,487 -
Tucson, AZ - (B) 250,430 -
Glendale, AZ - (B) 252,736 -
Mount Clemens, MI - (B) 258,939 -
Rocky Mount, NC - 225,000 306,686 -
Greenville, MS - 98,500 294,186 -
$ $3,576,544 $7,779,042 $ -
(CONT.)-----------------------------------------------------------------------
Cost Basis at December 31, 1995
---------------------------------------
Buildings and Accumulated
Description (A) Land Improvements Total Depreciation
Redlands, CA $ 230,000 $ 257,052 $ 487,052 $ 193,185
Garland, TX 161,000 243,740 404,740 182,501
Nederland, TX 300,000 342,229 642,229 256,244
St. Peters, MO 215,000 301,636 516,636 225,850
Marietta, GA 205,000 245,615 450,615 183,218
Corpus Christi, TX 215,000 267,272 482,272 199,373
Pelham, AL 144,444 262,154 406,598 195,556
Milan, TN 117,000 258,015 375,015 192,469
Greenville, NC 169,600 258,754 428,354 186,553
Phoenix, AZ 225,000 249,631 474,631 186,235
Wilmington, NC - 249,393 249,393 186,037
South Bend, IN 240,000 262,797 502,797 196,036
Riverdale, GA 230,000 263,130 493,130 195,549
Kansas City, KS - 259,081 259,081 193,263
Erlanger, KY - 222,691 222,691 164,874
Ceres, CA 216,000 284,204 500,204 210,110
Orange, CA - 229,192 229,192 169,688
Statesboro, GA - 238,748 238,748 178,096
Plano, TX - 258,457 258,457 189,941
Columbus, MS 185,000 292,222 477,222 213,117
Marietta/Johnson, GA 200,000 230,977 430,977 168,461
Vernon, CT - 336,348 336,348 246,468
Hot Springs, AK 200,000 318,240 518,240 233,040
Springfield, MA - 284,487 284,487 206,838
Tucson, AZ - 250,430 250,430 180,518
Glendale, AZ - 252,736 252,736 181,592
Mount Clemens, MI - 258,939 258,939 184,555
Rocky Mount, NC 225,000 306,686 531,686 217,710
Greenville, MS 98,500 294,186 392,686 220,716
$3,576,544 $7,779,042 $11,355,586(D) $5,737,793(C)
(CONT.) ------------------------------------------------------------------
Year of
Description (A) Con-
struc- Date Estimated
tion Acquired Useful Life
Redlands, CA 1982 12/30/82 7 - 20 years
Garland, TX 1983 01/06/83 7 - 20 years
Nederland, TX 1983 01/21/83 7 - 20 years
St. Peters, MO 1983 02/16/83 7 - 20 years
Marietta, GA 1983 03/02/83 7 - 20 years
Corpus Christi, TX 1983 03/03/83 7 - 20 years
Pelham, AL 1983 03/08/83 7 - 20 years
Milan, TN 1983 03/10/83 7 - 20 years
Greenville, NC 1983 03/11/83 7 - 20 years
Phoenix, AZ 1983 03/11/83 7 - 20 years
Wilmington, NC 1983 03/25/83 7 - 20 years
South Bend, IN 1983 03/30/83 7 - 20 years
Riverdale, GA 1983 03/30/83 7 - 20 years
Kansas City, KS 1983 04/04/83 7 - 20 years
Erlanger, KY 1983 04/26/83 7 - 20 years
Ceres, CA 1983 05/13/83 7 - 20 years
Orange, CA 1983 05/09/83 7 - 20 years
Statesboro, GA 1983 05/18/83 7 - 20 years
Plano, TX 1983 07/05/83 7 - 20 years
Columbus, MS 1983 08/15/83 7 - 20 years
Marietta/Johnson, GA 1983 08/23/83 7 - 20 years
Vernon, CT 1983 08/24/83 7 - 20 years
Hot Springs, AK 1983 04/15/83 7 - 20 years
Springfield, MA 1983 08/23/83 7 - 20 years
Tucson, AZ 1983 09/29/83 7 - 20 years
Glendale, AZ 1983 12/20/83 7 - 20 years
Mount Clemens, MI 1984 04/13/84 7 - 20 years
Rocky Mount, NC 1984 02/29/84 7 - 20 years
Greenville, MS 1984 06/22/84 7 - 20 years
(A) Represents Burger King restaurants.
(B) Properties operated under a ground lease.
(C) Depreciation is computed under the straight-line method.
(D) Federal income tax basis of the real estate at December 31, 1995 is
$11,355,586.
(CONT.)--------------------------------------------------------------------
A summary of real estate held for investment and accumulated depreciation for
the three years ended December 31, 1995, 1994 and 1993 is as follows:
Real Estate investments: 1995 1994 1993
Beginning of year $11,683,568 $11,683,568 $11,941,245
Deduct: real estate sold 327,982 0 257,677
End of year $11,355,586 $11,683,568 $11,683,568
Accumulated Depreciation:
Beginning of year $ 5,762,960 $ 5,491,374 $ 5,388,267
Add: depreciation expense 200,942 271,586 272,833
Deduct: real estate sold 226,109 0 169,726
End of year $ 5,737,793 $ 5,762,960 $ 5,491,374
EXHIBIT 13.1
BURGER KING LIMITED PARTNERSHIP II
1995 ANNUAL REPORT
Burger King Limited Partnership II commenced operations in 1983 and was formed
to acquire Burger King restaurants which are leased to franchisees of Burger
King Corporation. The Partnership's principal investment objectives are to
make regular cash distributions and to realize long-term appreciation from the
sale of the restaurants.
Partnership's Restaurants (as of December 31, 1995) *
_________________________________________________________
Ceres, California Orange, California
Columbus, Mississippi Pelham, Alabama
Corpus Christi, Texas Phoenix, Arizona
Erlanger, Kentucky Plano, Texas
Garland, Texas Redlands, California
Glendale, Arizona Riverdale, Georgia
Greenville, Mississippi Rocky Mt., North Carolina
Greenville, North Carolina South Bend, Indiana
Hot Springs, Arkansas Springfield, Massachusetts
Kansas City, Kansas St. Peters, Missouri
Marietta, Georgia Statesboro, Georgia
Marietta/Johnson, Georgia Tucson, Arizona
Milan, Tennessee Vernon, Connecticut
Mt. Clemens, Michigan Wilmington, North Carolina
Nederland, Texas
_______________________________________________________________________
* This list does not include four restaurants either sold
or conveyed prior to December 31, 1995. Information on
the restaurant sales occurring in 1993 and 1995 can be
found in the Message to Investors and Notes to the
Financial Statements.
Administrative Inquiries Performance Inquiries/Form 10-Ks
Address Changes/Transfers First Data Investor Services Group
Service Data Corporation P.O. Box 1527
2424 South 130th Circle Boston, Massachusetts 02104-1527
Omaha, Nebraska 68144-2596 Attn: Financial Communications
(800) 223-3464 (select option 1) (800) 223-3464 (select option 2)
Contents
1 Message to Investors
3 Financial Statements
6 Notes to Financial Statements
11 Independent Auditors' Report
_______________________ MESSAGE TO INVESTORS ___________________________
Presented for your review is the 1995 Annual Report for Burger King Limited
Partnership II (the "Partnership"). This report includes an update on the
status of our efforts to sell the Partnership's remaining 29 restaurant
properties (the "Properties"), an overview of the Partnership's cash
distributions and financial performance, and audited financial statements for
the years ended December 31, 1995, 1994 and 1993, respectively.
Sales Update
The Partnership has agreed, subject to the satisfaction of certain conditions,
to sell 17 of the Properties owned in fee simple and to assign all of its
rights in 11 of the Properties subject to ground leases to U.S. Restaurant
Properties Operating L.P., a Delaware limited partnership (the "Buyer"),
pursuant to an Agreement of Purchase and Sale, dated as of October 11, 1995, as
amended as of January 9, 1996 (the "Purchase Agreement").
Pursuant to the terms of the Purchase Agreement, the Buyer agreed to acquire
the Properties for consideration in the amount of $17,025,000 in cash (the
"Purchase Price"), subject to adjustments and prorations for base and
percentage rents as well as certain other charges payable in respect of the
Properties and adjustments in respect of certain closing costs (the "Proposed
Sale"). The Purchase Price is also subject to an increase of $200,000 to an
aggregate of $17,225,000 if the Partnership elects to include a restaurant
located in Marietta, Georgia (the "Marietta Property") in the Proposed Sale.
The General Partner is pursuing parties that may have an interest in purchasing
the Marietta Property for a price in excess of $200,000. If the General
Partner is unable to locate a potential buyer to purchase the Marietta Property
on appropriate terms, the Partnership would, in all likelihood, include the
Marietta Property in the Proposed Sale.
Pursuant to Section 8.3 of the Agreement of Limited Partnership dated as of
August 23, 1982, as amended as of October 19, 1982 (the "Partnership
Agreement"), the limited partners of the Partnership (the "Unitholders") have
the right to vote (assuming certain conditions described in the Partnership
Agreement are met) only upon certain matters. Unitholders voting a majority in
interest may, without the concurrence of the General Partner, cause, among
other things, the disapproval of any sale of all or substantially all of the
assets of the Partnership in a single sale. The Proposed Sale would constitute
a sale of all or substantially all of the Partnership's assets. Accordingly,
Unitholders have the right to disapprove the Proposed Sale.
A proxy statement was mailed to the Unitholders on March 25, 1996 (the "Proxy
Statement"), which describes the term of the Proposed Sale and presents the
Unitholders with the opportunity to call a meeting to consider whether to
disapprove the Proposed Sale. In order to effect a vote to disapprove the
Proposed Sale, Unitholders holding 10% or more in interest of the outstanding
limited partnership interests (the "Units") must submit written requests for a
meeting of the Unitholders pursuant to the Partnership Agreement. While the
General Partner may call a meeting of the Unitholders for any purpose, the
General Partner believes that the Proposed Sale is in the best interest of the
Unitholders and has, therefore, determined not to call a meeting for the
purpose of considering the disapproval of the Proposed Sale.
If the Partnership receives written requests from Unitholders holding 10% or
more in interest of the outstanding Units on or before April 30, 1996, the
General Partner will be required to call a meeting of the Unitholders to
consider the disapproval of the Proposed Sale. If a meeting of the Unitholders
is called, and the Proposed Sale is disapproved by a majority in interest of
the Unitholders, the Purchase Agreement will be terminated pursuant to its
terms, and the Partnership will continue to operate the Properties and
distribute the cash flow from operations to the Unitholders in accordance with
the Partnership Agreement. If, however, a meeting of the Unitholders is
called, and Unitholders holding less than a majority in interest vote to
disapprove the Proposed Sale, the Proposed Sale will be consummated pursuant to
the terms and subject to the conditions set forth in the Purchase Agreement.
The General Partner believes that the Proposed Sale will maximize the
Partnership's realization of the appreciation in the value of the Properties.
The leases with the franchisees at the Properties were originally for 20-year
terms and, for the most part, currently have approximately seven or eight years
remaining. The remaining terms of the leases are one of the primary factors
that a prospective buyer will evaluate in pricing the Properties. As the
leases approach maturity, prospective buyers are likely to attribute a greater
discount in the value of the Properties and, therefore, if the Partnership
continues to hold the Properties, the General Partner believes that the
Properties' fair market value may decrease.
The General Partner also believes that the Proposed Sale is an extremely
attractive opportunity for the Partnership. The Partnership received offers
from a number of prospective buyers, and the Purchase Price offered by the
Buyer represents what the General Partner believes is currently the highest
attainable sale price for the Properties. The Purchase Price of $17,025,000 is
$2,603,000 higher than the Properties' aggregate appraised value of $14,422,000
as of December 31, 1994, which appraised value was disclosed in the
Partnership's 1994 Annual Report.
Cash Distributions
Unitholders received distributions of $136.01 per Unit for 1995, including the
Partnership's 1995 fourth quarter distribution in the amount of $31.18 per Unit
which was paid on January 30, 1996. Distributions for the year included a
distribution of net proceeds totalling $10.01 per Unit from the sale of a
Property located in Ferguson, Missouri during the second quarter of 1995.
Since the inception of the Partnership, cumulative cash distributions to the
Unitholders have totalled $1,744.67 per Unit, or approximately 175% of their
original $1,000 per Unit investment. Please note that $97.96 of the total
cumulative distributions received to date represents net proceeds from the sale
of four Properties and is considered a return of capital. As a result of these
return of capital payments, each Unit has been reduced to $902.04.
Financial Highlights
For the year ended December 31,
1995 1994
Rental Income $ 2,685,255 $ 2,611,183
General and Administrative Expenses 255,268 98,438
Gain on Sales of Properties 49,818 -
Net Income 1,721,520 1,672,606
- Rental income for 1995 increased by approximately 3% from 1994
primarily due to an increase in percentage rent resulting from higher
food and beverage sales at the Properties.
- General and administrative expenses increased by $156,830 in
1995 as compared to 1994 primarily due to legal and other costs
incurred by the Partnership in connection with the preparation and
mailing of the Proxy Statement.
- Gain on sale of Property for 1995 reflects the sale of a
Property located in Ferguson, Missouri in June 1995. Excluding this
gain, the Partnership recognized income from operations totalling
$1,671,702 in 1995, largely unchanged from $1,672,606 in 1994.
Net Asset Value
The Partnership's Net Asset Value for the year ended December 31, 1995 was
$1,059.69 per Unit. This amount represents the theoretical value of each Unit
if the Partnership sold the Properties pursuant to the Proposed Sale.
Unitholders should note that there are no assurances that the Proposed Sale
will be consummated and that even if the Proposed Sale is completed, certain
expenses such as selling and other costs associated with the liquidation of the
Partnership are only estimates and actual expenses may differ. As a result of
these factors and the illiquid nature of an investment in Units of the
Partnership, the variation between the estimated value of the Properties and
the price at which Units of the Partnership could be sold is likely to be
significant. Fiduciaries of Unitholders which are subject to ERISA or other
provisions of law requiring valuation of Units should consider all relevant
factors, including, but not limited to Net Asset Value per Unit, in determining
the fair market value of the investment in the Partnership for such purposes.
Summary
We are pleased with the execution of the Purchase Agreement to sell the
Partnership's remaining Properties. In the event the Proposed Sale is
consummated, we intend to distribute the net proceeds from the Proposed Sale in
accordance with the terms of the Partnership Agreement, and the Partnership
will subsequently be dissolved. An update on the status of the Proposed Sale
and the results of the proxy solicitation will be provided in future
correspondence.
Very truly yours,
Burger King Limited Partnership II
By: BK II Properties Inc.
General Partner
/s/Rocco F. Andriola
By: Rocco F. Andriola
President
March 29, 1996
Balance Sheets
December 31, 1995 and 1994
Assets 1995 1994
Real estate at cost (Note 4):
Land $ - $3,576,544
Building - 5,431,714
Fixtures and equipment - 2,675,310
- 11,683,568
Less - accumulated depreciation - (5,762,960)
- 5,920,608
Real estate held for sale - 5,617,793
Cash and cash equivalents 653,171 680,377
Rent receivable and other assets 232,047 121,417
Total Assets $6,503,011 $6,722,402
Liabilities and Partners' Capital
Liabilities:
Accounts payable and
accrued expenses $ 271,548 $ 44,073
Due to affiliates 1,300 1,397
Distributions payable (Note 8) 553,173 580,378
Total Liabilities 826,021 625,848
Partners' Capital (Deficit):
General Partner (61,128) (54,272)
Limited Partners
(15,000 interests outstanding) 5,738,118 6,150,826
Total Partners' Capital 5,676,990 6,096,554
Total Liabilities and
Partners' Capital $6,503,011 $6,722,402
Statements of Partners' Capital (Deficit)
For the years ended December 31, 1995, 1994 and 1993
Limited General
Partners Partner Total
Balance at December 31, 1992 $ 6,669,624 $ (59,324) $6,610,300
Net income 1,561,823 94,704 1,656,527
Distributions to partners
(Note 8) (1,819,297) (90,192) (1,909,489)
Balance at December 31, 1993 6,412,150 (54,812) 6,357,338
Net income 1,575,396 97,210 1,672,606
Distributions to partners
(Note 8) (1,836,720) (96,670) (1,933,390)
Balance at December 31, 1994 6,150,826 (54,272) 6,096,554
Net income 1,627,390 94,130 1,721,520
Distributions to partners
(Note 8) (2,040,098) (100,986) (2,141,084)
Balance at December 31, 1995 $ 5,738,118 $ (61,128) $5,676,990
Statements of Operations
For the years ended December 31, 1995, 1994 and 1993
Income 1995 1994 1993
Rental income (Note 4) $2,685,255 $2,611,183 $2,501,191
Interest income 32,828 19,959 14,934
Miscellaneous income 1,830 1,800 2,182
Total Income 2,719,913 2,632,942 2,518,307
Expenses
Depreciation 200,942 271,586 272,833
Ground lease rent (Note 4) 359,430 365,772 344,570
Management fee (Note 6) 232,571 224,540 215,660
General and administrative 255,268 98,438 72,824
Total Expenses 1,048,211 960,336 905,887
Income from operations 1,671,702 1,672,606 1,612,420
Other Income
Gain on sale of property
(Notes 4 and 6) 49,818 - 44,107
Net Income $1,721,520 $1,672,606 $1,656,527
Net Income Allocated:
To the General Partner $ 94,130 $ 97,210 $ 94,704
To the Limited Partners 1,627,390 1,575,396 1,561,823
$1,721,520 $1,672,606 $1,656,527
Per limited partnership
interest
(15,000 outstanding) $108.49 $105.03 $104.12
Statements of Cash Flows
For the years ended December 31, 1995, 1994 and 1993
Cash Flows from Operating Activities:
1995 1994 1993
Net income $ 1,721,520 $ 1,672,606 $ 1,656,527
Adjustments to reconcile
net income to net cash
provided by operating
activities:
Depreciation 200,942 271,586 272,833
Gain on sale of property (49,818) - (44,107)
Increase (decrease) in
cash arising from changes
in operating assets and
liabilities:
Rent receivable and
other assets (110,630) (5,899) (33,142)
Accounts payable and
accrued expenses 227,475 (3,406) 5,979
Due to affiliates (97) (1,498) 1,295
Net cash provided by
operating activities 1,989,392 1,933,389 1,859,385
Cash Flows from Investing Activities:
Proceeds from sale
of property 151,691 - 132,058
Net cash provided by
investing activities 151,691 - 132,058
Cash Flows from Financing Activities:
Cash distributions to partners (2,168,289) (1,879,872) (2,202,098)
Net cash used for
financing activities (2,168,289) (1,879,872) (2,202,098)
Net increase (decrease) in
cash and cash equivalents (27,206) 53,517 (210,655)
Cash and cash equivalents
at beginning of year 680,377 626,860 837,515
Cash and cash equivalents
at end of year $ 653,171 $ 680,377 $ 626,860
Notes to Financial Statements
December 31, 1995, 1994 and 1993
1. Organization
Burger King Limited Partnership II (the "Partnership") was formed as a New York
limited partnership on August 23, 1982. The Partnership was formed for the
purpose of acquiring, constructing, improving, holding, and maintaining Burger
King restaurants (the "Properties"). The Properties are leased on a long-term
net basis to franchisees of Burger King Corporation ("Burger King").
The general partner is BK II Properties Inc. (the "General Partner"), formerly
Shearson/BK Properties, Inc., an affiliate of Lehman Brothers Inc. On July 31,
1993, certain of Shearson Lehman Brothers Inc.'s domestic retail brokerage and
management businesses were sold to Smith Barney, Harris Upham & Co. Inc.
Included in the purchase was the name "Shearson." Consequently, the General
Partner's name was changed to delete any reference to "Shearson."
2. Significant Accounting Policies
Basis of Accounting. The accompanying financial statements have been prepared on
the accrual basis of accounting in accordance with generally accepted
accounting principles. Revenues are recognized as earned and expenses are
recorded as obligations are incurred. Partnership's revenue is realized from
base and percentage rents received on each individual property. Base rents on
the leased properties increase in an amount equal to corresponding increases in
expenses incurred pursuant to the underlying ground leases. Accordingly, the
net base rents that the Partnership receives do not change during the lease
terms.
Real Estate Investments. Real estate investments, which consist of buildings,
fixtures and improvements and, in some cases, the underlying land are recorded
at cost less accumulated depreciation. Cost includes the initial purchase
price of the Properties plus closing costs, acquisition and legal fees and
original capital improvements. Depreciation of buildings is computed using the
straight-line method over an estimated useful life of 20 years. Depreciation
of the fixtures and improvements was computed under the straight-line method
over an estimated useful life of 7 years. The Partnership's Properties held
for sale are recorded at the lower of amortized cost or fair market value.
Accounting for Impairment. In March 1995, the Financial Accounting Standards
Board issued Statement of Financial Accounting Standards No. 121, " Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be
Disposed Of" ("FAS 121"), which requires impairment losses to be recorded on
long-lived assets used in operations when indicators of impairment are present
and the undiscounted cash flows estimated to be generated by those assets are
less than the assets' carrying amount. FAS 121 also addresses the accounting
for long-lived assets that are expected to be disposed of. The Partnership
adopted FAS 121 in the fourth quarter of 1995. Based on current circumstances,
adoption of FAS 121 had no impact on the Partnership's financial statements.
Cash Equivalents. Cash equivalents consist of short-term highly liquid
investments which have maturities of three months or less from the date of
purchase. The carrying value approximates fair value because of the short
maturity of these instruments.
Concentration of Credit Risk. Financial instruments which potentially subject
the Partnership to a concentration of credit risk principally consist of cash
in excess of the financial institutions' insurance limits. The Partnership
invests available cash with high credit quality financial institutions.
Income Taxes. No provision for income taxes has been made in the financial
statements of the Partnership since such taxes are the responsibility of the
individual partners rather than of the Partnership.
Use of 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.
3. Partnership Allocations
Allocation of Income and Loss. In accordance with the partnership agreement
dated August 23, 1982 (the "Partnership Agreement"), credits and income or gain
from the Partnership's operations are allocated, without regard to
depreciation, in proportion to distributions of net cash flows from operations
made to the partners. To the extent that any such income or gain exceeds
distributions in any year, such excess shall be allocated 95% to the limited
partners and 5% to the General Partner. Depreciation shall be allocated
annually in proportion to the partners' respective capital accounts as of the
beginning of the year.
Net income is allocated monthly, and is apportioned to the limited partners of
the Partnership in the pro rata basis in which the number of interests owned by
each limited partner on the last day of the month bears to the total number of
interests owned by the General Partner and all the limited partners as of that
date. At December 31, 1995, 1994 and 1993 and for the years then ended, there
were 15,000 units of limited partnership interests outstanding (the
"Interests").
Gains with respect to disposition of the Properties shall be allocated as
follows: first, 99% to the limited partners and 1% to the General Partner until
the limited partners achieve payout as defined in the Partnership Agreement
("Payout"); second, to any partner in an amount sufficient to increase his
negative capital account to zero; and third, 88.89% to the limited partners and
11.11% to the General Partner. Subsequent to Payout gains shall be allocated
to the General Partner until his capital account equals 11.11% of the aggregate
outstanding capital balances of all the partners and any remaining gain shall
be allocated 88.89% to the limited partners and 11.11% to the General Partner.
Prior to Payout, losses shall be allocated 99% to the limited partners and 1%
to the General Partner. Subsequent to Payout, losses shall be allocated 88.89%
to the limited partners and 11.11% to the General Partner.
Cash Distributions. Distributions of net cash flows from operations are made
quarterly, and are allocated 95% to the limited partners and 1% to the General
Partner, with the remaining 4% distributed to the limited partners to the
extent that cash distributions to the limited partners for the Partnership's
fiscal year do not equal at least 12.5% of their remaining invested capital and
the remainder, if any, is distributed to the General Partner. For the year
ended December 31, 1995, distributions to the limited partners were in excess
of a 12.5% return on their remaining invested capital as defined in the
Partnership Agreement.
Distributions of net property disposition proceeds are made quarterly and are
allocated 99% to the limited partners and 1% to the General Partner until
Payout. After Payout, Burger King receives an additional management fee equal
to 10% of the net property disposition proceeds, and the remainder is
distributed 88.89% to the limited partners and 11.11% to the General Partner.
As of December 31, 1995, Payout had not occurred.
4. Real Estate
As of December 31, 1995, the Partnership owned 29 Properties, and as of
December 31, 1994 and 1993, the Partnership owned 30 Properties, consisting of
the restaurant buildings, fixtures and improvements, and in some cases, the
underlying land.
The leases between the Partnership and the franchisees (the "Leases") had an
initial term of 20 years with no renewal options. With respect to those
Properties in which the Partnership does not own the underlying land, there is
a ground lease between the Partnership and Burger King (collectively, the
"Ground Leases"). The Ground Leases had an initial term of 10 years with a
minimum of two five-year renewal options. All of the Leases expire in the year
2003 or 2004. Minimum future rentals on the noncancelable term of the Leases
and the related Ground Leases as of December 31, 1995 are as follows:
Minimum Ground
Year ending Rental Lease
December 31, Income Obligation
1996 $ 2,029,175 $ 355,992
1997 2,029,175 355,992
1998 2,043,609 373,417
1999 2,088,812 418,979
2000 2,092,366 422,757
Thereafter 5,557,306 1,160,619
$15,840,443 $3,087,756
The Leases are on a net basis and the franchisees are required to pay all
taxes, assessments, maintenance costs, insurance premiums and other impositions
against the premises. The lessee is also required to make percentage rental
payments to the extent that 8.5% of such lessee's gross sales exceed the
minimum base rent paid by the lessee. Percentage rental income for the years
ended December 31, 1995, 1994, and 1993 was $634,378, $529,695 and $432,053,
respectively.
During the year ended December 31, 1995, the Partnership sold the following
Property:
Date Adjusted Net Gain
of Selling Book on
Store Sale Price Value Sale
Ferguson, MO 6/30/95 $151,691 $101,873 $49,818
5. Proposed Sale of Real Estate
The Partnership has agreed, subject to the satisfaction of certain conditions,
to sell 17 of the Partnership's Properties owned in fee simple and to assign
all of its rights in 11 of the Partnership's Properties subject to ground
leases (the "Leased to U.S. Restaurant Properties Operating L.P., a Delaware
limited partnership (the "Buyer"), pursuant to an Agreement of Purchase and
Sale, dated as of October 11, 1995, as amended as of January 9, 1996 (the
"Purchase Agreement").
Pursuant to the terms of the Purchase Agreement, subject to the satisfaction of
certain conditions, the Buyer agreed to acquire the Properties for
consideration in the amount of $17,025,00 in cash (the "Purchase Price"),
subject to adjustments and prorations for base and percentage rents as well as
certain other charges payable in respect of the Properties and adjustments in
respect of certain closing costs (the "Proposed Sale"). The Purchase Price is
also subject to an increase of $200,000 to an aggregate of $17,225,000 if the
Partnership elects to include a restaurant located in Marietta, Georgia (the
"Marietta Property") in the Proposed Sale. The General Partner is pursuing
parties that may have an interest in purchasing the Marietta Property for a
price in excess of $200,000. If the General Partner is unsuccessful in
locating a potential purchaser, the Partnership would, in all likelihood,
include the Marietta Property in the Proposed Sale.
Pursuant to Section 8.3 of the Agreement of Limited Partnership dated as of
August 23, 1982, as amended as of October 19, 1982 (the "Partnership
Agreement"), the limited partners of the Partnership (the "Unitholders") have
the right to vote (assuming certain conditions described in the Partnership
Agreement are met) only upon certain matters and Unitholders voting a majority
in interest may, without the concurrence of the General Partner, cause, among
other things, the disapproval of any sale of all or substantially all of the
assets of the Partnership in a single sale. The Proposed Sale would constitute
a sale of all or substantially all of the Partnership's assets. Accordingly,
Unitholders have the right to disapprove the Proposed Sale.
On March 25,1996, a proxy statement was mailed to the Unitholders which
describes the terms of the Proposed Sale and presents the Unitholders with the
opportunity to call a meeting to consider whether to disapprove the Proposed
Sale. In order to effect a vote to disapprove the Proposed Sale, Unitholders
holding 10% or more in interest of the outstanding limited partnership
interests (the "Units") must submit written requests for a meeting of the
Unitholders pursuant to the Partnership Agreement. While the General Partner
may call a meeting of the Unitholders for any purpose, the General Partner
believes that the Proposed Sale is in the best interest of the Unitholders and
has, therefore, determined not to call a meeting for the purpose of considering
the disapproval of the Proposed Sale.
If the Partnership receives written requests from Unitholders holding 10% or
more in interest of the outstanding Units on or before April 30, 1996, the
General Partner will be required to call a meeting of the Unitholders to
consider the disapproval of the Proposed Sale. If a meeting of the Unitholders
is called, and the Proposed Sale is disapproved by a majority in interest of
the Unitholders, the Purchase Agreement will be terminated pursuant to its
terms, and the Partnership will continue to operate the Properties and
distribute the cash flow from operations to the Unitholders in accordance with
the Partnership Agreement. If, however, a meeting of the Unitholders is
called, and Unitholders holding less than a majority in interest vote to
disapprove the Proposed Sale, the Proposed Sale will be consummated pursuant to
the terms and subject to the conditions set forth in the Purchase Agreement.
6. Management Agreement
The Partnership has entered into agreements with Burger King for the management
of the Properties. These agreements provide for a fee equal to 10% of the
rents received by the Partnership from the Properties, as defined in the
Partnership Agreement. To the extent the annual rental income from the
Properties is less than 15% of the Partnership's investments in the Properties,
Burger King is required to refund all or a portion of such management fee to
provide the Partnership with a 15% return on funds invested in the Properties.
At December 31, 1995 and 1994, no such amounts were due from Burger King.
Pursuant to an indemnity agreement, Burger King is obligated to contribute
minimum monthly rent payments in the event of a default under the Leases up to
the indemnity amount, as defined below. The indemnity amount was originally
10% of the Partnership's original investment in the Properties as defined in
the Partnership Agreement, or $1,295,797. The indemnity amount may be
decreased by the amount of the minimum monthly rent payments made by Burger
King to the Partnership pursuant to the indemnity agreement. In 1988 and
subsequent years, the indemnity amount was decreased on an annual basis by an
amount equal to the greater of (1) payments made by Burger King pursuant to the
indemnity agreement or (2) 6-2/3% of the fifth year amount of the indemnity
until it is reduced to zero. On December 31, 1995, the indemnity amount was
approximately $518,396.
The Property located in Milan, Tennessee ceased operations on September 9, 1994
and re-opened on April 10, 1995. Burger King funded the minimum monthly rent
payments to the Partnership during the interim period in accordance with the
indemnity agreement.
During 1990, a Property located in Downey, California ceased operations and
subsequently defaulted on its minimum rent obligations. Burger King funded
minimum monthly rent payments to the Partnership in accordance with the
indemnity agreement, and in February 1993, the Partnership sold the Property
located in Downey, California to a third-party. The restaurant, at the date
of sale, had a net book value of $87,951, resulting in a gain on sale of
$44,107.
7. Transactions with Affiliates
The amount of fees received for services performed and reimbursements for
expenses incurred on the Partnership's behalf by affiliates as of December 31,
1995, 1994 and 1993 was $5,805, $3,185 and $5,787, respectively, of which
$1,300 and $1,397 were unpaid at December 31, 1995 and 1994, respectively.
Cash and cash equivalents reflected on the Partnership's balance sheets at
December 31, 1995 and 1994 were on deposit with an affiliate of the General
Partner.
8. Distributions
Distributions paid or payable to limited partners and the General Partner for
the years ended December 31, 1995, 1994 and 1993, aggregated:
1995 1994 1993
------------------- ------------------- -------------------
Total Per Unit Total Per Unit Total Per Unit
Limited Partners
Cash flow from $1,889,924 $125.99 $1,836,720 $122.45 $1,688,559 $112.57
operations
Net property
disposition 150,174 10.01 - - 130,738 8.72
proceeds
Total Limited
Partners $2,040,098 $136.00 $1,836,720 $122.45 $1,819,297 $121.29
General Partner
Cash flow from $ 99,469 - $ 96,670 - $ 88,872 -
operations
Net property
disposition 1,517 - - - 1,320 -
proceeds
Total General
Partner $ 100,986 - $ 96,670 - $ 90,192 -
As of December 31, 1995, the Partnership had declared distributions of
$492,380, of which $467,761 ($31.18 per unit) was paid to limited partners and
$4,924 was paid to the General Partner on January 30, 1996. The remaining
portion in the amount of $19,695 was distributed to the General Partner in
accordance with the Partnership Agreement.
Pursuant to the terms of the Partnership Agreement, 80% of the General
Partner's quarterly distributions from operations are retained by the
Partnership, until it is determined that the Unitholders have received their
priority return as defined in the Partnership Agreement. For the year ended
December 31, 1995, the Unitholders had received their priority return, and all
amounts retained during 1995 were paid to the General Partner on January 30,
1996 in a distribution which amounted to $79,575, which included $19,695 for
the fourth quarter of 1995.
9. Reconciliation of Financial Statement Net Income and Partners' Capital to
Federal Income Tax Basis Net Income and Partners' Capital
Reconciliation of financial statement net income to federal income tax basis
net income:
Years Ended December 31,
1995 1994 1993
Financial statement net income $1,721,520 $1,672,606 $1,656,527
Tax basis depreciation over
financial statement depreciation (235,055) (264,175) (275,980)
Tax basis gain on sales of
Properties over financial
statement gain on sales
of Properties 9,959 - 14,625
Other 61,962 - -
Federal income tax
basis net income $1,558,386 $1,408,431 $1,395,172
Reconciliation of financial statement basis partners' capital to federal income
tax basis partners' capital:
Years Ended December 31,
1995 1994 1993
Financial statement
basis partners' capital $5,676,990 $6,096,554 $6,357,338
Current year financial
statement net income
over federal income tax
basis net income (163,134) (264,175) (261,355)
Cumulative federal income
tax basis net income
over cumulative financial
statement net income 1,005,129 1,269,304 1,530,659
Federal income tax basis
partners' capital $6,518,985 $7,101,683 $7,626,642
Because many types of transactions are susceptible to varying interpretations
under Federal and state tax laws and regulations, the amounts reported above
may be subject to change at a later date upon final determination by the taxing
authorities.
_____________________ INDEPENDENT AUDITORS' REPORT ____________________
The Partners
Burger King Limited Partnership II:
We have audited the accompanying balance sheets of Burger King Limited
Partnership II (a New York limited partnership) as of December 31, 1995 and
1994, and the related statements of operations, partners' capital (deficit) and
cash flows for each of the years in the three-year period ended December 31,
1995. These financial statements are the responsibility of the Partnership's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards 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. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Burger King Limited
Partnership II at December 31, 1995 and 1994, and the results of its operations
and its cash flows for each of the years in the three-year period ended
December 31, 1995, in conformity with generally accepted accounting principles.
KPMG PEAT MARWICK LLP
Boston, Massachusetts
February 2, 1996, except as to Note 5,
which is as of March 25, 1996
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<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<CASH> 653,171
<SECURITIES> 000
<RECEIVABLES> 232,047
<ALLOWANCES> 000
<INVENTORY> 000
<CURRENT-ASSETS> 885,218
<PP&E> 11,355,586
<DEPRECIATION> (5,737,793)
<TOTAL-ASSETS> 6,503,011
<CURRENT-LIABILITIES> 826,021
<BONDS> 000
<COMMON> 000
000
000
<OTHER-SE> 5,676,990
<TOTAL-LIABILITY-AND-EQUITY> 6,503,011
<SALES> 000
<TOTAL-REVENUES> 2,769,731
<CGS> 000
<TOTAL-COSTS> 000
<OTHER-EXPENSES> 1,048,211
<LOSS-PROVISION> 000
<INTEREST-EXPENSE> 000
<INCOME-PRETAX> 1,721,520
<INCOME-TAX> 000
<INCOME-CONTINUING> 1,721,520
<DISCONTINUED> 000
<EXTRAORDINARY> 000
<CHANGES> 000
<NET-INCOME> 1,721,520
<EPS-PRIMARY> 108.49
<EPS-DILUTED> 000
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