<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 March 31, 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 May 11, 1995: 4,635,000.
Page 1 of 11 pages
Exhibit Index located on page 8
<PAGE>
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements
The following financial statements required hereunder are incorporated by
reference from the Registrant's Report to Limited Partners for the First Quarter
of 1995, which is set forth as Exhibit 20.1 hereto.
In the opinion of management, all adjustments necessary for a fair
presentation of the results for the interim periods presented herein have been
made. The operating results for such periods however are not necessarily
indicative of the operating results to be expected for the full year.
Certain balance sheet captions appearing in the Report to Limited Partners
for the First Quarter of 1995 are comprised as follows:
<TABLE>
<CAPTION>
March 31, December 31,
1995 1994
============ ============
<S> <C> <C>
Receivables, net:
Other receivables $ 821,809 $ 832,093
Less allowance for doubtful accounts 116,891 116,891
----------- -----------
$ 704,918 $ 715,202
=========== ===========
Buildings, net:
Buildings and leasehold improvements $ 4,666,185 $ 3,892,294
Less accumulated depreciation 2,389,587 2,343,919
----------- -----------
$ 2,276,598 $ 1,548,375
=========== ===========
Intangibles, net:
Intangibles $26,403,882 $26,392,197
Less accumulated amortization 12,378,207 12,075,614
----------- -----------
$14,025,675 $14,316,583
=========== ===========
</TABLE>
Page 2 of 11 pages
<PAGE>
Item 1. Continued
Additional Information Relating to the Financial Statements
Promissory Note - On March 31, 1995, U.S. Restaurant Properties Master L.P.
entered into an agreement with Comerica Bank - Texas to establish a revolving
line of credit up to $1,200,000, payable on demand and maturing on June 30,
1995, at a variable interest rate based on changes in an index which is the
"Lender's Prime Rate". The initial interest rate is 9.00% per annum. The
"index" is the rate the Lender charges, or would charge, on 90 day unsecured
loans to the most creditworthy corporate customers. The purpose of this
financing is to provide cash, as needed, to pursue the Partnership's expanded
business strategy. On March 31, 1995, U.S. Restaurant Properties Master L.P.
borrowed $500,000 against this "Promissory Note". On April 4, 1995 and April 5,
1995 the Partnership repaid the loan in increments of $400,000 and $100,000
respectively, incurring $525 in interest expense.
Acquisitions - On March 29, 1995, U.S. Restaurant Properties Master L.P.
purchased the land and building in Amarillo, Texas on which a Chili's Bar and
Grill is operated by its tenant, Brinker Texas, L.P., a Texas limited
partnership ("Tenant"). The Partnership assumed the existing operating lease
with 9 years remaining and 2 separate consecutive renewal terms of 5 years each.
The purchase price was $1,228,399. The current base rent paid by the Tenant is
$11,168. Additionally, the Tenant pays a "percentage" rent when 6% of gross
sales receipts are over the base rent. During the fiscal year 1993-94 the
percentage rent amounted to a monthly average of approximately $1,865.
Option Agreement - On March 24, 1995, U.S. Restaurant Properties Master L.P.
(the "Partnership") entered into an agreement with QSV Properties, Inc., the
Managing General Partner of the Partnership ( the "Managing General Partner") in
accordance with Section 5.05 (a) of the Second Amended and Restated Agreement of
Limited Partnership which was approved by a Majority Vote of the Limited
Partners on March 17, 1995, as defined by the Partnership Agreement giving the
Managing General Partner an Option to purchase Units of the Partnership.
The Partnership grants to the Managing General Partner the options ("Options")
to purchase 400,000 Units at an exercise price of $15.50 per Unit. The Options
will vest in full and become exercisable on March 24, 1996 and will expire at
5:00 p.m.Central Time on March 24, 2006. The Options may be exercised in full
or in part at any time during the 10 year period and allows any unexercised
portion to remain exercisable until the expiration date. The effect of the
options issued and outstanding is nondilutive at this point in time.
Page 3 of 11 pages
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
The information required hereunder is incorporated by reference from
the letter to Partners contained in the Report to Limited Partners for the First
Quarter of 1995, which is set forth as Exhibit 20.1 hereto.
REVENUES: For the Quarter ended March 31, 1995, rental revenues
increased 7% over the previous year. Comparable store sales growth was 9%.
("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.
TAXES, GENERAL AND ADMINISTRATIVE EXPENSES: Expenses increased 57%
over the same period in 1994. Expenses in the first quarter of 1994 were
$235,493 compared to $369,668 in 1995, an increase of $134,175. The increase
for the quarter was due primarily to the one time costs associated with the
proxy process that were fully expensed in the first quarter. The proxy's
proposed amendments to the partnership agreement were approved by the limited
partners in a special meeting on March 17, 1995. Additionally, there was an
increase in the management fee of $3,391 for the quarter as prescribed by the
partnership agreement. The Partnership currently uses a CPA, Sellers and
Associates, for its accounting and bookkeeping, 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.
LIQUIDITY: For the three months ended March 31, 1995, net working
capital (total current assets less current liabilities) decreased $1,392,722 to
$521,685. At the end of the quarter, a property in Amarillo, Texas on which a
Chili's restaurant operates was acquired for $1,228,399. The purchase was
financed by a loan of $500,000 against a bank line of credit of $1,200,000 and
the balance from cash. As cash is needed to pay cash distributions to limited
partners, the balance of the credit may be employed. Also at the end of the
quarter, an escrow deposit was made to purchase three properties in Arkansas on
which Burger King restaurants operate.
To fund future property purchases, a $10,000,000 line of credit is currently
being negotiated with a bank. This credit line will replace the $1,200,000
line used to complete the Amarillo property purchase.
CASH FLOW FROM OPERATIONS: Cash flow from operations for the First
Quarter increased 3% over the same period in 1994 to $0.39 per unit.
Page 4 of 11 pages
<PAGE>
Part II. OTHER INFORMATION
Item 1. Legal Proccedings
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
On March 17, 1995, the holders of units ("Unitholders") representing
limited partnership interest in the Partnership ( the "Units") approved
amendments to the agreement of limited partnership of the Partnership (as
amended, the "Partnership Agreement") which permit the Partnership to pursue an
expanded business strategy. This strategy includes making loans to tenants to
renovate and improve their restaurants, purchase additional restaurant
properties, related equipment and operating rights and financing the improvement
of existing Properties and the purchase of additional restaurant properties and
related property through borrowings, issuing additional Units and other means.
The Partnership's initial goal is to purchase additional properties
principally by utilizing the borrowing capacity, on a secured recourse or non-
recourse basis, it believes is represented by the Partnership's existing
properties. Purchases might also be made through the issuance of additional
Units. The Partnership believes that seller financing will generally not be
available for the purchase of additional restaurant properties. The use of
borrowings, together with the addition of restaurant properties not operated as
BK Restaurants, represents a new direction in the Partnership's business
strategy.
Item 3. Defaults Upon Senior Securities
Not Applicable
Item 4. Submission of Matters to a Vote of Security Holders
On March 17, 1995, the holders of units ("Unitholders") representing
limited partnership interest in the Partnership ( the "Units") approved
amendments to the agreement of limited partnership of the Partnership (as
amended, the "Partnership Agreement") which permit the Partnership to pursue an
expanded business strategy. This strategy includes making loans to tenants to
renovate and improve their restaurants, purchase additional restaurant
properties, related equipment and operating rights and financing the improvement
of existing Properties and the purchase of additional restaurant properties and
related property through borrowings, issuing additional Units and other means.
The Partnership believes that the Partnership can foster
Page 5 of 11 pages
<PAGE>
Item 4. Continued
improved operating results at selected Properties, encourage renewal of expiring
leases and reduce the likelihood of having to rebuild the existing Properties at
the Partnership's expense if it assists tenants in repairing and updating their
restaurants. The Partnership also believes that diversification of the
Partnership's restaurant property portfolio would lessen the dependence of the
Partnership's performance on one chain and its exposure to the possible
nonrenewal of existing Franchise Agreements. In addition, the purchase of the
fee interest in other restaurant properties would decrease the Partnership's
overall exposure with respect to properties it holds under land leases.
Item 5. Other Information
Not Applicable
Item 6. Exhibits
(a) Exhibits:
20.1 - Report to Limited Partners for the First Quarter of
1995
Page 6 of 11 pages
<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 QSV PROPERTIES INC.,
Managing General Partner
Dated: 5/11/95 By /s/ Robert Stetson
------- -------------------------------
Robert J. Stetson
President and C.E.O.
Principal Financial Officer
Page 7 of 11 pages
<PAGE>
================================================================================
EXHIBIT INDEX
U.S. Restaurant Properties Master Limited Partnership
Form 10 - Q
For Quarter Ended March 31, 1995
Page
----
20.1 Report to Limited Partners for the First Quarter
of 1995........................................... 9
================================================================================
Page 8 of 11 pages
<PAGE>
Letter to Unit holders- 1st. qtr 95
To Our Limited Partners:
First quarter financial performance continued the growth trend of 1994. Revenues
and comparable store sales grew 7% and 9% respectively from the first quarter of
1994. FFO (funds from operations) of $1,824,480, relating to taxable income,
grew 3%, while net income approximated first quarter 1994. The net income and
growth in FFO would have been greater except for the one time costs associated
with the proxy process were fully expensed in the first quarter. As most of you
know, the proxy's proposed amendments to the partnership agreement, which among
other changes enable the partnership to expand and diversify, were approved by
the limited partners on March 17th.
On April 26, 1995, the Board of Directors of the managing general partner
approved a cash distribution for the 1st quarter of 42 cents per unit payable
June 15th to unitholders of record on June 8th. This cash distribution was up 8%
from the 1st quarter cash distribution last year. Of the 42 cent distribution,
the estimated deferred income tax portion is 13 cents per unit for the quarter.
Reflecting the new direction, and the new name, of the Master Limited
Partnership, the Board also approved changing the name of your managing general
partner to U.S. Restaurant Properties, Inc. effective June 1, 1995.
Turning to our property purchasing program, the 2nd quarter is being devoted to
making potential sellers aware of USRP and building a pipeline of potential
transactions. We did complete our first transaction at the end of the first
quarter, the land and building for a high volume Chili's restaurant in
Amarillo, Texas. This property is typical of the kind of transaction we seek: a
good location, a good chain brand, and a good tenant. We also signed a purchase
agreement for 3 Burger King properties in Arkansas. We expect to close on
additional properties beginning in the third quarter. We are currently
finalizing a $10 million bank credit line to fund all these purchases.
We are pleased with the momentum the partnership is developing, and appreciate
your support as the partnership grows.
Best Regards,
Robert Stetson Fred Margolin
CEO - President Chairman
QSV Properties, Inc. QSV Properties, Inc.
Managing General Partner Managing General Partner
Page 9 of 11 pages
<PAGE>
U. S. RESTAURANT PROPERTIES MASTER L.P.
CONSOLIDATED STATEMENTS OF INCOME
(unaudited)
<TABLE>
<CAPTION>
Three Months ended March 31,
-------------------------------------------------
1995 1994
---------- ----------
<S> <C> <C>
Revenues from leased properties:
Rental Income $1,539,963 $1,353,535
Amortization of unearned income on direct financing leases 582,657 630,452
----------- -----------
Total Revenues 2,122,620 1,983,987
Expenses:
Rent 336,496 323,460
Depreciation and amortization 336,576 318,608
Taxes, general, and administrative 369,668 235,493
Interest expense (income), net (10,250) 6,445
----------- -----------
Total Expenses 1,032,490 884,006
----------- -----------
Net income $1,090,130 $1,099,981
============ ===========
Net income allocable to unitholders $1,068,544 $1,077,981
=========== ===========
Average number of outstanding units 4,635,000 4,635,000
=========== ===========
Net income per unit $0.23 $0.23
=========== ===========
</TABLE>
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
March 31, December 31,
1995 1994
------------- --------------
(unaudited)
<S> <C> <C>
Assets
Cash and equivalents $ 374,057 $ 680,646
Marketable securities 0 853,791
Receivables, net 704,918 715,202
Purchase deposits 60,000 0
Prepaid expenses 120,111 122,962
Net investment in direct financing leases 20,788,704 21,237,432
Land 23,868,788 23,414,280
Buildings and leasehold improvements, net 2,276,598 1,548,375
Machines and equipment, net 6,779 0
Intangibles, net 14,025,675 14,316,583
------------- -------------
$62,225,630 $62,889,271
============= =============
Liabilities and Partners' Capital
Accounts payable $244,726 $445,518
Notes payable 500,000 0
Capitalized lease obligations 723,648 774,602
Partners' capital 60,757,256 61,669,151
------------- -------------
$62,225,630 $62,889,271
============= =============
</TABLE>
Notes to Consolidated Financial Statements are an integral part of these
statements.
================================================================================
Notes to Consolidated Financial Statements (unaudited)
*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 franchises. (The Partnership is the sole limited partner
of the Operating Partnership and they are referred to collectively as the
"Partnerships".) QSV Properties Inc. ("QSV") is the managing general partner of
partnerships.
* Related Party Transactions
The managing general partner, QSV 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), plus reimbursement of out-of-pocket
costs incurred to other parties for services rendered to the Partnerships. The
allowance for the quarter ended March 31, 1995 was $139,018 compared to
$135,627 in the like quarter of 1994. The managing general partner incurred
$18,036 of out-of-pocket costs relating to the acquisition of a property. These
costs were reimbursed to QSV by the partnership during the quarter ending March
31, 1995.
================================================================================
Page 10 of 11 pages
<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 GP Interest Transfer (12,899) (3,101) (16,000)
Net Income 21,586 1,068,544 1,090,130
Cash Distributions (39,325) (1,946,700) (1,986,025)
---------------- --------------- ---------------
Balance at March 31, 1995 $1,277,905 $59,479,351 $60,757,256
================ =============== ===============
</TABLE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited) Three months ended March 31,
-----------------------------
1995 1994
------------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net Income $1,090,130 $1,099,981
Adjustments to reconcile net income to net cash from operating activities:
Depreciation and amortization 336,576 318,608
Decrease (increase) in receivables, net 10,284 (145,329)
Decrease (increase) in prepaid expenses 2,851 (381)
Reduction in net investment in direct financing leases 448,728 400,903
(Decrease) increase in accounts payable (200,792) 86,277
------------- ----------
597,647 660,078
------------- ----------
1,687,777 1,760,059
Cash flows from investing activities:
Proceeds from the sale of marketable securities 853,791 0
Purchase of property (1,228,399) 0
Purchase of machines and equipment (6,779) 0
Purchase deposits paid (60,000) 0
------------- ----------
(441,387) 0
Cash flows used in financing activities:
Reduction in capitalized lease obligations (50,954) (45,898)
Increase in notes payable 500,000 0
Cash distributions (1,986,025) (1,749,948)
Purchase special general partner interest (16,000) 0
------------- ----------
(1,552,979) (1,795,846)
------------- ----------
Increase (Decrease) in cash and equivalents (306,589) (35,787)
Cash and equivalents at beginning of year 680,646 1,260,103
------------- ----------
Cash and equivalents at end of quarter $374,057 $1,224,316
============= ==========
</TABLE>
Notes to Consolidated Financial Statements are an integral part of these
statements.
================================================================================
Notes to Consolidated Financial Statements (unaudited)
Reconciliation of Financial Reporting to Taxable Income
<TABLE>
<CAPTION>
Three Months Ended March 31, 1995
------------------------------------------------------
Financial
Reporting Reconciling Taxable
Income Difference Income
------------ --------------- ----------
<S> <C> <C> <C>
Revenues from leased properties:
Rental Income $1,539,963 $1,031,385 $2,571,348
Amorization of unearned income on
direct financing leases 582,657 (582,657) 0
------------ ---------- ----------
2,122,620 448,728 2,571,348
Expenses:
Rent 336,496 70,218 406,714
Depreciation and amortization 336,576 359,330 695,906
Taxes, general, and administrative 369,668 0 369,668
Interest expense (income), net (10,250) (19,264) (29,514)
------------ ---------- ----------
1,032,490 410,284 1,442,774
------------ ---------- ----------
Net income $1,090,130 $ 38,443 1,128,573
============ ========== ----------
Add Back Non Cash Expenses 695,906
----------
Funds Generated from Operations $1,824,480
==========
Funds Generated from Operations
allocable to unitholders $1,788,355
==========
Average number of outstanding units 4,635,000
==========
Funds Generated from Operations Per Unit $0.39
==========
</TABLE>
* 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
consolodated accounts of the Partnerships 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 three months ended March 31, 1995, are not necessarily indicative of the
results to be expected for the year ending December 31, 1995.
The consolidated balance sheet as of March 31, 1995 and the other consolidated
financial information for the three months ended March 31, 1995 and 1994, are
unaudited, but management of the Registrant believes that all adjustments
(consisting only of normal recurring accrual) necessary for a fair statement of
the Partnerships' financial position and result of operations for the periods
have been included.
Page 11 of 11 pages
<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> MAR-31-1995
<CASH> 374,057
<SECURITIES> 0
<RECEIVABLES> 821,808
<ALLOWANCES> 116,890
<INVENTORY> 20,000
<CURRENT-ASSETS> 1,259,086
<PP&E> 26,152,165
<DEPRECIATION> 336,576
<TOTAL-ASSETS> 62,225,630
<CURRENT-LIABILITIES> 737,401
<BONDS> 0
<COMMON> 0
0
0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 62,225,630
<SALES> 0
<TOTAL-REVENUES> 2,122,620
<CGS> 0
<TOTAL-COSTS> 1,032,490
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 19,264
<INCOME-PRETAX> 1,097,581
<INCOME-TAX> 7,451
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,090,130
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
