<PAGE>
UNITED STATES
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, 1996
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 13, 1996: 4,987,003
Page 1 of 13
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
U.S. RESTAURANT PROPERTIES MASTER L.P.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1996 1995
----------- -------------
(unaudited)
<S> <C> <C>
ASSETS
Cash and equivalents $ 18,526 $ 7,127
Receivables, net 924,402 951,095
Purchase deposits 2,070,529 1,791,682
Prepaid expenses 284,552 315,189
Notes receivable 348,238 268,654
Net investment in direct financing leases 18,875,331 19,371,015
Land 31,203,496 27,492,895
Buildings and leasehold improvements, net 18,844,373 6,257,188
Machines and equipment, net 257,141 223,739
Intangibles, net 14,524,275 14,804,155
----------- -----------
$87,350,863 $71,482,739
----------- -----------
----------- -----------
LIABILITIES AND PARTNERS' CAPITAL
Accounts payable $ 624,723 $ 677,398
Line of credit 21,226,000 10,930,647
Capitalized lease obligations 507,980 562,544
GENERAL PARTNER'S CAPITAL 1,222,468 1,240,604
LIMITED PARTNERS' CAPITAL 63,769,692 58,071,546
----------- -----------
$87,350,863 $71,482,739
----------- -----------
----------- -----------
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Page 2 of 13
<PAGE>
U.S. RESTAURANT PROPERTIES MASTER L.P.
CONSOLIDATED STATEMENTS OF INCOME
(unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
1996 1995
----------- ------------
<S> <C> <C>
REVENUES FROM LEASED PROPERTIES:
Rental income $2,433,447 $1,539,963
Amortization of unearned income
on direct financing leases 522,022 582,657
---------- ----------
TOTAL REVENUES 2,955,469 2,122,620
EXPENSES:
Rent 411,521 336,496
Depreciation and amortization 534,037 336,576
Taxes, general, and administrative 369,638 369,668
Interest expense (income), net 317,588 (10,250)
---------- ----------
TOTAL EXPENSES 1,632,784 1,032,490
---------- ----------
Net income $1,322,685 $1,090,130
---------- ----------
---------- ----------
Net income allocable to unitholders $1,296,496 $1,068,544
---------- ----------
---------- ----------
Average number of outstanding units 4,903,008 4,635,000
---------- ----------
---------- ----------
Net income per unit $ 0.26 $ 0.23
---------- ----------
---------- ----------
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Page 3 of 13
<PAGE>
U.S. RESTAURANT PROPERTIES MASTER L.P.
CONSOLIDATED STATEMENT OF PARTNERS' CAPITAL
(unaudited)
<TABLE>
<CAPTION>
GENERAL LIMITED
PARTNER PARTNERS TOTAL
---------- ----------- -----------
<S> <C> <C> <C>
Balance at December 31, 1995 $1,240,604 $58,071,546 $59,312,150
Net Income 26,191 1,296,494 1,322,685
Units issued for property 0 6,595,933 6,595,933
Cash Distributions (44,327) (2,194,281) (2,238,608)
---------- ----------- -----------
Balance at March 31, 1996 $1,222,468 $63,769,692 $64,992,160
---------- ----------- -----------
---------- ----------- -----------
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Page 4 of 13
<PAGE>
U.S. RESTAURANT PROPERTIES MASTER L.P.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
----------------------------
1996 1995
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 1,322,685 $ 1,090,130
Adjustments to reconcile net income to net
cash from operating activities:
Depreciation and amortization 535,088 336,576
Amortization of deferred financing costs 10,285 0
Marketable securities 0 853,791
Decrease in receivables, net 26,693 10,284
Decrease in prepaid expenses 30,637 2,851
Reduction in net investment in
direct financing leases 495,684 448,728
Decrease in accounts payable (52,675) (200,792)
----------- -----------
1,045,712 1,451,438
----------- -----------
2,368,397 2,541,568
CASH FLOWS USED IN INVESTING ACTIVITIES:
Purchase of property (9,926,741) (1,228,399)
Purchase of machines and equipment (39,901) (6,779)
Purchase deposits paid (278,847) (60,000)
Increase in notes receivable (79,584) 0
----------- -----------
(10,325,073) (1,295,178)
CASH FLOWS FROM (USED IN) FINANCING ACTIVITIES:
Increase in loan origination costs (34,106) 0
Reduction in capitalized lease obligations (54,564) (50,954)
Proceeds from line of credit 11,435,000 500,000
Repayments of line of credit (1,139,647) 0
Cash distributions (2,238,608) (1,986,025)
Purchase special general partner interest 0 (16,000)
----------- -----------
7,968,075 (1,552,979)
----------- -----------
INCREASE (DECREASE) IN CASH AND EQUIVALENTS 11,399 (306,589)
CASH AND EQUIVALENTS AT BEGINNING OF QUARTER 7,127 680,646
----------- -----------
CASH AND EQUIVALENTS AT END OF THE QUARTER $ 18,526 $ 374,057
----------- -----------
----------- -----------
SUPPLEMENTAL DISCLOSURE:
Interest paid during the quarter $ 333,395 $ 19,264
----------- -----------
----------- -----------
NON-CASH INVESTING ACTIVITIES:
Fair value of units issued for property $ 6,595,933 $ 0
----------- -----------
----------- -----------
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Page 5 of 13
<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 from Burger King Corporation
(BKC) in February 1986 an interest in 128 restaurant properties (Properties)
owned or leased by 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 the Partnership and the Operating Partnership are referred to
collectively as the "Partnerships".) U.S. Restaurant Properties, Inc. is the
managing general partner of the Partnerships.
In 1996, the Partnership established certain other operating entities
consisting of U.S. Restaurant Properties Business Trust I and Restaurant
Acquisition Corporation for business purposes which are included in the
consolidation.
The Partnership may issue an unlimited number of units. The units
outstanding as of March 31, 1996 and 1995 totaled 4,987,003 and 4,635,000,
respectively.
* ACCOUNTING POLICIES - A summary of accounting policies followed by the
Partnerships is included in the 1995 Annual Report. The Partnerships follow
such policies in preparation of interim reports.
The financial statements have been prepared in accordance with generally
accepted accounting principles (GAAP); however, this is not 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
consolidated financial statements because partnerships are not taxable
entities. The partners are responsible for reporting 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, 1995. The results of
operations for the three months ended March 31, 1996, are not necessarily
indicative of the results to be expected for the year ending December 31,
1996.
The consolidated balance sheet as of March 31, 1996 and the other
consolidated financial information for the three months ended March 31, 1996
and 1995, 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' consolidated financial position and
result of operations for the periods have been included.
Page 6 of 13
<PAGE>
In March 1995, Statement of Financial Accounting Standard ("SFAS") No. 121,
"Accounting for the Impairment of Long-Lived Assets and Long-Lived Assets to
be Disposed of" was issued. The Partnerships adopted SFAS No. 121 in 1995.
Long-lived assets include real, direct financing leases, and intangibles
which are evaluated on an individual property basis. Based on the
Partnership's policy for reviewing impairment of long-lived assets, there was
no adjustment necessary to the accompanying consolidated financial
statements.
In October 1995, Statement of Financial Accounting Standards No. 123 (SFAS),
"Accounting for Stock-Based Compensation," was issued, effective for calendar
year 1996. This Statement applies to transactions in which an entity issues
its equity instruments to acquire goods or services from non-employees.
Those transactions must be accounted for based on the fair value of the
consideration received or the fair value of the equity instruments issued,
whichever is more reliably measurable. The Partnership has implemented the
provisions of this statement in 1996. The Partnership has elected to account
for stock-based compensation as provided by Accounting Principles Board
Opinion No. 25, which is an acceptable determinative under SFAS No. 123.
* 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-pocket costs incurred by other parties for service
rendered to the Partnerships. The allowance for the quarter ended March 31,
1996 was $198,681 compared to $139,018 at March 31, 1995. The managing
general partner also receives a 1% finders fee on all acquisitions, which
amounted to $154,251 for the quarter ended March 31, 1996 compared to $12,100
in the quarter ended March 31, 1995.
A note receivable of $300,000 is due from Arkansas Restaurants #10 L.P. at
March 31, 1996. The note receivable is due on September 30, 1996, and has an
interest rate of 9.0% per annum. As of March 31, 1996, the managing general
partner of the Partnership owned 90% of Arkansas Restaurants #10 L.P.
On March 17, 1995 the limited partners authorized the grant to the managing
general partner of 10-year options to acquire up to 400,000 units. See Note
4, Option Agreement.
2. PROPERTY PURCHASES - During the first quarter the Partnership completed
the purchase of 24 properties. Nine of the properties were purchased for a
cash price of $4,426,264. These properties included three Dairy Queens, two
KFCs and a Pizza Inn. Fifteen of the properties were purchased for a
combination of cash and units. The total purchase price included $5,500,477
in cash and 327,836 units with a guaranteed value of $7,839,800. Of the
327,836 partnership units issued, 28,261 units are guaranteed to have a
market value of $23 three years from the transaction date and 299,575
partnership units are guaranteed to have a market value of $24 two years from
that transaction date. All 327,836 units have certain registration rights.
The properties included thirteen Burger Kings, one Sizzler, and one Taco
Cabana. 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 Partnership 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.
Page 7 of 13
<PAGE>
On March 31, 1996, purchase deposits included earnest money amounting to
$1,779,000 was on deposit for the purchase of 29 Burger Kings, five
Schlotskys', 37 Dairy Queens, 27 Hardees, and nine Pizza Huts.
3. REVOLVING CREDIT FACILITY - The revolving credit facility with Comerica
Bank-Texas was increased on February 15, 1996 from $20,000,000 to
$40,000,000 and was co-written by Compass Bank-Dallas. 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 which was 8.25% on March 31,
1996. There is 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
Partnership's assets. In addition to various reporting requirements mandated
under the secured loan agreement, the Partnership must also maintain a
tangible net worth in excess of $40,500,000; a debt to tangible net worth
ratio of not more than 1.0 to 1.0 and cash flow coverage ratios of not less
than (a) 1.2 to 1.0 based upon a Pro Forma Five Year Bank Debt Amortization
and (b) 2.75 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
are fully vested and exercisable, 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 three months ended March 31, 1996, the
dilutive amount is immaterial.
Page 8 of 13
<PAGE>
5. VALUATION/ALLOWANCE ACCOUNTS - Certain balance sheet captions
appearing in the Consolidated Balance Sheets for the First Quarter of 1996
are comprised as follows:
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1996 1995
----------- ------------
<S> <C> <C>
Receivables, net:
Other receivables $ 1,041,293 $ 1,067,986
Less allowance for doubtful accounts 116,891 116,891
----------- -----------
$ 924,402 $ 951,095
----------- -----------
----------- -----------
Buildings, net:
Buildings and leasehold improvements $21,694,210 $ 8,882,138
Less accumulated depreciation 2,849,837 2,624,950
----------- -----------
$18,844,373 $ 6,257,188
----------- -----------
----------- -----------
Intangibles, net:
Intangibles $28,224,300 $28,178,508
Less accumulated amortization 13,700,025 13,374,353
----------- -----------
$14,524,275 $14,804,155
----------- -----------
----------- -----------
</TABLE>
6. REPURCHASE OF PARTNERSHIP UNITS - In July 1995, the Partnership
announced its intention to repurchase up to 300,000 units. Through March 31,
1996, the Partnership purchased 30,000 units. No further repurchases have
been made or are contemplated.
7. SUBSEQUENT EVENTS - On April 22, 1996 the board of directors of the
managing general partner declared a cash distribution of $.47 per unit. The
cash distribution is payable on June 13, 1996 to unitholders of record on
June 6, 1996.
In April 1996, two Pizza Hut properties and one Hardees property were
purchased for $420,000 and $546,000, respectively. In May 1996, 37 Dairy
Queen properties were purchased for $11,000,000 and 29 Burger King properties
were purchased for $17,325,000. All of the purchase prices are exclusive of
the 1% paid to the managing general partner and other closing costs.
On April 19, 1996, the Partnership filed a registration statement with the
Securities and Exchange Commission to register 1,800,000 partnership units to
be sold in the public market. The Partnership also granted an option to the
underwriters for 270,000 units to cover over allotments. The registration
statement has not yet become effective.
On April 29, 1996, U.S. Restaurant Properties Business Trust I, a financing
subsidiary of the Partnership closed on a $20 million credit facility with
Morgan Keegan Mortgage Company, Inc., of which approximately $10,600,000 has
been drawn. The Morgan Keegan credit facility bears interest at a rate of 3
percentage points in excess of LIBOR. The interest is payable monthly, and
the final maturity date is November 30, 1996. The Morgan Keegan credit
facility is nonrecourse to the Partnership and is secured by approximately
$30 million of real properties owned by the U.S. Restaurant Properties
Business Trust I.
On May 1, 1996, a restaurant property located in Wenatchee, WA was sold for
$825,000 at a gain. The sales price consisted of $82,500 in cash plus a
$742,500 installment note receivable. The note receivable is due in 30
monthly installments with an interest rate of 9.25 percent per annum.
8. PROFORMA (UNAUDITED) - Since January 1, 1995, the Partnership acquired
40 properties. The proforma revenues, net income, and net income per unit
assuming these properties were purchased January 1, 1995 is as follows.
The proforma information was prepared by adjusting the actual consolidated
results of the Partnership for the quarter ended March 31, 1995 and 1996 and
for the effects of the 1995 and 1996 acquisitions as if all acquisitions and
related financing transactions occurred on January 1, 1995.
Page 9 of 13
<PAGE>
These proforma operating results are not necessarily indicative of what the
actual results of operations of the Partnership would have been assuming all
of the properties were acquired as of January 1, 1995, and do not purport to
represent the results of operations for future periods.
<TABLE>
<CAPTION>
THREE MONTHS
ENDED MARCH 31,
-----------------------
1996 1995
---------- ----------
<S> <C> <C>
REVENUES FROM LEASED PROPERTIES:
Rental income $2,562,164 $2,476,988
Amortization of unearned income on direct
financing leases 522,022 582,657
---------- ----------
Total revenues 3,084,186 3,059,645
EXPENSES:
Rent 420,152 408,477
Depreciation and amortization 561,266 570,762
Taxes, general and administrative 385,556 447,879
Interest expense (income), net 373,978 388,795
---------- ----------
Total expenses 1,740,952 1,815,913
---------- ----------
Net income $1,343,234 $1,243,732
---------- ----------
---------- ----------
Net income allocable to unitholders $1,316,638 $1,219,106
---------- ----------
---------- ----------
Average number of outstanding units 4,987,003 5,017,003
---------- ----------
---------- ----------
Net income per unit $ 0.26 $ 0.24
---------- ----------
---------- ----------
</TABLE>
Page 10 of 13
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
REVENUES: For the Quarter ended March 31, 1996, rental revenues increased 39%
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 gross rental receipts.
<TABLE>
<CAPTION>
(UNAUDITED)
THREE MONTHS ENDED MARCH 31,
----------------------------
1996 1995
---------- ----------
<S> <C> <C>
Gross rental receipts $3,451,153 $2,571,348
Revenue from leased properties (GAAP) $2,955,469 $2,122,620
</TABLE>
TAXES, GENERAL AND ADMINISTRATIVE EXPENSES: Expenses in 1996 remained
constant from the same quarter in 1995. Expenses in the first quarter of
1995 were $369,668 compared to $369,638 in 1996. An increase in the
management fee of $87,647 for the quarter and expenses that directly
correspond to the active growth of the Partnership in the first quarter of
1996 was offset by non recurring costs relating to the proxy in the first
quarter of 1995. Depreciation expense increased 59% which related to the
property acquisitions as well as the 22% increase in ground lease expense.
There was an increase in interest expense of $314,131 due to the financing of
acquisitions.
LIQUIDITY: For the three months ended March 31, 1996 cash flows from
operating activities equaled $2,368,397 and the Partnership's net borrowings
under its line of credit amounted to $10,295,353. These cash proceeds were
used primarily to fund distributions of $2,238,608 and to pay the $9,926,697
cash portion of the purchase price of 24 properties acquired in the first
quarter and purchase deposits of $278,847. At this time there is adequate
liquidity to continue operations as well as to fund additional property
purchases.
On March 31, 1996 the balance available on the Comerica Bank-Texas
$40,000,000 credit line facility equaled $18,459,156.
Page 11 of 13
<PAGE>
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a) There were no reports on Form 8-K filed during the quarter.
b) 10.1 Amended and Restated Secured Loan Agreement dated as of
February 15, 1996 between the Registrant and various banks, filed
as Exhibit 10.6 to Registrant's Annual Report on Form 10-K for the
year ended December 31, 1995 and incorporated herein by reference.
Page 12 of 13
<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 13 of 13
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<CASH> 18,526
<SECURITIES> 0
<RECEIVABLES> 1,041,293
<ALLOWANCES> 116,891
<INVENTORY> 0
<CURRENT-ASSETS> 3,646,247
<PP&E> 21,931,351
<DEPRECIATION> 2,864,387
<TOTAL-ASSETS> 87,350,863
<CURRENT-LIABILITIES> 624,724
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 87,350,863
<SALES> 0
<TOTAL-REVENUES> 2,955,469
<CGS> 0
<TOTAL-COSTS> 411,521
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 333,395
<INCOME-PRETAX> 1,318,011
<INCOME-TAX> (4,674)
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,322,685
<EPS-PRIMARY> .264
<EPS-DILUTED> .259
</TABLE>
