SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[_] Preliminary Proxy Statement
[_] Confidential, for Use of the Commission Only (as permitted by Rule 14a-
6(e)(2))
[X] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to (S) 240.14a-11(c) or (S) 240.14a-12
QSR INCOME PROPERTIES, LTD., A CALIFORNIA LIMITED PARTNERSHIP
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(Name of Registrant as Specified In Its Charter)
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(Name of Person(s) Filing Proxy Statement if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[_] $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), 14a-6(i)(2) or
Item 22(a)(2) of Schedule 14A.
[_] $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
1) Title of each class of securities to which transaction applies:
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2) Aggregate number of securities to which transaction applies:
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3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
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4) Proposed maximum aggregate value of transaction:
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5) Total fee paid:
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[X] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
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2) Form, Schedule or Registration Statement No.:
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3) Filing Party:
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4) Date Filed:
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QSR INCOME PROPERTIES, LTD.
SOLICITATION OF CONSENT OF LIMITED PARTNERS
June 12, 1997
QSR Income Properties, Ltd. (the "Partnership") is soliciting the
consent of its limited partners (the "Limited Partners") to a proposal to (i)
sell the Partnership's principal assets to U.S. Restaurant Properties Operating
L.P. ("Purchaser") for approximately $7,959,934 in cash, (ii) dissolve the
Partnership and make a liquidating distribution of cash, and (iii) take any
other action necessary or appropriate to implement such sale and liquidation.
The proposal is described in the accompanying Solicitation Statement of the
Purchaser dated June 12, 1997 (the "Solicitation Statement"). Upon the
completion of the sale and dissolution, as proposed, each of the holders of the
Partnership's outstanding limited partnership units (the "Units") would have the
right to receive a liquidation distribution of cash estimated at $140.00 per
Unit.
The proposed sale by the Partnership to the Purchaser of its assets,
and the subsequent dissolution of the Seller, require the consent of the
Partnership's limited partners (exclusive of the General Partner) holding at
least a majority of the 52,004 outstanding Units. This solicitation, including
the Solicitation Statement and the Consent Form, is being used to solicit the
required consent and is being mailed to all persons who are Limited Partners of
record of the Partnership as of the close of business on the business day prior
to mailing.
The record date for determining the Limited Partners entitled to vote
on the proposed sale and dissolution will be the date of the Partnership's
receipt of the first Consent Form consenting to the sale and dissolution. The
consent given by a completed Consent Form may be revoked at anytime prior to the
time when unrevoked consents have been obtained from the required majority in
interest of the Units.
If the sale and dissolution are approved and completed, all Limited
Partners will receive a liquidation distribution of cash on the basis described
in the Solicitation Statement.
Consent Forms should be completed, signed, and returned promptly to
Boston EquiServe, 150 Royall Street, Canton, Massachusetts 02021: Corporate
Reorganization Department. A self-addressed, postage prepaid envelope for the
return of the Consent Form is provided.
If you have any questions regarding any aspect of this transaction,
please call Christopher Weil & Company, Inc. at (800) 478-2605.
/s/ B. Wayne Hughes
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B. Wayne Hughes
General Partner
Glendale, California
June 12, 1997
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QSR INCOME PROPERTIES, LTD.
701 Western Avenue, Suite 200
Glendale, California 91201-2397
SOLICITATION STATEMENT
June 12, 1997
GENERAL
This Solicitation Statement (first mailed to Limited Partners on or
about June 12, 1997) is being furnished in connection with the solicitation by
the General Partner of QSR Income Properties, Ltd., a California Limited
Partnership (the "Partnership"), of the consent of the limited partners of the
Partnership (the "Limited Partners" or "Unitholders") to
(i) a proposed sale of the Partnership's principal assets to
U.S. Restaurant Properties Operating L.P. (the "Purchaser")
for cash consideration of approximately $7,959,934;
(ii) dissolution and liquidation of the Partnership; and
(iii) all other action necessary or appropriate to implement
such sale and liquidation.
The Partnership has entered into a Purchase and Sale Agreement (the
"Purchase Agreement") with the Purchaser which is a Delaware limited partnership
owned and controlled by U.S. Restaurant Properties Master L.P. ("U.S. Restaurant
Properties"). Under the Purchase Agreement, the parties have agreed, subject to
satisfaction of certain conditions, that the Partnership will sell, and the
Purchaser will purchase, substantially all of the Partnership's assets,
including the sixteen restaurant properties constituting the principal assets of
the Partnership. If the sale takes place, the net sale proceeds and any other
Partnership funds, remaining after payment of Partnership obligations, and
liquidation expenses, will be distributed and the Partnership will be
liquidated. One of the conditions to the proposed sale is the consent to the
transaction by Limited Partners holding at least a majority (more than 26,002)
of the 52,004 outstanding limited partnership units ("Units") of the
Partnership.
If implemented, the sale of the Partnership's assets to the Purchaser
and liquidation of the Partnership is expected to occur in the third calendar
quarter of 1997 and to:
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1. Provide Unitholders with an estimated aggregate liquidation
distribution (before taxes and before withholding for taxes) of approximately
$140.00 per Unit.
2. Result in U.S. income tax consequences for many Unitholders as
described below under "Certain Federal Income Tax Considerations."
VOTING PROCEDURES
The proposed sale by the Partnership to the Purchaser of its assets, and
the subsequent dissolution of the Partnership, require the consent of Limited
Partners (exclusive of the General Partner) holding at least a majority of the
52,004 outstanding Units. This Solicitation Statement and the enclosed consent
form (the "Consent Form") will be used to solicit the required consent and are
being mailed to all persons who are Limited Partners of record as of the close
of business on the business day prior to mailing. Mailing is expected to occur
on approximately June 12, 1997. The General Partner does not intend to call a
meeting of the Limited Partners.
The record date for determining the Limited Partners entitled to vote on
the proposed sale and dissolution will be the date of the Partnership's receipt
of the first Consent Form consenting to the sale and dissolution. The consent
given by a completed Consent Form may be revoked at anytime prior to the time
when unrevoked consents have been obtained from the required majority in
interest of the Units.
There are no dissenters' rights. If the sale and dissolution are approved
and completed, all Limited Partners of will receive a liquidation distribution
on the basis described in this Solicitation Statement.
Consent Forms should be completed, signed, and returned promptly to Boston
Equiserve. A self-addressed, postage prepaid envelope for the return of the
Consent Form accompanies this Solicitation Statement.
HISTORICAL BACKGROUND
OF THE PARTNERSHIP
The Partnership is a publicly held limited partnership organized on
November 1, 1985 under the California Revised Limited Partnership Act.
Commencing in June 1986, 100,000 Units were offered to the public in an
interstate offering. The offering was terminated on April 30, 1987 after the
sale of 52,004 Units.
The Partnership was formed to invest in property for development and
operation of Rocky Rococo restaurants under an agreement with Rocky Rococo
Corporation ("Rocky Rococo"), an operator and franchiser of pizza restaurants.
The Partnership's original general partners were Madison Pizza Corporation, a
Delaware corporation ("Madison"), and B. Wayne Hughes. Effective December 1,
1989, Madison resigned as a General Partner and Mr. Hughes succeeded to
Madison's
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general partner interest in a transaction approved by the Partnership's Limited
Partners holding a majority of the Units. Madison was subsequently dissolved on
December 28, 1989. Madison had been organized by Rocky Rococo and a group of
individuals, including Mr. Hughes, who had been previously engaged in real
estate development, management, and syndication ventures unrelated to Rocky
Rococo (the "Organizing Shareholders"). Mr. Hughes and certain other Organizing
Shareholders disposed of their Madison and Rocky Rococo stock in 1989.
In 1988, Rocky Rococo and the Partnership discontinued operations in
various markets because the restaurants in those markets had not operated
profitably. All 23 of the Partnership's restaurants were closed between 1988
and 1990 because of disappointing operating results. Since 1988, the
Partnership has pursued the leasing (or subleasing) or selling to unaffiliated
restaurant operators of its interest in the restaurant facilities which it owned
or leased, but no longer operated.
The Partnership is a California limited partnership. B. Wayne Hughes
is the Partnership's General Partner. The principal executive offices of the
Partnership and the Partnership's General Partner are located at 701 Western
Avenue, Suite 200, Glendale, California 91201. Their telephone number is (818)
244-8080 and their facsimile number is (818) 241-0627.
TERMS OF PROPOSED SALE
A summary of the principal terms of the sale contemplated by the
Purchase Agreement follows:
Assets to be Purchased and Sold. The assets to be sold to the
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Purchaser consist of the Partnership's interest in sixteen restaurant
properties, together with the Partnership's interest in six promissory notes
having an aggregate outstanding principal balance as of March 31, 1996 of
approximately $278,800. The Partnership owns thirteen of the restaurant
properties and is the lessee under ground leases of the remaining three
restaurant properties.
Purchase Price. The purchase price (the "Purchase Price") is
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approximately $7,959,934, consisting of (i) $7,721,234, allocated among the
sixteen restaurant properties as indicated below under "The Partnership's
Properties," plus (ii) approximately $238,700 allocated to the notes. The exact
amount allocated to five of the notes (having a combined outstanding principal
balance as of March 31, 1997 of approximately $181,800) will be computed so that
the scheduled future payments of principal and interest on those notes will
represent a return to the Purchaser of that amount plus a yield thereon at a
rate of 13.5% per annum. The sixth note is held jointly by the Partnership and
several affiliated parties, including B. Wayne Hughes, the general partner.
This note has an outstanding principal balance of approximately $291,000 and the
portion of the Purchase Price allocable to and based on the Partnership's
interest is equal to the Partnership's share of the outstanding principal
balance of this Note which is approximately $97,000. After the purchase and
sale is completed, Mr. Hughes may purchase this interest in this note from the
Purchaser for cash in the same amount, approximately $97,000.
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Deposit Required From and Made By The Purchaser. The Purchaser has
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deposited $175,000 in escrow. If all contingencies (including the obtaining of
the consent solicited hereby), are satisfied and the Purchaser breaches its
obligation to purchase, this amount would be retained by the Partnership as
liquidated damages.
Scheduled Closing of Purchase and Sale. The anticipated closing date
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is in July, 1997. All contingencies must be satisfied or waived prior to
closing.
Time and Manner of Payment of Purchase Price. The Purchase Price is
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payable in cash at closing.
Approval of Limited Partners. The obligations of both parties are
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contingent upon the receipt of the consent of Limited Partners (other than the
General Partner) holding a majority (more than 26,002) of the 52,004 outstanding
Units of the Partnership as a result of this solicitation.
Review and Inspection Rights. Under the Purchase Agreement, the
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Purchaser had a right to terminate its obligations at any time within 45 days
after being furnished with all of various documents and material including
financial information, title insurance commitments, "as built" surveys,
environmental reports and other relevant items including warranties, agreements,
studies and evidence of compliance with local requirements. This period
expired, without a termination by the Purchaser, on February 17, 1997, after
having been extended to that date by agreement between the Purchaser and the
Partnership.
Condemnation or Damage Prior to Closing. If substantially all of a
---------------------------------------
property is condemned or damaged or destroyed, the Purchaser may elect to
exclude that property and receive a reduction in the purchase price equal to the
portion thereof allocated to such property. If such an occurrence resulted in a
purchase of less than all of the Partnership's properties, the Partnership
would distribute available proceeds of sale, but would not be liquidated,
pending sale of the remaining property or properties.
Other Principal Contingencies. Conditions to the Purchaser's
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obligations include waiver or expiration without exercise of all tenants' rights
of first refusal, receipt of satisfactory tenant estoppel certificates from all
tenants and receipt of required title insurance.
Prorations; Costs. Rent will be prorated as of closing. The
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Partnership will pay expenses of soliciting the approval of its Limited
Partners. Each party will pay its own legal and accounting costs. Costs of
title insurance, environmental reports and surveys are to be borne equally by
the Partnership and the Purchaser.
Representation and Warranties. Each party makes certain
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representations and warranties to the other and the obligations of each party
are contingent upon the correctness of the other's representations and
warranties. The representations and warranties survive the closing, but
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the Partnership's post closing liability for any misrepresentation is limited so
that it can be used only as an offset against liability which the Purchaser may
have to the Partnership.
Exculpation of General Partner. The Purchase Agreement provides that
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the General Partner of the Partnership shall have no personal liability for the
obligations of the Partnership.
BACKGROUND OF THE SALE
In an effort to accelerate its liquidation efforts, on November 10, 1995,
the Partnership engaged an independent investment banking firm (the "Agent") to
assist in marketing the interests in or assets of the Partnership to potential
bulk purchasers. At the same time, three affiliates of the Partnership (the
"Affiliated Sellers"), holding a total of eleven additional restaurant
facilities also originally opened as Rocky Rococo restaurants, and then closed
and leased to unaffiliated restaurant operators, engaged the Agent to perform a
comparable marketing service.
On December 19, 1995, an information package developed with the
assistance of the Agent was presented to the Purchaser. The package included a
summary listing of the sixteen properties held by the Partnership and the eleven
properties held by the Affiliated Sellers and included a description of the
economic terms of the leases, recent photographs of the properties, and
financial statements for the Partnership and each of the Affiliated Sellers.
The furnishing of this information was followed by telephone conferences on or
about December 27, 1995 and the furnishing of additional information requested
by the Purchaser.
A number of discussions were held by a representative of the Agent
with representatives of the Purchaser, the Partnership, and the Affiliated
Sellers to clarify to the Purchaser various details with respect to the leasing
status of the properties and the respective objectives of the Purchaser, the
Partnership, and the Affiliated Sellers. On January 8, 1996, the Purchaser made
an offer in principle to purchase all sixteen restaurant properties owned by the
Partnership and the eleven properties owned by the Affiliated Sellers. Further
discussions and exchanges of information were then undertaken through the Agent
as intermediary, including discussions concerning the terms of the offer in
principle and the consideration given by the Purchaser in recent comparable
purchases of restaurant properties.
On February 5, 1996, the Purchaser was advised by the Agent that the
Partnership and the Affiliated Sellers intended to continue marketing the
facilities in the hope of attracting a broader group of potential acquirors that
would improve the terms of the offer in principle by the Purchaser. During a
period of approximately one month following the February 5th discussion,
representatives of the Agent contacted principals at seven different entities
believed to have an interest in, and the capacity for, acquiring multiple net
leased restaurant properties. Information was provided to these prospective
purchasers consistent with the degree of interest that they expressed when
contacted.
On March 25, 1996, a representative of the Agent met with Robert
Stetson, the Chief Executive Officer of the Purchaser's Managing General
Partner, and Fred Margolin, the Chairman
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of the Purchaser's Managing General Partner, to discuss further the terms of the
Purchaser's original offer in principle and to advise the Purchaser of the other
marketing efforts then in process.
Prior to May 1, 1996, the Agent obtained two other offers in principle
and determined that two other potential acquirors were insufficiently
capitalized to purchase the properties held by the Partnership or the Affiliated
Sellers. Of these two offers in principle, one was for a lesser purchase price
and the other encompassed only three of the sixteen properties held by the
Partnership and only one of the total of eleven properties owned by the
Affiliated Sellers. On or about May 1, 1996, the Partnership and the Affiliated
Sellers determined that they would negotiate exclusively with the Purchaser
until it could be determined whether acceptable agreements could be reached,
which was communicated to the Purchaser at that time.
On May 6, 1996, further discussions were held by a representative of
the Agent and Messrs. Stetson and Margolin and possible adjustments to the
original offer in principle were discussed. On May 16, 1996, the Purchaser
submitted revised terms to its original offer in principle to purchase the
properties of the Partnership and the Affiliated Sellers.
On June 11, 1996, a representative of the Agent conveyed to
representatives of the Purchaser a few modifications that the Partnership and
the Affiliated Sellers wished to address in the most recent offer in principle
from the Purchaser. On June 19, 1996, those issues were tentatively resolved.
On June 25, 1996, the Purchaser submitted to the Partnership a draft agreement
for the purchase of the Partnership's properties. On June 28, 1996, the
Purchaser submitted to the Affiliated Sellers non-binding letters of intent to
purchase the real properties held by them. The terms provided for in the draft
of the agreement between the Partnership and the Purchaser provided that payment
by the Purchaser of the purchase price would be in the form of limited
partnership units of U.S. Restaurant Properties ("Purchaser Units"), based upon
the average daily closing price of Purchaser Units on the NYSE during the five
business days preceding the closing, subject to a "floor" of $24.50 per
Purchaser Unit, which would have limited the number of Purchaser Units that the
Partnership would receive for distribution to its partners and any assignees of
Units if the average closing price for a Purchaser Unit during the five day
period was less than $24.50. The letters of intent relating to the transactions
between the Purchaser and the Affiliated Sellers each provided for payment in
cash of the purchase price for their properties. After the Partnership and the
Affiliated Sellers reviewed the draft agreement and the letters of intent, a
representative of the Agent reviewed certain issues with Mr. Margolin, including
the Partnership's requirement that there be no "floor" on the closing price of
the Purchaser Units to be used in the determination of the number of those units
to be issued.
On August 29, 1996, the Purchaser submitted a revised draft of the
agreement between the Purchaser and the Partnership. The revised draft was the
subject of a conference telephone call on September 6, 1996 among
representatives of the Purchaser, the Agent, the Partnership, the law firm of
Andrews & Kurth, L.L.P., which represented the Partnership, and the law firm of
Middleberg, Riddle & Gianna, which represented the Purchaser. During that call
the parties agreed that there would be no "floor" in the valuation of the
Purchaser Units and most of the
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remaining issues were resolved. After a review by the Partnership of further
drafts submitted by the Purchaser, a definitive agreement was executed on
September 18, 1996. Purchase and Sale Agreements between the Purchaser and each
of the Affiliated Sellers, for the sale of the properties owned by the
Affiliated Sellers, were entered into on or about October 24, 1996. These
agreements provided that payment for the properties held by the Affiliated
Sellers would be in cash.
In the September 6, 1996 telephone call, the representatives of the
Partnership attempted to persuade the Purchaser to pay the purchase price for
the Partnership's properties in cash. The Purchaser declined to do so and
indicated that because of the larger number of properties to be acquired from
the Partnership, the ability to pay for the Partnership's properties in
Purchaser Units was a material inducement to the Purchaser agreeing to the
transaction.
A preliminary version of the contents of this Solicitation Statement
was included in a preliminary form of Consent Solicitation Statement/Prospectus
filed with the Securities and Exchange Commission on or about February 7, 1997.
It was then contemplated that the Purchaser Units then proposed to be issued as
consideration for the Partnership's properties would be registered for issuance
to the holders of the Partnership's Units pursuant to a registration statement
under the Securities Act of 1933, as amended, which would include a final form
of such Consent Solicitation Statement/Prospectus. However, because of the
delay and additional expense which appeared to be involved in the process
necessary to using Purchaser Units as consideration for the Partnership's
properties, the Purchaser agreed instead to pay the Purchase Price in cash and
this was provided for in an amendment to the Purchase Agreement executed in May,
1997.
THE PURCHASER
The Purchaser is 99% owned, and is controlled, by U.S. Restaurant
Properties. U.S. Restaurant Properties, through the Purchaser and otherwise,
acquires, owns, and manages income-producing properties that it leases on a
triple net basis to operators of fast food and casual dining restaurants,
primarily Burger King(R) and other national and regional brands, including
Chili's(R), Dairy Queen(R), Hardee's(R), KFC(R), Pizza Hut(R), Schlotzsky's(R),
and Taco Bell(R).
U.S. Restaurant Properties is one of the largest publicly owned
entities in the United States dedicated to acquiring, owning, and managing
restaurant properties. At December 31, 1996, the Purchaser's Portfolio
consisted of 322 restaurant properties in 41 states, approximately 99% of which
were leased. In addition, as described below, the Purchaser has entered into
binding contracts to acquire an additional 54 restaurant properties, including
the sixteen Restaurants owned by the Partnership.
RECOMMENDATION OF THE PARTNERSHIP'S GENERAL PARTNERS.
The Partnership's General Partner is recommending that the Unitholders
approve the transaction. The Partnership originally acquired and developed its
properties so that it could operate them as Rocky Rococo Pizza restaurants
pursuant to an agreement with Rocky Rococo Corporation.
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The Partnership's operation of the restaurants was generally not profitable and
all of its original twenty-three restaurants were closed during the period 1988
through 1990. The Partnership leased its restaurant properties to independent
operators as a means of generating income, pending disposition or other
utilization. Seven restaurants have previously been sold. The Partnership did
not intend initially to be simply a holder of net leased restaurants and the
Partnership's General Partner believes that a sale of the Partnership's assets
to the Purchaser on the terms which have been negotiated and a liquidation of
the Partnership is in the best interests of the Partnership.
The Partnership has not obtained recent appraisals of its Properties
or an opinion of an investment banking firm concerning the fairness of the
proposed terms. However, in view of the Partnership's history and
circumstances, and the background of the transaction, including in particular
its arms length nature, the Partnership's General Partner believes that the
absence of current appraisals and such an opinion is not significant. In view
of the relative size of the transaction in terms of asset value, the General
Partner believes that obtaining such appraisals or such an opinion would have
involved an unwarranted expense without material likelihood of increasing the
proceeds likely to be received by the Partnership and the Unitholders.
ALTERNATIVES CONSIDERED
Possible alternatives to a sale as proposed include the Partnership
(i) continuing to hold the Properties, (ii) acquiring additional properties,
(iii) operating the properties as restaurants, (iv) marketing the properties
individually, or (v) achieving some combination of the foregoing. The
Partnership's General Partner does not believe, after taking into account all
relevant considerations, that any one or any combination of these alternatives
is preferable to the proposed sale to the Purchaser. The size of and return on
the Partnership's investments at their present level does not justify the
administrative expense of maintaining the Partnership on a long term basis. The
Purchaser holds a much larger number of similar restaurant properties and enjoys
economies of scale not available to the Partnership (or to most other potential
purchasers of individual properties). The Partnership does not have the capital
to invest in additional properties or to reenter the business of restaurant
operation. In view of the number, size and location of the Partnership's
properties, it is believed that its marketing of the properties on a piecemeal
basis would not be as effective and efficient as marketing to potential single
purchasers already in the business of holding comparable properties.
THE PARTNERSHIP'S PROPERTIES
The following table sets forth information as of March 31, 1997
concerning the sixteen restaurant properties that continue to be owned or ground
leased by the Partnership, all of which are leased to independent operators
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THE PARTNERSHIP'S PROPERTIES
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SIZE OF OWNED OR ANNUAL
PARCEL LEASED BY RESTAURANT BASE LEASE SPECIAL
LOCATION (SQUARE FEET) THE SELLER TYPE RENT TERM PROVISIONS
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9200 East Arapahoe 36,100 Owned Wendy's $82,800 September 1990 The lease provides
Greenwood, Colorado to September 2010 for a 15% rent
increase every five
years, has a
percentage rent
feature, and has one
eight-year renewal
option.
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1617 North Belt West 49,800 Owned Hardee's $66,240 December 1989 The lease has three
Bellville, Illinois to December 2001 five-year renewal
options, the first of
which was exercised
in June 1996. The
Seller also has an
easement agreement
with respect to the
property that
provides an
additional $1,000 per
year to the Seller
from a third party.
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500 South Illinois Street 28,000 Owned Jack-in-the-Box $71,300 May 1991 The lease provides
Belleville, Illinois to May 2011 for a 15% increase in
base rent every five
years and has two
five-year renewal
options.
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235 Bolingbrook 23,800 Owned Salsa y $71,161 September 1989 The lease provides
Bolingbrook, Illinois Tortillas to September 2003 for a 9% increase in
base rent every three
years and has a
percentage rent
feature. The lease
also has two
five-year renewal
options.
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6820 East NW Highway 62,000 Owned KFC $76,718 June 1990 The lease provides
Crystal Lake, Illinois to March 1999 for a 12% increase in
rent every four years
and has a percentage
rent feature. The
lease also has one
ten-year and one
five-year renewal
option.
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3846 Lafayette Road 29,000 Owned Noble Roman's $74,194 July 1989 The lease is on a
Indianapolis, Indiana to July 2004 triple-net basis and
has a percentage rent
feature. The lease
provides for a 16%
increase in rent
effective July 1999.
The lease also has
two five-year renewal
options.
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7863 U.S. 31 South 37,400 Owned Clancy's $85,125 November 1990 The lease provides
Indianapolis, Indiana to November 2005 for a 13.5% rent
increase every five
years and has two
five-year renewal
options.
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SIZE OF OWNED OR ANNUAL
PARCEL LEASED BY RESTAURANT BASE LEASE SPECIAL
LOCATION (SQUARE FEET) THE SELLER TYPE RENT TERM PROVISIONS
====================================================================================================================================
9755 East Washington 45,000 Owned Noble Roman's $74,194 February 1989 The lease provides
Indianapolis, Indiana to February 2004 for a 16% base rent
increase every five
years, has a
percentage rent
feature, and has two
five-year renewal
options.
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315 College Mall Drive 43,500 Leased Fazoli's $80,640 October 1989 The Seller's annual
Bloomington, Indiana to October 2004 rent payment on this
property is $34,540.
The Seller's lease
expires in January
2009. The sublease
with the tenant
provides for a 12%
increase in base rent
every four years and
has one renewal
option for four years
and four months and
one five-year renewal
option.
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909 West McGalliard 23,800 Owned Taco Bell $58,512 September 1989 The lease provides
Muncie, Indiana to June 2007 for a 10% increase in
base rent every five
years and has a
percentage rent
feature. The lease
also has four
five-year renewal
options.
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5101 West 98th Street 43,600 Leased Pizza Hut $82,685 September 1989 The Seller's annual
Bloomington, Minnesota to September 2003 rent payment is
$35,193. The Seller's
lease expires in
February 2008. The
sublease with the
tenant provides for a
9% increase in base
rent every three
years and has a
percentage rent
feature. The lease
also has two
five-year renewal
options.
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2880 Coon Rapids 60,000 Owned Acapulco $29,450 December 1996 to The tenant has an
Coon Rapids, Minnesota December 1999 option to purchase
the property. The
exercise price is
$300,000 for the
first year of the
lease term and
increases to $325,000
in the second year
and $350,000 in the
third year.
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2130 Cliff Road 59,800 Owned Pizza Hut $78,230 August 1989 The lease provides
Eagan, Minnesota to August 2003 for a 9% increase in
base rent every three
years and has a
percentage rent
feature. The lease
also has two
five-year renewal
options.
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SIZE OF OWNED OR ANNUAL
PARCEL LEASED BY RESTAURANT BASE LEASE SPECIAL
LOCATION (SQUARE FEET) THE SELLER TYPE RENT TERM PROVISIONS
====================================================================================================================================
100 Old Sugar Creek Rd. 32,500 Owned Hardee's $74,750 June 1989 The lease provides
Fenton, Missouri to June 2001 for a 15% increase in
base rent every five
years and has three
five-year renewal
options.
- -----------------------------------------------------------------------------------------------------------------------------------
8071 Manchester Road 31,200 Leased Memphis Best $48,504 September 1991 The Seller's annual
Brentwood, Missouri to September 1999 rent payment is
$42,500. The Seller's
lease expires in
November 2007. The
sublease with the
tenant provides for
two three-year
renewal options,
which have already
been exercised, and
one two-year renewal
option, followed by
two additional three
year renewal options.
- -----------------------------------------------------------------------------------------------------------------------------------
7411 122nd Street 43,700 Owned Wendy's $36,000 March 1993 The lease includes a
Kenosha, Wisconsin to December 2003 percentage rent
feature and has two
ten-year renewal
options.
====================================================================================================================================
11
OWNERSHIP OF UNITS
The only securities issued by the Partnership are the Units. Although
B. Wayne Hughes has effective control over most aspects of the management of the
Partnership because of his status as the sole General Partner of the
Partnership, Mr. Hughes cannot, by any exercise of his powers as General
Partner, determine the outcome of the consent solicitation made by this
Solicitation Statement. Mr. Hughes also is the beneficial owner of 50 Units,
representing approximately 0.1% of the outstanding Units, all of which are the
property of a living trust of which he is the sole beneficiary and trustee.
Based on the list of Unitholders of record as of June 5, 1997, no Unitholder or
control group beneficially owned, directly or indirectly, in excess of 2.00% of
the Units. Mr. Hughes's address is c/o Public Storage Inc., 701 Western Avenue,
Suite 200, Glendale, California 91201-2397.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The sale of the restaurant properties and the subsequent liquidation
of the Partnership will be taxable events for the Limited Partners that should
allow Limited Partners to use any suspended passive losses produced by their
investment in the Partnership. The amount of estimated suspended loss available
to an original Limited Partner of the Partnership (who has not previously offset
the Partnership's losses from prior years against passive income from other
sources) is approximately $21.00 per Unit, consisting of ordinary losses. The
sale of the restaurant properties is expected to produce a Section 1231 loss for
tax purposes of approximately $56.00 per Unit. Generally, if a taxpayer's
Section 1231 losses exceed Section 1231 gains, the excess is treated as an
ordinary loss. When a taxpayer reports a net Section 1231 gain in a year, that
gain must be recaptured as ordinary income to the extent of any net Section 1231
losses incurred in the prior five years that have not previously been subject to
recapture. The Limited Partners would also receive approximately $3.00 per Unit
of ordinary income, attributable to operating income for 1997 through the date
of liquidation.
The liquidation of the Partnership and the distribution of the
liquidating proceeds will be treated as a taxable sale of the Partners'
partnership interests, producing capital loss (or gain) to the extent that the
cash distributed is less than (or more than) the Partners' tax basis in their
Units. For an original investor in the Partnership, it is estimated that the
liquidating distribution of approximately $140.00 per Unit should result in a
capital gain of approximately $1.00 per Unit.
The particular tax consequences for each Limited Partner will depend
upon a number of factors related to that Limited Partners's tax situation,
including the Limited Partner's tax basis in the Units, and if a capital loss
results, whether the Limited Partners will be able to use the capital loss
currently. To the extent that a Limited Partners recognizes a capital loss, the
loss generally can be applied to offset capital gain from other sources.
Individuals may use capital losses in excess of capital gains to offset up to
$3,000 of ordinary income in any single year ($1,500 for a married individual
filing a separate return). Any capital losses that are not used currently can
be carried forward for use in subsequent years. A corporation's capital losses
in excess of current capital gains
12
generally may be carried back three years, with any remaining unused portion
available to be carried forward for five years.
Because the income tax consequences of the transaction will not be the
same for all Limited Partners, and because this discussion considers only a
limited set of potential tax issues, Limited Partners should consult with their
own tax advisors with specific reference to the tax effects in their own tax
situations. This discussion does not address any state or local tax
considerations that may be applicable in jurisdictions in which the Partnership
is doing business or in which Limited Partners may be resident. All of the tax
and liquidation distribution numbers provided are estimates only, are made based
on the conditions stated, and may vary when the final accounting is complete.
PARTICIPATION IN DISTRIBUTIONS
Under the Partnership's Amended and Restated Agreement of Limited
Partnership, until cumulative distributions to the partners first reach 100% of
their capital investment of $500 per unit, as amended, cash flow from operations
is paid 92% to the partners in proportion to their capital contributions and 8%
to the General Partner as incentive distributions, and cash from sale or
refinancing is paid 100% to the partners in proportion to their capital
contributions. Thereafter, any subsequent distributions of cash flow from
operations would be paid 75% to the partners and 25% to the General Partner as
incentive distributions. Prior cumulative distributions to the Unitholders
total approximately $171.75 per Unit. If the proposed sale is completed, the
liquidation distribution, estimated at approximately $7,354,000 in the
aggregate, will be paid $7,280,500 to the Unitholders (approximately $140 per
unit) and $73,500 to the General Partner in respect of his contribution of 1% of
the Partnership's initial capital.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
Copies are enclosed of the following documents, filed by the
Partnership pursuant to Section 13 of the Securities Exchange Act of 1934 (File
No. 0-15802): Annual Report on Form 10-K for the year ended December 31, 1996;
and Quarterly Report on form 10-Q for the three months ended March 31, 1997.
These documents are incorporated herein by reference. Any statement contained
in any of these documents, however, shall be deemed modified or superseded for
the purposes of this Solicitation Statement to the extent that a statement
contained in this Solicitation Statement is inconsistent with such statement.
Any such statement so modified or superseded shall not be deemed, except as so
modified or superseded, to constitute a part of this Solicitation Statement.
SOLICITATION OF CONSENT
The proposed sale by the Partnership to the Purchaser of its assets,
and the subsequent dissolution of the Partnership, require the consent of
Limited Partners (exclusive of the General Partner) holding at least a majority
of the 52,004 Units outstanding (a "Majority in Interest"). This Solicitation
of Consent and a form of consent (the "Consent Form") are being mailed to all
persons
13
who are Limited Partners of record of the Seller as of the close of business on
the last business day prior to the day of mailing. The General Partner does not
intend to call a meeting of the Limited Partners.
The record date for determining the Limited Partners entitled to vote
on the proposed sale and dissolution will be the date of the Partnership's
receipt of the first Consent Form consenting to the sale and dissolution. The
consent given by a completed Consent Form may be revoked at any time prior to
the time when unrevoked consents have been obtained from the required Majority
in Interest. Limited Partners of the Partnership holding more than 10% of the
Units may request a meeting for the purpose of discussing or voting upon the
sale and dissolution, in which event no action would be taken until the holding
of such a meeting. In the absence of a request for such a meeting, approval of
the proposed sale and dissolution will be deemed effective 15 days after the
receipt of unrevoked consents from the holders of the required majority in
interest of the Units.
The Partnership has retained Christopher Weil & Company Inc. ("Weil")
a registered broker dealer, to answer questions and solicit responses to this
transaction. Weil has acted in a similar capacity in connection with other
partnerships affiliated with the General Partner. Weil is also the Agent
referred to above in connection with the description of the marketing of the
Partnership's properties and the negotiation of the Purchase Agreement. Weil
will receive total compensation of $237,000 from the Partnership (representing
approximately three percent (3%) of the Purchase Price) if, and only if, the
transaction is closed and completed.
The General Partner requests that you complete, sign and return the
Consent Form by July 11, 1997, provided that (i) such date may be extended by
the General Partner without further notice to the Limited Partners, and (ii) the
transaction may be consummated prior to such date if the proposal is approved
prior to such date by Limited Partners holding a Majority in Interest (but not
be consummated if disapproved by Limited Partners holding a majority of the
Units). A postage-paid return envelope has been enclosed for your convenience.
Mr. Hughes owns 50 Units; affiliates of Mr. Hughes own 120 Units; and
affiliates of Weil own 118 Units. Each intends to vote these Units in favor of
the proposal (although Mr. Hughes's vote will be excluded in determining whether
consent has been received from a Majority in Interest).
You are urged to complete the accompanying Consent Form and to sign,
date and return it in the enclosed stamped envelope as soon as possible to
Boston EquiServe, Corporate Agency & Reorganization, P. O. Box 1872, Mail Stop
45-02-53, Boston, Massachusetts 02105.
14
If you have any questions regarding any aspect of this transaction,
please contact Christopher Weil & Company Inc., at (800) 478-2605. We
appreciate your prompt attention to this matter.
/s/ B. Wayne Hughes
---------------------------------
B. Wayne Hughes
General Partner
Glendale, California
June 12, 1997
15
CONSENT FORM
QSR Income Properties, Ltd.,
a California Limited Partnership
701 Western Avenue
Second Floor
Glendale, California 91201-2397
800-478-2605
THIS CONSENT IS SOLICITED BY THE GENERAL PARTNER
The undersigned, a limited partner in QSR Income Properties, Ltd., a
California limited partnership (the "Partnership"), having received and reviewed
the Solicitation Statement of the Partnership dated June 12, 1997 (the
"Solicitation Statement"), relating to a proposal involving (i) a sale of the
Partnership's principal assets in exchange for cash consideration as described
in the Solicitation Statement and (ii) a dissolution of the Partnership and
liquidation distribution of the net sale proceeds remaining after provisions for
payment of the Partnership's obligations, does hereby vote all limited
partnership units held of record by the undersigned as follows:
Proposal to (i) sell the Partnership's principal assets for cash consideration
as described in the Solicitation Statement, (ii) dissolve the Partnership and
make a liquidation distribution of the net sale proceeds remaining after
provision for payment of the Partnership's obligations, and (iii) authorize
the Partnership's General Partner to take all actions necessary or appropriate
to implement such sale and liquidation.
FOR [_] AGAINST [_] ABSTAIN [_]
THIS CONSENT, WHEN PROPERLY EXECUTED, WILL BE A VOTE OR ABSTENTION AS INDICATED
ABOVE. IF AN EXECUTED CONSENT FORM IS RETURNED AND NO DIRECTION IS MADE, THE
CONSENT WILL BE DEEMED A VOTE FOR THE PROPOSAL.
---
PLEASE MARK, SIGN, DATE AND RETURN THIS CONSENT FORM IN THE ENCLOSED ENVELOPE TO
BOSTON EQUISERVE, CORPORATE AGENCY & REORGANIZATION, P. O. BOX 1872, MAIL STOP
45-02-53, BOSTON, MASSACHUSETTS 02105.
Dated: , 1997
- ------------------------------------------- ------------------
Signature
- ------------------------------------------- ------------------------------
Signature if held Jointly Telephone Number
Please sign exactly as your name appears. Joint owners should each sign.
Trustees and others acting in a representative capacity should indicate the
capacity in which they sign.
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-K
[X] Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the fiscal year ended December 31, 1996
or
[_] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from __________ to __________
Commission File Number 0-15802
-------
QSR INCOME PROPERTIES, LTD.
---------------------------
(Exact name of registrant as specified in its charter)
------------------------------------------------------
California 95-4084042
- ---------------------------------------- ------------------------------------
(State or other jurisdiction of (IRS Employer Identification Number)
incorporation or organization)
701 Western Avenue, Suite 200
Glendale, California 91201
- ---------------------------------------- ------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (818) 244-8080
--------------
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange
on which registered
NONE NONE
---- ----
Securities registered pursuant to Section 12(g) of the Act:
Units of Limited Partnership Interest
-------------------------------------
(Title of class)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
----- -----
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. X
-----
DOCUMENTS INCORPORATED BY REFERENCE
NONE
----
PART I
ITEM 1. Business.
--------
QSR Income Properties, Ltd. (the "Partnership") is a publicly held limited
partnership organized on November 1, 1985 under the California Revised Limited
Partnership Act. Commencing in June 1986, 100,000 units of limited partnership
interest (the "Units") were offered to the public in an interstate offering.
The offering was terminated on April 30, 1987 after the sale of 52,004 Units.
The Partnership was formed to invest in property for development and
operation of Rocky Rococo restaurants under an agreement with Rocky Rococo
Corporation ("Rocky Rococo"), an operator and franchiser of pizza restaurants.
The Partnership's original general partners were Madison Pizza Corporation, a
Delaware corporation ("Madison"), and B. Wayne Hughes ("Mr. Hughes"). Effective
December 1, 1989, Madison resigned as a general partner and Mr. Hughes succeeded
to Madison's general partner interest in a transaction approved by Limited
Partners holding a majority of the Units. Madison was subsequently dissolved on
December 28, 1989. Madison had been organized by Rocky Rococo and a group of
individuals, including Mr. Hughes, who had been previously engaged in real
estate development, management and syndication ventures not related to Rocky
Rococo (the "Organizing Shareholders"). Mr. Hughes and certain other Organizing
Shareholders disposed of their Madison and Rocky Rococo stock in 1989.
In 1988, Rocky Rococo and the Partnership discontinued operations in
various markets because the restaurants in those markets had not operated
profitably. All 23 of the Partnership's restaurants were closed because of
disappointing operating results between 1988 and 1990. As of December 31, 1996,
the Partnerships' facilities have been leased (or subleased) to unaffiliated
restaurant operators.
In 1996 the Partnership incurred $32,000 of holding expenses for a closed
restaurant. This facility was redeployed in December 1996.
Madison contributed a total of $912,000 ($561,000 in 1989 and $351,000 in
1988) to the Partnership in full satisfaction of its obligations under a
contribution agreement entered into in 1988. The funds contributed by Madison
were not accrued to the benefit of Madison and were used primarily for funding
ongoing fixed costs and restructuring transition expenditures. Accordingly, the
amount contributed was reflected in the attached financial statements as a
General Partner contribution with a subsequent "equity transfer" to the Limited
Partners.
Since Madison's resignation, the Partnership has been managed by Mr.
Hughes. Prior to the resignation of Madison as a general partner, the
Partnership was managed by the executive officers of Madison and by Mr. Hughes.
The limited partners of the Partnership have no right to participate in the
management or conduct of the Partnership's business and affairs.
Currently, there are four persons who render services on behalf of the
Partnership on a part-time basis. These persons include accounting,
administrative, clerical and real estate personnel. The persons rendering
services on a part-time basis also render services on behalf of one or more
corporations previously owned by Madison, other partnerships organized by
Madison and other affiliated corporations and partnerships of Mr. Hughes.
The term of the Partnership is until all properties have been sold and, in
any event, not later than December 31, 2040.
In November 1995, the general partner decided to place the facility assets
for sale and hired an investment banker to determine the valuation of the assets
and solicit offers. Based on offers to buy the assets received, the general
partner determined that the carrying value of the restaurant facilities needed
to be reduced to present the value of such assets at their net realizable value.
Consequently, the Partnership wrote-down the carrying value of its restaurant
facilities which resulted in a charge to income of $2,350,000 for the year ended
December 31, 1996.
1
On September 16, 1996, the general partner entered into a purchase and sale
agreement with US Restaurants Properties Master LP, a Delaware limited
partnership and US Restaurant Properties Operating LP, a Delaware limited
partnership whereby the Partnership would sell its restaurant assets to USRP
Operating LP for $7,571,234 and certain of its notes receivable at a price which
provides USRP Operating LP with a 13.5% yield. USRP Operating LP will pay for
the purchase of the assets with limited partnership units of USRP Master LP.
USRP Master LP is a New York Stock Exchange traded master limited partnership
traded under the symbol "USV".
The transaction which is subject to certain contingencies, including
approval by the limited partners of the Partnership is expected to close in the
first half of 1997. The transaction is expected to be tax-free for most limited
partners. After the sale of the Partnership assets, the Partnership expects to
liquidate, distributing to the Unitholders the limited partnership interests in
USRP Master LP and any cash reserves.
ITEM 2. Properties.
----------
The Partnership had developed and operated 23 restaurant properties through
June 1988.
The Partnership transferred or otherwise terminated its ownership or
leasehold interests in seven of its 23 properties. Of the 16 closed properties
that continued to be owned or leased by the Partnership, all have been leased or
subleased to unaffiliated operators. The following table sets forth information
as of December 31, 1996, concerning the 16 restaurant properties (each having
from 2,800 to 3,450 square feet of restaurant space) that continue to be owned
or leased by the Partnership:
Size of
Parcel Date of Date Date Lease
Location (Sq. Ft.) Purchase Leased Expires
- -------- --------- -------- ------ ----------
INDIANA
3846 Lafayette
Indianapolis, IN 29,000 March 12, 1987 July 1989 July 2004
7863 U.S. 31 S.
Greenwood, IN 37,400 March 12, 1987 November 1990 November 2005
9755 E. Washington St.
Indianapolis, IN 45,000 July 13, 1987 February 1989 February 2004
315 College Mall Rd.
Bloomington, IN 43,500 Land Lease October 1989 October 2004
909 W. McGalliard
Muncie, IN 23,800 October 1, 1987 September 1989 June 2007
2
Size of
Parcel Date of Date Date Lease
Location (Sq. Ft.) Purchase Leased Expires
- -------- --------- -------- ------ ----------
COLORADO
9200 Arapahoe Rd.
Green Village, CO 36,100 June 23, 1986 September 1990 September 2010
MINNESOTA
5101 W. 98th St.
Bloomington, MN 43,600 Land Lease September 1989 September 2003
2880 Coon Rapids Blvd.
Coon Rapids, MN 60,000 May 15, 1987 December 1996 December 1999
2130 & Cliff Rd.
Eagan, MN 59,800 May 1, 1987 August 1989 May 2003
MISSOURI
100 Old Sugar Creek Rd.
Fenton, MO 32,500 September 16, 1987 June 1989 June 2001
8071 Manchester Rd.
Brentwood, MO 31,200 Land Lease September 1991 September 1999
ILLINOIS
1617 N. Belt West
Bellville, IL 49,800 November 7, 1986 December 1989 December 2001
500 S. Illinois St.
Bellville, IL 28,000 July 8, 1987 May 1991 April 2011
235 S. Bolingbrook Dr.
Bolingbrook, IL 23,800 January 21, 1988 September 1989 September 2003
6820 E Northwest Hwy.
Crystal Lake, IL 62,000 December 14, 1987 October 1989 March 1999
WISCONSIN
7411 122nd Ave.
Bristol (Kenosha), WI 43,700 December 30, 1986 April 1993 December 2003
3
Set forth below are summaries of the 16 facilities currently leased to
unaffiliated operators.
The restaurant located at 3846 Lafayette in Indianapolis, Indiana, which is
owned by the Partnership, has been leased on a triple net basis to a Midwest
pizza chain at a rate of $74,000 per year. The lease also includes a percentage
rent feature with respect to incremental sales above specified levels. The
lease has a term of 15 years, with two five-year renewal options.
The restaurant located at 7863 U.S. 31 South in Greenwood, Indiana, which
is owned by the Partnership, has been leased to a restaurant chain for $85,000
per year. This lease provides for a 15% increase in rent every five years with
two five-year renewal options.
The restaurant located at 9755 East Washington in Indianapolis, Indiana,
which is owned by the Partnership, has been leased to a restaurant chain, at a
rate of $74,000 per year. This lease, which became effective in February 1989,
provides for a 16% base rent increase every five years with two five-year
renewal options.
The restaurant located at 315 College Mall Road in Bloomington, Indiana,
which is located on land leased by the Partnership, has been subleased to a
Supermarket chain at a rate of $80,000 ($46,000 net to the Partnership) per
year. This lease provides for a 12% increase in base rent every four years with
two five-year renewal options.
The restaurant in Muncie, Indiana, which is owned by the Partnership, was
leased to a restaurant chain at a rate of $58,000 per year. The lease became
effective in September 1989 and provides for a 10% increase in base rent every
five years with four five-year renewal options. The lease also includes a
percentage rent feature with respect to incremental sales above specified
levels. The restaurant located at 9200 Arapahoe Road in Green Village, Colorado,
which is owned by the Partnership, has been leased to a restaurant chain for
$83,000 per year. This lease provides for a 15% increase in rent every five
years with one eight-year renewal option.
The restaurant located in Bloomington, Minnesota, which located on land
leased by the Partnership, has been subleased to a restaurant chain for a gross
rental of $82,000 ($47,000 net to the Partnership) per year. The Partnership,
in its capacity as lessee, is currently paying $35,000 to the ground lessor.
The sublease allows the Partnership to sell its leasehold interest at any time,
although tenant has been granted a right of first refusal for any sale
transaction. The terms of the sublease provide for a 9% increase in base rent
every three years with two five-year renewal options. The lease also includes a
percentage rent feature with respect to incremental sales above specified
levels.
The restaurant located at 2130 and Cliff Road in Eagan, Minnesota, which is
owned by the Partnership, has also been leased to a restaurant chain, at a rate
of $78,000 per year. This lease provides for a 9% increase in base rent every
three years with two five-year renewal options. The lease also includes a
percentage rent feature with respect to incremental sales above specified
levels.
The restaurant located at 100 Old Sugar Creek Road in Fenton, Missouri,
which is owned by the Partnership, has been leased to a restaurant chain at a
rate of $75,000 per year. This lease provides for a 15% increase in base rent
every five years with three five-year renewal options.
The restaurant located at 1617 N. Belt West in Bellville, Illinois, which
is owned by the Partnership, has been leased to a restaurant chain at a rate of
$66,000 per year. The lease expires in December 1996 and provides for three
five-year renewal options.
The restaurant located at 235 S. Bolingbrook Drive in Bolingbrook,
Illinois, which is owned by the Partnership, has been leased to a restaurant
chain, at a rate of $71,000 per year. This lease provides for a 9% increase in
base rent every three years with two five-year renewal options. The lease also
includes a percentage rent feature with respect to incremental sales above
specified levels.
The restaurant located at 6820 E. Northwest Highway in Crystal Lake,
Illinois, which is owned by the Partnership, was leased to a restaurant chain
for $77,000 per year. This lease provides for a 12% increase in rent every four
years with two five-year renewal options. The lease also includes a percentage
rent feature with respect to incremental sales above specified levels.
4
The restaurant located at 500 S. Illinois Street in Belville, Illinois,
which is owned by the Partnership, has been leased to a restaurant chain, at a
rate of $68,000 per year. This lease provides for a 15% increase in base rent
every five years with two five year renewal options.
The restaurant located at 8071 Manchester Road in Brentwood, Missouri,
which is located on land leased by the Partnership, has been subleased to a
restaurant chain at a rate of $48,000 ($6,000 net to the Partnership) per year.
The lease expires in September 1996 and provides for two three-year and one two
year renewal options. The lessee has exercised one of their three-year options
extending the lease term to September 1999.
The restaurant located at 7411 122nd Avenue in Kenosha, Wisconsin, which is
owned by the Partnership, has been leased to a restaurant chain for $36,000 per
year. The lease provides for a 10% increase in base rent every four years with
one five-year renewal option.
The restaurant located at 2880 Coon Rapids in Coon Rapids, Minnesota, which
is owned by the Partnership, has been leased to a restaurant chain for $29,450
per year. The lessee has an option to purchase the property. The exercise price
is $300,000 for the first year of the lease term and increases to $325,000 in
the second year and $350,000 in the third year. The lease expires December 1999.
ITEM 3. Legal Proceedings.
-----------------
No material legal proceedings are pending against the Partnership.
ITEM 4. Submission of Matters to a Vote of Security Holders.
---------------------------------------------------
No matters were submitted to a vote of security holders during the fourth
quarter of 1996.
PART II
ITEM 5. Market for the Partnership's Common Equity and Related Stockholder
------------------------------------------------------------------
Matters.
-------
No public trading market exists for the units of limited partnership
interest.
Exclusive of the general partner's interest in the Partnership, as of
December 31, 1996, there were approximately 3,026 record holders of Units.
Distributions to the general partner and to the Partnership's Limited
Partners are made quarterly based on "Cash Available for Distribution". Cash
Available for Distribution is generally the sum of (i) cash funds from
operations of the Partnership, without deductions for depreciation, but after
deducting for capital improvements, plus (ii) net proceeds from any sale or
financing of the Partnership's properties, less adequate cash reserves for other
obligations of the Partnership for which there is no other provision.
5
The aggregate amount of distributions paid to the limited and general
partners in each year since inception of the Partnership were as follows:
Limited General
Partners Partner Total
-------- ------- -----
1986 $ 32,000 $ 3,000 $ 35,000
1987 451,000 43,000 494,000
1988 390,000 16,000 406,000
1989 520,000 5,000 525,000
1990 520,000 5,000 525,000
1991 1,495,000 147,000 1,642,000
1992 520,000 51,000 571,000
1993 520,000 51,000 571,000
1994 1,834,000 179,000 2,013,000
1995 676,000 66,000 742,000
1996 676,000 66,000 742,000
---------- -------- ----------
Total $7,634,000 $632,000 $8,266,000
========== ======== ==========
During February 1997, the Partnership made a one-time distribution of cash
reserves. Each limited partner received $26.00 per unit in the distribution.
Because of the Partnership's disappointing operating results, the General
Partners waived their incentive distributions associated with the Partnership's
distributions to Limited Partners from the second quarter of 1988 through fourth
quarter 1990.
The general partner has an 8% interest in cash distributions attributable
to operations (exclusive of distributions attributable to sale and financing
proceeds) until the limited partners recover all of their investment, regardless
of source. Thereafter, the general partner has a 25% interest in all cash
distributions (including sale and financing proceeds). At December 31, 1996
cumulative distributions to limited partners were $7,634,000; accordingly
$18,368,000 of additional distributions are required to be made to the limited
partners for the limited partners to recover their capital contributions.
6
ITEM 6. Selected financial data.
-----------------------
Year ended December 31,
--------------------------------------------------------------------
1996 1995 1994 1993 1992
-------- -------- -------- -------- --------
(In thousands, except per unit amounts)
Operating data
- --------------
Lease income $ 1,095 $ 1,062 $ 1,023 $ 949 $ 1,034
Interest income 105 88 110 60 79
Write-down of restaurant facilities (2,350) (400) - - -
Loss on sale of real estate facility - (406) - - -
Net (loss) income (1,484) (3) (180) 618 373 463
Limited partners' share (1,528) (237) 453 324 412
General partner's share 44 57 165 49 51
Limited partners' per unit data (1):
Net (loss) income $(29.38) (3) $(4.55) $ 8.71 $ 6.23 $ 7.92
Cash distributions 13.00 13.00 35.25 (2) 10.00 10.00
Balance Sheet
- -------------
Assets $ 9,400 $11,617 $13,971 $13,971 $14,083
Partners' equity 9,243 11,469 13,786 13,786 13,984
(1) Per unit data is based on 52,004 limited partnership units outstanding
during the years ended December 31, 1996, 1995, 1994, 1993 and 1992.
(2) Includes a special distribution per unit of $25.25 in 1994 to distribute
excess cash reserves.
(3) Based upon offers to purchase the Partnership's properties received in
1996, the general partner determined that the carrying value of the
Partnership's real estate assets should be decreased by $2,350,000 to value
such real estate assets at their net realizable value. The result of
offsetting this revaluation provision against the $866,000 of net income
from operations before such revaluation provision for the year of 1996 is a
net loss from operations for such period of $1,484,000. A net loss of
$1,528,000 has been allocated to the limited partners, resulting in a loss
allocation of $29.38 per unit.
7
ITEM 7. Management's Discussion and Analysis of Financial Condition and
---------------------------------------------------------------
Results of Operations.
---------------------
The Partnership's activity began in June 1986 with the offering of up to
100,000 units of limited partnership interest to the public in an interstate
offering of which 52,004 units were sold.
In 1988, the Partnership commenced a program to terminate activities
associated with operating its properties as Rocky Rococo restaurants and dispose
of its leasehold interests and redeploy its property interests by seeking well
known, unaffiliated third party lessees to lease its properties.
As of December 31, 1988, the Partnership had acquired or entered into
leases for 23 properties, all of which had been fully improved. The total cost
of developing the Partnership's 23 restaurant facilities was $18,231,000, which
was funded entirely through offering proceeds.
During 1988 through 1990, the Partnership's 23 restaurants were closed
because they were not operating profitably. (See Item 1 above for additional
information regarding the closing of the Partnership's restaurants.)
As of December 31, 1996, The remaining 16 facilities have been redeployed
by leasing the facilities to third party tenants.
YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED DECEMBER 31, 1995:
The Partnership's net income decreased $1,304,000 from a loss of $180,000
in 1995 to a loss of $1,484,000 in 1996. The decrease is primarily attributable
to a write-down of $2,350,000 to record the carrying value of the Partnership's
facilities at their net realizable value (see below). Excluding the write-down
of restaurant facilities in 1996 and 1995, and the loss on sale of a real estate
facility in 1995, the Partnership's net income increased $240,000 in 1996 over
1995. The increase was due to increase in lease income and interest income
combined with a decrease in depreciation expense.
Lease income increased $33,000 or 3% from $1,062,000 in 1995 to $1,095,000
in 1996 due to scheduled escalations in lease income. Included in lease income
in 1996 and 1995 is approximately $17,000 and $26,000, respectively, of
additional lease income under a percentage of rent feature with respect to
incremental sales above specified levels.
Interest income increased $17,000 from $88,000 in 1995 to $105,000 in 1996
due to an increase in invested cash balances in 1996 compared to 1995.
Depreciation expense decreased $190,000 in 1996 compared to 1995 as the
result of the Partnership's properties being carried at net realizable value and
the discontinuation of provisions for depreciation subsequent to the first
quarter of 1996.
Idle facility cost decreased $14,000 from 1995 to 1996 due to cost incurred
on one closed facility in 1996 compared to two closed facilities in 1995. At
December 31, 1996 all facilities have been redeployed.
8
YEAR ENDED DECEMBER 31, 1995 COMPARED TO YEAR ENDED DECEMBER 31, 1994:
The Partnership's net income decreased $798,000 from $618,000 in 1994 to a
loss of $180,000 in 1995. The decrease is attributable to a $406,000 loss on
the sale of the Partnership's Iliff, Colorado property in November 1995, and a
write-down of a restaurant facility as discussed below.
Lease income increased $39,000 or 4% from $1,023,000 in 1994 to $1,062,000
in 1995 due to scheduled escalations in lease income. Included in lease income
in 1995 and 1994 is approximately $26,000 and $25,000, respectively, of
additional lease income under a percentage of rent feature with respect to
incremental sales above specified levels.
Interest income decreased $22,000 from $110,000 in 1994 to $88,000 in 1995
due to a decrease in invested cash balances in 1995 compared t0 1994. The
decrease in invested cash balances is due to a special distribution in December
1994 of $1,422,000.
During 1995, the Partnership wrote-down the carrying value of the Coon
Rapids, Minnesota restaurant facility to its estimated net realizable value.
The restaurant facility is closed and has not yet been redeployed. The write-
down resulted in a charge to income of $400,000 for the year ended December 31,
1995.
Idle facility cost increased $10,000 from 1994 to 1995 on its closed
facilities (one of the two closed facilities was sold in November 1995).
LIQUIDITY AND CAPITAL RESOURCES:
For the year ended December 31, 1996, the Partnership's leasing activities
generated cash flow of $922,000. Cash flow from the Partnership's leasing
activities have been sufficient to meet all current obligations of the
Partnership.
Management expects to continue to fund capital expenditures and quarterly
distributions to partners from operating cash flow.
In connection with the leases signed, the Partnership sold the equipment
and furnishings of each facility to the lessee. In connection with these sales,
the Partnership received promissory notes that are fully amortized over nine
years, accrue interest at 8.5%, and require annual aggregate principal
installments of approximately $40,000. These notes mature in 1998 through 2000.
PROPOSED SALE OF ASSETS
In November 1995, the general partner decided to place the facility assets
for sale and hired an investment banker to determine the valuation of the assets
and solicit offers. Based on offers to buy the assets received, the general
partner determined that the carrying value of the assets needed to be reduced by
$2,350,000 to present the value of such assets at their net realizable value.
Such valuation assumes costs to be incurred in the ordinary course of sale.
On September 16, 1996, the general partner entered into a purchase and sale
agreement with US Restaurants Properties Master LP, a Delaware limited
partnership and US Restaurants Properties Operating LP, a Delaware limited
partnership whereby the Partnership would sell its restaurant assets to USRP
Operating LP for $7,571,234 and certain of its notes receivable at a price which
provides USRP Operating LP with a 13.5% yield. USRP Operating LP will pay for
the purchase of the assets with limited partnership units of USRP Master LP.
USRP Master LP is a New York Stock Exchange traded master limited partnership
traded under the symbol "USV".
The transaction which is subject to certain contingencies, including
approval by the limited partners of the Partnership is expected to close in the
first half of 1997. The transaction is expected to be tax-free for most limited
partners. After the sale of the Partnership's assets, the Partnership expects to
liquidate, distributing to the Unitholders the limited partnership interests in
USRP Master LP and any cash reserves.
9
ITEM 8. Financial Statements and Supplementary Data.
-------------------------------------------
The Partnership's financial statements are included elsewhere herein.
Reference is made to the Index to Financial Statements in Item 14(a).
ITEM 9. Changes in and Disagreements with Accountants on Accounting and
---------------------------------------------------------------
Financial Disclosure.
--------------------
None.
PART III
ITEM 10. Directors and Executive Officers of the Partnership.
---------------------------------------------------
The Partnership has no directors or executive officers.
The Partnership's general partner is Mr. B. Wayne Hughes, age 63. Mr.
Hughes manages and makes investment decisions for the Partnership. Mr. Hughes
has been a director of Public Storage, Inc. ("PSI"), a real estate investment
trust ("REIT"), since its organization in 1980 and was President and Co-Chief
Executive Officer from 1980 until November 1991 when he became Chairman of the
Board and sole Chief Executive Officer. Since 1990, Mr. Hughes has been Chairman
of the Board and Chief Executive Officer Public Storage Properties XI, Inc.,
Public Storage Properties XIV, Inc., Public Storage Properties XV, Inc., Public
Storage Properties XVI, Inc., Public Storage Properties XVII, Inc., Public
Storage Properties XVIII, Inc., Public Storage Properties XIX, Inc., Public
Storage Properties XX, Inc., (collectively, the Public Storage Properties
REITs"), REITs organized by affiliates of PSI. Mr. Hughes has been active in
the real estate investment field during the past 26 years.
Pursuant to Articles XVI, XVII and XXI of the Partnership's Amended
Certificate and Agreement of Limited Partnership, the general partner continues
to serve until (i) death, insanity, insolvency, bankruptcy or dissolution, (ii)
withdrawal with the consent of any other general partner and a majority vote of
the limited partners, or (iii) removal by a majority vote of the limited
partners.
There have been no events under any bankruptcy act, no criminal
proceedings, and no judgments or injunctions material to the evaluation of the
ability of the general partner during the past five years.
ITEM 11. Executive Compensation.
----------------------
The Partnership has no subsidiaries, directors or officers. See Item 13
for a description of certain transactions between the Partnership and its
general partner and affiliates.
ITEM 12. Security Ownership of Certain Beneficial Owners and Management.
--------------------------------------------------------------
(a) As of the date hereof, no person is known by the Partnership to
own beneficially more than 5% of the units of limited partnership
interest.
(b) The Partnership has no officers and directors.
Mr. Hughes and Madison, the two original general partners,
initially contributed $262,000 to the capital of the Partnership.
As a result Mr. Hughes, who succeeded to Madison's general
partner interest in December 1989, will participate in the
distributions to all of the Partnership's partners and in the
Partnership's profits and losses in the same proportion that such
capital contribution bears to the total capital contributions.
Mr. Hughes and Madison also contributed $912,000 to be used
primarily to fund the Partnership's capital and liquidity needs
during the restructuring period. (See Item 1 for additional
information regarding this contribution.) Because the Limited
Partners received the benefit of Madison's contribution, the
amount contributed is reflected in the financial statements
attached to this report as a General Partner contribution with a
subsequent "equity transfer" to the Limited Partners.
10
(c) Except as set forth below, the Partnership knows of no
contractual arrangements, the operation of the terms of which may
at a subsequent date result in a change in control of the
Partnership. Articles XVI, XVII and Section 21.1 of the
Partnership's Amended Certificate and Agreement of Limited
Partnership, provide, in substance, that the Limited Partners
shall have the right, by majority vote, to remove a general
partner and that a general partner may designate a successor with
the consent of any other general partner and a majority of the
limited partners.
ITEM 13. Certain Relationships and Related Transactions.
----------------------------------------------
The Limited Partnership Agreement provides that the general partner will be
entitled to cash incentive distributions in an amount equal to (i) 8% of cash
flow from operations until the distributions to all partners from all sources
equal their capital contributions; thereafter, 25% of cash flow from operations,
and (ii) 25% of distributions from net proceeds from sale and financing of the
Partnership's properties remaining after distribution to all partners of any
portion thereof required to cause distributions to partners from all sources to
equal their capital contributions. Because of the Partnership's disappointing
operating results, the General Partners waived their incentive distributions
associated with the Partnership's distributions to Limited Partners from the
second quarter of 1988 through fourth quarter 1990. In 1996, the General
Partner received $59,000 in incentive distributions and $7,000 with respect to
his capital contributions.
11
PART IV
ITEM 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.
---------------------------------------------------------------
(a) List of Documents filed as part of the Report.
1. Financial Statements:
See Index to Financial Statements and Financial Statement
Schedule.
2. Financial Statement Schedules:
See Index to Financial Statements and Financial Statement
Schedule.
3. Exhibits:
(27) Financial Data Schedule
(b) Reports on Form 8-K:
No reports on Form 8-K were filed during the last quarter of fiscal
1996.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
QSR INCOME PROPERTIES, LTD.,
a California Limited Partnership
Dated: March 25, 1997 By: /s/ B. Wayne Hughes
----------------------------
B. Wayne Hughes
General Partner
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following person on behalf of the Registrant
in the capacity and on the date indicated.
Signature Capacity Date
/s/ B. Wayne Hughes
- ---------------------- General Partner March 25, 1997
B. Wayne Hughes
12
QSR INCOME PROPERTIES, LTD.,
A California Limited Partnership
INDEX TO FINANCIAL STATEMENTS AND
FINANCIAL STATEMENT SCHEDULE
(Item 14 (a))
Page
Reference
---------
Report of Independent Auditors F-1
Financial Statements and Schedules:
Balance sheets as of December 31, 1996 and 1995 F-2
For the years ended December 31, 1996, 1995 and 1994:
Statements of Operations F-3
Statements of Partners' Equity F-4
Statements of Cash Flows F-5
Notes to Financial Statements F-6 - F-10
Schedule:
III - Real Estate and Accumulated Depreciation F-11 - F-12
All other schedules have been omitted since the required information is not
present or not present in amounts sufficient to require submission of the
schedule, or because the information required is included in the financial
statements or the notes thereto.
Report of Independent Auditors
The Partners
QSR Income Properties, Ltd.,
a California Limited Partnership
We have audited the accompanying balance sheets of QSR Income Properties, Ltd.,
a California Limited Partnership, as of December 31, 1996 and 1995, and the
related statements of operations, partners' equity and cash flows for each of
the three years in the period ended December 31, 1996. Our audits also included
the schedule listed in the index at item 14(a). These financial statements and
schedule are the responsibility of the Partnership's management. Our
responsibility is to express an opinion on these financial statements and
schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of QSR Income Properties, Ltd., a
California Limited Partnership, at December 31, 1996 and 1995, and the results
of its operations and its cash flows for each of the three years in the period
ended December 31, 1996, in conformity with generally accepted accounting
principles. Also, in our opinion, the related financial statement schedule,
when considered in relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.
ERNST & YOUNG LLP
March 25, 1997
Los Angeles, California
F-1
QSR INCOME PROPERTIES, LTD.,
a California Limited Partnership
BALANCE SHEETS
December 31, 1996 and 1995
1996 1995
---------- -----------
ASSETS
------
Cash and cash equivalents $1,816,000 $ 1,630,000
Accounts receivable 1,000 10,000
Notes receivable 202,000 234,000
Restaurant facilities, net 7,335,000 9,743,000
Other assets 46,000 -
---------- -----------
$9,400,000 $11,617,000
========== ===========
LIABILITIES AND PARTNERS' EQUITY
--------------------------------
Accounts payable $ 157,000 $ 148,000
Partners' equity:
Limited partners' equity, 9,174,000 11,378,000
$500 per unit, 100,000 units authorized,
52,004 units issued and outstanding
General partner equity 69,000 91,000
---------- -----------
Total partners' equity 9,243,000 11,469,000
---------- -----------
$9,400,000 $11,617,000
========== ===========
See accompanying notes.
F-2
QSR INCOME PROPERTIES, LTD.,
a California Limited Partnership
STATEMENTS OF OPERATIONS
For the years ended December 31, 1996, 1995 and 1994
1996 1995 1994
----------- ---------- ----------
REVENUES:
Lease income $ 1,095,000 $1,062,000 $1,023,000
Interest income 105,000 88,000 110,000
----------- ---------- ----------
1,200,000 1,150,000 1,133,000
----------- ---------- ----------
COSTS AND EXPENSES:
Cost of operations 141,000 140,000 136,000
Depreciation 58,000 248,000 249,000
Idle facility cost 32,000 46,000 36,000
Write-down of restaurant facilities 2,350,000 400,000 -
Administrative expense 103,000 90,000 94,000
----------- ---------- ----------
2,684,000 924,000 515,000
----------- ---------- ----------
Net (loss) income before loss on sale of
real estate facility (1,484,000) 226,000 618,000
Loss on sale of real estate facility - (406,000) -
----------- ---------- ----------
NET (LOSS) INCOME $(1,484,000) $ (180,000) $ 618,000
=========== ========== ==========
Allocation of net (loss) income:
Limited partners $(1,528,000) $ (237,000) $453,000
General partner 44,000 57,000 165,000
----------- ---------- --------
$(1,484,000) $ (180,000) $618,000
=========== ========== ========
Limited partners' allocation per unit $ (29.38) $ (4.55) $ 8.71
=========== ========== ========
See accompanying notes.
F-3
QSR INCOME PROPERTIES, LTD.,
a California Limited Partnership
STATEMENTS OF PARTNERS' EQUITY
For the years ended December 31, 1996, 1995 and 1994
Limited General
Partners Partner Total
----------- --------- -----------
Balances at December 31, 1993 $13,672,000 $ 114,000 $13,786,000
Net income 453,000 165,000 618,000
Distributions (1,834,000) (179,000) (2,013,000)
----------- --------- -----------
Balances at December 31, 1994 12,291,000 100,000 12,391,000
Net loss (income) (237,000) 57,000 (180,000)
Distributions (676,000) (66,000) (742,000)
----------- --------- -----------
Balances at December 31, 1995 11,378,000 91,000 11,469,000
Net (loss) income (1,528,000) 44,000 (1,484,000)
Distributions (676,000) (66,000) (742,000)
----------- --------- -----------
Balances at December 31, 1996 $ 9,174,000 $ 69,000 $ 9,243,000
=========== ========= ===========
See accompanying notes.
F-4
QSR INCOME PROPERTIES, LTD.,
a California Limited Partnership
STATEMENTS OF CASH FLOWS
For the years ended December 31, 1996, 1995 and 1994
1996 1995 1994
------------- ----------- ------------
Cash flows from operating activities:
Net (loss) income $(1,484,000) $ (180,000) $ 618,000
Adjustments to reconcile net (loss) income to
net cash provided by operating activities:
Loss on sale of real estate facility - 406,000 -
Depreciation 58,000 248,000 249,000
Write-down of restaurant facilities 2,350,000 400,000 -
Decrease (increase) in accounts receivable 9,000 5,000 (5,000)
Increase in other assets (46,000) - -
Increase (decrease) in accounts payable 9,000 (11,000) (26,000)
----------- ---------- -----------
Total adjustments 2,380,000 1,048,000 218,000
Net cash provided by operating activities 896,000 868,000 836,000
----------- ---------- -----------
Cash flows from investing activities:
Proceeds from sale of real estate facility - 352,000 -
Principal payments on notes receivable 32,000 37,000 56,000
----------- ---------- -----------
Net cash provided by investing activities 32,000 389,000 56,000
----------- ---------- -----------
Cash flows from financing activities:
Distributions paid to partners (742,000) (742,000) (2,013,000)
----------- ---------- -----------
Net cash used for financing activities (742,000) (742,000) (2,013,000)
----------- ---------- -----------
Net increase (decrease) in cash and cash equivalents 186,000 515,000 (1,121,000)
Cash and cash equivalents at the beginning of the year 1,630,000 1,115,000 2,236,000
----------- ---------- -----------
Cash and cash equivalents at the end of the year $ 1,816,000 $1,630,000 $ 1,115,000
=========== ========== ===========
See accompanying notes.
F-5
QSR INCOME PROPERTIES, LTD.,
a California Limited Partnership
NOTES TO FINANCIAL STATEMENTS
December 31, 1996
1. Summary of Significant Accounting Policies and Partnership Matters
Description of Partnership
--------------------------
QSR Income Properties, Ltd., a California Limited Partnership (the
"Partnership"), was formed in November 1985 to acquire, own and operate
Rocky Rococo Restaurants. The offering terminated on April 30, 1987 with
52,004 units issued and outstanding, which resulted in $26,002,000 of
limited partner funds being raised. During 1989, the limited partners
approved the resignation of Madison Pizza Corporation ("MPC") as Corporate
General Partner and the designation of B. Wayne Hughes, the Individual
General Partner, to succeed to the Corporate General Partner's interest.
The Partnership operated its facilities as Rocky Rocco pizza
restaurants until 1988. During 1988, the General Partners decided to
discontinue restaurant operations because the restaurants had not operated
profitably. The Partnership currently leases its facilities to unaffiliated
third parties.
Restaurant Facilities
---------------------
The cost of land includes appraisal fees, closing costs and legal fees
related to the acquisition. Buildings and equipment are depreciated on the
straight-line basis over their estimated useful lives of 30 years and 5
years, respectively. Buildings which are situated on leased premises are
depreciated over their minimum lease term, 20 years.
In November 1995, the Partnership's Iliff, Colorado facility was sold
for $382,000 resulting in a $406,000 loss on the sale of the facility. The
Partnership received net sales proceeds of $352,000 net of selling cost of
$30,000. The Partnership's net book value at the time of the sale was
$758,000.
In 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No.121 ("Statement 121"), "Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to be
Disposed of." Statement 121 requires impairment losses to be recorded on
long-lived assets used in operations when indicators of impairment are
present and the undiscounted cash flows estimated to be generated by those
assets are less than the assets' carrying amount. Statement 121 also
addresses the accounting for long-lived assets that are expected to be
disposed of. The Partnership adopted Statement 121 in 1996 and based on
current circumstances, the Partnership wrote-down the carrying value of its
real estate facilities to net realizable values (see footnote 4).
Other Assets
------------
Other assets at December 31, 1996 represent primarily capitalized
costs associated with the proposed sale of the Partnership assets in 1997
(see footnote 4). The amounts will be expensed in 1997 upon consummation of
the sale..
Distributions
-------------
Cash distributions per unit were $13.00, $13.00, $35.25 for the years
ended December 31, 1996, 1995 and 1994, respectively. Incentive
distributions to the General Partner amounted to $59,000, $59,000 and
$161,000 for 1996, 1995 and 1994, respectively.
F-6
QSR INCOME PROPERTIES, LTD.,
a California Limited Partnership
NOTES TO FINANCIAL STATEMENTS
December 31, 1996
Allocation of Net Income or Loss
--------------------------------
The general partner's share of net income or loss consists of a
percentage of incentive distributions received, cash flow (as defined)
which relates to the general partner's share of cash distributions as set
forth in the Partnership Agreement. In addition, the general partner's
share of net income or loss consists of amounts attributable to his 1%
capital contribution. All remaining net income or loss is allocated to the
limited partners.
Use of Estimates
----------------
The preparation of the financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Actual results could differ from those
estimates.
Reclassifications
-----------------
Certain reclassifications have been made to the financial statements
for the years ended December 31, 1995 and 1994 in order to conform with
the 1996 presentation.
2. Cash and Cash Equivalents
The Partnership considers all highly liquid investments with a
maturity of three months or less when purchased to be cash equivalents.
3. Notes Receivable
As of September 30, 1988, Rocky Rococo Corporation ("RRC"), an
affiliate of MPC, owed the Partnership approximately $275,000, which
comprised $205,000 in unearned management fees and $70,000 in certain other
advances. As RRC did not have the funds available to repay these moneys,
the Partnership elected to have RRC assign to them a $275,000 interest in a
secured note receivable due to RRC. The note bears interest at the prime
rate plus 2% per annum (10.5% at December 31, 1996) and provides for
monthly principal and interest payments through April 22, 2002, the
maturity date of the note, at which time outstanding principal and accrued
interest is due and payable. At December 31, 1996 and 1995 this note had a
remaining balance of $108,000 and $119,000, respectively.
In connection with the sale of the Partnership's assets to USRP
Operating LP, the Partnership will sell its interest in the RRC note to B.
Wayne Hughes, the General Partner at its then outstanding principal
balance (see note 4).
The Partnership has received several notes related to the sale of
restaurant equipment through December 31, 1991. These notes, which total
approximately $34,000, require quarterly payments, are fully amortizing and
accrue interest at 8.5%. In addition, the Partnership has received one
note from a lessee as partial payment of some leasehold improvements. The
notes mature on various dates through 2003. The Partnership received
$4,000, $5,000 and $8,000 in interest from these notes during the years
ended December 31, 1996, 1995 and 1994, respectively.
F-7
QSR INCOME PROPERTIES, LTD.,
a California Limited Partnership
NOTES TO FINANCIAL STATEMENTS
December 31, 1996
3. Notes Receivable (continued)
Future minimum principal payments of all notes due the Partnership as
of December 31, 1996 are as follows:
1997.................................... $ 48,000
1998.................................... 45,000
1999.................................... 36,000
2000.................................... 13,000
2001.................................... -
Thereafter.............................. 60,000
--------
$202,000
========
4. Restaurant Facilities and Lease Commitments / Proposed Sale of Assets
At December 31, restaurant facilities, which are recorded at net realizable
value, were comprised of the following:
1996 1995
----------- -----------
Land $ 4,951,000 $ 4,951,000
Buildings and leasehold improvements 7,058,000 7,058,000
Equipment 933,000 933,000
----------- -----------
12,942,000 12,942,000
Less: Accumulated depreciation (2,712,000) (2,654,000)
Reserve to estimated net realizable
value
of restaurant facilities (2,750,000) (400,000)
Reserve to estimated net realizable
value
of equipment (145,000) (145,000)
----------- -----------
$ 7,335,000 $ 9,743,000
=========== ===========
In November 1995, the general partner decided to place the facility
assets for sale and hired an investment banker to determine the valuation
of the assets and solicit offers. Based on offers to buy the assets
received, the general partner determined that the carrying value of the
restaurant facilities needed to be reduced to present the value of such
assets at their net realizable value. Consequently, the Partnership wrote-
down the carrying value of its restaurant facilities which resulted in a
charge to income of $2,350,000 for the year ended December 31, 1996.
On September 16, 1996, the general partner entered into a purchase and
sale agreement with US Restaurants Properties Master LP, a Delaware limited
partnership and US Restaurants Properties Operating LP, a Delaware limited
partnership whereby the Partnership would sell its restaurant assets to
USRP Operating LP for $7,571,234 and certain of its notes receivable at a
price which provides USRP Operating LP with a 13.5% yield. USRP Operating
LP will pay for the purchase of the assets with limited partnership units
of USRP Master LP. USRP Master LP is a New York Stock Exchange traded
master limited partnership traded under the symbol "USV".
F-8
QSR INCOME PROPERTIES, LTD.,
a California Limited Partnership
NOTES TO FINANCIAL STATEMENTS
December 31, 1996
The transaction which is subject to certain contingencies, including
approval by the limited partners of the Partnership is expected to close in the
first half of 1997. The transaction is expected to be tax-free for most limited
partners. After the sale of the Partnership assets, the Partnership expects to
liquidate distributing to the Unitholders the limited partnership interests in
USRP Master LP and any cash reserves.
During 1995, the Partnership wrote-down the carrying value of its Coon
Rapids, Minnesota restaurant facility to its estimated net realizable value.
The write-down resulted in a charge to income of $400,000 in 1995.
Equipment was fully depreciated at December 31, 1994.
Sixteen facilities owned or leased by the Company were leased or subleased
to unaffiliated third parties on a triple net basis for minimum lease terms of 2
to 20 years. The minimum future lease income to be received from these
operating leases is as follows:
1997 $1,093,000
1998 1,123,000
1999 1,079,000
2000 1,032,000
2001 1,015,000
Thereafter 3,583,000
----------
$8,925,000
==========
The Partnership is obligated under various operating leases on its closed
restaurant facilities. Each of these facilities has been subleased to an
unaffiliated third party. Sub-lease income under these leases was $209,000,
$203,000 and $203,000 for the period ended December 31, 1996, 1995 and 1994,
respectively. Lease expense incurred under these leases for the period ended
December 31, 1996, 1995 and 1994 was $120,000, $121,000 and $115,000,
respectively. At December 31, 1996 the Partnership had agreements for the
following minimum sublease income and lease obligations (not including impact of
options to extend maturity dates):
Sublease Lease
Income Expense
--------- ---------
1997 $ 214,000 $ 113,000
1998 227,000 126,000
1999 213,000 129,000
2000 180,000 129,000
2001 189,000 129,000
Thereafter 442,000 884,000
---------- ----------
$1,465,000 $1,510,000
========== ==========
F-9
QSR INCOME PROPERTIES, LTD.
a California Limited Partnership
NOTES TO FINANCIAL STATEMENTS
December 31, 1996
5. General Partner Equity
Initially, the general partners contributed 1% of the aggregate
capital contributions of the Partnership. The general partner has an 8%
interest in cash distributions attributable to operations (exclusive of
distributions attributable to sale and financing proceeds) until the
limited partners recover all of their investment, regardless of source.
Thereafter, the general partner has a 25% interest in all cash
distributions (including sale and financing proceeds). At December 31,
1996 cumulative distributions to limited partners were $7,634,000;
accordingly $18,368,000 of additional distributions are required to be made
to the limited partners for the limited partners to recover their capital
contributions.
6. Taxes Based on Income
Taxes based on income are the responsibility of the individual
partners and, accordingly, the Partnership's financial statements do not
reflect a provision for such taxes. Taxable net income was $669,000,
$132,000 and $549,000 for the years ended December 31, 1996, 1995 and 1994,
respectively. The difference between taxable net income and net income is
primarily related to depreciation expense resulting from differences in
depreciation methods and estimated reserves for net realizable value of
restaurant facilities.
7. Cost of Operations
For the years ended December 31, 1996, 1995 and 1994 cost of
operations were comprised of the following:
1996 1995 1994
-------- -------- --------
Cost of leasing............ $120,000 $121,000 $115,000
Other operating expenses... 21,000 19,000 21,000
-------- -------- --------
$141,000 $140,000 $136,000
======== ======== ========
8. Idle Facility Cost
Idle facility cost is primarily comprised of utility costs, building
maintenance, property taxes and insurance costs of a restaurant facility
that was closed until December 1996 when it was leased to an unaffiliated
third party.
F-10
QSR Income Properties, Ltd.
Schedule III - Real Estate and Accumulated Depreciation
Cost
subsequent to Gross Carrying Amount
Initial Cost Acquisition at December 31, 1996
----------------------- ---------------------------------------
Description Encumbrance Land Buildings (Improvements) Land Buildings Total
- ----------------------------- ----------- ---------- ----------- -------------- ----------- ------------ ----------
Indianapolis/Lafayett - $ 659,000 $ 257,000 $ - $ 659,000 $ 257,000 $ 916,000
Greenwood/U.S. 31 S. - 749,000 273,000 - 749,000 273,000 1,022,000
Indianapolis/Washington - 344,000 452,000 - 344,000 452,000 796,000
Bloomington/College Mall - - 432,000 5,000 - 437,000 437,000
Muncie/McGalliard - 186,000 401,000 5,000 186,000 406,000 592,000
Green Village/Arapahoe Rd. - 683,000 734,000 3,000 683,000 737,000 1,420,000
Bloomington/W. 98th St. - - 478,000 18,000 - 496,000 496,000
Coon Rapids/Coon Rapids Blvd. - 363,000 652,000 1,000 363,000 653,000 1,016,000
Eagan/Cliff Rd. - 324,000 520,000 7,000 324,000 527,000 851,000
Fenton/Old Sugar Creek - 296,000 454,000 5,000 296,000 459,000 755,000
Brentwood/Manchester Rd. - - 634,000 5,000 - 639,000 639,000
Belville I/N. Belt West - 282,000 504,000 5,000 282,000 509,000 791,000
Belville II/S. Illinois St. - 246,000 584,000 17,000 246,000 601,000 847,000
Bristol/122nd Ave. - 210,000 576,000 - 210,000 576,000 786,000
Bolingbrook/Bolingbrook Dr. - 258,000 425,000 - 258,000 425,000 683,000
Crystal Creek/Northwest Hwy. - 351,000 538,000 6,000 351,000 544,000 895,000
---------- ---------- ------- ---------- ----------- -----------
SubTotal 4,951,000 7,914,000 77,000 4,951,000 7,991,000 12,942,000
Less: reserve to estimated net
realizable value of
restaurant facilities - - - (140,000) (2,755,000) (2,895,000)
---------- ---------- ------- ---------- ----------- -----------
Total $4,951,000 $7,914,000 $77,000 $4,811,000 $ 5,236,000 $10,047,000
========== ========== ======= ========== =========== ===========
Accumulated Date
Description Depreciation Completed
- ----------------------------- ------------ ----------
Indianapolis/Lafayett $ 86,000 3/87
Greenwood/U.S. 31 S. 94,000 3/87
Indianapolis/Washington 140,000 7/87
Bloomington/College Mall 166,000 (1)
Muncie/McGalliard 126,000 10/87
Green Village/Arapahoe Rd. 229,000 6/86
Bloomington/W. 98th St. 159,000 (1)
Coon Rapids/Coon Rapids Blvd. 263,000 5/87
Eagan/Cliff Rd. 147,000 5/87
Fenton/Old Sugar Creek 145,000 9/87
Brentwood/Manchester Rd. 252,000 (1)
Belville I/N. Belt West 165,000 11/86
Belville II/S. Illinois St. 242,000 7/87
Bristol/122nd Ave. 219,000 12/86
Bolingbrook/Bolingbrook Dr. 127,000 1/88
Crystal Creek/Northwest Hwy. 152,000 12/87
----------
SubTotal 2,712,000
Less: reserve to estimated net
realizable value of
restaurant facilities -
----------
Total $2,712,000
==========
(1) Property is situated on land subject to a ground lease.
F-11
QSR Income Properties, Ltd.
Real Estate Reconciliation
Schedule III (continued)
(a) The following is a reconciliation of costs and related accumulated
depreciation:
COST
1996 1995 1994
------------ ------------ -----------
Balance at the beginning of the period $12,397,000 $13,838,000 $13,838,000
Additions during the period
Capital improvements - - -
Deductions during the period:
Write-down of facilities (2,350,000) (400,000) -
Sale of property - (1,041,000) -
----------- ----------- -----------
Balance at the close of the period $10,047,000 $12,397,000 $13,838,000
=========== =========== ===========
ACCUMULATED DEPRECIATION RECONCILIATION
1996 1995 1994
---------- ----------- ----------
Balance at the beginning of the period $2,654,000 $2,639,000 $2,390,000
Additions during the period
Depreciation 58,000 248,000 249,000
Deductions during the period related to
property sold - (233,000) -
---------- ---------- ----------
Balance at the close of the period $2,712,000 $2,654,000 $2,639,000
========== ========== ==========
F-12
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] Quarterly Report Under Section 13 or 15(d) of the Securities Exchange Act
of 1934.
For the period ended March 31, 1997
or
[_] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 [No Fee Required]
For the transition period from _____________ to _______________
Commission File Number 0-15802
-------
QSR Income Properties, Ltd., a California Limited Partnership
-------------------------------------------------------------
(Exact name of registrant as specified in its charter)
California 95-4084042
- ------------------------------- ----------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
701 Western Avenue
Glendale, California 91201-2394
- ----------------------------------------- ----------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (818) 244-8080
--------------
Indicate by check mark whether the registrant (1) had 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
--- ---
QSR INCOME PROPERTIES, LTD.,
A CALIFORNIA LIMITED PARTNERSHIP
INDEX
PART I. FINANCIAL INFORMATION
Item 1. Condensed Balance Sheets at March 31, 1997
and December 31, 1996 2
Condensed Statements of Operations for the three
months ended March 31, 1997 and 1996 3
Condensed Statement of Partners' Equity for the
three months ended March 31, 1997 4
Condensed Statements of Cash Flows for the three
months ended March 31, 1997 and 1996 5
Notes to Condensed Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 7-8
PART II. OTHER INFORMATION 9
QSR INCOME PROPERTIES, LTD.,
A CALIFORNIA LIMITED PARTNERSHIP
CONDENSED BALANCE SHEETS
March 31, December 31,
1997 1996
---------------------------
(Unaudited)
ASSETS
Cash and cash equivalents $ 326,000 $1,816,000
Rent and other receivables - 1,000
Notes receivable 189,000 202,000
Facilities, at net realizable value 7,335,000 7,335,000
Other assets 119,000 46,000
--------------------------
Total assets $7,969,000 $9,400,000
==========================
LIABILITIES AND PARTNERS' EQUITY
Accounts payable $ 154,000 $ 157,000
Partners' equity:
Limited partners' equity, $500
per unit, 52,004 units authorized,
issued and outstanding 7,761,000 9,174,000
General partner's equity 54,000 69,000
--------------------------
Total partners' equity 7,815,000 9,243,000
--------------------------
Total liabilities and
partners' equity $7,969,000 $9,400,000
==========================
See accompanying notes to Condensed Financial Statements.
2
QSR INCOME PROPERTIES, LTD.,
A CALIFORNIA LIMITED PARTNERSHIP
CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended
March 31,
-------------------
1997 1996
-------------------
REVENUE:
Lease income $293,000 $288,000
Interest income 16,000 25,000
-------------------
309,000 313,000
-------------------
COSTS AND EXPENSES:
Cost of operations 35,000 36,000
Depreciation and amortization - 58,000
Idle facility costs 5,000 8,000
Partnership administrative
expenses 27,000 26,000
-------------------
67,000 128,000
-------------------
NET INCOME $242,000 $185,000
===================
Allocation of net income
Limited partners $108,000 $169,000
General partner 134,000 16,000
-------------------
$242,000 $185,000
===================
Limited partners' allocation per unit $ 2.08 $ 3.25
===================
See accompanying notes to Condensed Financial Statements.
3
QSR INCOME PROPERTIES, LTD.,
A CALIFORNIA LIMITED PARTNERSHIP
CONDENSED STATEMENTS OF PARTNERS' EQUITY
(Unaudited)
Limited General
Partners Partners Total
---------------------------------------
Balance at December 31, 1996 $ 9,174,000 $ 69,000 $ 9,243,000
Net income 108,000 134,000 242,000
Distributions (1,521,000) (149,000) (1,670,000)
---------------------------------------
Balance at March 31, 1997 $ 7,761,000 $ 54,000 $ 7,815,000
=======================================
See accompanying notes to Condensed Financial Statements.
4
QSR INCOME PROPERTIES, LTD.,
A CALIFORNIA LIMITED PARTNERSHIP
CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
Three Months Ended
March 31,
--------------------------
1997 1996
--------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 242,000 $ 185,000
Adjustments to reconcile net income to net cash
provided by operating activities
Depreciation and amortization - 58,000
Increase in other assets (73,000) -
Decrease in accounts receivable 1,000 7,000
Decrease in accounts payable (3,000) (1,000)
--------------------------
Total adjustments (75,000) 64,000
--------------------------
Net cash provided by operating activities 167,000 249,000
--------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from notes receivable 13,000 3,000
Distributions paid to partners (1,670,000) (185,000)
--------------------------
Net cash used in financing activities (1,657,000) (182,000)
--------------------------
Net (decrease) increase in cash and cash equivalents (1,490,000) 67,000
Cash and cash equivalents at the beginning of the period 1,816,000 1,630,000
--------------------------
Cash and cash equivalents at the end of the period $ 326,000 $1,697,000
==========================
See accompanying notes to Condensed Financial Statements.
5
QSR INCOME PROPERTIES, LTD.,
A CALIFORNIA LIMITED PARTNERSHIP
NOTES TO CONDENSED FINANCIAL STATEMENTS
1. The accompanying unaudited condensed financial statements have been
prepared pursuant to the rules and regulations of the Securities and
Exchange Commission. Certain information and footnote disclosures normally
included in financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted pursuant to
such rules and regulations, although management believes that the
disclosures contained herein are adequate to make the information presented
not misleading. These unaudited condensed financial statements should be
read in conjunction with the financial statements and related notes
appearing in the Partnership's Form 10-K for the year ended December 31,
1996.
2. In the opinion of management, the accompanying unaudited condensed
financial statements reflect all adjustments, consisting of only normal
accruals, necessary to present fairly the Partnership's financial position
at March 31, 1997 and December 31, 1996, the results of its operations for
the three months ended March 31, 1997 and 1996 and its cash flows for the
three months then ended.
3. The results of operations for the three months ended March 31, 1997 are not
necessarily indicative of the results expected for the full year.
4. In November 1995, the general partner decided to place the facility assets
for sale and hired an investment banker to determine the valuation of the
assets and solicit offers. Based on offers to buy the assets received, the
general partner determined that the carrying value of the assets needed to
be reduced by $2,350,000 to present the value of such assets at their net
realizable value. Such valuation assumes costs to be incurred in the
ordinary course of sale.
On September 16, 1996, the general partner entered into a purchase and sale
agreement with US Restaurants Properties Master LP ("USRPMLP"), a Delaware
limited partnership and US Restaurants Properties Operating LP ("USRPOLP"),
a Delaware limited partnership whereby the Partnership would sell its
restaurant assets to USRPOLP for $7,571,234 and certain of its notes
receivable at a price which provides USRPOLP with a 13.5% yield. USRPOLP
will pay for the purchase of the assets with limited partnership units of
USRPMLP. USRPMLP is a New York Stock Exchange traded master limited
partnership traded under the symbol "USV."
The transaction which is subject to certain contingencies, including
approval by the limited partners of the Partnership is expected to close in
the first half of 1997. The transaction is expected to be tax-free for
most limited partners. After the sale of the Partnership's assets, the
Partnership expects to liquidate, distributing to the Unitholders the
limited partnership interests in USRPMLP and any cash reserves.
6
QSR INCOME PROPERTIES, LTD.,
A CALIFORNIA LIMITED PARTNERSHIP
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
MARCH 31, 1997
The Partnership was formed to acquire and operate pizza restaurants. All
twenty-three of the Partnership's restaurants were closed because of
disappointing operating results. Of the twenty-three restaurants closed, four
have been sold, three lease commitments have been terminated and sixteen
facilities have been leased to unaffiliated third parties.
Results of Operations
- ---------------------
The Partnership's net income of $242,000 and $185,000 for the three months
ended March 31, 1997 and 1996, respectively, represent an increase in income of
$57,000. This increase is primarily attributable to a decrease in depreciation
expense related to the valuation of the Partnership's facility assets at their
net realizable value.
Lease income for the three months ended March 30, 1997 increased $5,000
over the same period in 1996 as the result of one additional facility being
leased in 1997 compared to the same period in 1996. Included in lease income
for each of the three month periods ended March 31, 1997 and 1996 is
approximately $17,000 of additional lease income under a percentage rent feature
with respect to incremental sales above specified levels.
Idle facility costs decreased $3,000 for the three months ended March 31,
1997 compared to the same period in 1996. The decrease was primarily
attributable to decreases in utilities and property tax expenses associated with
the Partnership's final restaurant facility redeployed in December 1996.
Depreciation expense decreased $58,000 for the three months ended March 31,
1997 compared to the same period in 1995. The decreases are the result of the
Partnership's presentation of its properties at net realizable value and the
discontinuation of provisions for depreciation.
Liquidity and capital resources
- -------------------------------
For the three months ended March 31, 1997, the Partnership's activities
generated cash flow of $167,000. This represents an $82,000 decrease compared
to the cash flow of $249,000 generated by the Partnership for the three months
ended March 31, 1996. The decrease is primarily attributable to capitalized
costs related to the proposed sale of the Partnership's properties. Such costs
are reflected in other assets. Cash flow from the Partnership's operations has
been sufficient to meet all current obligations of the Company.
For the three months ended March 31, 1997, the Partnership's distribution
increased to $29.25 from $3.25 per Partnership unit for the three months ended
March 31, 1996. Included in the distribution for the three months ended March
31, 1997 was a special distribution of $26.00 per Partnership unit.
In November 1995, the general partner decided to place the facility assets
for sale and hired an investment banker to determine the valuation of the assets
and solicit offers. Based on offers to buy the assets received, the general
partner
7
QSR INCOME PROPERTIES, LTD.,
A CALIFORNIA LIMITED PARTNERSHIP
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
MARCH 31, 1997
determined that the carrying value of the assets needed to be reduced by
$2,350,000 to present the value of such assets at their net realizable value.
Such valuation assumes costs to be incurred in the ordinary course of sale.
On September 16, 1996, the general partner entered into a purchase and sale
agreement with US Restaurants Properties Master LP ("USRPMLP"), a Delaware
limited partnership and US Restaurants Properties Operating LP ("USRPOLP"), a
Delaware limited partnership whereby the Partnership would sell its restaurant
assets to USRPOLP for $7,571,234 and certain of its notes receivable at a price
which provides USRPOLP with a 13.5% yield. USRPOLP will pay for the purchase of
the assets with limited partnership units of USRPMLP. USRPMLP is a New York
Stock Exchange traded master limited partnership traded under the symbol "USV."
The transaction which is subject to certain contingencies, including
approval by the limited partners of the Partnership is expected to close in the
first half of 1997. The transaction is expected to be tax-free for most limited
partners. After the sale of the Partnership's assets, the Partnership expects
to liquidate, distributing to the Unitholders the limited partnership interests
in USRPMLP and any cash reserves.
8
PART II. OTHER INFORMATION
Items 1 through 5 are not applicable.
Item 6 Exhibits and Reports on Form 8-K
a) Exhibits - the following exhibit is included herein:
(27) Financial Data Schedule
b) Reports on 8-K - None
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
DATED: May 13, 1997
QSR Income Properties, Ltd.,
a California Limited Partnership
BY: /s/ B. Wayne Hughes
-----------------------------------
B. Wayne Hughes
General Partner
9