UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 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 0-15802
-------
QSR INCOME PROPERTIES, LTD.
---------------------------
(Exact name of registrant as specified in its charter)
CALIFORNIA 95-4084042
- -------------------------------- ----------------------------
(State or other jurisdiction of
incorporation or organization) (IRS Employer Identification Number)
600 NORTH BRAND BLVD., SUITE 300
GLENDALE, CALIFORNIA 91203
- -------------------------------- ----------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (818) 244-8080
--------------
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange
on which registered
NONE NONE
----- -----
Securities registered pursuant to Section 12(g) of the Act:
UNITS OF LIMITED PARTNERSHIP INTEREST
-------------------------------------
(Title of class)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such
shorter period that the registrant was required to file such reports)
and (2) has been subject to such filing requirements for the past 90
days.
Yes X No
-- --
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. X
DOCUMENTS INCORPORATED BY REFERENCE
NONE
----
PART I
ITEM 1. BUSINESS.
----------
QSR Income Properties, Ltd. (the "Partnership") is a publicly held limited
partnership organized on November 1, 1985 under the California Revised Limited
Partnership Act. Commencing in June 1986, 100,000 units of limited partnership
interest (the "Units") were offered to the public in an interstate offering. The
offering was terminated on April 30, 1987 after the sale of 52,004 Units.
The Partnership was formed to invest in property for development and
operation of Rocky Rococo restaurants under an agreement with Rocky Rococo
Corporation ("Rocky Rococo"), an operator and franchiser of pizza restaurants.
The Partnership's original general partners were Madison Pizza Corporation, a
Delaware corporation ("Madison"), and B. Wayne Hughes ("Mr. Hughes"). Effective
December 1, 1989, Madison resigned as a general partner and Mr. Hughes succeeded
to Madison's general partner interest in a transaction approved by Limited
Partners holding a majority of the Units. Madison was subsequently dissolved on
December 28, 1989. Madison had been organized by Rocky Rococo and a group of
individuals, including Mr. Hughes, who had been previously engaged in real
estate development, management and syndication ventures not related to Rocky
Rococo (the "Organizing Shareholders"). Mr. Hughes and certain other Organizing
Shareholders disposed of their Madison and Rocky Rococo stock in 1989.
In 1988, Rocky Rococo and the Partnership discontinued operations in
various markets because the restaurants in those markets had not operated
profitably. All 23 of the Partnership's restaurants were closed because of
disappointing operating results between 1988 and 1990.
Since 1988, the Partnership has pursued the leasing or selling of its
closed restaurants to unaffiliated restaurant operators. The Partnership has
attempted to lease the facilities to unaffiliated restaurant operators while
holding them available for sale.
As of December 31, 1995, 22 of the 23 restaurants have been redeployed. Of
the 22 redeployed facilities, the leases related to seven facilities have been
either transferred to unaffiliated operators or have been terminated. The
remaining 15 have been leased (or subleased) to unaffiliated restaurant
operators.
The Partnership is continuing to pursue the lease or other disposition of
its remaining closed restaurant that has not been redeployed. In 1995 the
Partnership incurred $46,000 of holding expenses for closed restaurants. Because
of current market conditions, the remaining closed facility may not be
redeployable on satisfactory terms in the foreseeable future, and the
Partnership will continue to bear the expenses of holding this property until it
can be successfully redeployed.
Madison contributed a total of $912,000 ($561,000 in 1989 and $351,000 in
1988) to the Partnership in full satisfaction of its obligations under a
contribution agreement entered into in 1988. The funds contributed by Madison
were not accrued to the benefit of Madison and were used primarily for funding
ongoing fixed costs and restructuring transition expenditures. Accordingly, the
amount contributed was reflected in the attached financial statements as a
General Partner contribution with a subsequent "equity transfer" to the Limited
Partners.
Since Madison's resignation, the Partnership has been managed by Mr.
Hughes. Prior to the resignation of Madison as a general partner, the
Partnership was managed by the executive officers of Madison and by Mr. Hughes.
The limited partners of the Partnership have no right to participate in the
management or conduct of the Partnership's business and affairs.
Currently, there are four persons who render services on behalf of the
Partnership on a part-time basis. These persons include accounting,
administrative, clerical and real estate personnel. The persons rendering
services on a part-time basis also render services on behalf of one or more
corporations previously owned by Madison, other partnerships organized by
Madison and other affiliated corporations and partnerships of Mr. Hughes.
The term of the Partnership is until all properties have been sold and, in
any event, not later than December 31, 2040.
ITEM 2. PROPERTIES.
-----------
The Partnership had developed and operated 23 restaurant properties through
June 1988.
The Partnership transferred or otherwise terminated its ownership or
leasehold interests in seven of its 23 properties. Of the 16 closed properties
that continued to be owned or leased by the Partnership, fifteen have been
leased or subleased to unaffiliated operators. The Partnership is currently
seeking the sale or lease of the remaining restaurant facility. The following
table sets forth information as of December 31, 1995, concerning the 16
restaurant properties (each having from 2,800 to 3,450 square feet of restaurant
space) that continue to be owned or leased by the Partnership:
<TABLE>
<CAPTION>
SIZE OF
PARCEL DATE OF DATE DATE LEASE
LOCATION (SQ. FT.) PURCHASE LEASED EXPIRES
-------- --------- -------- ------ -------
<S> <C> <C> <C>
INDIANA
3846 Lafayette
Indianapolis, IN 29,000 March 12, 1987 July 1989 July 2004
7863 U.S. 31 S.
Greenwood, IN 37,400 March 12, 1987 November 1990 November 2005
9755 E. Washington St.
Indianapolis, IN 45,000 July 13, 1987 February 1989 February 2004
315 College Mall Rd.
Bloomington, IN 43,500 Land Lease October 1989 October 2004
909 W. McGalliard
Muncie, IN 23,800 October 1, 1987 September 1989 June 2007
COLORADO
9200 Arapahoe Rd.
Green Village, CO 36,100 June 23, 1986 September 1990 December 2009
MINNESOTA
5101 W. 98th St.
Bloomington, MN 43,600 Land Lease September 1989 September 2003
2880 Coon Rapids Blvd. (1)
Coon Rapids, MN 60,000 May 15, 1987 N/A N/A
2130 & Cliff Rd.
Eagan, MN 59,800 May 1, 1987 August 1989 May 2003
MISSOURI
100 Old Sugar Creek Rd.
Fenton, MO 32,500 September 16, 1987 June 1989 June 2001
8071 Manchester Rd.
Brentwood, MO 31,200 Land Lease September 1991 September 1996
Size of
Parcel Date of Date Date Lease
Location (Sq. Ft.) Purchase Leased Expires
-------- --------- -------- ------ -------
ILLINOIS
1617 N. Belt West
Bellville, IL 49,800 November 7, 1986 December 1989 December 1996
500 S. Illinois St.
Bellville, IL 28,000 July 8, 1987 May 1991 April 2011
235 S. Bolingbrook Dr.
Bolingbrook, IL 23,800 January 21, 1988 September 1989 September 2003
6820 E Northwest Hwy.
Crystal Lake, IL 62,000 December 14, 1987 October 1989 March 1999
WISCONSIN
7411 122nd Ave.
Bristol (Kenosha), WI 43,700 December 30, 1986 April 1993 December 2003
</TABLE>
- --------
(1) Facility has been closed but not yet redeployed.
Set forth below are summaries of the 15 facilities currently leased to
unaffiliated operators.
The restaurant located at 3846 Lafayette in Indianapolis, Indiana, which is
owned by the Partnership, has been leased on a triple net basis to a Midwest
pizza chain at a rate of $74,000 per year. The lease also includes a percentage
rent feature with respect to incremental sales above specified levels. The lease
has a term of 15 years, with two five-year renewal options.
The restaurant located at 7863 U.S. 31 South in Greenwood, Indiana, which
is owned by the Partnership, has been leased to a restaurant chain for $96,000
per year. This lease provides for a 15% increase in rent every five years with
two five-year renewal options.
The restaurant located at 9755 East Washington in Indianapolis, Indiana,
which is owned by the Partnership, has been leased to a restaurant chain, at a
rate of $74,000 per year. This lease, which became effective in February 1989,
provides for a 16% base rent increase every five years with two five-year
renewal options.
The restaurant located at 315 College Mall Road in Bloomington, Indiana,
which is located on land leased by the Partnership, has been subleased to a
Supermarket chain at a rate of $80,000 ($46,000 net to the Partnership) per
year. This lease provides for a 12% increase in base rent every four years with
two five-year renewal options.
The restaurant in Muncie, Indiana, which is owned by the Partnership, was
leased to a restaurant chain at a rate of $58,000 per year. The lease became
effective in September 1989 and provides for a 10% increase in base rent every
five years with four five-year renewal options. The lease also includes a
percentage rent feature with respect to incremental sales above specified
levels.
The restaurant located at 9200 Arapahoe Road in Green Village, Colorado,
which is owned by the Partnership, has been leased to a restaurant chain for
$95,000 per year. This lease provides for a 15% increase in rent every five
years with one eight-year renewal option.
The restaurant located in Bloomington, Minnesota, which located on land
leased by the Partnership, has been subleased to a restaurant chain for a gross
rental of $82,000 ($47,000 net to the Partnership) per year. The Partnership, in
its capacity as lessee, is currently paying $35,000 to the ground lessor. The
sublease allows the Partnership to sell its leasehold interest at any time,
although tenant has been granted a right of first refusal for any sale
transaction. The terms of the sublease provide for a 9% increase in base rent
every three years with two five-year renewal options. The lease also includes a
percentage rent feature with respect to incremental sales above specified
levels.
The restaurant located at 2130 and Cliff Road in Eagan, Minnesota, which is
owned by the Partnership, has also been leased to a restaurant chain, at a rate
of $78,000 per year. This lease provides for a 9% increase in base rent every
three years with two five-year renewal options. The lease also includes a
percentage rent feature with respect to incremental sales above specified
levels.
The restaurant located at 100 Old Sugar Creek Road in Fenton, Missouri,
which is owned by the Partnership, has been leased to a restaurant chain at a
rate of $75,000 per year. This lease provides for a 15% increase in base rent
every five years with three five-year renewal options.
The restaurant located at 1617 N. Belt West in Bellville, Illinois, which
is owned by the Partnership, has been leased to a restaurant chain at a rate of
$66,000 per year. The lease expires in December 1996 and provides for three
five-year renewal options.
The restaurant located at 235 S. Bolingbrook Drive in Bolingbrook,
Illinois, which is owned by the Partnership, has been leased to a restaurant
chain, at a rate of $71,000 per year. This lease provides for a 9% increase in
base rent every three years with two five-year renewal options. The lease also
includes a percentage rent feature with respect to incremental sales above
specified levels.
The restaurant located at 6820 E. Northwest Highway in Crystal Lake,
Illinois, which is owned by the Partnership, was leased to a restaurant chain
for $77,000 per year. This lease provides for a 12% increase in rent every four
years with two five-year renewal options. The lease also includes a percentage
rent feature with respect to incremental sales above specified levels.
The restaurant located at 500 S. Illinois Street in Belville, Illinois,
which is owned by the Partnership, has been leased to a restaurant chain, at a
rate of $66,000 per year. This lease provides for a 15% increase in base rent
every five years with two five year renewal options.
The restaurant located at 8071 Manchester Road in Brentwood, Missouri,
which is located on land leased by the Partnership, has been subleased to a
restaurant chain at a rate of $44,000 ($1,500 net to the Partnership) per year.
The lease expires in September 1996 and provides for two three-year and one two
year renewal options.
The restaurant located at 7411 122nd Avenue in Kenosha, Wisconsin, which is
owned by the Partnership, has been leased to a restaurant chain for $36,000 per
year. The lease provides for a 10% increase in base rent every four years with
one five-year renewal option.
ITEM 3. LEGAL PROCEEDINGS.
-----------------
No material legal proceedings are pending against the Partnership.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
----------------------------------------------------
No matters were submitted to a vote of security holders during the fourth
quarter of 1995.
PART II
ITEM 5. MARKET FOR THE PARTNERSHIP'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS.
------------------------------------------------------------------
No public trading market exists for the units of limited partnership
interest.
Exclusive of the general partner's interest in the Partnership, as of
December 31, 1995, there were approximately 3,018 record holders of Units.
Distributions to the general partner and to the Partnership's Limited
Partners are made quarterly based on "Cash Available for Distribution". Cash
Available for Distribution is generally the sum of (i) cash funds from
operations of the Partnership, without deductions for depreciation, but after
deducting for capital improvements, plus (ii) net proceeds from any sale or
financing of the Partnership's properties, less adequate cash reserves for other
obligations of the Partnership for which there is no other provision.
The aggregate amount of distributions paid to the limited and general
partners in each year since inception of the Partnership were as follows:
Limited General
Partners Partner Total
-------- ------- -----
1986 $ 32,000 $ 3,000 $ 35,000
1987 451,000 43,000 494,000
1988 390,000 16,000 406,000
1989 520,000 5,000 525,000
1990 520,000 5,000 525,000
1991 1,495,000 147,000 1,642,000
1992 520,000 51,000 571,000
1993 520,000 51,000 571,000
1994 1,834,000 179,000 2,013,000
1995 676,000 66,000 742,000
------- ------ -------
Total $6,958,000 $566,000 $7,524,000
========== ======== ==========
Because of the Partnership's disappointing operating results, the General
Partners waived their incentive distributions associated with the Partnership's
distributions to Limited Partners from the second quarter of 1988 through fourth
quarter 1990.
The general partner has an 8% interest in cash distributions attributable to
operations (exclusive of distributions attributable to sale and financing
proceeds) until the limited partners recover all of their investment, regardless
of source. Thereafter, the general partner has a 25% interest in all cash
distributions (including sale and financing proceeds). At December 31, 1995
cumulative distributions to limited partners were $6,958,000; accordingly
$19,044,000 of additional distributions are required to be made to the limited
partners for the limited partners to recover their capital contributions.
ITEM 6. SELECTED FINANCIAL DATA.
-----------------------
<TABLE>
<CAPTION>
Year ended December 31,
--------------------------------------------------------------------------
1995 1994 1993 1992 1991
---- ---- ---- ---- ----
(In thousands, except per unit amounts)
<S> <C> <C> <C> <C> <C>
Operating data
- --------------
Lease income $1,062 $1,023 $949 $1,034 $904
Interest income 88 110 60 79 185
Write-down of restaurant facility (400) - - - -
Loss on sale of real estate facility (406) - - - -
Net income (Loss) (180) 618 373 463 294
Limited partners' share (180) 453 324 412 161
General partner's share 57 165 49 51 133
Limited partners' per unit data (1):
Net income (Loss) $(4.55) $ 8.71 $ 6.23 $ 7.92 $ 3.10
Cash distributions 13.00 35.25 (2) 10.00 10.00 28.75 (2)
Balance Sheet
- -------------
Assets $11,617 $12,550 $13,971 $14,083 $14,185
Partners' equity 11,469 12,391 13,786 13,984 14,092
</TABLE>
(1) Per unit data is based on 52,004 limited partnership units outstanding
during the years ended December 31, 1995 and 1994, 1993, 1992 and 1991.
(2) Includes a special distribution per unit of $25.25 and $18.75 in 1994 and
1991, respectively, to distribute excess cash reserves.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
--------------------------------------------------------------------
The Partnership's activity began in June 1986 with the offering of up to
100,000 units of limited partnership interest to the public in an interstate
offering of which 52,004 units were sold.
In 1988, the Partnership commenced a program to terminate activities
associated with operating its properties as Rocky Rococo restaurants and dispose
of its leasehold interests and redeploy its property interests by seeking well
known, unaffiliated third party lessees to lease its properties.
As of December 31, 1988, the Partnership had acquired or entered into
leases for 23 properties, all of which had been fully improved. The total cost
of developing the Partnership's 23 restaurant facilities was $18,231,000, and
was funded entirely through offering proceeds.
During 1988 through 1990, the Partnership's 23 restaurants were closed
because they were not operating profitably. (See Item 1 above for additional
information regarding the closing of the Partnership's restaurants.)
As of December 31, 1995, 22 of the 23 facilities have been redeployed by
the sale of seven facilities and by leasing fifteen facilities to third party
tenants.
YEAR ENDED DECEMBER 31, 1995 COMPARED TO YEAR ENDED DECEMBER 31, 1994:
The Partnership's net income decreased $798,000 from $618,000 in 1994 to a
loss of $180,000 in 1995. The decrease is attributable to a $406,000 loss on the
sale of the Partnership's Iliff, Colorado property in November 1995, and a
write-down of a restaurant facility as discussed below.
Lease income increased $39,000 or 4% from $1,023,000 in 1994 to $1,062,000
in 1995 due to scheduled escalations in lease income. Included in lease income
in 1995 and 1994 is approximately $26,000 and $25,000, respectively, of
additional lease income under a percentage of rent feature with respect to
incremental sales above specified levels.
Interest income decreased $22,000 from $110,000 in 1994 to $88,000 in 1995
due to a decrease in invested cash balances in 1995 compared t0 1994. The
decrease in invested cash balances is due to a special distribution in December
1994 of $1,422,000.
During 1995, the Partnership wrote-down the carrying value of the Coon
Rapids, Minnisota restaurant facility to its estimated net realizable value. The
restaurant facility is closed and has not yet been redeployed. The write-down
resulted in a charge to income of $400,000 for the year ended December 31, 1995.
Idle facility cost increased $10,000 from 1994 to 1995 on its closed
facilities (one of the two closed facilities was sold in November 1995).
YEAR ENDED DECEMBER 31, 1994 COMPARED TO YEAR ENDED DECEMBER 31, 1993:
The Partnership's net income increased $245,000 from 1993 to 1994 primarily
as a result of an increase in lease income and a decrease in depreciation
expense.
Lease income increased $74,000 or 8% from $949,000 in 1993 to $1,023,000 in
1994. This increase is attributable to one less facility being leased in early
1993 compared to 1994, $25,000 in additional unscheduled lease income received
in 1994, and scheduled increases in base lease income. The unscheduled lease
income was earned under a percentage rent feature with respect to incremental
sales above specified levels on certain lease agreements that provide for this
feature.
Interest income increased $50,000 in 1994 over 1993 due to an increase in
invested cash balances and a slight increase in interest rates earned on cash
investments.
Cost of operations decreased $8,000 from $144,000 in 1993 to $136,000 in
1994 due to costs incurred in 1993 to lease out one of the Partnership's
facilities offset by an increase in scheduled increases in lease expense on
facilities located on leased land.
Idle facility cost decreased $22,000, or 38%, from $58,000 in 1993 to
$36,000 in 1994 due to a decrease in repairs and maintenance on the
Partnership's two facilities (held during 1994 and 1993) that have not yet been
redeployed. The decrease is also attributable to a decrease in professional fees
incurred on negotiations with potential tenants for the Partnership's two
facilities that have not yet been redeployed.
Depreciation expense decreased from $335,000 in 1993 to $249,000 in 1994
due to certain assets being fully depreciated in 1994.
LIQUIDITY AND CAPITAL RESOURCES:
For the year ended December 31, 1995, the Partnership's leasing activities
generated cash flow of $868,000. Cash flow from the Partnership's leasing
activities have been sufficient to meet all current obligations of the
Partnership.
Management expects to continue to fund capital expenditures and quarterly
distributions to partners from operating cash flow.
In November 1995, the Partnership sold its Iliff, Colorado facility for a
net price of $352,000 ($382,000 less $30,000 of selling costs) resulting in a
$406,000 loss on the sale of the facility. The Partnership received net cash
sales proceeds of $382,000, net of selling cost of $30,000.
In connection with the leases signed through December 31, 1995, the
Partnership sold the equipment and furnishings of each facility to the lessee.
In connection with these sales, the Partnership received promissory notes that
are fully amortized over nine years, accrue interest at 8.5%, and require annual
aggregate principal installments of approximately $12,000. These notes mature in
1998 through 2000.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
-------------------------------------------
The Partnership's financial statements are included elsewhere herein.
Reference is made to the Index to Financial Statements in Item 14(a).
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 Partnership has no directors or executive officers.
The Partnership's general partner is Mr. B. Wayne Hughes, age 62. Mr.
Hughes manages and makes investment decisions for the Partnership. Mr. Hughes
has been a director of Public Storage, Inc. ("PSI"), a real estate investment
trust ("REIT"), since its organization in 1980 and was President and Co-Cheif
Executive Officer from 1980 until November 1991 when he became Chairman of the
Board and sole Chief Executive Officer. Mr. Hughes has been a director of
Storage Properties, Inc., a REIT whose investment adviser is PSI, since 1989.
Since 1990, Mr. Hughes has been Chairman of the Board and Chief Executive
Officer Public Storage Properties X, Inc., Public Storage Properties XI, Inc.,
Public Storage Properties XII, Inc., Public Storage Properties XIV, Inc., Public
Storage Properties XV, Inc., Public Storage Properties XVI, Inc., Public Storage
Properties XVII, Inc., Public Storage Properties XVIII, Inc., Public Storage
Properties XIX, Inc., Public Storage Properties XX, Inc., Partners Preferred
Yield, Inc., Partners Preferred Yield II, Inc. and Partners Preferred Yield III,
Inc. (collectively, the "ublic Storage Properties REITs"), REITs organized by
affiliates of PSI. Mr. Hughes has been active in the real estate investment
field during the past 25 years.
Pursuant to Articles XVI, XVII and XXI of the Partnership's Amended
Certificate and Agreement of Limited Partnership, the general partner continues
to serve until (i) death, insanity, insolvency, bankruptcy or dissolution, (ii)
withdrawal with the consent of any other general partner and a majority vote of
the limited partners, or (iii) removal by a majority vote of the limited
partners.
There have been no events under any bankruptcy act, no criminal
proceedings, and no judgments or injunctions material to the evaluation of the
ability of the general partner during the past five years.
ITEM 11. EXECUTIVE COMPENSATION.
----------------------
The Partnership has no subsidiaries, directors or officers. See Item 13 for
a description of certain transactions between the Partnership and its general
partner and affiliates.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
--------------------------------------------------------------
(a) As of the date hereof, no person is known by the Partnership to own
beneficially more than 5% of the units of limited partnership interest.
(b) The Partnership has no officers and directors.
Mr. Hughes and Madison, the two original general partners, initially
contributed $262,000 to the capital of the Partnership. As a result Mr. Hughes,
who succeeded to Madison's general partner interest in December 1989, will
participate in the distributions to all of the Partnership's partners and in the
Partnership's profits and losses in the same proportion that such capital
contribution bears to the total capital contributions. Mr. Hughes and Madison
also contributed $912,000 to be used primarily to fund the Partnership's capital
and liquidity needs during the restructuring period. (See Item 1 for additional
information regarding this contribution.) Because the Limited Partners received
the benefit of Madison's contribution, the amount contributed is reflected in
the financial statements attached to this report as a General Partner
contribution with a subsequent "equity transfer" to the Limited Partners.
(c) Except as set forth below, the Partnership knows of no contractual
arrangements, the operation of the terms of which may at a subsequent date
result in a change in control of the Partnership. Articles XVI, XVII and Section
21.1 of the Partnership's Amended Certificate and Agreement of Limited
Partnership, provide, in substance, that the Limited Partners shall have the
right, by majority vote, to remove a general partner and that a general partner
may designate a successor with the consent of any other general partner and a
majority of the limited partners.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
----------------------------------------------
The Limited Partnership Agreement provides that the general partner will be
entitled to cash incentive distributions in an amount equal to (i) 8% of cash
flow from operations until the distributions to all partners for all sources
equal their capital contributions; thereafter, 25% of cash flow from operations,
and (ii) 25% of distributions from net proceeds from sale and financing of the
Partnership's properties remaining after distribution to all partners of any
portion thereof required to cause distributions to partners from all sources to
equal their capital contributions. Because of the Partnership's disappointing
operating results, the General Partners waived their incentive distributions
associated with the Partnership's distributions to Limited Partners from the
second quarter of 1988 through fourth quarter 1990. In 1995, the General Partner
received $59,000 in incentive distributions and $7,000 with respect to his
capital contributions.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
---------------------------------------------------------------
(a) List of Documents filed as part of the Report.
1. Financial Statements:
See Index to Financial Statements and Financial Statement Schedule.
2. Financial Statement Schedules:
See Index to Financial Statements and Financial Statement Schedule.
3. Exhibits:
(27) Financial Data Schedule
(b) Reports on Form 8-K:
No reports on Form 8-K were filed during the last quarter of fiscal
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.
QSR INCOME PROPERTIES, LTD.,
a California Limited Partnership
Dated: March 26, 1996 By: \s\ B.Wayne Hughes
B. Wayne Hughes
General Partner
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following person on behalf of the Registrant
in the capacity and on the date indicated.
Signature Capacity Date
- --------- -------- ----
\s\ B. Wayne Hughes General Partner March 26, 1996
B. Wayne Hughes
QSR INCOME PROPERTIES, LTD.,
A California Limited Partnership
INDEX TO FINANCIAL STATEMENTS AND
FINANCIAL STATEMENT SCHEDULE
(Item 14 (a))
Page
Reference
---------
Report of Independent Auditors F-1
Financial Statements and Schedules:
Balance sheets as of December 31, 1995 and 1994 F-2
For the years ended December 31, 1995, 1994 and 1993:
Statements of Income F-3
Statements of Partners' Equity F-4
Statements of Cash Flows F-5
Notes to Financial Statements F-6 - F-9
Schedule for the years ended December 31, 1995
III - Real Estate and Accumulated Depreciation F-10 - F-11
All other schedules have been omitted since the required information is not
present or not present in amounts sufficient to require submission of the
schedule, or because the information required is included in the financial
statements or the notes thereto.
Report of Independent Auditors
The Partners
QSR Income Properties, Ltd.,
a California Limited Partnership
We have audited the accompanying balance sheets of QSR Income Properties, Ltd.,
a California Limited Partnership, as of December 31, 1995 and 1994, and the
related statements of income, partners' equity and cash flows for each of the
three years in the period ended December 31, 1995. Our audits also included the
schedule listed in the index at item 14(a). These financial statements and
schedule are the responsibility of the Partnership's management. Our
responsibility is to express an opinion on these financial statements and
schedules 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 QSR Income Properties, Ltd., a
California Limited Partnership, at December 31, 1995 and 1994, and the results
of its operations and its cash flows for each of the three years in the period
ended December 31, 1995, in conformity with generally accepted accounting
principles. Also, in our opinion, the related 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.
ERNST & YOUNG LLP
February 27, 1996
Los Angeles, California
F-1
<PAGE>
QSR INCOME PROPERTIES, LTD.,
a California Limited Partnership
BALANCE SHEETS
December 31, 1995 and 1994
1995 1994
---- ----
ASSETS
Cash and cash equivalents $ 1,630,000 $ 1,115,000
Accounts receivable 10,000 15,000
Notes receivable 234,000 271,000
Restaurant facilities, net 9,743,000 11,149,000
--------- ----------
$11,617,000 $12,550,000
=========== ===========
LIABILITIES AND PARTNERS' EQUITY
Accounts payable $ 148,000 $ 159,000
Commitments
Partners' equity:
Limited partners' equity,
$500 per unit, 100,000 units authorized,
52,004 units issued and outstanding 11,378,000 12,291,000
General partner equity 91,000 100,000
------ -------
Total partners' equity 11,469,000 12,391,000
---------- ----------
$11,617,000 $12,550,000
=========== ===========
See accompanying notes.
F-2
<PAGE>
QSR INCOME PROPERTIES, LTD.,
a California Limited Partnership
STATEMENTS OF INCOME
For the years ended December 31, 1995, 1994 and 1993
1995 1994 1993
---- ---- ----
REVENUES:
Lease income $ 1,062,000 $ 1,023,000 $ 949,000
Interest income 88,000 110,000 60,000
------ ------- ------
1,150,000 1,133,000 1,009,000
========= ========= =========
COSTS AND EXPENSES:
Cost of operations 140,000 136,000 144,000
Depreciation 248,000 249,000 335,000
Idle facility cost 46,000 36,000 58,000
Write-down of restaurant facility 400,000 -- --
Administrative expense 90,000 94,000 99,000
------ ------ ------
924,000 515,000 636,000
======= ======= =======
Net Income before loss on sale of
real estate facility 226,000 618,000 373,000
Loss on sale of real estate facility (406,000) -- --
-------- -------- --------
NET (LOSS) INCOME $ (180,000) $ 618,000 $ 373,000
=========== =========== ===========
Allocation of net (loss) income:
Limited partners $ (237,000) $ 453,000 $ 324,000
General partner 57,000 165,000 49,000
------ ------- ------
$ (180,000) $ 618,000 $ 373,000
=========== =========== ===========
Limited partners' allocation per unit $ (4.55) $ 8.71 $ 6.23
=========== =========== ===========
<PAGE>
QSR INCOME PROPERTIES, LTD.,
a California Limited Partnership
STATEMENTS OF PARTNERS' EQUITY
For the years ended December 31, 1995, 1994 and 1993
Limited General
Partners Partner Total
-------- ------- -----
Balances at December 31, 1992 $ 13,868,000 $ 116,000 $ 13,984,000
Net income 324,000 49,000 373,000
Distributions (520,000) (51,000) (571,000)
-------- ------- --------
Balances at December 31, 1993 13,672,000 114,000 13,786,000
Net income 453,000 165,000 618,000
Distributions (1,834,000) (179,000) (2,013,000)
---------- -------- ----------
Balances at December 31, 1994 12,291,000 100,000 12,391,000
Net loss (237,000) 57,000 (180,000)
Distributions (676,000) (66,000) (742,000)
-------- ------- --------
Balances at December 31, 1995 $ 11,378,000 $ 91,000 $ 11,469,000
============ ============ ============
<PAGE>
QSR INCOME PROPERTIES, LTD.,
a California Limited Partnership
STATEMENTS OF CASH FLOWS
For the years ended December 31, 1995, 1994 and 1993
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities:
Net (loss) income $ (180,000) $ 618,000 $ 373,000
Adjustments to reconcile net income to
net cash provided by operating activities:
Loss on sale of real estate facility 406,000 -- --
Depreciation and amortization 248,000 249,000 335,000
Write-down of restaurant facility 400,000 -- --
Decrease (increase) in accounts receivable 5,000 (5,000) 53,000
(Decrease) increase in accounts payable (11,000) (26,000) 86,000
--------- --------- ---------
Total adjustments 1,048,000 218,000 474,000
Net cash provided by operating activities 868,000 836,000 847,000
--------- --------- ---------
Cash flows from investing activities:
Proceeds from sale of real estate facility 352,000 -- --
Additions to restaurant facilities -- -- (1,000)
Principal payments on note receivables 37,000 56,000 61,000
--------- --------- ---------
Net cash provided by investing activities 389,000 56,000 60,000
--------- --------- ---------
Cash flows from financing activities:
Distributions paid to partners (742,000) (2,013,000) (571,000)
------- ------- ------
Net cash used for financing activities (742,000) (2,013,000) (571,000)
--------- --------- ---------
Net increase (decrease) in cash and cash equivalents 515,000 (1,121,000) 336,000
Cash and cash equivalents at the beginning of the year 1,115,000 2,236,000 1,900,000
--------- --------- ---------
Cash and cash equivalents at the end of the year $ 1,630,000 $ 1,115,000 $ 2,236,000
=========== =========== ===========
</TABLE>
<PAGE>
QSR INCOME PROPERTIES, LTD.,
a California Limited Partnership
NOTES TO FINANCIAL STATEMENTS
December 31, 1995
1. Summary of Significant Accounting Policies and Partnership Matters
Description of Partnership
--------------------------
QSR Income Properties, Ltd., a California Limited Partnership (the
Partnership), was formed in November 1985 to acquire, own and operate Rocky
Rococo Restaurants. The offering terminated on April 30, 1987 with 52,004 units
issued and outstanding, which resulted in $26,002,000 of limited partner funds
being raised. During 1989, the limited partners approved the resignation of
Madison Pizza Corporation ("MPC") as Corporate General Partner and the
designation of B. Wayne Hughes, the Individual General Partner, to succeed to
the Corporate General Partner's interest.
During 1988, the General Partners decided to discontinue restaurant
operations because the restaurants had not operated profitably.
Restaurant Facilities
---------------------
The cost of land includes appraisal fees, closing costs and legal fees
related to the acquisition. Buildings and equipment are depreciated on the
straight-line basis over their estimated useful lives of 30 years and 5 years,
respectively. Buildings which are situated on leased premises are depreciated
over their minimum lease term, 20 years.
In November 1995, the Partnership's Iliff, Colorado facility was sold for
$382,000 resulting in a $406,000 loss on the sale of the facility. The
Partnership received net sales proceeds of $352,000 net of selling cost of
$30,000. The Partnership's net book value at the time of the sale was $758,000.
During 1988 and 1989, as a result of closing the Partnership's restaurants,
the carrying value of certain equipment packages were written down to their
estimated net realizable value. As of December 31, 1995, $145,000 remains of the
reserve.
Distributions
-------------
Cash distributions per unit were $13.00, $35.25, $10.00 for the years ended
December 31, 1995, 1994 and 1993, respectively. Incentive distributions to the
General Partner amounted to $59,000, $161,000 and $46,000 for 1995, 1994 and
1993, respectively.
Allocation of Net Income or Loss
--------------------------------
The general partner's share of net income or loss consists of a percentage
of incentive distributions received, cash flow (as defined) which relates to the
general partner's share of cash distributions as set forth in the Partnership
Agreement. In addition, the general partner's share of net income or loss
consists of amounts attributable to his 1% capital contribution. All remaining
net income or loss is allocated to the limited partners.
2. Cash and Cash Equivalents
The Partnership considers all highly liquid investments with a maturity of
three months or less when purchased to be cash equivalents.
3. Notes Receivable
As of September 30, 1988, Rocky Rococo Corporation ("RRC"), an affiliate of
MPC, owed the Partnership approximately $275,000, which comprised $205,000 in
unearned management fees and $70,000 in certain other advances. As RRC did not
have the funds available to repay these moneys, the Partnership elected to have
RRC assign to them a $275,000 interest in a secured note receivable due to RRC.
The note bears interest at the prime rate plus 2% per annum (10.5% at December
31, 1995) and provides for monthly principal and interest payments through April
22, 2002, the maturity date of the note, at which time outstanding principal and
accrued interest is due and payable. At December 31, 1995 and 1994 this note had
a remaining balance of $119,000 and $142,000, respectively.
The Partnership has received several notes related to the sale of
restaurant equipment through December 31, 1991. These notes, which total
approximately $55,000, require quarterly payments, are fully amortizing and
accrue interest at 8.5%. In addition, the Partnership has received one note from
a lessee as partial payment of some leasehold improvements. The notes mature on
various dates through 2003. The Partnership received $5,000, $8,000 and $25,000
in interest from these notes during the years ended December 31, 1995, 1994 and
1993, respectively.
Future minimum principal payments of all notes due the Partnership as of
December 31, 1995 are as follows:
1996 $ 36,000
1997 43,000
1998 47,000
1999 44,000
2000 4,000
Thereafter 60,000
------
$234,000
========
4. Restaurant Facilities and Lease Commitments
At December 31, restaurant facilities, which are recorded at cost, were
comprised of the following:
1995 1994
---- ----
Land $ 4,951,000 $ 5,388,000
Buildings and leasehold improvements 7,058,000 7,492,000
Equipment 933,000 1,103,000
------- ---------
12,942,000 13,983,000
Less: Accumulated depreciation (2,654,000) (2,639,000)
Reserve to estimated net realizable value (545,000) (195,000)
-------- --------
$ 9,743,000 $11,149,000
============ ===========
4. Restaurant Facilities and Lease Commitments (continued)
During 1995, the Partnership wrote-down the carrying value of the Coon
Rapids, Minnesota restaurant facility to its estimated net realizable value. The
restaurant facility is closed and has not yet been redeployed. The write-down
resulted in a charge to income of $400,000 for the year ended December 31, 1995.
Equipment was fully depreciated at December 31, 1994.
Fifteen facilities owned or leased by the Company were leased or subleased
to unaffiliated third parties on a triple net basis for minimum lease terms of 2
to 20 years. The minimum future lease income to be received from these operating
leases is as follows:
1996 $1,033,000
1997 949,000
1998 979,000
1999 944,000
2000 955,000
Thereafter 4,520,000
---------
$9,380,000
==========
The Partnership is obligated under various operating leases on its closed
restaurant facilities. Each of these facilities has been subleased to an
unaffiliated third party. Sub-lease income under these leases was $203,000,
$203,000 and $193,000 for the period ended December 31, 1995, 1994 and 1993,
respectively. Lease expense incurred under these leases for the period ended
December 31, 1995, 1994 and 1993 was $121,000, $115,000 and $112,000,
respectively. At December 31, 1995 the Partnership had agreements for the
following minimum sublease income and lease obligations (not including impact of
options to extend maturity dates):
Sublease Lease
Income Expense
1996 $ 193,000 $ 113,000
1997 166,000 113,000
1998 179,000 113,000
1999 180,000 128,000
2000 180,000 129,000
Thereafter 623,000 1,015,000
------- ---------
$1,521,000 $1,611,000
========== ==========
5. General Partner Equity
Initially, the general partners contributed 1% of the aggregate capital
contributions of the Partnership. The general partner has an 8% interest in cash
distributions attributable to operations (exclusive of distributions
attributable to sale and financing proceeds) until the limited partners recover
all of their investment, regardless of source. Thereafter, the general partner
has a 25% interest in all cash distributions (including sale and financing
proceeds). At December 31, 1995 cumulative distributions to limited partners
were $6,958,000; accordingly $19,044,000 of additional distributions are
required to be made to the limited partners for the limited partners to recover
their capital contributions.
6. Taxes Based on Income
Taxes based on income are the responsibility of the individual partners
and, accordingly, the Partnership's financial statements do not reflect a
provision for such taxes. Taxable net income was $132,000, $549,000 and $385,000
for the years ended December 31, 1995, 1994 and 1993, respectively. The
difference between taxable net income and net income is primarily related to
depreciation expense resulting from differences in depreciation methods.
7. Cost of Operations
For the years ended December 31, 1995, 1994 and 1993 cost of operations
were comprised of the following: 1995 1994 1993
1995 1994 1993
---- ---- ----
Cost of leasing $121,000 $115,000 $112,000
Other operating expenses 19,000 21,000 32,000
------ ------ ------
$140,000 $136,000 $144,000
======== ======== ========
8. Idle Facility Cost
Idle facility cost is primarily comprised of utility costs, building
maintenance, property taxes and insurance costs. As of December 31, 1995, one
restaurant facility remains closed and not yet redeployed.
<PAGE>
QSR Income Properties, Ltd.
Schedule III - Real Estate and Accumulated Depreciation
<TABLE>
<CAPTION>
Cost
subsequent to Gross Carrying Amount
Initial Cost Acquisition at December 31, 1995
----------------------- -------------------------------
Description Encumbrance Land Buildings (Improvements) Land Buildings Total
- ----------- ----------- ---- --------- -------------- ---- --------- -----
<S> <C> <C> <C> <C> <C> <C> <C>
Indianapolis/Lafayett - $ 659,000 $ 257,000 $ - $ 659,000 $ 257,000 $ 916,000
Greenwood/U.S. 31 S. - 749,000 273,000 - 749,000 273,000 1,022,000
Indianapolis/Washington - 344,000 452,000 - 344,000 452,000 796,000
Bloomington/College Mall - - 432,000 5,000 - 437,000 437,000
Munie/McGalliard - 186,000 401,000 5,000 186,000 406,000 592,000
Green Village/Arapahoe Rd. - 683,000 734,000 3,000 683,000 737,000 1,420,000
Bloominton/W. 98th St. - - 478,000 18,000 - 496,000 496,000
Coon Rapids/Coon Rapids Blvd.(2) - 223,000 392,000 1,000 223,000 392,000 616,000
Eagan/Cliff Rd. - 324,000 520,000 7,000 324,000 527,000 851,000
Fenton/Old Sugar Creek - 296,000 454,000 5,000 296,000 459,000 755,000
Breentwood/Manchester Rd. - - 634,000 5,000 - 639,000 639,000
Belville I/N. Belt West - 282,000 504,000 5,000 282,000 509,000 791,000
Belville II/S. Illinois St. - 246,000 584,000 17,000 246,000 601,000 847,000
Bristol/122nd Ave. - 210,000 576,000 - 210,000 576,000 786,000
Bolingbrook/Bolingbrook Dr. - 258,000 425,000 - 258,000 425,000 683,000
Crystal Creek/Northwest Hwy. - 351,000 538,000 6,000 351,000 544,000 895,000
------- ------- ----- ------- ------- -------
Total $4,591,000 $7,914,000 $77,000 $4,951,000 $7,991,000 $12,942,000
========== ========== ======= ========== ========== ===========
</TABLE>
<TABLE>
<CAPTION>
Accumulated Date
Description Depreciation Completed
- ----------- ------------ ---------
<S> <C> <C>
Indianapolis/Lafayett $ 84,000 3/87
Greenwood/U.S. 31 S. 92,000 3/87
Indianapolis/Washington 138,000 7/87
Bloomington/College Mall 162,000 (1)
Munie/McGalliard 123,000 10/87
Green Village/Arapahoe Rd. 222,000 6/86
Bloominton/W. 98th St. 155,000 (1)
Coon Rapids/Coon Rapids Blvd. 260,000 5/87
Eagan/Cliff Rd. 143,000 5/87
Fenton/Old Sugar Creek 141,000 9/87
Breentwood/Manchester Rd. 249,000 (1)
Belville I/N. Belt West 161,000 11/86
Belville II/S. Illinois St. 238,000 7/87
Bristol/122nd Ave. 214,000 12/86
Bolingbrook/Bolingbrook Dr. 124,000 1/88
Crystal Creek/Northwest Hwy. 148,000 12/87
------- -----
Total $2,654,000
==========
</TABLE>
(1) Property is situated on land subject to a ground lease.
(2) During 1995, the property was written-down by $400,000 to its net realizable
value. The initial cost of land and building was $363,000 and $652,000,
respectively, and were written down $140,000 and $260,000, respectively.
<PAGE>
QSR Income Properties, Ltd.
Real Estate Reconciliation
Schedule III (continued)
(a) The following is a reconciliation of costs and related accumulated
depreciation:
COST
1995 1994 1993
---- ---- ----
Balance at the beginning of the period $13,983,000 $13,983,000 $13,982,000
Additions during the period
Capital improvements - 1,000
Deductions during the period:
Write-down of property (400,000) - -
Sale of property (1,041,000) - -
------------ ----------- -----------
Balance at the close of the period $12,542,000 $13,983,000 $13,983,000
=========== =========== ===========
ACCUMULATED DEPRECIATION RECONCILIATION
1995 1994 1993
---- ---- ----
Balance at the beginning of the period $2,639,000 $2,390,000 $2,068,000
Additions during the period
Depreciation 248,000 249,000 322,000
Deductions during the period related to
property sold (233,000) - -
------------ ----------- -----------
Balance at the close of the period $2,654,000 $2,639,000 $2,390,000
========== ========== ==========
F-11
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
QSR INCOME PROPERTIES, LTD.
EXHIBIT 27 - FINANCIAL DATA SCHEDULE
ARTICLE 5 OF REGULATION S-X
</LEGEND>
<S> <C>
<PERIOD-TYPE> Year
<FISCAL-YEAR-END> Dec-31-1995
<PERIOD-START> Jan-01-1995
<PERIOD-END> Dec-31-1995
<CASH> 1,630,000
<SECURITIES> 0
<RECEIVABLES> 244,000
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 12,942,000
<DEPRECIATION> (3,199,000)
<TOTAL-ASSETS> 11,617,000
<CURRENT-LIABILITIES> 148,000
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 11,469,000
<TOTAL-LIABILITY-AND-EQUITY> 11,617,000
<SALES> 0
<TOTAL-REVENUES> 1,150,000
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 1,330,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (180,000)
<INCOME-TAX> 0
<INCOME-CONTINUING> (180,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (180,000)
<EPS-PRIMARY> (4.55)
<EPS-DILUTED> (4.55)
</TABLE>
