<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[ X ] Quarterly Report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the quarterly period ended September 30, 1995
or
[ ] Transition Report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from _______________ to __________________
Commission File Number 1-9079
U.S. RESTAURANT PROPERTIES MASTER LIMITED PARTNERSHIP
-----------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 41-1541631
-------- ----------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
5310 Harvest Hill Rd., Ste. 270, LB 168, Dallas, Texas 75230
------------------------------------------------------------
(Address principal executive offices, including zip code)
214 / 387-1487
--------------
(Registrant's telephone number, including area code)
----------------------------------------
Former name, former address and former fiscal year, if changed since last report
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
----- -----
Depository Units (representing Limited Partnership Interests)
outstanding at November 9, 1995: 4,659,167.
Page 1 of 12
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
U.S. RESTAURANT PROPERTIES MASTER L.P.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
September 30, December 31,
1995 1994
------------- ------------
(unaudited)
<S> <C> <C>
ASSETS
Cash and equivalents $ 118,703 $ 680,646
Marketable securities --- 853,791
Receivables, net 856,751 715,202
Purchase deposits 391,380 ---
Prepaid expenses 209,553 122,962
Notes receivable 255,000 ---
Net investment in direct financing leases 19,854,917 21,237,432
Land 25,103,426 23,414,280
Buildings and leasehold improvements, net 4,499,559 1,548,375
Machines and equipment, net 139,457 ---
Intangibles, net 13,456,176 14,316,583
----------- -----------
$64,884,922 $62,889,271
=========== ===========
LIABILITIES AND PARTNERS' CAPITAL
Accounts payable $ 390,795 $ 445,518
Notes payable 4,735,598 ---
Capitalized lease obligations 617,654 774,602
PARTNERS' CAPITAL 59,140,875 61,669,151
----------- -----------
$64,884,922 $62,889,271
=========== ===========
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
Page 2 of 12
<PAGE>
U.S. RESTAURANT PROPERTIES MASTER L.P.
CONSOLIDATED STATEMENTS OF INCOME
(unaudited)
<TABLE>
<CAPTION>
Three Months Nine Months
ended September 30, ended September 30,
1995 1994 1995 1994
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
REVENUES FROM LEASED PROPERTIES:
Rental income $2,040,463 $1,722,181 $5,505,515 $4,753,360
Amortization of unearned income
on direct financing leases 551,820 607,788 1,704,206 1,857,909
---------- ---------- ---------- ----------
TOTAL REVENUES 2,592,283 2,329,969 7,209,721 6,611,269
EXPENSES:
Rent 337,758 346,377 1,022,406 1,003,193
Depreciation and amortization 369,012 323,757 1,054,665 963,267
Taxes, general, and administrative 340,994 262,716 1,092,829 809,020
Interest expense (income), net 49,086 4,827 47,265 2,956
---------- ---------- ---------- ----------
TOTAL EXPENSES 1,096,850 937,677 3,217,165 2,778,436
---------- ---------- ---------- ----------
NET INCOME $1,495,433 $1,392,292 $3,992,556 $3,832,833
========== ========== ========== ==========
NET INCOME ALLOCABLE TO UNITHOLDERS $1,465,823 $1,364,446 $3,913,503 $3,756,176
========== ========== ========== ==========
AVERAGE NUMBER OF OUTSTANDING UNITS 4,627,747 4,635,000 4,632,582 4,635,000
========== ========== ========== ==========
NET INCOME PER UNIT $0.32 $0.29 $0.84 $0.81
========== ========== ========== ==========
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
Page 3 of 12
<PAGE>
U.S. RESTAURANT PROPERTIES MASTER L.P.
CONSOLIDATED STATEMENTS OF PARTNERS' CAPITAL
(unaudited)
<TABLE>
<CAPTION>
General Limited
Partners Partners Total
---------- ----------- -----------
<S> <C> <C> <C>
Balance at December 31, 1993 $1,357,447 $62,757,191 $64,114,638
Net income 98,653 4,834,017 4,932,670
Cash distributions (147,557) (7,230,600) (7,378,157)
---------- ----------- -----------
Balance at December 31, 1994 1,308,543 60,360,608 61,669,151
Special general partner interest
transfer (12,899) (3,101) (16,000)
Net income 73,718 3,918,838 3,992,556
Cash distributions (117,982) (5,840,100) (5,958,082)
Purchase of partnership units 0 (546,750) (546,750)
---------- ----------- -----------
Balance at September 30, 1995 $1,251,380 $57,889,495 $59,140,875
========== =========== ===========
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
Page 4 of 12
<PAGE>
U.S. RESTAURANT PROPERTIES MASTER L.P.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
<TABLE>
<CAPTION>
Nine Months ended
September 30,
-------------------------
1995 1994
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 3,992,556 $ 3,832,833
Adjustments to reconcile net income to net
cash from operating activities:
Depreciation and amortization 1,054,665 963,267
Increase in receivables, net (141,549) (315,828)
Decrease (increase) in prepaid expenses (86,591) 6,666
Reduction in net investment in direct
financing leases 1,382,515 1,236,246
(Decrease) increase in accounts payable (54,723) 96,637
----------- -----------
2,154,317 1,986,988
-------------------------
6,146,874 5,819,821
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from the sale of marketable securities 853,791 0
Purchase of property (4,813,222) 0
Purchase of machines and equipment (141,216) 0
Purchase deposits paid (391,380) 0
----------- -----------
(4,492,027) 0
CASH FLOWS USED IN FINANCING ACTIVITIES:
Increase in loan origination costs (19,608) 0
Reduction in capitalized lease obligations (156,948) (141,370)
Increase in notes receivable (255,000) 0
Increase in notes payable 4,735,598 0
Cash distributions (5,958,082) (5,439,024)
Purchase of partnership units (546,750) 0
Purchase special general partner interest (16,000) 0
----------- -----------
(2,216,790) (5,580,394)
----------- -----------
INCREASE (DECREASE) IN CASH AND EQUIVALENTS (561,943) 239,426
CASH AND EQUIVALENTS AT BEGINNING OF YEAR 680,646 1,260,103
----------- -----------
CASH AND EQUIVALENTS AT END OF QUARTER $ 118,703 $ 1,499,529
=========================
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
Page 5 of 12
<PAGE>
U.S. RESTAURANT PROPERTIES MASTER L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
1. INTERIM UNAUDITED FINANCIAL INFORMATION
* ORGANIZATION - U.S. Restaurant Properties Master L.P. (Partnership),
formerly Burger King Investors Master L.P., a Delaware limited partnership, was
formed on December 10, 1985. The Partnership, through its 99.01% limited
partnership interest in U.S. Restaurant Properties Operating L.P. (Operating
Partnership), also a Delaware Limited Partnership which was formerly Burger King
Operating Limited Partnership, acquired an interest in 128 restaurant properties
(Properties) owned or leased by Burger King Corporation (BKC) and leased or
subleased on a net lease basis to BKC franchisees. (The Partnership is the sole
limited partner of the Operating Partnership and they are referred to
collectively as the "Partnerships".) U.S. Restaurant Properties, Inc. is the
managing general partner of the partnerships.
* ACCOUNTING POLICIES - A summary of accounting policies followed by the
Partnerships is included in the 1994 Annual Report. The Partnerships generally
follow these policies in preparation of interim reports.
The financial statements have been prepared in accordance with generally
accepted accounting principles (GAAP); however, this will not be the basis for
reporting taxable income to unitholders. The financial statements reflect the
consolidated accounts of the Partnership after elimination of all inter-
partnership transactions.
No federal and in most cases no state income taxes are reflected in the
financial statements because partnerships are not taxable entities. The
partners must report their allocable shares of taxable income or loss in their
individual income tax returns.
The accompanying consolidated financial statements have been prepared in
conformity with GAAP and should be read in conjunction with the Registrant's
annual report for the year ended December 31, 1994. The results of operations
for the nine months ended September 30, 1995, are not necessarily indicative of
the results to be expected for the year ending December 31, 1995.
The consolidated balance sheet as of September 30, 1995 and the other
consolidated financial information for the nine months ended September 30, 1995
and 1994, are unaudited, but management of the Registrant believes that all
adjustments (consisting only of normal recurring accruals) necessary for a fair
statement of the Partnerships' financial position and result of operations for
the periods have been included.
The statement of accounting financial standards no. 121 relating to "accounting
for the impairment of long-lived assets and for long-lived assets to be disposed
of" was issued in March 1995. The provisions of this statement which must be
adopted no later than January 1, 1996 will be used in the future to evaluate
such assets. However the partnership does not expect the adoption of this
statement to have material effect on the partnerships 1995 financial statements.
* RELATED PARTY TRANSACTIONS - The managing general partner, U.S. Restaurant
Properties, Inc., is responsible for managing the business and affairs of the
Partnerships. The Partnerships pay the managing general partner a non-
accountable annual allowance (adjusted to reflect increases in the Consumer
Price Index and additions to the property portfolio), plus reimbursement of out-
of-
Page 6 of 12
<PAGE>
pocket costs incurred by other parties for service rendered to the Partnerships.
The allowance for the quarter ended September 30, 1995 was $146,865 compared to
$135,627 at September 30, 1994.
An officer of the managing general partner has a nominal interest in a
recruiting firm that has been used to obtain contracted professionals who
provide services to the partnership. These recruiting services were obtained
for market and below market rates.
One of the company's expansion strategies is to acquire new properties by
providing part of the consideration for the sale of an entire chain restaurant
business, including it's operations as well as its real estate. Following this
strategy, in the third quarter a note receivable of $255,000 was acquired on
August 24, 1995. The borrower, Arkansas Restaurants #10 L.P. is the new tenant
of three properties of the partnership, two of which were acquired on the same
date. The tenant is managed by North American Restaurant Management Inc., whose
officers are also officers of the managing general partner. For its services,
North American receives a fee of up to 1% of sales of the tenant but only if the
tenant is profitable. North American intends to raise money from outside
investors to become the limited partners of Arkansas Restaurants #10 L.P.
2. PROPERTY PURCHASES - During the third quarter, the Company completed the
purchase of four properties for cash. These four properties are located in
Camden, Arkansas; Magnolia, Arkansas; Cuthbert, Georgia; and Dallas, Texas. Both
of the Arkansas properties are currently operating Burger Kings. The Georgia
property is currently operating as a Hardees and the Texas property is operating
as a Steak & Ale. The addition of these four properties increases the year to
date number of property purchases to six. The allocation of the cost of the
properties purchased is done on a preliminary basis during the year and will be
finalized at year end.
In the normal course of business, the Company may sign purchase agreements to
acquire restaurant properties. Such agreements become binding obligations upon
the completion of a due diligence period ranging usually from 15 - 30 days.
Earnest money is generally refundable if the purchase is not completed.
On September 30, 1995, earnest money amounting to $116,000 was on deposit for
the purchase of land in Denton, Texas and the purchase of six Burger King
properties. The land in Denton, Texas is leased to an operating Chili's
restaurant.
3. REVOLVING CREDIT FACILITY - During the third quarter U.S. Restaurant
Properties Master L.P. borrowed $4,231,600 against an already established line
of credit with Comerica Bank-Texas, and $495,000 was repaid.
The revolving credit facility from Comerica Bank-Texas was increased on June
27, 1995 to $10,000,000. This revolving credit facility terminates on June 27,
1998. The interest rate is the lower of LIBOR plus 180 basis points or the
prime rate. Beginning August 27, 1995 an unused line of credit fee of .25% per
annum on the average daily excess of the commitment amount over the aggregate
unpaid balance of the revolving loan is charged and is payable on a quarterly
basis. The revolving credit facility is secured by substantially all of the
Company's assets. A default occurs upon failure to pay interest due within
three days of the date when such payment is due. In addition to various
reporting requirements mandated under the secured loan agreement, the Company
must also maintain a tangible net worth in excess of $40,500,000; a debt to
tangible net worth ratio of not more than .5 to 1 and a cash flow coverage ratio
of not less than (a) 2 to 1 based
Page 7 of 12
<PAGE>
upon a Pro Forma Five Year Bank Debt Amortization and (b) 3.75 to 1.0 based upon
a Pro Forma Twenty Year Bank Debt Amortization schedule.
4. OPTION AGREEMENT - In accordance with Section 5.05(a) of the Second Amended
and Restated Agreement of the Limited Partnership, the Partnership granted to
the Managing General Partner options (the "Options") to purchase 400,000 units
at an exercise price of $15.50 per unit. On the grant date, March 17,1995, the
Partnership units closed at $15.00 per unit. The Options will vest in full and
become exercisable on March 24, 1996 and will expire on March 24, 2006. The
Options may be exercised in full or in part at any time during the 10 year
period and any unexercised portion remains exercisable until the expiration
date. Upon exercise of the options, the option price will be accounted for as a
contribution of capital. The effect of the Options issued and outstanding is
dilutive. For the nine months ended September 30, 1995, the dilutive amount is
immaterial.
5. VALUATION / ALLOWANCE ACCOUNTS - Certain balance sheet captions appearing
in the Consolidated Balance Sheets for the Third Quarter of 1995 are comprised
as follows:
<TABLE>
<CAPTION>
September 30, December 31,
1995 1994
============= ============
<S> <C> <C>
Receivables, net:
Other receivables $ 998,642 $ 832,093
Less allowance for doubtful accounts 141,891 116,891
----------- -----------
$ 856,751 $ 715,202
=========== ===========
Buildings, net:
Buildings and leasehold improvements $ 7,016,370 $ 3,892,294
Less accumulated depreciation 2,516,811 2,343,919
----------- -----------
$ 4,499,559 $ 1,548,375
=========== ===========
Intangibles, net:
Intangibles $26,446,859 $26,392,197
Less accumulated amortization 12,990,683 12,075,614
----------- -----------
$13,456,176 $14,316,583
=========== ===========
</TABLE>
6. REPURCHASE OF PARTNERSHIP UNITS - The board of directors authorized the
Company to repurchase up to 300,000 partnership units in the open market. On
September 8, 1995 30,000 partnership units were purchased at a total cost of
$546,750. The purchase was financed by a loan of $546,750 against a Comerica
Bank-Texas $10,000,000 credit line facility. No time limit is imposed on the
repurchase of the remaining 270,000 partnership units. The partnership has
authorized 4,635,000 partnership units and had 4,605,000 partnership units
issued and outstanding at September 30, 1995.
Page 8 of 12
<PAGE>
7. SUBSEQUENT EVENTS - On October 23, 1995 the board of directors of the
managing general partner declared a cash distribution of $.43 per unit. The
cash distribution is payable on December 13, 1995 to unitholders of record on
December 7, 1995.
On October 28, 1995 six Burger King properties were purchased. On October 10,
1995 the land on which a Chili's restaurant is located was purchased. In
connection with the Chili's land purchase, the company issued additional
partnership units for a portion of the consideration. In exchange for the
seller accepting fewer partnership units, the units are accompanied by a limited
guarantee in which if the price of the units does not equal or exceed $24.00 per
unit in 36 months, then additional units or cash would be owed.
Page 9 of 12
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
REVENUES: For the Quarter ended September 30, 1995, rental revenues increased
11% over the previous year. Comparable store sales growth was 7%. ("Comparable
store sales growth" is the increase in sales at those restaurants open for the
entire reporting period in both the current and prior year.) Management
believes the growth reflects improvements in the overall performance of the
Burger King system, and efforts with selected tenants to improve their
restaurant's sales. The table below compares revenue from leased properties
(GAAP) to restaurant sales on leased property and gross rental receipts.
<TABLE>
<CAPTION>
(unaudited)
Three months Nine months
ended September 30, ended September 30,
-------------------------- ---------------------------
1995 1994 1995 1994
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Restaurant sales on USRP property $36,247,481 $32,591,622 $100,477,775 $90,973,048
- --------------------------------------------------------------------------------------------
Gross rental receipts $ 3,061,162 $ 2,753,566 $ 8,592,237 $ 7,847,515
- --------------------------------------------------------------------------------------------
Revenues from
leased properties (GAAP) $ 2,592,283 $ 2,329,969 $ 7,209,721 $ 6,611,269
- --------------------------------------------------------------------------------------------
</TABLE>
TAXES, GENERAL AND ADMINISTRATIVE EXPENSES: Expenses increased 30% over the
same period in 1994. Expenses in the third quarter of 1994 were $262,716
compared to $340,994 in 1995, an increase of $78,278. The increase for the
quarter was primarily due to the recurring and nonrecurring expenses relating to
consulting and professional fees and to a $25,000 increase in allowance for bad
debt. Additionally, there was an increase in the management fee of $11,238 for
the quarter as prescribed by the partnership agreement.
LIQUIDITY: For the nine months ended September 30, 1995 cash flows from
operating activities equaled $6,146,874. Distributions of $5,958,082 and the
purchase of property for $4,813,222 accounted for a substantial portion of the
use of cash. During the third quarter, four properties were acquired for
$2,751,428. The purchase was financed by a loan of $2,675,000 against a
Comerica Bank-Texas bank line of credit of $10,000,000 and the balance from
cash. At this time there is adequate liquidity to continue operations as well
as property purchases.
On September 30, 1995, the balance available on the Comerica Bank-Texas
$10,000,000 credit line facility equaled $5,264,402.
NEW ACCOUNTING POLICY: The statement of accounting financial standards no. 121
relating to "accounting for the impairment of long-lived assets and for long-
lived assets to be disposed of" was issued in March 1995. The provisions of
this statement which must be adopted no later than January 1, 1996 will be used
in the future to evaluate such assets however the partnership does not expect
the adoption of this statement to have material effect on the partnerships 1995
financial statements.
Page 10 of 12
<PAGE>
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Partnership was named as a party to a law suit, in Montana District Court on
June 27, 1994, by a landlord on a leased property for abated rent lost by the
tenant due to a fire that occurred on a building before the Partnership took
ownership. The Managing General Partner believes the suit will not result in
any liability to the Partnership.
ITEM 2. CHANGES IN SECURITIES
Not Applicable
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not Applicable
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not Applicable
ITEM 5. OTHER INFORMATION
During the quarter, the company retained Mr. William Fort to find and complete
property purchases. Mr. Fort has experience in retail real estate origination.
He is compensated by U.S. Restaurant Properties M.L.P. based on a commission on
each property he originates, and during his start-up period, a draw against
future commissions.
The Partnership currently uses Price Waterhouse LLP for its K-1 administration
and Deloitte & Touche LLP for its auditing. Also, excess liability coverage was
purchased which is in addition to coverage required to be carried by the
franchisees.
ITEM 6. EXHIBITS
Not Applicable
Page 11 of 12
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
U.S. RESTAURANT PROPERTIES MASTER L.P.
By U.S. RESTAURANT PROPERTIES, INC.
Managing General Partner
Dated:____________________ By_______________________________________
Robert J. Stetson
President and C.E.O.
Principal Financial Officer
Page 12 of 12
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-START> JAN-01-1995
<PERIOD-END> SEP-30-1995
<CASH> 118,703
<SECURITIES> 0
<RECEIVABLES> 998,642
<ALLOWANCES> 141,891
<INVENTORY> 20,000
<CURRENT-ASSETS> 1,831,387
<PP&E> 7,157,586
<DEPRECIATION> 2,518,570
<TOTAL-ASSETS> 64,884,922
<CURRENT-LIABILITIES> 390,795
<BONDS> 0
<COMMON> 0
0
0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 64,884,922
<SALES> 0
<TOTAL-REVENUES> 2,592,283
<CGS> 0
<TOTAL-COSTS> 1,010,279
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 25,000
<INTEREST-EXPENSE> 49,086
<INCOME-PRETAX> 1,507,918
<INCOME-TAX> 12,485
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,495,433
<EPS-PRIMARY> .323
<EPS-DILUTED> .320
</TABLE>
