UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
|X| Annual report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the fiscal year ended December 31, 1999, 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 No. 1-9510
FFP PARTNERS, L.P.
(Exact name of registrant as specified in its charter)
Delaware 75-2147570
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification number)
2801 Glenda Avenue; Fort Worth, Texas 76117-4391
(Address of principal executive office, including zip code)
817/838-4700
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act
Title of Each Class Name of Each Exchange on Which Registered
Class A Units of American Stock Exchange
Limited Partnership
Interests
Securities registered pursuant to Section 12(g) of the Act
None
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. [ ]
The aggregate market value of Class A Units held by non-affiliates of the
registrant at March 31, 2000, was $2,222,000. For purposes of this computation,
all officers, directors, and beneficial owners of 10% or more of the Class A
Units of the registrant are deemed to be affiliates. Such determination should
not be deemed an admission that such officers, directors, and beneficial owners
are affiliates.
Class A Units 2,234,262
(Number of units outstanding as of March 31, 2000)
PART I
ITEM 1. BUSINESS.
General Background
FFP Partners, L.P. (the "Partnership") is a Delaware limited partnership
whose sole general partner is FFP Real Estate Trust and whose Class A Units of
limited partnership interest ("Limited Partner Units") are listed for trading on
the American Stock Exchange (trading symbol "FFP"). The Partnership no longer
has any type of limited partnership interests other than the Limited Partner
Units. {See Item 5. Market for the Registrant's Units and Related Security
Holder Matters.}
FFP Real Estate Trust, a Texas real estate investment trust, has served as
the Partnership's sole general partner since a restructuring of the Partnership
was completed on December 28, 1997. FFP Real Estate Trust is wholly owned by FFP
Partners Management Company, Inc. ("FFPMC"), which served as the sole general
partner of the Partnership from the inception of the Partnership until the
December 1997 restructuring.
The Partnership was formed in December 1986 pursuant to the Agreement of
Limited Partnership of FFP Partners, L.P. (as amended, the "Partnership
Agreement"). In May 1987, the Partnership purchased convenience stores, truck
stops, other retail motor fuel outlets, and ancillary businesses from affiliates
of its senior executives. The purchase of these outlets was completed in
conjunction with the Partnership's initial public offering of Limited Partner
Units. The senior executives of the Partnership had owned and managed these
operations prior to their acquisition by the Partnership. Through its
subsidiaries, the Partnership owned and operated these businesses until the
December 1997 restructuring.
In the December 1997 restructuring, the Partnership (a) retained the real
estate (land and buildings) previously used in its retail and wholesale
operations, and (b) transferred its convenience stores, truck stops, other
retail motor fuel outlets, and other businesses to FFP Marketing Company, Inc.
("FFP Marketing") in exchange for all the common stock of FFP Marketing. The
common stock of FFP Marketing was then distributed to its partners such that the
Partnership's limited partners received one share of common stock for each
Limited Partner Unit and the Partnership's general partner received common stock
in a percentage equal to its former ownership percentage. Since that time, FFP
Marketing's common stock has been listed for trading on the American Stock
Exchange (trading symbol "FMM").
The real estate retained by the Partnership in the December 1997
restructuring was then contributed at that time to FFP Properties, L.P. ("FFP
Properties"), a newly formed Texas limited partnership, in exchange for the
general partnership interest in FFP Properties. As a result, the Partnership now
serves as the general partner, and owns 60%, of FFP Properties, which in turn
owns the land and buildings. The limited partnership interests in the
Partnership that were previously held by John H. Harvison, the Chairman and
Chief Executive Officer of the Partnership's general partner, members of his
family, and corporations, partnerships, trusts, and other business entities
affiliated with him or his family members (collectively, the "Harvison Family")
were exchanged for economically equivalent limited partnership interests in FFP
Properties. As a result, the Harvison Family owns a 40% limited partnership
interest in FFP Properties.
In the 1997 restructuring, all of the Partnership's non-real estate operating
activities were transferred to FFP Marketing, and the business of the
Partnership now solely consists of the ownership and rental of real estate
through its general partnership interest in FFP Properties.
Unless the context requires otherwise, references herein to the Partnership
include its subsidiary, FFP Properties, and its general partner, FFP Real Estate
Trust. References herein to FFP Marketing include its subsidiaries.
The Partnership maintains its principal executive offices at 2801 Glenda
Avenue, Fort Worth, Texas 76117-4391. Its telephone number is (817) 838-4700.
The Partnership's Internet web site address is http://www.ffplp.com.
Business Strategy
The Partnership intends to pursue the following business strategy:
1. own its current portfolio of improved real properties,
2. collect rental income from those properties,
3. build equity in the properties through debt retirement and
appreciation, and
4. where acceptable deal terms, occupancy and financing are available,
expand its real estate holdings through the acquisition of other real
estate properties.
Such additional properties will most likely include retail sites leased to
FFP Marketing for convenience stores, truck stops, fast-food restaurants, and
other retail outlets. Any additional real estate acquired by the Partnership may
be used for other purposes and may be leased to other tenants. Although the
Partnership will consider investments in any type of real estate, it is
anticipated that most initial investments will be in convenience store locations
since most of the Partnership's contacts are in that industry, and the
Partnership believes it has considerable knowledge of the economics of those
operations. In addition, the Partnership expects that most real estate acquired
will be in smaller communities and towns. The Partnership believes that large
real estate owners and developers are primarily interested in metropolitan area
properties. Consequently, the Partnership believes it can obtain better yields
on investments in smaller towns since there is less competition.
The Partnership may or may not pursue a conversion to a real estate
investment trust. If the Partnership decides to convert into a real estate
investment trust, two scenarios are possible. One would be with a conversion
through a "merger" and the other would be undertaken through an "exchange". In
either case, if undertaken, the Partnership's unitholders would receive shares
of FFP Real Estate Trust in place of their limited partnership units of the
Partnership, and the FFP Real Estate Trust shares would be listed on a
securities exchange.
The Partnership has not yet decided to seek a tax ruling from the Internal
Revenue Service ("IRS") regarding a conversion. If one is sought, there can be
no assurance whether or when the IRS would respond favorably to the request. If
the Partnership decides to pursue a conversion and obtains a favorable tax
ruling from the IRS that a merger of the Partnership and its general partner,
FFP Real Estate Trust, would be tax-free to the Partnership's unitholders, then
the merger alternative would most likely be used. Under the merger alternative,
the Partnership would be merged into its general partner, FFP Real Estate Trust,
with the Partnership's unitholders receiving shares or units of FFP Real Estate
Trust in exchange for their units of the Partnership.
If the Partnership decides to pursue a conversion but is unable to obtain a
favorable ruling from the IRS on the merger alternative, then it could convert
to a real estate investment trust under the exchange alternative. Under the
exchange alternative, the Partnership's unitholders would be prohibited from
transferring their units to a third party but would be able to require the
Partnership's general partner to redeem their units either for shares of FFP
Real Estate Trust or for cash. FFP Real Estate Trust, not the Partnership's
unitholders, would determine whether to redeem the Partnership's units for
shares or cash. Management expects that any such redemption would be made in
exchange for shares or units of FFP Real Estate Trust.
Competition
Numerous parties with greater financial resources than the Partnership
compete with the Partnership in acquiring real estate for convenience stores,
truck stops, and other retail activities. These parties may be able to accept
more or less risk than the Partnership is willing to undertake. Competition will
affect the bargaining power of property owners who sell, buy or lease their
properties, may reduce the number of suitable investment opportunities available
to the Partnership, and may decrease the yield achievable on any real estate
owned or purchased by the Partnership.
Employees
Throughout 1999 and at March 31, 2000, FFP Real Estate Trust, general partner
of the Partnership, had two executive officers not paid directly by the
Partnership. Both of those hold similar positions with FFP Marketing. FFP Real
Estate Trust has entered into a reimbursement agreement with FFP Marketing
pursuant to which the Partnership pays FFP Marketing an annual lump sum of
$200,000 for administrative and other indirect costs provided to the Partnership
and reimburses FFP Marketing for all of direct costs of the Partnership. Neither
FFP Real Estate Trust nor the Partnership have any other employees.
Government Regulation -- Environmental Regulation
Substantially all the properties leased by the Partnership to FFP Marketing
contain underground storage tanks used for motor fuel storage. The underground
storage tanks are owned and operated by FFP Marketing, which is responsible for
compliance with all environmental laws, rules and regulations regarding such
tanks. If for any reason FFP Marketing is unable or unwilling to take all
actions that may be required under current or future environmental laws, rules
or regulations regarding underground storage tanks or other activities, the
Partnership could be required to take such actions and be responsible for
violations of such environmental laws, rules or regulations.
The Partnership may acquire additional properties that will also be subject
to environmental regulations, either because they will also contain underground
storage tanks or for other reasons. The Partnership intends to structure similar
leases with the operators of such properties so that the lessees will be
responsible for compliance with such environmental regulations.
Federal Income Tax Law
As a partnership, the Partnership pays no federal income tax. Rather, the
income or loss of the Partnership is allocated to its partners to be included in
their respective tax returns, subject to special rules for publicly traded
partnerships. Investors should note that (i) the passive loss rules of the
Internal Revenue Code are applied separately with respect to items attributable
to each publicly traded partnership, and (ii) net income from a publicly traded
partnership is not treated as passive income.
If in the future the Partnership becomes a real estate investment trust for
federal income tax purpose {see Business Strategy}, its earnings will no longer
be allocated to its partners, but it will not, as an entity, generally be
subject to federal income tax. However, it will be required to comply with
various complex requirements which limit the nature of its assets and sources of
its income. In addition, it will be required to distribute annually to its
shareholders at least 95% of its real estate investment trust taxable income.
Differences in timing between the actual receipt of income, the actual payment
of deductible expenses in arriving at taxable income, the creation of reserves,
and required debt amortization payments could require the Partnership to borrow
funds to meet the 95% distribution requirement even if management believed that
the then prevailing market conditions were not favorable for such borrowings or
that the borrowings were not advisable in the absence of such tax
considerations.
Forward-Looking Statements
This annual report on Form 10-K contains certain "forward-looking" statements
as such term is defined in the U.S. Private Securities Litigation Reform Act of
1995, and information relating to the Partnership and its subsidiary that is
based on the beliefs of management and assumptions made by and information
currently available to management. The Partnership is relying upon the "safe
harbor" contained in Section 27A of such act in making such forward-looking
statements. Certain of the statements made in this report are forward-looking
statements that involve a number of risks and uncertainties. Statements that
should generally be considered forward-looking include, but are not limited to,
those that contain the words "estimate," "anticipate," "in the opinion of
management," "believes," and similar phrases. Although the Partnership believes
that the expectations reflected in such forward-looking statements are based
upon reasonable assumptions, the Partnership's actual results could differ
materially from those set forth in the forward-looking statements. Among the
factors that could cause actual results to differ materially from the
forward-looking statements made include the following: changes in real estate
conditions, including rental rates and the construction or availability of
competing properties; the financial strength, cash flow, liquidity and other
relevant business aspects of FFP Marketing, the primary tenant of the
Partnership's properties; changes in the industries in which FFP Marketing
competes; changes in general economic conditions; the ability of management to
identify acquisition and investment opportunities meeting the Partnership's
investment objectives; the timely leasing of unoccupied properties; timely
re-leasing of currently occupied properties upon expiration of the current
leases or the default of the current tenant; the Partnership's ability to
generate funds sufficient to meet its debt service payments and other operating
expenses; the inability of the Partnership to control the management and
operation of its tenant and the businesses conducted on the Partnership's
properties; financing risks, including the availability of funds to service or
refinance existing debt and to finance acquisitions of additional property, the
existence of complex tax regulations relating to the Partnership's status as a
publicly traded partnership and, if achieved, to its status as a real estate
investment trust and the adverse consequences of the failure to qualify as such;
and other risks detailed from time to time in the Partnership's filings with the
Securities and Exchange Commission. Given these uncertainties, readers are
cautioned not to place undue reliance on the forward-looking statements. The
Partnership undertakes no obligation to publicly release the results of any
revisions to these forward-looking statements that may be made to reflect any
future events or circumstances.
Should one or more of these risks or uncertainties materialize, or should any
underlying assumptions prove incorrect, actual results or outcomes may vary
materially from those described herein as anticipated, believed, estimated,
expected, or intended.
ITEM 2. PROPERTIES.
The Partnership owns approximately 200 parcels of improved real estate. Those
properties include the ownership of approximately 84 parcels of Partnership land
with buildings, 106 parcels with Partnership buildings only on land owned by
affiliates of FFP Marketing or the Harvison Family, and 10 miscellaneous
Partnership properties such as vacant lots, small houses or other minor types.
The Partnership's real properties are principally located in small cities and
towns in the states shown in the table below. The table below also shows the
uses of Partnership properties at year end 1999:
Vacant
or
Convenience Gasoline Truck Other
Stores Outlets Stops Uses Total
Texas 75 62 6 9 152
Oklahoma 0 4 0 0 4
Louisiana 14 1 0 0 15
Missouri 9 1 0 5 15
Illinois 0 0 0 1 1
Mississippi 5 0 0 1 6
Kentucky 1 0 1 0 2
New Mexico 0 0 2 1 3
Tennessee 1 1 0 0 2
Totals 105 69 9 17 200
All but one of the Partnership's properties under lease are leased to FFP
Marketing under long-term leases for the operation of convenience stores or
truck stops at those locations. These leases contain two important provisions:
1. "Triple Net" Leases. Under these "triple net" leases, the tenant (FFP
Marketing), and not the landlord (the Partnership), pays all real estate taxes,
insurance, operating costs, and capital costs for the properties. A "triple net"
lease is generally favored by a landlord because properties leased under "triple
net" provisions have considerably less operating expenses and risk than
properties leased without this provision.
2. Escalating Rent. Each of the leases provide that the rental income to be
received by the Partnership will increase every five years to the extent of any
increase in the consumer price index.
In February 1999, the Partnership purchased 14 properties located in Texas
from a third party and promptly leased them to FFP Marketing pursuant to 15-year
leases. The Partnership's scheduled rent income on these properties equals its
debt obligations on these properties during its initial five years of ownership
and should exceed its debt obligations to the extent that the rent escalates as
a result of an increase in the consumer price index. The land portion of the
rental income from these 14 properties is accounted for as operating leases;
therefore, the land at these locations is reflected as an asset on the
Partnership's balance sheet and the rental income is shown as such on the
Partnership's statement of income. On the other hand, the building portion of
the rent income from these 14 properties is accounted for as a direct financing
lease; as a result, the Partnership's financial statements do not include these
buildings, or the depreciation thereon, but instead reflect the Partnership's
receivable from these direct financing leases as an asset and the interest
income earned each month therefrom. Nevertheless, the Partnership does own legal
title to both the land and the buildings at these 14 locations.
The Partnership's leases to FFP Marketing approximately 78 properties where
the Partnership owns both the land and building. These leases generally expire
in December 2002 plus two five-year renewal periods at the sole option of FFP
Marketing. Assuming that these leases are renewed in 2002 and 2007, which is
expected, the rent payable to the Partnership will be adjusted by the change in
the consumer price index from January 1, 1998, to the date of each such renewal.
The Partnership's ownership in the 106 buildings leased to FFP Marketing is
subject to a pre-existing ground lease between FFP Marketing, as lessee, and the
Harvison Family, as lessor. The Partnership's ownership interest in these
buildings terminates concurrently with the end of the underlying ground lease
(generally, May 2007) and will continue beyond that date if the underlying
ground lease is renewed. The lessors under those ground leases have indicated to
the Partnership that they do not intend to extend the ground leases past 2007.
The Partnership refinanced all of its long-term indebtedness in October 1999.
The new debt is secured by liens against 63 Partnership properties and will be
fully amortized with fixed monthly payments over a 20-year term. As a condition
to that loan, FFP Marketing exercised its option to extend the term of the real
estate leases for 28 of those 63 properties to a 20-year term, and FFP Marketing
and the Partnership executed a new master lease covering the remaining 35 of
those 63 properties for a 20-year term. The Partnership's leases for these 63
properties contain "triple net" provisions and rent escalation provisions every
five years.
The Partnership's rental rates for all of the real estate leased to FFP
Marketing were determined by the Partnership based on its knowledge of the
properties and the general experience of its management in acting as lessor and
lessee for similar properties. The Partnership believes that the rental rates
paid by FFP Marketing to the Partnership are a fair rental value. Neither the
Partnership nor FFP Marketing have engaged a third party advisor or referred to
any third party surveys or analyses of rental rates in making this
determination.
ITEM 3. LEGAL PROCEEDINGS.
The Partnership is not subject to any material pending legal proceedings,
other than routine litigation incidental to its business, to which the
Partnership or its subsidiary is a party or of which any of their properties are
subject.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matter was submitted to a vote of the holders of the Limited Partner Units
during the fourth quarter of 1999.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S UNITS AND RELATED SECURITY HOLDER MATTERS.
The Limited Partner Units are listed for trading on the American Stock
Exchange under the trading symbol "FFP". At March 31, 2000, there were
approximately 224 holders of record and 627 beneficial owners of the Limited
Partner Units. The closing sales price of these Units was $1.00 per Unit on that
date. {See Item 12. Security Ownership of Certain Beneficial Owners and
Management.}
The following table sets forth the range of high and low sales prices for the
Limited Partner Units as reported on the American Stock Exchange for the periods
indicated:
High Low
(In dollars)
1999
First Quarter 1.2500 0.6250
Second Quarter 1.5000 0.8125
Third Quarter 1.1250 0.6875
Fourth Quarter 1.1250 0.6250
1998
First Quarter 4.0000 1.0000
Second Quarter 1.6250 1.1250
Third Quarter 1.5000 0.7500
Fourth Quarter 1.0000 0.3750
No distributions were made to partners in 1999 or 1998. The Board of Trustees
of FFP Real Estate Trust, the general partner of the Partnership, has not
established a distribution policy. Any future distributions may only be made in
compliance with the terms of the Partnership's new long-term debt. Accordingly,
no assurance can be given that the Partnership will be able to make any
distributions to its unitholders. The ability of the Partnership to make
distributions in the future will be dependent upon the Partnership's earnings
and cash flow, anticipated capital expenditures, and debt service requirements.
{See Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations, Liquidity and Capital Resources.}
In August 1989, the Partnership entered into a Rights Agreement and
distributed Rights to the then holders of its Limited Partner Units to purchase
Limited Partner Units under certain circumstances. The Rights, which later
became exercisable in October 1994, gave each holder of a Right the option to
purchase a Limited Partner Unit at a price of $20 per Unit. The Rights had a
10-year term and expired in August 1999.
The Partnership's partnership agreement prohibits any person from owning more
than 4.9% of the Limited Partner Units. The agreement provides that any purchase
or transfer that would result in a person owning more than 4.9% of the Limited
Partner Units will be null and void, and that the units that were to be
transferred will become "Excess Units." Any such "Excess Units" will have no
voting or distribution rights and will be held in escrow by the Partnership.
ITEM 6. SELECTED FINANCIAL AND OPERATING DATA.
1999 1998 [1]
(In thousands, except
per unit data)
Rental income $2,975 $2,660
Interest and other income 822 70
Total revenues $3,797 $2,730
Real property, net $18,273 $16,684
Investment in direct financing leases, net $3,897 $0
Total assets $23,979 $16,804
Long-term debt $20,812 $13,355
Minority interest in subsidiary 945 857
Partners' equity 1,394 1,262
Total capitalization $23,151 $15,474
Net income (loss) $132 $(179)
Net income (loss) per unit-
Basic $0.06 $(0.08)
Diluted $0.06 $(0.08)
Adjusted EBITDA [2] $2,008 $1,354
FFO [3] $884 $519
____________________
[1] Although the Partnership was began operations in May 1987, no balance sheet
items or operating results prior to its restructuring on December 28, 1997 are
shown above for the Partnership. The Partnership's balance sheet items and
operating results after the restructuring are not comparable to any period
before then. In order to avoid potential misunderstandings, balance sheet items
and operating results of the Partnership for years prior to 1998 are included
with reports filed with the Securities and Exchange Commission by FFP Marketing.
[2] Adjusted EBITDA is defined as net income (loss) from continuing operations
before interest expense, income taxes, depreciation and amortization expense,
and reduced by the 40% minority interest. Adjusted EBITDA provides additional
information for evaluating financial results and is presented solely as a
supplemental measure. Adjusted EBITDA is not intended to represent cash flow and
should not be construed as an alternative to cash flow, net income, or any other
measure of financial performance presented in accordance with generally accepted
accounting principles.
[3] For a definition and discussion of FFO, see Item 7 - Management's Discussion
and Analysis of Financial Condition and Results of Operations, Liquidity and
Capital Resources - Comparison to REIT's.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
General
This discussion should be read in conjunction with the selected financial and
operating data, the description of the Partnership's business operations, and
the financial statements and related notes and schedules included elsewhere in
this Annual Report on Form 10-K. {See Item 1. Business - Forward-Looking
Statements.}
The primary tenant of the Partnership's properties is FFP Marketing, and the
business and affairs of the Partnership are managed by individuals who are
employed by FFP Marketing. This discussion should be read in conjunction with
the Annual Report on Form 10-K of FFP Marketing for its fiscal year ended
December 26, 1999. The failure for any reason by FFP Marketing to pay rent to
the Partnership is a material risk factor regarding an investment in the Limited
Partner Units.
As previously discussed, the Partnership and its assets and businesses were
restructured at the close of its fiscal year 1997, as follows: the Partnership
retained all of the real property used in its former retail operations and
entered into long-term, triple-net leases of that real property with FFP
Marketing, and all of its other assets and businesses were transferred to FFP
Marketing. In addition to retaining the real estate referred to above, the
Partnership retained certain liabilities, principally bank debt and other debt
secured by the real estate retained by it. All other liabilities (including
trade accounts payable, accrued expenses, money orders payable, deferred income
taxes, and obligations under capital leases) were transferred to FFP Marketing.
Accordingly, the Partnership's business since the December 1997 restructuring
consists of the leasing and management of its current real estate holdings and
the possible acquisition, leasing and management of additional real properties.
All operations, assets, and businesses of the Partnership prior to 1998 are not
comparable to the operations, assets, and businesses of the Partnership after
the December 1997 restructuring.
1999 Operations compared to 1998 Operations
The Partnership earned $132,000 in 1999, its second year of operations after
the December 1997 restructuring, which compared favorably to a net loss of
$179,000 in 1998. Total revenues in 1999 were $3,797,000, a $1,067,000 increase,
or 39%, over 1998 total revenues of $2,730,000. Total revenues increased in 1999
because of the 14 properties purchased in February 1999 by the Partnership and
then leased to FFP Marketing.
Interest expense in 1999 was $1,893,000, a 42% increase over 1998 interest
expense of $1,336,000. This increase resulted primarily from the additional debt
incurred in purchasing the 14 properties in February 1999, and a higher
percentage of interest expense and a higher interest rate in a new long-term
loan obtained in October 1999 to refinance a prior loan.
In addition, the Partnership increased its equity in real estate properties
by making principal payments on its long-term debts in the amounts of $1,191,000
in 1999 and $1,292,000 in 1998.
Depreciation and amortization expense was $1,253,000 in 1999, compared to
$1,203,000 in 1998. This 4% increase resulted from additional amortization
expense related to loan fees incurred in 1999.
General and administrative expenses were $451,000 in 1999, representing a 5%
decrease from general and administrative expenses in 1998 of $473,000. In each
year, these amounts include the overhead reimbursement fee of $200,000 paid to
FFP Marketing, as well as auditing fees, tax return software processing fees,
tax return review fees, and miscellaneous expenses in maintaining unleased
properties.
Cash flows provided by operating activities were $77,000 in 1999, compared to
$1,024,000 in 1998, a 92% decrease. Cash flows from financing activities were
$6,731,000 in 1999, compared to a usage of $1,292,000 in 1998, resulting from
acquisition debt in purchasing the 14 properties in February 1999. Cash flows
used in investing activities were $6,808,000 in 1999, compared to a provision of
$268,000 in 1998.
Comparison to REITs
The Partnership is not a real estate investment trust ("REIT"), but its
activities are much like those of a REIT. One performance measure used within
the REIT industry is funds from operations ("FFO"). FFO, as defined by the
National Association of Real Estate Investment Trusts ("NAREIT"), means net
income (loss) as determined in accordance with generally accepted accounting
principles (or "GAAP"), but excluding gains (or losses) from debt
restructurings, similar activities, and sales of properties, plus depreciation
and amortization of real estate assets, and with adjustments for unconsolidated
partnerships and joint ventures. FFO was developed by NAREIT as a relative
measure of performance and liquidity of an equity REIT in order to recognize
that income-producing real estate historically has not depreciated on the basis
determined under GAAP. While FFO is one appropriate measure of performance of an
equity REIT, it (i) does not represent cash generated from operating activities
determined in accordance with GAAP (which, unlike FFO, generally reflects all
cash effects of transactions and other events that enter into the determination
of net income), (ii) is not necessarily indicative of cash flow available to
fund cash needs, and (iii) should not be considered as an alternative to net
income determined in accordance with GAAP as an indication of the Partnership's
operating performance, or to cash flow from operating activities determined in
accordance with GAAP as a measure of either liquidity or the Partnership's
ability to make distributions or to fund its other operations. The following
table presents the determination of FFO for the Partnership for the 1999 and
1998:
1999 1998
(In thousands, except per unit data)
Net income/(loss) before minority interests $220 $(282)
(Gains) from sales of properties 0 (56)
Depreciation and amortization 1,253 1,203
Funds from operations before minority 1,473 865
interests
Less - 40% of FFO attributable to minority
interests in subsidiary (589) (346)
Funds from operations (FFO) for the $884 $519
Partnership
FFO per unit (based on units outstanding
for diluted net income (loss) per unit
calculations) $0.39 $0.23
Although the Partnership has generated positive FFO, it has not made
distributions to unitholders because substantially all cash generated from the
Partnership's operations has been required for debt payments. Thus far, the
Trust Managers have determined to utilize such funds to build equity in its
properties.
The refinancing of Partnership long-term debt in October 1999 is expected to
improve the Partnership's future net cash flow. The terms of such new long-term
financing provide that the Partnership shall limit distributions to its partners
such that, after making any distribution, (a) the Fixed Charge Coverage Ratio
for each of the 63 pledged properties secured by that loan (summarized below)
shall not be less than 1.30 to 1.00, and (b) the Fixed Charge Coverage Ratio for
the Partnership (summarized below) shall be less than 1.35 to 1.00. In general,
the Fixed Charge Coverage Ratio during any period for a pledged store equals the
cash flow (pre-tax income before minority interest, plus depreciation and
interest expense) of that store for that period, divided by the amount of debt
payments for that store for that period, and the Fixed Charge Coverage Ratio
during a period equals the cash flow (pre-tax income before minority interest,
plus depreciation and interest expense) of the Partnership for that period,
divided by the amount of debt payments of the Partnership for that period. Each
Fixed Charge Coverage Ratio is calculated for the 12-month period ending each
December 31. Management has not yet determined if or how much of any Partnership
distributions will be made to the Partnership's unitholders.
Inflation
The Partnership's real property leases with FFP Marketing provide that the
Partnership's rent income will increase every five years, assuming that those
leases are renewed at that time, as a result of increases in the consumer price
index during the prior five-year period. The Partnership's long-term debt is
subject to interest expense which accrues at a fixed rate. Otherwise, the
Partnership believes inflation will not have a material effect on operating
results.
Liquidity and Capital Resources
The Partnership has contracted with FFP Marketing to provide all cash
management services on behalf of the Partnership. For that reason, the
Partnership does not maintain a bank account. All of the Partnership's cash
receipts are received, and all of its disbursements are made, by FFP Marketing
on behalf of the Partnership, with the appropriate records being made to account
for amounts owed by the Partnership to FFP Marketing, or visa versa. FFP
Marketing owed the Partnership $892,000 on December 31, 1999; whereas the
Partnership owed FFP Marketing the amount of $21,000 on December 31, 1998,
exclusive of long-term secured debt.
Assuming no additional properties are acquired or sold, based upon executed
real estate leases, in 2000 the Partnership is projected to receive from FFP
Marketing $252,000 per month for rent plus $71,000 per month for the direct
financing leases, and the Partnership's debt service requirements in 2000 are
fixed at $222,000 per month. Such amounts are before reduction for the minority
interest of the Harvison Family in the subsidiary. In prior years the
Partnership was obligated to pay debt service obligations at a variable interest
rate and with a balloon payment of remaining principal due in November 2000.
That prior debt was refinanced in October 1999 with long-term fully-amortizing,
fixed rate financing. As a result of its forecast of positive cash flow,
management believes that the Partnership will be able to meet its obligations
for general and administrative expenses from operations.
All of the Partnership's real estate leases are "triple net" leases,
providing for the tenant (FFP Marketing), and not the landlord (the
Partnership), to pay all real estate taxes, insurance, operating and capital
costs for the properties. Therefore, the Partnership does not have any material
commitments for capital expenditures on those properties.
In February 1999, the Partnership purchased 14 additional improved real
properties from a third party on which 12 convenience stores and two truck stops
are operational. The Partnership immediately leased the 14 purchased properties
to FFP Marketing under real estate leases, which are accounted for as operating
leases for the land portion and as direct financing leases for the building
portion. These real estate leases provide for monthly rentals aggregating
$99,000 for a 15-year term, which equal the Partnership's monthly principal and
interest payments owed under its acquisition debt. Such amount was established
by related parties, but management believes that such amount is consistent with
market rates; however, no assurance can be given to that effect. The operating
leases for the land portion have been allocated a monthly rental aggregating
$28,000, and the direct financing leases for the buildings portion have been
allocated a monthly rental aggregating $71,000. These leases are "triple net"
leases, under which the Partnership pays no taxes, insurance, operating, or
capital costs, and provide for an increase in rent payments after each five-year
period during the term of the leases based upon any increase in the consumer
price index.
The Partnership incurred long-term acquisition debt in the original principal
amount of $9,550,000 in connection with its February 1999 acquisition. That debt
is fully amortizable over 15 years with equal, monthly payments of principal and
interest. FFP Marketing was required to guarantee the Partnership's acquisition
indebtedness.
In October 1999, the Partnership closed new long-term financing from a third
party lender and at that time repaid in full its long-term indebtedness
previously payable to FFP Marketing. The Partnership executed a promissory note
payable to the new lender in the amount of $12,000,000 plus a potential credit
enhancement amount of up to $1,043,000. This note is fully amortizable over its
20-year term with equal, monthly payments of principal, interest and credit
enhancement charges in the amount of $123,000. This note bears interest at 9.9%
per annum. The debt that the new loan refinanced required monthly principal
payments of $95,000 plus accrued interest, and required a balloon payment of all
unpaid principal in November 2000. If none of the loans with which the
Partnership's new loan is pooled incurs a default during the term of the loans,
the Partnership's credit enhancement payments, if any, will be applied by the
lender to reduce the principal balance of the note and result in a retirement of
such debt in approximately 19 years. The payment of this note is secured by a
deed of trust lien against 63 properties of the Partnership. All of those
properties are leased to FFP Marketing with a 20-year term.
When the Partnership repaid its debt to FFP Marketing in October 1999, FFP
Marketing also repaid all of its debt payable to the Partnership that had been
incurred when the Partnership sold inventory and equipment to FFP Marketing in
February 1999.
"Year 2000" Computer Issues
Over the past several years, the Partnership has prepared for the possible
disruptions that might have resulted from the date change to year 2000. No
significant year 2000 problems were experienced, and the Partnership believes
that no material exposure to year 2000 issues exist. The Partnership relies on
FFP Marketing for its information technology and computerization and obtains
those, in part, in exchange for the payment of an annual overhead reimbursement
fee. As a result, the Partnership did not incur any capital expenditures related
to modifications of existing software and conversions to new software for the
year 2000 issue.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
The Partnership is not subject to a market risk related to variable interest
rates because all of its long-term financing is subject to a fixed interest
rate.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The financial statements begin on page F-1.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
Reference is made to the Partnership's Current Report on Form 8-K dated
December 29, 1999, which report is hereby incorporated herein by reference.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
General Partner
FFP Real Estate Trust is a Texas real estate investment trust formed in
December 1997. To date, its only activities have been to serve as the
Partnership's sole general partner and to manage its affairs and business. FFP
Real Estate Trust succeeded FFP Partners Management Company, Inc., as the
Partnership's sole general partner, effective December 28, 1997. The holders of
Limited Partner Units have no power, as limited partners, to direct, or
participate in the control of, the business of the Partnership.
Management of the General Partner
The names, ages, positions, and business experience of the executive officers
and trust managers of FFP Real Estate Trust on December 31, 1999, were as
follows:
Name Age Position
John H. Harvison 66 Chairman of the Board of Trust
Managers, President, and
Chief Executive Officer
Craig T. Scott 53 Vice President - Finance,
General Counsel, Secretary,
Treasurer and Chief Financial
Officer
Joseph F. Leonardo [1] 53 Trust Manager
J. D. St. Clair 65 Trust Manager
Randall W. Harvison 42 Trust Manager
- ------------------------------
[1] Member of Audit Committee
[2] Robert E. Garrison III resigned from the Board on February 23, 1999. No
replacement was made.
John H. Harvison has been Chairman of the Board of Trust Managers of FFP Real
Estate Trust since December 1997. He was Chairman of the Board of the
Partnership's former general partner since the commencement of the Partnership's
operations in May 1987. Mr. Harvison is also the Chairman of the Board and Chief
Executive Officer of FFP Marketing, which leases all of the real property owned
by the Partnership. Mr. Harvison is a founder and an executive officer of each
of the companies from which the Partnership initially acquired the retail
outlets that were transferred to FFP Marketing in the December 1997
restructuring of the Partnership. He has been active in the retail gasoline
business since 1958 and in the convenience store business since 1973. In
addition, he has been involved in real estate development, oil and gas
exploration and production, the ownership and management of an oil refinery and
other personal investments. In January 1995, Mr. Harvison consented to the entry
of a cease and desist order by the United States Office of Thrift Supervision
that, among other things, prohibits him from participating in any manner in the
conduct of the affairs of federally insured depository institutions. This Order
was issued in connection with Mr. Harvison's ownership in a federal savings bank
and transactions between him (and companies in which he had an ownership
interest) and that institution. In consenting to the issuance of the Order, Mr.
Harvison did not admit any of the allegations against him and consented to the
issuance of the Order solely to avoid the cost and distraction that would be
caused by prolonged litigation to contest the positions taken by the Office of
Thrift Supervision. Mr. Harvison is the father of Randall W. Harvison, who is
also a Trust Manager of the General Partner.
Craig T. Scott has been Vice President-Finance, General Counsel, Secretary,
Treasurer and Chief Financial Officer of FFP Real Estate Trust since October
1998. He is employed with similar titles by FFP Marketing and its subsidiaries.
From October 1996 until September 1998, Mr. Scott was engaged in the private
practice of law in Dallas and McKinney, Texas. From December 1991 until October
1996, he was employed by Box Energy Corporation as an attorney and as its
Executive Vice President. Mr. Scott previously engaged in the practice of law
for seven years with large law firms in Dallas, Texas; practiced law in
McKinney, Texas for four years; and was the president and co-owner of an oil and
gas exploration company for two years. He was previously employed for six years
by Arthur Andersen & Co., an international public accounting firm. Mr. Scott
obtained a BBA degree from the University of Texas in 1968, a JD degree from the
University of Texas School of Law in 1972, and a LLM degree from Southern
Methodist University School of Law in 1980. He is a member of the American
Institute of Certified Public Accountants, the Texas Society of CPAs, and the
State Bar of Texas.
Joseph F. Leonardo has been a Trust Manager of FFP Real Estate Trust since
December 1997. Since August 1992, Mr. Leonardo has been President and Chief
Executive Officer of Leonardo Management Corporation, which provide strategic
planning, market positioning, and other sales and marketing consulting services.
Mr. Leonardo also operates Convenience Directions which publishes Info
Marketing, a convenience store industry newsletter. Prior to forming Leonardo
Management, Mr. Leonardo served in various executive positions with several
convenience store operators.
J. D. St. Clair was a director of the Partnership's former general partner
from May 1987 until the December 1997 restructuring. He has served as a Trust
Manager of FFP Real Estate Trust since December 1997. Mr. St. Clair is also a
director of FFP Marketing and has been Vice President-Fuel Supply and
Distribution of FFP Marketing, and its predecessor, since May 1987. Mr. St.
Clair is a founder and an executive officer of several of the companies from
which the Partnership initially acquired the retail outlets that were
transferred to FFP Marketing in the December 1997 restructuring. He has been
involved in the retail gasoline marketing and convenience store business since
1971. Prior to 1971, Mr. St. Clair performed operations research and system
analysis for Bell Helicopter, Inc., from 1967 to 1971; for the National
Aeronautics and Space Administration from 1962 to 1967; and Western Electric
Company from 1957 to 1962.
Randall W. Harvison has served as a Trust Manager of FFP Real Estate Trust
since December 1997. He is an attorney and has been engaged in a solo practice
in Fort Worth, Texas, since 1994. Since 1987, Mr. Harvison was also employed by
a subsidiary of FFP Marketing and of various companies controlled by the
Harvison Family that are engaged in real estate investment and management and
other investment activities. Randall W. Harvison is the son of John H. Harvison,
the Chairman of the Board of Trust Managers.
Compliance with Section 16(a) of the Securities Exchange Act of 1934
Regulations issued under the Securities Exchange Act of 1934 require certain
officers, directors of the general partner, and other persons to report their
holdings of the Limited Partner Units to the Securities and Exchange Commission
and to the Partnership. To the best of the Partnership's knowledge, based upon
copies of reports and other representations provided to the Partnership, all
1999 reports required under Section 16 of the Securities Exchange Act of 1934
were filed in a timely manner.
ITEM 11. EXECUTIVE COMPENSATION.
Each Trust Manager of FFP Real Estate who is not an officer or employee of
the FFP Real Estate receives an annual retainer of $4,000 plus $1,000 for each
Board meeting, or committee meeting not held in conjunction with a Board
meeting, which he attends and $500 for each telephone meeting in which he
participates. Each Trust Manager is also reimbursed for expenses related to
attendance at Board meetings.
In the past, non-employee Trust Managers were granted options to acquire
25,000 Limited Partner Units at the fair market value of the underlying units on
the date of grant. The options become exercisable with respect to one-third of
the units covered thereby on each of the anniversary dates following the grant
and expire 10 years after grant. In the event of a change in control of the
Partnership, any unexercisable portion of the options will become immediately
exercisable. Upon exercise, the option price may be paid, in whole or in part,
in Limited Partner Units owned by the Trust Manager.
Trust Managers who are officers or employees of FFP Real Estate Trust receive
no additional compensation for attendance at Board or committee meetings.
Neither the Partnership nor FFP Real Estate Trust, the general partner of the
Partnership, paid any salary or bonus (cash or non-cash) to any person in 1999.
Accordingly, there were no "Named Executive Officers" of the Partnership in
1999.
The Partnership and FFP Marketing are parties to a reimbursement agreement
pursuant to which the Partnership reimburses FFP Marketing for all direct costs
of the Partnership (such as costs to prepare the Partnership's annual
partnership tax returns, annual audit fees, etc.) and an agreed upon lump sum
amount for indirect overhead costs allocable to the Partnership. The
reimbursement for officers' compensation costs incurred by FFP Marketing in
connection with the Partnership's activities is determined by the amount of time
management and other personnel spend on activities of the Partnership compared
to the amount of time they spend on activities of FFP Marketing. Since FFP Real
Estate Trust's only activity is to serve as the general partner of the
Partnership, all of its costs and expenses will be borne by the Partnership. The
indirect cost reimbursement paid by the Partnership to FFP Marketing for 1999
was $200,000.
Options Exercised During 1999 and Year End Option Values. All options held by
directors, officers, and employees to acquire Limited Partner Units of the
Partnership that were outstanding at the completion of the December 1997
restructuring of the Partnership were divided into separate options to purchase
Limited Partner Units of the Partnership and a like number of FFP Marketing
common shares. The exercise price for the then existing options for the
Partnership's units was divided between the two new options in proportion to the
average closing price on the American Stock Exchange of the Partnership's
Limited Partner Units and shares of FFP Marketing's common stock during the
first month of trading following completion of the restructuring.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
Limited Partner Units
The following table sets forth as of March 31, 2000, information with respect
to the Limited Partner Units beneficially owned by all Trust Managers and
executive officers of FFP Real Estate Trust (such information is based on
ownership reported to the Partnership by such persons):
Amount and Nature of Percent
Beneficial Ownership of Class
Name of Beneficial Owner [1] [1]
John H. Harvison, Chairman of
the Board of Trust Managers
and President 40,000 [2] 1.7%
Craig T. Scott, Vice President 10,000 [3] 0.4%
Joseph F. Leonardo, Trust Manager 8,334 [4] 0.4%
J. D. St. Clair, Trust Manager 42,400 [5] 1.8%
Randall W. Harvison, Trust Manager 8,334 [6] 0.4%
All directors and executive
officers as a group (5 persons) 12,400 0.6%
- -------------------------------------------------------
[1] Based on 2,234,262 Limited Partner Units outstanding at March 31, 2000, plus
any Limited Partner Units that an individual has the right to acquire within 60
days pursuant to the exercise of options. Options exercisable within 60 days are
deemed to be outstanding for the purpose of computing the percentage ownership
of such individual but are not deemed to be outstanding for the purpose of
computing the percentage ownership of any other person or group shown in the
table.
[2] Consists of options to acquire 40,000 units exercisable within 60 days.
[3] Consists of options to acquire 10,000 units exercisable within 60 days but
excludes options to acquire 20,000 units not exercisable within 60 days.
[4] Consists of options to acquire 8,334 units exercisable within 60 days but
excludes options to acquire 16,666 units not exercisable within 60 days.
[5] Consists of 12,400 units held directly and options to acquire 30,000 units
exercisable within 60 days.
[6] Consists of options to acquire 8,334 units exercisable within 60 days but
excludes options to acquire 16,666 units not exercisable within 60 days.
General Partner
FFP Real Estate Trust is the sole general partner of the Partnership and has
served as such since December 1997. As sole general partner, FFP Real Estate
Trust makes all decisions relating to the management of the Partnership. FFP
Partners Management Company, Inc., a Delaware corporation indirectly owned by
entities owned by John H. Harvison and members of his immediate family, is the
sole shareholder of FFP Real Estate Trust.
Subsidiary
FFP Properties, L.P., a Texas limited partnership, is owned 60% by the
Partnership, as general partner. The limited partnership interests of FFP
Properties, L.P. are owned 1% by FFP Partners Management Company, Inc. and 39%
indirectly by entities owned by John H. Harvison and members of his immediate
family.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Related Transactions
As previously stated, the Partnership and FFP Marketing are parties to a
reimbursement agreement pursuant to which the Partnership reimburses FFP
Marketing for all direct costs of the Partnership (such as costs to prepare the
Partnership's annual partnership tax returns, annual audit fees, etc.) and an
agreed upon lump sum of $200,000 for indirect overhead costs allocable to the
Partnership. The agreed upon amount for indirect overhead costs incurred by FFP
Marketing in connection with the Partnership's activities was determined by the
amount of time management and other personnel spend on activities of the
Partnership compared to the amount of time they spend on activities of FFP
Marketing. Since FFP Real Estate Trust's only activity is to serve as the
general partner of the Partnership, all of its costs and expenses have been
borne by the Partnership. For each of 1999 and 1998, the Partnership paid
$200,000 to FFP Marketing as its indirect overhead cost reimbursement.
From December 1997 and until June 1998, the Partnership and FFP Marketing
were jointly liable on substantially all the debt that was transferred to the
Partnership in the December 1997 restructuring. In June 1998, that debt was
restructured such that the Partnership's liability to the bank lender was
substituted with a liability payable to FFP Marketing. The Partnership paid
interest expense to FFP Marketing on that indebtedness in the amount of $893,000
and $693,000 in 1999 and 1998, respectively. Such debt was repaid by the
Partnership in October 1999. The amount owed by the Partnership under its
promissory note payable to FFP Marketing was $14,201,000 at December 31, 1998.
John H. Harvison, Chairman and Chief Executive Officer of FFP Marketing, and
Craig T. Scott, Vice President - Finance, General Counsel and Chief Financial
Officer of FFP Marketing, hold similar positions with the Partnership. In
addition, companies owned directly or indirectly by Mr. Harvison and members of
his immediate family and/or other members of the senior management of FFP
Marketing own 100% of the general partner of the Partnership and 40% of the
subsidiary of the Partnership.
The Partnership leases almost all of its properties to FFP Marketing. The
leases were initially entered into in conjunction with the December 1997
restructuring of the Partnership, when the non-real estate assets and businesses
of the Partnership were transferred to FFP Marketing while the real estate used
in the retail operations was retained by the Partnership. The lease rates for
the properties were based upon knowledge of the properties by the then
management of the Partnership and FFP Marketing and their general experience in
acting as lessor and lessee for similar properties. Management of the
Partnership and FFP Marketing believes that the lease rates are comparable to
lease rates that could be entered into with unrelated third parties. However,
third party advisors were not engaged, and reference was not made to third party
surveys or analyses of rental rates, in making this determination. FFP Marketing
paid $2,952,000 and $2,628,000 in lease payments to the Partnership for these
properties during 1999 and 1998, respectively. FFP Marketing also paid the
Partnership $710,000 in 1999 as payments on direct financing leases.
Prior to the December 1997 restructuring of the Partnership, the Partnership
was managed by its former general partner, which made determinations with
respect to costs incurred by it (whether directly or indirectly through its
affiliates) that were reimbursed by the Partnership. The Partnership reimbursed
the former general partner and any of its affiliates for direct and indirect
general and administrative costs, principally officers' compensation and
associated expenses, related to the business of the Partnership. The
reimbursement was based on the time devoted by employees to the Partnership's
business or upon such other reasonable basis as was determined by the former
general partner.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES AND REPORTS ON FORM 8-K.
(a) The following documents are filed as part of this Annual Report on Form
10-K:
(1) Financial Statements. See Index to Financial Statements on page F-1
hereof.
(2) Financial Statement Schedules. No Financial Statement Schedules are
included because they are either not required, not applicable, or the required
information is included in the consolidated financial statements or notes
thereto.
(3) Exhibits.
3.1 Amended and Restated Certificate of Limited Partnership of FFP
Partners, L.P. {1 - Ex. 3.7}
4.1 Amended and Restated Agreement of Limited Partnership of
FFP Partners, L.P., dated May 21, 1987, as amended by
the First Amendment to Amended and Restated Agreement of
Limited Partnership dated August 14, 1989, and by the
Second Amendment to Amended and Restated Agreement of
Limited Partnership dated July 12, 1991. {2 - Ex 4.1}
4.2 Third Amendment to Amended and Restated Agreement of Limited
Partnership of FFP Partners, L.P., dated as of December
28, 1997. {4}
10.1 Nonqualified Unit Option Plan of FFP Partners, L.P.
{1-Ex. 10.2}
10.2 Form of Lease Agreement between FFP Properties, L.P., and FFP
Operating Partners, L.P. {4}
10.3 Form of Building Lease Agreement between FFP Properties, L.P.,
and FFP Operating Partners, L.P. {4}
10.4 Master Lease Agreement dated September 29, 1999, between
FFP Properties, L.P., and FFP Operating Partners, L.P. {5}
10.5 Form of Pledge and Security Agreement dated September 22,
1999 between FFP Properties, L.P. and AMRESCO Commercial
Finance, Inc. {5}
21.1 Subsidiary of the Registrant. {5}
23.1 Independent Auditors' Consent. {5}
23.2 Independent Auditors' Consent. {5}
27 Financial data schedule. {5}
99.1 Current Report on Form 8-K regarding a change in the Partner-
ship's certifying accountant, dated December 29, 1999,
which report is hereby incorporated by reference.
- ---------------------------------------------------------------
{1} Included as the indicated exhibit in the Partnership's
Registration Statement on Form S-1 (Registration No. 33-12882)
dated May 14, 1987, and incorporated herein by reference.
{2} Included as the indicated exhibit in the Partnership's Annual
Report on Form 10-K for the fiscal year ended December 27, 1992,
and incorporated herein by reference.
{3} Included as the indicated exhibit in the Partnership's
registration statement on Form 8-A dated as of August 29, 1989,
and incorporated herein by reference.
{4} Included as the indicated exhibit in the Partnership's Annual
Report on Form 10-K for the fiscal year ended December 28, 1997,
and incorporated herein by reference. {5} Included herewith.
(b) Current Report on Form 8-K regarding a change in the Partnership's
certifying accountant, dated December 29, 1999.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities and
Exchange Act of 1934, the Registrant has duly caused this Annual Report on Form
10-K to be signed on its behalf by the undersigned, thereunto duly authorized.
Dated: April 12, 2000 FFP PARTNERS, L.P.
(Registrant)
By: FFP Real Estate Trust
General Partner
By: /s/ John H. Harvison
John H. Harvison
President
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Annual Report has been signed below by the following persons on behalf of the
Registrant in the capacities indicated as of April 12, 2000.
/s/ John H. Harvison
John H. Harvison President and Chief Executive
Officer and Trust Manager of FFP
Real Estate Trust (Principal executive officer)
/s/ Craig T. Scott
Craig T. Scott Vice President - Finance,
Secretary, Treasurer, General
Counsel and Chief Financial
Officer of FFP Real Estate Trust
(Principal financial and accounting officer)
Joseph F. Leonardo Trust Manager of FFP Real Estate Trust
/s/ J. D. St. Clair
J. D. St. Clair Trust Manager of FFP Real Estate Trust
/s/ Randall W. Harvison
Randall W. Harvison Trust Manager of FFP Real Estate Trust
ITEM 8. INDEX TO FINANCIAL STATEMENTS
Page
Number
Report of Independent Certified Public Accountants F-2
Independent Auditors' Report F-3
Consolidated Balance Sheets as of December 31, 1999 and 1998 F-4
Consolidated Statements of Operations for the Periods Ended
December 31, 1999 and 1998 F-5
Consolidated Statement of Partners' Capital for the Periods
Ended December 31, 1999 and 1998 F-6
Consolidated Statements of Cash Flows for the Periods
Ended December 31, 1999 and 1998 F-7
Notes to Consolidated Financial Statements F-8
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Partners of
FFP Partners, L.P.:
We have audited the accompanying consolidated balance sheet of FFP Partners,
L.P. (a Delaware limited partnership) and its subsidiary, FFP Properties, L.P.,
as of December 31, 1999, and the related statements of operations, partners'
capital and cash flows for the year then ended. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audit.
We conducted our audit in accordance with auditing standards generally
accepted in the United States. 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 audit provides a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of FFP
Partners, L.P. and its subsidiary as of December 31, 1999, and the consolidated
results of their operations and their consolidated cash flows for the year ended
December 31, 1999, in conformity with accounting principles generally accepted
in the United States.
Grant Thornton LLP
Dallas, Texas
March 31, 2000
INDEPENDENT AUDITORS' REPORT
The Partners of
FFP Partners, L.P.:
We have audited the accompanying consolidated balance sheet of FFP Partners,
L.P. (a Delaware limited partnership) and its subsidiary, FFP Properties, L.P.,
as of December 31, 1998, and the related consolidated statements of operations,
partners' capital and cash flows for the year then ended. These consolidated
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audit.
We conducted our audit 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 audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of FFP
Partners, L.P. and its subsidiary as of December 31, 1998, and the results of
their operations and their cash flows for the period ended December 31, 1998, in
conformity with generally accepted accounting principles.
KPMG LLP
Fort Worth, Texas
March 30, 1999
FFP PARTNERS, L.P. AND SUBSIDIARY
Consolidated Balance Sheets
December 31, 1999 and 1998
(In thousands)
1999 1998
ASSETS
Current assets
Prepaid expenses $31 $26
Net investment in direct financing leases with
affiliate, current portion 53 0
Due from affiliate 892 0
Total current assets 976 26
Real property
Land and improvements 8,685 5,929
Buildings 21,413 21,329
30,098 27,258
Accumulated depreciation (11,825) (10,574)
18,273 16,684
Notes receivable 114 44
Net investment in direct financing leases with
affiliate 3,844 0
Other assets, net 772 50
Total assets $23,979 $16,804
LIABILITIES AND PARTNERS' CAPITAL
Current liabilities
Current installments of long-term debt $565 $148
Current installments of notes payable to affiliate 0 1,143
Accrued expenses 263 39
Total current liabilities 828 1,330
Long-term debt, excluding current installments 20,812 297
Notes payable to affiliate, excluding current
installments 0 13,058
Total liabilities 21,640 14,685
Minority interest in subsidiary 945 857
Commitments and contingencies
Partners' capital
Limited partners' capital 1,372 1,242
General partner's capital 22 20
Total partners' capital 1,394 1,262
Total liabilities and partners' capital $23,979 $16,804
See accompanying Notes to Consolidated Financial Statements.
FFP PARTNERS, L.P. AND SUBSIDIARY
Consolidated Statements of Operations
Periods Ended December 31, 1999 and 1998
(In thousands, except per unit)
1999 1998
Revenues
Rental income $2,975 $2,660
Gain on sale of property 0 56
Interest and other income 822 14
Total revenues 3,797 2,730
Expenses
General and administrative expenses 451 473
Depreciation and amortization 1,253 1,203
Interest expense 1,873 1,336
Total expenses 3,577 3,012
Income (loss) before minority interest in subsidiary 220 (282)
Minority interest in subsidiary (88) 103
Net income (loss) $132 $(179)
Net income (loss) per unit
Basic $0.06 $(0.08)
Diluted $0.06 (0.08)
Weighted average number of units outstanding
Basic 2,272 2,272
Diluted 2,277 2,272
See accompanying Notes to Consolidated Financial Statements.
FFP PARTNERS, L.P. AND SUBSIDIARY
Consolidated Statements of Partners' Capital
Periods Ended December 31, 1999 and 1998
(In thousands)
Limited General
Partners Partner Total
Balance, December 28, 1997 $1,418 $23 1,441
Net (loss) (176) (3) (179)
Balance, December 31, 1998 1,242 20 1,262
Net income 130 2 132
Balance, December 31, 1999 $1,372 $22 $1,394
See accompanying Notes to Consolidated Financial Statements.
FFP PARTNERS, L.P. AND SUBSIDIARY
Consolidated Statements of Cash Flows
Periods Ended December 31, 1999 and 1998
(In thousands)
1999 1998
Cash flows from operating activities
Net income (loss) $132 $(179)
Adjustments to reconcile net income (loss) to
net cash provided by operating activities -
Depreciation and amortization 1,253 1,203
Gain on sales of real property 0 (56)
Minority interest in subsidiary 88 (103)
Changes in operating assets and liabilities -
(Increase) decrease in prepaid expenses (5) 170
(Increase) in due from affiliate (892) 0
Increase in other assets (723) (50)
Increase in accrued expenses 224 39
Net cash provided by operating activities 77 1,024
Cash flows from investing activities
Purchases of land and building (2,846) (96)
Proceeds from the sale of real property 5 408
Investment in direct financing lease with affiliate (3,897) 0
Increase in notes receivable (70) (44)
Net cash provided by (used in) investing activities (6,808) 268
Cash flows from financing activities
Payments on long-term debt (417) (15,493)
Proceeds from long-term debt 21,349 0
Proceeds from long-term debt to affiliate 0 14,773
Payments on long-term debt to affiliate (14,201) (572)
Net cash used by financing activities 6,731 (1,292)
Net increase/(decrease) in cash 0 0
Cash at beginning of year 0 0
Cash at end of year $0 $0
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest during 1999 and 1998 was approximately $1,737 and $1,300,
respectively.
See accompanying Notes to Consolidated Financial Statements.
FFP PARTNERS, L.P. AND SUBSIDIARY
Notes to Consolidated Financial Statements
1. BASIS OF PRESENTATION
(a) Organization of Company
These Consolidated Financial Statements include the accounts of FFP Partners,
L.P. (the "Company"), and its 60%-owned subsidiary, FFP Properties, L.P. ("FFP
Properties").
The Company is a Delaware limited partnership formed in December 1986
pursuant to the Agreement of Limited Partnership of FFP Partners, L.P. (the
"Partnership Agreement"), with FFP Partners Management Company, Inc. ("FFPMC")
as its initial general partner. In May 1987, the Company purchased convenience
stores, truck stops, other retail motor fuel outlets, and ancillary businesses
from affiliates of its general partner. The purchase of those outlets was
completed in conjunction with the Company's initial public offering of Class A
Units of limited partnership interest. Through its subsidiaries, the Company
owned and operated these outlets, and other businesses, until December 1997.
In December 1997, the Company completed an organizational restructuring by
which the real estate used in the aforementioned retail operations was retained
by the Company while the convenience store, truck stop, other retail motor fuel
outlets, and other businesses it conducted were transferred to FFP Marketing
Company, Inc., a Texas corporation ("FFP Marketing"), in exchange for all the
common stock of FFP Marketing. The common stock of FFP Marketing was then
distributed on a one-for-one basis to the general partner and limited partners
of the Company. The assets and liabilities in the accompanying consolidated
balance sheet of the Company have been reflected at the historical carrying
values of the predecessor entity prior to the restructuring. Accordingly, no
gain or loss was recognized as a result of the 1997 organizational
restructuring.
Also in that December 1997 restructuring, the Company distributed the real
estate it retained to FFP Properties, a newly formed Texas limited partnership,
in exchange for the general partnership interest in FFP Properties. The limited
partnership interests in the Company held by John H. Harvison, the Chairman and
Chief Executive Officer of FFPMC, members of his family, and corporations,
partnerships, trusts, and other business entities affiliated with him or his
family members (collectively, the "Harvison Family") were exchanged for
economically equivalent limited partnership interests in FFP Properties. In
addition, FFP Real Estate Trust, a newly formed Texas real estate investment
trust that is wholly owned by FFPMC, then became the sole general partner of the
Company. John H. Harvison is the Chairman and Chief Executive Officer of FFP
Real Estate Trust. FFPMC is wholly owned by the Harvison Family.
By virtue of this restructuring, all of the operating activities of the
Company were transferred to FFP Marketing, and there is no comparative income
data for the Company for 1997.
The Company owns the real estate and conducts its rental activities through
FFP Properties, its operating subsidiary. The Company owns a 60% partnership
interest in FFP Properties and serves as its sole general partner. In the
consolidated financial statements of the Company, the minority interest in
subsidiary represents the Harvison Family's 40% limited partnership interest in
FFP Properties.
(b) Consolidation
The consolidated financial statements include the accounts of the Company and
its majority owned subsidiary. All significant intercompany accounts and
transactions are eliminated in the consolidated financial statements.
(c) Change in Fiscal Year
Prior to the restructuring of the Company on December 28, 1997, the Company
prepared its financial statements on the basis of a fiscal year which ended on
the last Sunday in December. However, in connection with the restructuring, the
Company changed its fiscal year to coincide with the calendar year. Accordingly,
the accompanying consolidated financial statements for the year ended December
31, 1998, include the 12 months then ended plus the three-day period from
December 29, 1997 through December 31, 1997. The effect of including these three
additional days in the consolidated financial statements for the year ended
December 31, 1998, is immaterial.
2. SIGNIFICANT ACCOUNTING POLICES
(a) Real Property
Real property is stated at cost, which may differ from fair market value.
Depreciation is provided on the straight-line method over the estimated useful
lives of the respective assets, which may range from five to 30 years.
(b) Fair Value of Financial Instruments
The carrying value of notes receivable approximates fair value because of the
short maturity of the instruments. The carrying amount of notes payable to
affiliate at December 31, 1998, approximated fair value because the interest
rate on such obligations varied with the prime rate. The carrying value of
long-term debt at December 31, 1999, amounted to $21,377,000. The fair value of
such debt is approximately $21,269,000 based on interest rates currently
available to the Company.
(c) Notes Receivable
The Company evaluates the collectibility of notes receivable in accordance
with the provisions of Statement of Financial Accounting Standards, ("SFAS") No.
114, "Accounting by Creditors for Impairment of Loans", as amended by SFAS No.
118, "Accounting by Creditors for Impairment of a Loan - Income Recognition and
Disclosures." At year end 1999 and 1998, no notes receivable were determined to
be impaired.
(d) Units Issued and Outstanding
The equity interests in the Company are comprised of Class A Units of limited
partnership interest and units representing the general partnership interest.
These units issued and outstanding at year end 1999 and 1998 were as follows:
1999 1998
Limited partners 2,234,262 2,234,262
General partner 37,416 37,416
Totals 2,271,678 2,271,678
The Company's limited partner units are traded on the American Stock Exchange
under the "FFP" trading symbol. The general partner units are owned by its sole
general partner, FFP Real Estate Trust.
(e) Use of Estimates
The use of estimates is required to prepare the Company's consolidated
financial statements in conformity with accounting principles generally accepted
in the United States. Although management believes that such estimates are
reasonable, actual results could differ from the estimates.
(f) Impairment of Long-Lived Assets
The Company reviews long-lived assets for impairment whenever events or
changes in circumstances indicate that the carrying amount of an asset may not
be recoverable. Recoverability of assets to be held and used is measured by a
comparison of the carrying amount of such assets to future net cash flows
expected to be generated by the assets. If such assets are considered to be
impaired, the impairment to be recognized is measured by the amount by which the
carrying amount of the assets exceeds the fair value of the assets.
(g) Rental Revenue
The Company recognizes rental revenues when earned.
(h) Unit Option Plan
The Company accounts for its unit option plan in accordance with the
provisions of Accounting Principles Board ("APB") Option No. 25, "Accounting for
Stock Issued to Employees," and related interpretations. As such, compensation
expense would be recorded only if the current market price of the underlying
unit on the date of the grant of the option exceeded the exercise price of the
option. The Company adopted SFAS No. 123, "Accounting for Stock-Based
Compensation," which permits entities either to (i) recognize as expense over
the vesting period the fair value of all stock-based awards on the date of
grant, or (ii) continue to apply the provisions of APB Opinion No. 25 and
provide proforma net income and earnings per share disclosures for employee
option grants made in 1995 and subsequent years as if the fair-value based
method defined in SFAS No. 123 had been applied. The Company elected the second
alternative (See Note 5).
(i) Income Taxes
As a partnership, the Company pays no federal income tax. Rather, the income
or loss of the Company is allocated to its partners to be included in their
respective tax returns, subject to special tax rules for publicly traded
partnership The net difference between the tax bases and the reported amounts of
assets and liabilities at year end 1999 is approximately $3,343,000.
(j) Segment Information
The Company operates in a single operating segment, the ownership and rental
of real estate. The Company earns substantially all of its rental income from a
single entity, FFP Marketing.
3. NOTES PAYABLE AND LONG-TERM DEBT
In February 1999, the Company purchased 14 additional improved real
properties from a third party on which 12 convenience stores and two truck stops
are operational. To fund that purchase, the Company incurred long-term
acquisition debt with a third party lender in the original principal amount of
$9,550,000. This note is fully amortizable over 15 years with equal, monthly
payments of principal and interest. This note bears interest at 9.275% per
annum. The payment of this note is secured by deed of trust liens against the 14
properties acquired, and FFP Marketing guaranteed the Partnership's acquisition
indebtedness. The amount of FFP Marketing's monthly lease payments to the
Company equals the Company's monthly debt payments.
The Company immediately leased the 14 purchased properties to FFP Marketing
under real estate leases accounted for as operating leases for the land portion
and direct financing leases for the building portion (see Note 7). These real
estate leases provide for monthly rentals aggregating $99,000 for a 15-year
term, which the Company uses to pay its monthly debt obligation.
The Company also purchased inventory and equipment at the 14 locations for
approximately $942,000 and $1,750,000, respectively. The Company immediately
sold this inventory and equipment to FFP Marketing in exchange for a note
receivable. Prior to its repayment in October 1999, the note bore interest at
the prime rate and was payable in monthly installments over 8 years.
In October 1999, the Company closed new long-term financing from a third
party lender and at that time repaid in full its long-term indebtedness
previously payable to FFP Marketing. The Company executed a promissory note
payable to the new lender in the amount of $12,000,000 plus a credit enhancement
amount of up to $1,043,000. This note is fully amortizable over 20 years with
equal, monthly payments of principal, interest and credit enhancement charges in
the amount of $123,000. This note bears interest at 9.7% per annum. If none of
the loans with which the Company's loan is pooled incurs a default during the
term of the loans, the Company's credit enhancement payments, if any, will be
applied by the lender to reduce the principal balance of the note and result in
a retirement of such debt in approximately 19 years. The payment of this note is
secured by a deed of trust lien against 63 properties of the Company. All of
those properties are leased to FFP Marketing with a 20-year term.
When the Company repaid its debt to FFP Marketing in October 1999, FFP
Marketing also repaid all of its debt payable to the Company that had been
incurred when the Company sold inventory and equipment to FFP Marketing in
February 1999.
Effective June 1998, the Company, FFP Marketing and FFP Marketing's primary
bank lender restructured the revolving credit facility and term loan due to the
lender. In connection with the restructuring of the Company in December 1997,
both the Company and FFP Marketing retained the liability for this debt as both
entities were primary obligors on the loans. Under the June 1998 restructuring
agreement, the lender made a loan to FFP Marketing, FFP Marketing made a loan to
the Company, and the Company repaid the balance of its debt to the lender, all
of which was done effective on June 28, 1998. This transaction included the
execution of a promissory note by the Company payable to FFP Marketing in the
original principal amount of $14,773,000 (the then current balance on the debt
due to the lender), which was recorded by the Company as notes payable to
affiliate, and the Company was released by the lender from all obligations. At
December 31, 1998, the Company was indebted to FFP Marketing in the amount of
$14,201,000. This debt payable to FFP Marketing was repaid in full in October
1999.
Prior to the Company's repayment of all indebtedness in October 1999 to FFP
Marketing, the interest rate and repayment terms of the Company's note payable
to FFP Marketing had mirrored the terms of FFP Marketing's debt to its lender,
including a maturity date in November 2000. The revised agreement with the
lender had required that FFP Marketing's loan to the Company be secured by real
estate owned by the Company, which was pledged to FFP Marketing and then, in
turn, also pledged by FFP Marketing to its lender as additional collateral on
its debt to the lender. The Company made monthly principal payments to FFP
Marketing of $95,000 plus accrued interest on the unpaid balance at a rate equal
to the bank's prime rate. As stated above, this loan was repaid in October 1999.
The Company is obligated under other notes payable which bear interest at per
annum rates ranging from 6% to 10% and are due in monthly or annual installments
through 2012. Such notes are secured by real property and had aggregate balances
of $68,000 and $445,000 at year end 1999 and 1998, respectively.
The aggregate fixed maturities of all of the Company's long-term debt for
each of the five years subsequent to 1999 are as follows:
(In thousands)
2000 $565
2001 610
2002 670
2003 739
2004 810
Thereafter 17,983
Total $21,377
4. INCOME (LOSS) PER UNIT
The following table reconciles the denominator in the calculation of the
basic and diluted income (loss) per unit for limited partnership and general
partnership units in 1999 and 1998:
1999 1998
(In thousands)
Weighted average number of units outstanding 2,272 2,272
Effect of dilutive options 5 0
Weighted average number of units outstanding,
assuming dilution 2,277 2,272
Options to purchase 292,999 units were included in the computation of diluted
income per for 1999. Options to purchase 295,999 units were not included in the
computation of diluted loss per unit for 1998 because it would have been
antidilutive. Such options could potentially dilute basic income per unit in the
future.
5. NONQUALIFIED UNIT OPTION PLAN
The Company has previously granted, and had outstanding at year end 1999,
nonqualified options to acquire 292,999 Class A Units. Such options were granted
under its Nonqualified Unit Option Plan and a Nonqualified Unit Option Plan for
Nonexecutive Employees. The Nonqualified Unit Option plan has terminated, but
another plan with the same terms was adopted by the Company. Options for 37,998
units are available for grant under the Nonqualified Unit Option Plan for
Nonexecutive Employees. A summary of activity under the unit option plans
follows:
Weighted
Exercise Average
Class A Price Exercise
Units Range Price
Options outstanding, December 28, 1997 241,999 $1.211-$2.2610 $1.410
Options granted during year 80,000 $0.750-$1.0625 0.946
Options expired or terminated during year (26,000) $1.2110 $1.211
Options exercised during year 0 0 0
Options outstanding, December 31, 1998 295,999 $0.7500-$2.261 $1.302
Options granted during year 0 0 0
Options expired or terminated during year (3,000) $1.2110 $1.211
Options exercised during year 0 0 0
Options outstanding, December 31, 1999 292,999 $0.7500-$2.2610 $1.304
Options exercisable, December 31, 1999 233,000 $0.7500-$2.2610 $1.639
Options exercisable, December 31, 1998 202,665 $1.2110-$2.2610 $1.438
All options to acquire Class A Units of the Company that were outstanding at
the completion of the December 1997 restructuring of the Company were divided
into separate options to purchase Class A Units of the Company and a like number
of FFP Marketing common shares. The exercise price for the then existing options
for Company units was divided between the two new options in proportion to the
closing price on the American Stock Exchange of the Company's Class A Units and
FFP Marketing's common shares. The adjusted exercise prices of the unit options
outstanding at December 31, 1999, and December 31, 1998, are as follows:
----------1999---------- -----------1998-----------
Exercise Options Options Options Options
Price Outstanding Exercisable Outstanding Exercisable
$0.7500 30,000 10,000 30,000 0
1.0625 50,000 16,668 50,000 0
1.2110 136,333 136,333 139,333 139,333
1.2516 6,666 6,666 6,666 6,666
1.3929 20,000 13,333 20,000 6,666
1.9380 25,000 25,000 25,000 25,000
2.2610 25,000 25,000 25,000 25,000
---------------------------------------------------
292,999 233,000 295,999 202,665
The weighted average exercise price of outstanding options under the plans at
year end was $1.304 unit with a remaining contractual life of 5.0 years.
No unit options were granted by the Company in 1999. The per share
weighted-average fair value of options granted in 1998 were estimated using the
Black Scholes option-pricing model, and the underlying assumptions used were:
Underlying Assumptions
-------------------------------------------------
Risk-Free Expected
Year Estimated Dividend Interest Expected Option
Granted Fair Value Yield Rate Volatility Life
1998 $0.73 0.0% 6.00% 53% 7 years
The Company applies APB Opinion No. 25 in accounting for its option plans.
Accordingly, no compensation cost related to the plans has been recognized in
the consolidated financial statements. Had the Company determined compensation
under SFAS No. 123, the Company's net income (loss) would have been reduced to
the pro forma amounts indicated below:
1999 1998
(In thousands, except
for per unit data)
Net income (loss)
As reported $132 $(179)
Pro forma 98 (213)
Net income (loss) per unit
As reported
Basic $0.06 $(0.08)
Diluted 0.06 (0.08)
Pro forma
Basic $0.04 $(0.10)
Diluted 0.04 (0.10)
Pro forma net income (loss) reflects only options granted subsequent to 1994.
Therefore, the full impact of calculating compensation cost for stock options
under SFAS No. 123 is not reflected in the pro forma net loss amounts presented
above because compensation cost for options granted prior to 1995 is not
considered.
6. UNIT PURCHASE RIGHTS AND TRANSFER RESTRICTIONS
In August 1989, the Company entered into a Rights Agreement and distributed
the right to its unitholders (the "Rights") to purchase Rights Units, which were
substantially equivalent to Class A Units of the Company, at a price of $20.00
per Unit. By its terms, all of the Rights expired in August 1999.
In the December 1997 restructuring, the Partnership's limited partnership
agreement was amended to prohibit any person from owning more than 4.9% of the
Class A Units. The amended agreement provides that any transfer that would
result in a person owning more than this amount will be null and void, and the
units that were to be transferred will become "Excess Units," which will have no
voting or dividend rights and will be held in escrow by the Company.
7. LEASES
In connection with the new financing in October 1999, FFP Marketing executed
a new lease or extended existing leases for 63 properties providing security for
that debt. The term of those leases is 20 years. The Company's current rental
income from FFP Marketing under those leases equals $154,000 per month. The new
or extended leases provide for "triple net" leases, under which FFP Marketing
pays all taxes, insurance, operating, and capital costs, and for increased rent
payments every five years based upon increases in the consumer price index.
In February 1999, the Company purchased 14 additional improved real
properties from a third party on which 12 convenience stores and two truck stops
are operational. The Company immediately leased the properties to FFP Marketing
under 15-year leases. The Company's current rental income from FFP Marketing
under those leases equals $99,000 per month. Rental income allocated to the land
portion of these leases in a monthly amount of $28,000 is classified as
operating leases, while rental income allocated to the building portion of these
leases in a monthly amount of $71,000 is classified as direct financing leases.
The leases are "triple net" leases, under which FFP Marketing pays all taxes,
insurance, operating, and capital costs, and provide for an increase in rent
payments after each five-year period during the term of the leases based upon
any increase in the consumer price index.
The following table lists the components of the Company's net investment in
direct financing leases at year end 1999:
Minimum
Lease
Payments
(In thousands)
2000 $853
2001 853
2002 853
2003 853
2004 853
Thereafter 7,819
Total minimum lease payments 12,084
Amount representing interest (8,187)
Net investment in direct financing leases 3,897
Current portion (53)
Net investment in direct financing lease,
excluding current installments $3,844
Other than the 20-year leases and the 15-year leases described above,
substantially all of the remaining real properties of the Company are leased to
FFP Marketing under operating leases which generally expire in 2002 and 2007
plus two five-year renewal periods at the sole option of FFP Marketing. The
Company's current rental income from FFP Marketing under those leases equals
$98,000 per month. These leases are also "triple net" leases, under which FFP
Marketing pays all taxes, insurance, operating, and capital costs, and provide
for an increase in rent payments upon each renewal date, in the event of an
increase in the consumer price index.
Those remaining properties leased to FFP Marketing are comprised of two
types: parcels where the land and building are owned by the Company, and parcels
where only the building is owned by the Company and leased to FFP Marketing,
subject to a superior ground lease which extends until 2007 (the "Building Only
Properties"). Under the terms of the deeds by which the Company acquired the
Building Only Properties, the Company's ownership of the Building Only
Properties will terminate upon the expiration of the ground leases, unless
extended. The lessors under those ground leases have indicated to the Company
that they do not currently intend to extend the ground leases past 2007. The
Company's rental income from the Building Only Properties in each of 1999 and
1998 was $795,000.
8. RELATED PARTY TRANSACTIONS
The chief executive officer, vice president-finance, secretary, treasurer,
general counsel and chief financial officer of the Company's sole general
partner, FFP Real Estate Trust, hold similar positions with FFP Marketing. In
addition, entities owned directly or indirectly by the Company's chief executive
officer, members of his immediate family, and other members of the senior
management of the Company have in the past, and intend to do so in the future,
engaged in transactions with the Company.
The Company leases all but one of its real properties principally to FFP
Marketing. Since the earliest of the leases became effective concurrently with
the close of 1997, no lease payments were received by the Company prior to 1998.
In 1999 and 1998, the Company received lease payments from FFP Marketing in the
amount of $2,952,000 and $2,628,000, respectively. The Company also paid FFP
Marketing $710,000 in 1999 as direct financing lease payments for the buildings
purchased by the Company and leased in February 1999. In addition, the Company
paid interest of $892,000 and $693,000 to FFP Marketing in 1999 and 1998,
respectively, under its note payable to FFP Marketing.
The Company and FFP Marketing are parties to a reimbursement agreement
pursuant to which the Company reimburses FFP Marketing for all direct costs of
the Company (such as costs to prepare its annual partnership tax returns, annual
audit fees, et al.) plus $200,000 for indirect overhead costs of the Company.
For each of 1999 and 1998, the Company paid $200,000 to FFP Marketing as the
indirect overhead cost reimbursement.