ITEM 1.BUSINESS
GENERAL
U.S. Restaurant Properties Master L.P. (the "Partnership") owns properties on which chain restaurants operate. The Partnership, formerly Burger King Investors Master L.P., was formed in 1986 by Burger King Corporation ("BKC") and QSV Properties Inc. ("QSV"), at that time a wholly-owned subsidiary of The Pillsbury Company ("Pillsbury"). In May 1994, QSV was sold to a management and investor group led by Robert J. Stetson and Fred H. Margolin (the "Stetson/Margolin Group"), who have no affiliation with Pillsbury. In 1995, the name of QSV was changed to U.S. Restaurant Properties, Inc. U.S. Restaurant Properties, Inc. is the Managing General Partner of the Partnership. BKC was a Special General Partner of the Partnership until its withdrawal on November 30, 1994.
The Partnership operates through U.S. Restaurant Properties Operating L.P. (the "Operating Partnership"), formerly Burger King Operating Limited Partnership, which holds the interests in the Properties. Through its ownership of all of the limited partnership interest in the Operating Partnership, the Partnership owns a 99.01 percent partnership interest in the Operating Partnership. (The Partnership and the Operating Partnership are generally referred to collectively herein as the "Partnership" or the "Partnerships," and all references herein to the Partnership when used with respect to the acquisition, ownership and operation of the Properties refer to the combined operations of the Partnership and Operating Partnership.) The Partnerships are Delaware limited partnerships and will continue in existence until December 31, 2035, unless sooner dissolved or terminated. The principal executive offices of the Partnership and the Managing General Partner are located at 5310 Harvest Hill Road, Suite 270, Dallas, Texas 75230, telephone number (214) 387-1487.
The Partnership's agreement of limited partnership was amended by vote of the limited partners in March 1995 to expand the purpose of the Partnership. See "- Business Strategy," below.
PROPERTIES
As of February 29, 1996, the Partnership owned or leased 162 properties located in 37 states (collectively, the "Properties"). Of such Properties, 143 in 37 states were leased to franchisees of BKC (and also to BKC) who operate BURGER KING (a registered trademark and service mark of BKC) restaurants ("BK Restaurants"). Such Properties are referred to herein as the "BK Properties." The remaining 19 Properties in five states were leased to non-BKC restaurant operators who operate other restaurants on the Properties. All such other Properties are referred to herein as the "Non-BK Properties." All restaurants operated on Partnership Properties are collectively referred to herein as the "Restaurants." Additional information regarding the Properties is set forth below under "Item 2.

ITEM 2. PROPERTIES
GENERAL
The Partnership acquired 128 properties from BKC on February 27, 1986 for a total purchase price of $94,592,000. From such date through March 1995, five of such properties were sold or leases on such properties were allowed to expire and were not renewed.
Since the business strategy of the Partnership was changed in March 1995 as a result of the amendments to the partnership agreement, the Partnership has acquired 39 restaurant properties in 13 states. Of such properties, 22 are Burger King restaurants and the remainder encompass 12 other tradenames. The Partnership has an additional 108 restaurant properties located in 20 states under letters of intent or contracts for acquisition. Such properties represent seven transactions in various stages of negotiation and due diligence and there can be no assurance that such transactions will be closed. Such acquisitions represent an aggregate consideration of $57 million. Of such properties, 28 are BK restaurant properties, 37 are Dairy Queen restaurant properties, 26 are Hardee's restaurant properties, 11 are Pizza Hut restaurant properties and six restaurants are operated under other tradenames. The Partnership also intends to make loans to tenants to renovate and improve their restaurants, purchase additional restaurant properties and related equipment, construct new Properties and finance the improvement of existing Properties and the purchase of additional restaurant properties and related property through borrowings and the issuance of additional Units.
PROPERTIES
The Partnership property portfolio currently consists of 99 Properties that are owned in fee simple (the "Fee Properties") and 63 Properties that are leased (the "Leasehold Properties") under leases with third-party lessors (the "Primary Leases").
The table below lists, as of February 29, 1996, the number of Properties in each state and how many of such properties are Fee Properties and Leasehold Properties.
The Properties are leased to a total of 104 different BKC franchisees and 14 other restaurant operators. Except for BKC, none of the lessees operates a Restaurant on more than three Properties, and only 18 of the lessees operate a Restaurant on more than one BK Property. Seven Properties are leased to BKC. The restaurant on one of the Properties is closed and a new lessee is being sought. A portion of one Property is subleased, pursuant to an agreement entered into prior to the acquisition of the Property by the Partnership, to Pearle, Inc., an affiliate of BKC.
All equipment, furniture, fixtures, and other similar personal property used on the Properties generally is owned or leased from third parties by the lessee of the Property.
PRIMARY LEASES. As described above, 63 of the Properties are Leasehold Properties. Under the terms of 13 Primary Leases, the Partnership leases both the underlying land and the restaurant building and other improvements thereon. Under the terms of the remaining 50 Primary Leases, the Partnership leases the underlying land and owns the restaurant building and other improvements constructed thereon. In any event, upon expiration or termination of a Primary Lease, the owner of the underlying land will become the owner of all improvements thereon.
In addition to variations required to reflect whether the Partnership owns or leases the improvements on a Leasehold Property, the other terms and conditions of the Primary Leases vary substantially. However, the Primary Leases generally have certain provisions in common. For example, the Primary Leases generally provide that (i) the initial term is 20 years or less, (ii) the Partnership may renew the term one or more times at its option (although the provisions governing any such renewal vary significantly in that, for example, some renewal options are at a fixed rental amount, while others are at fair rental value at the time of renewal), (iii) the rentals payable are stated amounts that may escalate over the terms of the Primary Leases (and/or during renewal terms) but normally (although not always) are not based upon a percentage of sales of the Restaurants thereon, and (iv) the Partnership is required to pay all taxes and operating, maintenance, and insurance expenses for the Leasehold Properties (that is the Primary Leases are "net" leases). Several Primary Leases also require the Partnership, upon the termination or expiration thereof, to remove all improvements situated on the Property.
Although the Partnership, as lessee under each Primary Lease, generally has the right to assign or sublet all of its rights and interests thereunder without obtaining the landlord's consent, the Partnership is not permitted to assign or sublet any of its rights or interests under 22 Primary Leases without obtaining the landlord's consent or satisfying certain other conditions. In addition, approximately 20 percent of the Primary Leases require the Partnership to use such Leasehold Properties only for the purpose of operating a BK Restaurant or another type of restaurant thereon. In any event, no transfer will release the Partnership from any of its obligations under the Primary Lease, including the obligation to pay rent. The fact that all applicable conditions were satisfied in connection with the Partnership's acquisition of such Leasehold BK Properties will not permit the Partnership to transfer such Leasehold BK Properties in the future without again satisfying such conditions.
As of December 31, 1995, the remaining terms of the Primary Leases for all of the Leasehold BK Properties (excluding renewal option terms) ranged from approximately 1 to 11 years and the average remaining term (excluding renewal options terms) was 5 years. With renewal options exercised, the remaining terms of the Primary Leases ranged from approximately 8 to 33 years and the average remaining term was 20 years. Only 25 Primary Leases had a remaining term (including renewal option terms) of less than 25 years.
LEASES. As described above, 115 of the BK Properties are leased or subleased to a BKC franchisee under a Lease/Sublease, pursuant to which the franchisee is required to operate a BK Restaurant thereon in accordance with the lessee's Franchise Agreement and to make no other use thereof. Upon its acquisition of the BK Properties, the Partnership assumed the rights and obligations of BKC under the Leases/Subleases. Five Properties are leased to Burger King on substantially the same terms and conditions as those contained in the Lease/Sublease with the prior lessees. A portion of one of the BK Properties also is leased to a tenant that does not operate a Restaurant, and this lease was also assumed by the Partnership. Two properties are leased to lessees operating "fast food" type restaurants not franchised by or affiliated with BKC.
Although the provisions of BKC's standard form of lease to franchisees have changed over time, the material provisions of the Lease/Subleases generally are substantially similar to BKC's current standard form of lease (except to the extent BKC has granted rent reductions or deferrals or made other lease modifications in order to alleviate or lessen the impact of business or other economic problems that a franchisee may have encountered). The Leases/Subleases generally provide for a term of 20 years from the date of opening of the Restaurant and do not grant the lessee any renewal options. The Partnership, however, is required to renew a Leases/Sublease if BKC renews or extends the lessee's Franchisee Agreement. The Partnership believes BKC's policy generally is to renew a Franchise Agreement if BKC determines, in its sole discretion, that economic and other factors justify renewal or extension and if the franchisee has complied with all obligations under the Franchise Agreement. As of December 31, 1995, the remaining terms of all the Leases range from approximately 1 to 15 years, the average remaining term was 6 years, and 24 Leases/Subleases had a remaining term of more than 10 years.
The Leases/Subleases generally require the franchisees to pay minimum rent, percentage rent (based upon sales) in excess of minimum rent, and all taxes and operating, maintenance, and insurance costs for the Properties (that is, the Leases/Subleases are "net" leases). Minimum rent is payable monthly and generally is equal to 13.4 percent or 14.5 percent (depending on when the Lease/Sublease was executed) of BKC's "investment" in the BK Property (which investment generally is determined on the basis of BKC's land acquisition cost (if any), certain construction and other costs (if any), and capitalized interest, rent and taxes (if any)) plus, in the case of a Leasehold Property, 113.4 percent or 114.5 percent (depending on when the Lease/Sublease was executed) of all periodic Primary Lease rent payments after the construction period. Percentage rent generally is payable quarterly with an annual adjustment and is equal to the amount (if any) by which a specified percentage (typically 8.5 percent) of the franchisee's sales at the Property for each lease year exceeds the minimum rent. The term "sales" includes all sums charged for goods, merchandise or services sold at or from the BK Property; the term excludes any federal, state, county or city sales tax, excise tax or other similar taxes collected by a franchisee from customers based on sales, as well as cash received as payments in credit transactions where the extension of credit itself has already been included in the figure on which any previous percentage rent has been computed. In the case of Leasehold BK Properties, the Leases/Subleases generally provide that the minimum rent thereunder (but not percentage rent) will increase to reflect any increase in rent under the corresponding Primary Lease. If the franchisee is paying percentage rent at the time of such an increase, however, an increase in rent under a Primary Lease will not be borne by the franchisee, and this will result in a decrease in the net revenue derived by the Partnership from such BK Property.
USE AND OTHER RESTRICTIONS ON THE OPERATION AND TRANSFER OF BK RESTAURANT PROPERTIES. The Partnership was originally formed for the purpose of acquiring all of BKC's interests in the existing BK Properties and leasing or subleasing them to BKC franchisees under the Leases/Subleases. Accordingly,
the Partnership Agreement provides that, except as expressly permitted thereby, the Partnership may not use its BK Restaurant Properties for any purpose other than the operations thereon of a BK Restaurant. In furtherance thereof, the Partnership Agreement (i) requires the Partnership, in certain specified circumstances, to renew or extend a Lease/Sublease and enter into a new lease with another franchisee of BKC, to approve an assignment of a Lease/Sublease, to permit BKC to assume a Lease/Sublease at any time, and to renew a Primary Lease, and (ii) imposes certain restrictions and limitations upon the Partnership's ability to sell, lease, or otherwise transfer any interest in its BK Restaurant Properties. The Partnership Agreement also requires the Partnership to provide BKC notice of default under a Lease/Sublease and an opportunity to cure such defaults prior to taking any remedial action. These restrictions could lapse with respect to a particular Property if the Partnership were to transfer that Property to a third party following BKC's failure to exercise its right of first refusal (as described below). The Partnership Agreement, however, specifically provides that the Managing General Partner is under no obligation to seek to sell any BK Restaurant Property or to consider any offer to purchase any BK Restaurant Property so long as BKC maintains a Franchise Agreement in effect with respect to the BK Property or itself operates a BK Restaurant on the BK Property.
The Partnership Agreement provides that the Partnership may not sell, lease or otherwise transfer any of its interest in any BK Restaurant Property without first offering to sell, lease or otherwise transfer to BKC such interest at the price and on the terms and conditions contained in a bona fide third-party offer. BKC generally must elect whether or not to exercise its right to acquire such interest in the BK Property pursuant to its right of first refusal within 30 days after its receipt of the offer.
The foregoing restrictions do not apply to any restaurant property acquired after March 17, 1995 so long as a BK Restaurant is not located thereon. The Partnership Agreement does not restrict the restaurant properties that the Partnership may acquire after such date.
RESTAURANT ALTERATIONS AND RECONSTRUCTION. It is important that existing Properties be improved, expanded, rebuilt, or replaced from time to time. In addition to normal maintenance and repair requirements, each franchisee is required under BKC's Franchise Agreement and Lease/Sublease, at its own cost and expense, to make such alterations to a BK Restaurant as may be reasonably required by BKC from time to time in order to modify the appearance of the restaurant to reflect the then current image requirements for BK Restaurants. Most of the existing BK Properties are 15 to 20 years old, and the Partnership believes that many of its existing BK Properties require substantial improvements to maximize sales. Moreover, the conditions of many of the BK Properties is below BKC's current image requirements.
BKC maintains a "Successor Policy" relating to the renewal and extension of Franchise Agreements with BKC franchisees. In connection with such renewals and extensions, the "Successor Policy" includes provisions intended to encourage the reconstruction, expansion or other improvement of the older BK Restaurants leased or subleased by BKC to franchisees in order to upgrade those restaurants to BKC's current standards for physical facilities and to take advantage of opportunities that may exist to increase sales through improving an existing restaurant's facilities (for example, by increasing parking or seating capacity or by adding a "drive-thru" facility).
Substantially all of the Partnership's existing Properties will be subject to the "Successor Policy" over the next seven years. Under the current "Successor Policy," (i) a restaurant leased by BKC to a franchisee where the Franchise Agreement is scheduled to expire within five years or (ii) a restaurant leased by BKC to a franchisee where the property and improvements are more than ten years old and the
Franchise Agreement is at least two years old and has more than five years remaining on its term, may qualify for financial assistance if BKC, in its sole discretion, determines that the restaurant should be improved under the "Successor Policy." If BKC determines that a restaurant should be reconstructed under the "Successor Policy" and BKC elects to pay the cost of such reconstruction, then the terms of the Lease/Sublease and the Franchise Agreement with respect to such restaurant are extended, the minimum rent payable under the Lease/Sublease is increased, but the applicable percentage rent rate under the Lease/Sublease generally will remain at (or increase to) 8.5 percent. If, however, BKC elects not to pay the cost of reconstructing a particular restaurant but the franchisee, with BKC's consent, agrees to pay the cost thereof, then the terms of the Lease/Sublease and the Franchise Agreement are extended, the minimum rent under the Lease/Sublease is increased, and the percentage rent payable under such Lease/Sublease is permanently reduced (generally from 8.5 percent to 5.5 percent of annual sales). In addition, the franchisee may be granted a reduction or abatement of rent for up to 60 days while the reconstruction is underway. The Partnership believes that some of the requirements of the "Successor Policy," if invoked, could have a negative effect on the Partnership's cash flow and borrowing capacity. The Partnership believes, however, that because of BKC's regulations to partially subsidize this process, there will be little incentive for BKC to invoke this policy on properties that are in good repair and condition.
The Partnership Agreement requires the Managing General Partner to cause the Partnership to implement those aspects of BKC's "Successor Policy" related to reconstruction of BK Restaurants as such policy currently is in effect and as it may be revised from time to time, with respect to any BK Restaurant Property or Properties that BKC in its discretion, decides should be reconstructed under the "Successor Policy". The Partnership generally is required to extend the Lease/Sublease with respect to any Property reconstructed pursuant to the "Successor Policy," and, in the discretion of BKC, either to pay for the cost of reconstruction directly or to reduce the percentage rent rate under such Lease/Sublease if the franchisee pays the cost of reconstruction. BKC, however, must pay to the Partnership an amount equal to the portion of the cost of any reconstruction undertaken or any rent reduction granted, as the case may be, determined by reference to BKC's relative share (i.e., the franchisee royalty fee, (but excluding amounts required to be expended for advertising and other income received by BKC)) of the total rental and royalty income derived by BKC and the Partnership from the Property. BKC's obligation to make payments to the Partnership in connection with a rent reduction pursuant to the "Successor Policy" would continue for the remainder of the term of the Lease/Sublease, even if the Partnership were to transfer the Property prior to expiration of the Lease/Sublease. In addition, BKC would subsidize a portion of the 60-day reduction or abatement in rent while the construction is completed under the provisions for "rent relief" described below.
BKC, in its sole and absolute discretion, may modify or discontinue at any time the current version or any subsequent version of the "Successor Policy," but such a change would not affect the basis on which the Partnership and BKC will share the cost of any reconstruction undertaken pursuant to the "Successor Policy."
In addition to the reconstruction of BK Restaurants under the "Successor Policy" BKC has the right under the Partnership Agreement to require the Partnership to acquire land adjacent to a BK Restaurant Property if such land is necessary for the expansion of the BK Restaurant on the Property (for example, to provide additional parking facilities), even though the expansion is not undertaken pursuant to the "Successor Policy." However, BKC is required to pay the Partnership a portion of the cost of any
such adjacent land, determined under the formula described above in connection with the "Successor Policy."
The Partnership believes that it can reduce the likelihood of having to rebuild the restaurant properties at the Partnership's expense, if it assists tenants in repairing and updating their restaurants. In many cases, the tenants have difficulty borrowing to finance improvements to the restaurants because they do not own them. The recent amendments to the Partnership Agreement permit the Partnership to make loans to tenants for such purposes. The Partnership would realize interest income from these loans, with the possibility of receiving increased percentage rent because of increased sales at the improved restaurants. As an alternative, the Partnership is also permitted to make and provide for such improvements through increased rents on the properties. The Partnership envisions that the typical repairs and updates that tenants would make would involve constructing playgrounds, repairing roofs and parking lots, and generally remodeling a restaurant to conform to Burger King's current image requirements.
The Partnership believes that if the "Successor Policy" is invoked, the increased base rent and any incremental percentage rent on the improved restaurant property would be insufficient to compensate the Partnership adequately for its rebuilding costs. As a consequence, the cash flow of the Partnership could be adversely effected by implementation of the "Successor Policy." The Partnership believes that because the "Successor Policy" includes payments by BKC, it would not be in BKC's economic interest to invoke the "Successor Policy" with respect to restaurant properties that have already been renovated and updated. The Partnership believes that it is unlikely that a tenant would elect to pay for the improvements itself because any improvements would belong to the Partnership.
RENT RELIEF. In connection with Properties leased or subleased by BKC to franchisees, BKC, from time to time, in its discretion, has granted "rent relief" to a limited number of franchisees, in the form of a permanent or temporary reduction of rent payment otherwise owed, in order to alleviate or lessen the impact of business or other economic problems that those franchisees have encountered. The Partnership Agreement provides that the Managing General Partner, in its discretion, may cause the Partnership to grant "rent relief" with respect to a BK Property at the request of BKC or the lessee. Any grant of "rent relief" by the Partnership, however, is subject to the condition that BKC agrees to pay the Partnership a portion of such "rent relief," determined by reference to BKC's relative share (i.e. the franchise royalty fee (but excluding amounts required to be expended for advertising and other amounts received by BKC)) of the total rental and royalty income derived by BKC and the Partnership from such Property. BKC's obligation to make payments to the Partnership would continue for the duration of the rent reduction, even if the Partnership were to transfer the BK Property prior to expiration of the Lease/Sublease.
As defined in the Partnership Agreement, "rent relief" is limited to any reduction in rent for a period in excess of 90 days and reductions for 90 days or less that are specifically designated by the Managing General Partner as "rent relief" or that are in connection with the improvement of a BK Restaurant pursuant to BKC's "Successor Policy." No other reduction for a period of 90 days or less would be considered "rent relief." In addition, a franchisee's failure to make a payment of rent under a Lease/Sublease would not be considered "rent relief" if either such Lease/Sublease were to have terminated automatically or the Managing General Partner were to seek to terminate such Lease/Sublease and were to cause the Partnership to initiate and pursue such actions (including, if appropriate, litigation) against the defaulting franchisee as the Managing General Partner, in its sole discretion, determined
reasonable under the circumstances. The Partnership would not be entitled to any payment from BKC in these various circumstances that are not considered "rent relief."
During the year ended December 31, 1995, the Partnership had not provided "rent relief" for any BK Properties.
PERIODIC CONSIDERATION OF SALE OR FINANCING
The Partnership Agreement provides that the Managing General Partner may (but is not obligated to) consider at least once every five years, beginning in the year 2000, whether or not it would be in the interest of the Partnership to effectuate a sale and/or financing of all or a portion of the Properties held as of March 17, 1995 in order to return to the Unitholders all or a substantial portion of their unrecovered capital investments in the Partnership. If at any such time the Managing General Partner, in its judgment, determines that such a sale or financing would be in the interest of the Partnership, it will use reasonable efforts to effectuate such a transaction, assuming market conditions permit. In the case of a sale of all or a portion of such Properties on which BK Restaurants are located, BKC would have the right to exercise its right of first refusal to the extent it had not lapsed.
ITEM 3.

ITEM 3. LEGAL PROCEEDINGS
From time to time, the Partnership is involved in litigation relating to claims arising in the ordinary course of business. Currently, the Partnership is not a party to any material litigation.
ITEM 4.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
There were no matters submitted to Unitholders in the quarter ended December 31, 1995.
PART II
ITEM 5.

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
The Partnership's Units are traded on the New York Stock Exchange under the symbol "USV". Quarterly distributions are declared for payment early in the next calendar quarter. The high and low sales prices of the Units and the distributions declared during each calendar quarter of 1994 and 1995 and during 1996 through February 29, 1996 are set forth below:
As of February 29, 1996, there were 1,903 holders of record in the Partnership.
In July 1995, the Partnership announced its intention to repurchase up to 300,000 Units. Through December 31, 1995, the Partnership had purchased 30,000 Units and no further repurchases have been made or are presently contemplated.
ITEM 6.

ITEM 6. SELECTED FINANCIAL DATA.
______________ * Includes special capital transaction distributions of $.24.
ITEM 7.

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS.
Total restaurant sales, the primary determinant of Partnership revenues, are a function of the number of restaurants in operation and their performance. Sales at individual restaurants are influenced by local market conditions, by the efforts of specific restaurant operators, and by marketing, new product and program support by the franchiser, and by the general state of the economy.
Revenues in 1995 totaled $9,780,289 up 11.2 percent from the $8,793,056 recorded in 1994. Revenues in 1994 were up 5.5 percent from the $8,331,643 recorded in 1993. The partnership owned and leased 122 sites throughout 1994 and 1995. Revenues from these properties were up 6.4 percent in 1995 over 1994. The remaining increase in revenues in 1995 over 1994 is attributable to 16 properties acquired on various dates during 1995. No additions were made to the portfolio during 1994 and 1993.
Total sales in the restaurants located on Partnership real estate in 1995 were $135,296,834 up 10.6 percent from the $122,314,903 reported in 1994 which was up 8.4 percent from the $112,880,007 reported for 1993. There were 138, 122 and 121 Partnership restaurant sites in operation on December 31, 1995, 1994 and 1993 respectively.
Expenses excluding the provision for write down of properties for the year were $4,557,701, up 18.4 percent from 1994 which was up 3.2 percent from 1993. The increase in expenses was primarily due to the increase in the number of restaurant sites owned by the Partnership and related financing costs.
There was no write down of assets and intangible values relating to closed properties during the year. Write downs of $11,061 and $73,739 were made in 1994 and 1993 respectively.
Net income allocable to Unitholders in 1995 was $5,119,180 or $1.10 per Partnership Unit, up 5.8 percent or six cents per Unit from $4,837,017 or $1.04 per Unit achieved in 1994. The 1994 results were up 8.3 percent or eight cents per Unit from the 1993 results. Excluding provisions for write down or dispositions of properties, net income allocable to Unitholders was $1.10 in 1995, $1.05 in 1994 and 97 cents in 1993.
Regular cash distributions to the Limited Partners for 1995 totaled $1.69 per Unit with 42 cents per Unit paid in the first three quarters and 43 cents in the fourth quarter. Total cash distributions to Unitholders in 1994 and 1993 were $1.56 and $1.72 per Unit, respectively.
FUNDS GENERATED FROM OPERATIONS.
Industry analysts generally consider funds generated from operations to be an appropriate measure of performance. Funds generated from operations is calculated as the sum of taxable income plus charges for depreciation and amortization. Funds generated from operations does not represent cash generated from operating activities in accordance with generally accepted accounting principles and is not necessarily indicative of cash available to fund cash needs and cash distributions. Funds generated from operations should not be considered as an alternative to net income (determined in accordance with generally accepted accounting principles) as an indication of the Partnership's performance or as an
alternative to cash flow (determined in accordance with generally accepted accounting principles) as a measure of liquidity. Funds generated from operations on a tax basis allocable to Unitholders in 1995 were $1.78 per Partnership Unit, up 13 cents per Unit from the $1.65 achieved in 1994 which was up 11 cents per Unit from $1.54 in 1993.
LIQUIDITY AND CAPITAL RESOURCES.
Cash and equivalents on December 31, 1995 totaled $7,127 down $673,519 from December 31, 1994 and down $1,252,976 from December 31, 1993. Year-end 1995 net receivables of $951,095 were up 33 percent and 130 percent from December 31, 1994 and December 31, 1993, respectively, as a result of increases in lease revenues and a change in the procedure for paying property taxes and billing them to the lessees.
Since formation, the Partnership has paid all regular distributions from its operating cash flow. Funds generated from operations on a tax basis allocable to Unitholders were seven cents more than the related cash distributions for 1995 earnings, four cents more than the related cash distributions for 1994 earnings and 18 cents per Unit more than the related cash distribution for 1993 earnings. Management of the Partnership believes that cash generated from operations will be sufficient to meet operating requirements.
As a result of amendments to the Partnership Agreement approved by the limited partners in March 1995, the Partnership has undertaken a program of substantial capital expenditures for the addition of new properties and to assist existing tenants in the remodeling of their restaurants. To finance these expenditures, the Partnership has incurred debt and issued additional Units. In June 1995, the Partnership obtained a revolving bank credit line in the amount of $10 million (subsequently increased to $20 million and again in February 1996 to $40 million). Borrowings have been used to acquire additional restaurant properties and additional borrowings may also be used to fund additional property acquisitions. The credit agreement expires June 27, 1998 and provides that borrowings under the agreement will bear interest at 180 basis points over the London Interbank Rate (LIBOR). The borrowings are secured by the Partnership's interest in the real estate and leases owned by the Partnership. At February 29, 1996, approximately $20 million remained available under the credit agreement. Interest expense for 1995 was $193,530.
At February 29, 1996 the Partnership had an additional 108 restaurant properties located in 20 states under letters of intent or contracts for acquisition. Such properties represent seven transactions in various stages of negotiation and due diligence and there can be no assurance that such transactions will be closed. Such acquisitions will require expenditures of $57 million. Of such properties, 28 are Burger King restaurant properties, 37 are Dairy Queen restaurant properties, 26 are Hardee's restaurant properties, 11 are Pizza Hut restaurant properties and six are restaurant properties operated under other tradenames. The Partnership expects to raise such consideration (and the consideration for future property acquisitions) through the use of the remaining availability under the existing credit agreement, from additional borrowings and from the issuance of additional Units. The Partnership is currently negotiating an additional credit facility which would be used to fund these and other potential acquisitions. There can be no assurance such financing will be available and the failure of the Partnership to obtain such additional financing would adversely impact the Partnership's ability to acquire additional properties.
During 1995, three properties were acquired in part for 54,167 Units. As a term of the acquisition, the Partnership agreed, in the event the market price for the Units issued did not equal or exceed $24 per Unit three years from the date of issuance and such Units were still held on such date by
the seller of the properties, to pay the difference in cash. In connection with the acquisition of ten properties in 1996, the Partnership agreed, as a term of those acquisitions, in the event the market price for the Units issued did not equal or exceed $23 per Unit (as to 28,261 Units) three years from the date of issuance or $24 per Unit (as to 299,575 Units) two years from the date of issuance and such Units were still held on such date by the sellers of the properties, to pay the difference by the issuance of additional Units.
ITEM 8.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The financial information and supplementary data begin on page of this Annual Report on Form 10-K. Such information is incorporated herein by reference into this Item 8.
ITEM 9.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.
Not applicable.
PART III
ITEM 10.

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The Registrant is a limited partnership (of which U.S. Restaurant Properties, Inc. is the Managing General Partner) and has no directors or officers. The executive officers of the Managing General Partner are Robert J. Stetson, President and Chief Executive Officer, and Fred H. Margolin, Chairman of the Board, Secretary and Treasurer. They have served in such positions and as directors since the acquisition of the Managing General Partner on May 27, 1994. Messrs. Stetson and Margolin serve as executive officers of the Managing General Partner at the pleasure of its board of directors.
Mr. Stetson is 45 years old. Since 1978, Mr. Stetson has been primarily engaged in restaurant chain management, including the acquisition and management of restaurant properties. From 1987 until 1992, Mr. Stetson served as a senior executive in restaurant and retailing subsidiaries of Grand Metropolitan PLC, the ultimate parent of Burger King. During this period, Mr. Stetson served as the Chief Financial Officer and later President - - Retail Division of Burger King and Chief Financial Officer and later Chief Executive Officer of Pearle Vision. As Chief Financial Officer of Burger King, Mr. Stetson was responsible for managing more than 750 restaurants that Burger King leased to tenants. Prior to 1987, Mr. Stetson served in several positions with PepsiCo Inc. and its subsidiaries, including Chief Financial Officer of Pizza Hut. Mr. Stetson is also a director of Bayport Restaurant Group and Bugaboo Creek Steakhouse Inc., both publicly-traded restaurant companies. In 1972, Mr. Stetson received a Bachelor of Arts degree from Harvard College. In 1975, Mr. Stetson received an M.B.A. from Harvard Business School.
Mr. Margolin is 46 years old. In 1979, Mr. Margolin founded and became the President of American Eagle Premium Finance Company, one of the largest independent premium finance companies in Texas. From 1982 through 1988, Mr. Margolin developed and then leased or sold shopping centers having an aggregate cost of $50,000,000. In 1977, Mr. Margolin founded Intercon General Agency, a national insurance agency specializing in the development and marketing of insurance products for
financial institutions. Mr. Margolin served as the Chief Executive Officer of Intercon General Agency from its inception until its sale to a public company in 1982. In 1971, Mr. Margolin received a Bachelor of Science degree from the Wharton School of the University of Pennsylvania. In 1973, Mr. Margolin received an M.B.A. from Harvard Business School.
In addition to Messrs. Stetson and Margolin, the board of directors of the Managing General Partner consists of Messrs. Gerald H. Graham, David Rolph, Darrel Rolph, and Eugene G. Taper. Each director serves a one-year term. Mr. Graham, age 58, is the Dean of the Barton School of Business at Wichita State University. David Rolph, age 47, and Darrel Rolph, age 58, own and operate the Tex-Mex restaurant chain, "Carlos O'Kelleys," which has 25 units, and were formerly one of the largest Pizza Hut franchisees. Mr. Taper, age 59, a certified public accountant, is a consultant and a retired partner, since 1993, of Deloitte & Touche LLP, an international public accounting firm.
SECTION 16(A) REPORTS. Section 16(a) of the Securities and Exchange Act of 1934, as amended, requires the Managing General Partner, its directors and executive officers, and persons who beneficially own more than 10 percent of the Units to file with the SEC initial reports of Unit ownership and reports of changes in ownership therein. The Managing General Partner, directors and executive officers of the Managing General Partner, and greater than 10 percent owners of the Units are required by SEC regulation to furnish the Partnership with copies of all Section 16(a) forms they file.
To the Partnership's knowledge, based solely upon a review of the copies of such reports furnished to the Partnership and written representations that no other reports were required during the year ended December 31, 1995, the Partnership believes that all Section 16(a) filing requirements applicable to the foregoing Managing General Partner, director, executive officers, and greater than 10 percent owners were complied with.
The year-end report is not required to be filed if there are no previously unreported transactions or holding to report. Nevertheless, the Partnership is required to disclose the names of directors, executive officers and greater than 10 percent owners who did not file the year-end report, unless the Partnership has received a written statement that no filing was required. As of the date of this report, the Partnership has not received any such statements.
ITEM 11.

ITEM 11. EXECUTIVE COMPENSATION.
The Managing General Partner, U.S. Restaurant Properties, Inc., is responsible for managing the business and affairs of the Partnership. The Partnership pays the Managing General Partner a non-accountable annual allowance (adjusted annually to reflect increases in the Consumer Price Index), plus reimbursement of out-of-pocket costs incurred to other parties for services rendered to the Partnerships. The allowance for the years ended December 31, 1995, 1994 and 1993 was $585,445, $542,508 and $528,000, respectively. For 1996, the allowance will be $600,081. For 1995, the one-time property acquisition fee equaled $109,238 which was capitalized and the annual allowance includes $29,375 of increased management fees due to acquisitions. The allowance is paid quarterly, in arrears. The Partnership's accounts payable balance includes $187,204 and $135,627 for this allowance as of December 31, 1995 and 1994, respectively. The Managing General Partner paid no out-of-pocket costs to other parties on behalf of the Partnership during 1995, 1994 and 1993. See "Item 1. Business - Distributions and Allocations" and "- Payments to the Managing General Partner," above, and "Item 13. Certain Relationships and Related Transactions," below.
ITEM 12.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The following table sets forth certain information regarding the beneficial ownership of the Units and the capital stock of the Managing General Partner (the "U.S. Restaurant Shares"), respectively, as of February 29, 1996 by: (i) all persons who are beneficial owners of 5 percent or more of the Units or the U.S. Restaurant Shares, respectively, (ii) all directors and executive officers of the Managing General Partner, and (iii) all directors and executive officers of the Managing General Partner as a group. The Managing General Partner does not itself own any Units but does hold a partnership interest as a general partner and options to purchase 400,000 Units at $15.50 per Units. The disclosure that no person is the beneficial owner of 5 percent or more of the Units is based upon the Partnership not having received any Schedule 13D or 13G to the contrary on or before February 29, 1996. Unless stated otherwise, the persons named below possess sole voting and investment power with respect to the securities set forth opposite their names.
_____________ * Less than one percent.
(1) Does not include 4,375 Units held by Mr. Margolin's wife as trustee for their minor children. (2) Does not include 4,000 Units held by Mr. Rolph's wife as trustee for their minor children. (3) Does not include 1,000 Units held by Mr. Stetson as trustee for his minor child.
The address for Messrs. Margolin and Stetson is 5310 Harvest Hill Rd., Suite 270, LB 168, Dallas, Texas 75230. The address for Messrs. Darrel Rolph and David Rolph Sasnack Management, is 1877 N. Rock Rd., Wichita, Kansas 67206.
ITEM 13.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The Managing General Partner, U.S. Restaurant Properties, Inc. (formerly QSV), is responsible for managing the business and affairs of the Partnership. The Partnership pays the Managing General Partner a non-accountable annual allowance (adjusted annually to reflect increases in the Consumer Price Index), plus reimbursement of out-of-pocket costs incurred to other parties for services rendered to the Partnerships. The allowance for the years ended December 31, 1995, 1994 and 1993 was $585,448, $542,508 and $528,000, respectively. For 1996, the allowance will be $600,081. For 1995, the one-time property acquisition fee equaled $109,238 which was capitalized and the annual allowance includes $29,375 of increased management fees due to acquisitions. The allowance is paid quarterly, in arrears. The Partnership's accounts payable balance includes $187,204 and $135,627 for this allowance as of December 31, 1995 and 1994, respectively. The Managing General Partner paid no out-of-pocket costs to other parties on behalf of the Partnership during 1995, 1994 and 1993.
The Managing General Partner has agreed to make available to the Partnership an unsecured, interest-free, revolving line of credit in the principal amount of $500,000 to provide the Partnership with the necessary working capital to minimize or avoid seasonal fluctuation in the amount of quarterly cash distributions. No loans were made by the Managing General Partner or were outstanding at any time during the years ended December 31, 1995, 1994 and 1993.
On March 17, 1995, the limited partners approved the grant to the Managing General Partner of options to purchase 400,000 Units. The exercise price is $15.50 per Unit which was the average closing market price on the New York Stock Exchange for the five trading days immediately following the date of grant.
On March 24, 1995, the Managing General Partner assigned its rights to purchase a property in Amarillo, Texas to the Partnership for no consideration.
Burger King Corporation withdrew as a Special General Partner in November 1994. On January 20, 1995, the Partnership paid Burger King Corporation $16,000 for its interest in the operating and master limited partnerships.
During 1995, the Partnership loaned $255,000 to Arkansas Restaurants #10 L.P. The balance is due September 1, 1996 and bears interest at nine percent per annum. The Managing General Partner owns a 90 percent interest in Arkansas Restaurants #10 L.P.
PART IV
ITEM 14.

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(a)(1) Financial Statements.
For a list of the consolidated financial statements of the Registrant filed as part of this Annual Report on Form 10-K, see page, herein.
(a)(2) Financial Statement Schedules.
III. Real Estate and Accumulated Depreciation.
(a)(3) For a list of the Exhibits filed as part of this Annual Report on Form 10-K, see page E-1, herein.
(b) Reports on Form 8-K.
None.
(c) Exhibits.
The Exhibits filed as part of this Annual Report on Form 10-K are submitted as a separate section.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Partnership has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Date: March 29, 1996 U.S. RESTAURANT PROPERTIES MASTER L.P.
By: U.S. RESTAURANT PROPERTIES, INC., its Managing General Partner
By: s/Robert J. Stetson ------------------- Robert J. Stetson President, Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Managing General Partner of the Partnership and in the capacities and on the dates indicated:
SIGNATURE TITLE DATE --------- ----- ----
s/Robert J. Stetson Director of U.S. Restaurant March 29, 1996 - ------------------- Properties, Inc. Robert J. Stetson
s/Fred H. Margolin Director of U.S. Restaurant March 29, 1996 - ------------------ Properties, Inc. Fred H. Margolin
s/Eugene G. Taper Director of U.S. Restaurant March 29, 1996 - ----------------- Properties, Inc. Eugene G. Taper
s/Gerald H. Graham Director of U.S. Restaurant March 29, 1996 - ------------------ Properties, Inc. Gerald H. Graham
s/Darrel Rolph Director of U.S. Restaurant March 29, 1996 - -------------- Properties, Inc. Darrel Rolph
s/David Rolph Director of U.S. Restaurant March 29, 1996 - ------------- Properties, Inc. David Rolph
U.S. RESTAURANT PROPERTIES MASTER L.P.
CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993 WITH INDEPENDENT AUDITORS' REPORT
INDEPENDENT AUDITORS' REPORT
The Partners U.S. Restaurant Properties Master L.P.
We have audited the accompanying consolidated balance sheets of U.S. Restaurant Properties Master L.P. (the Partnership) as of December 31, 1995 and 1994, and the related consolidated statements of income, partners' capital, and cash flows for each of the three years in the period ended December 31, 1995. Our audits also included the financial statement schedule listed in the Index at Item 14(a). These financial statements and financial statement schedule are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements and financial statement 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, such consolidated financial statements present fairly, in all material respects, the consolidated financial position of U.S. Restaurant Properties Master L.P. as of December 31, 1995 and 1994, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1995, in conformity with generally accepted accounting principles. Also, in our opinion, such financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly in all material respects the information set forth therein.
DELOITTE & TOUCHE LLP
Dallas, Texas February 17, 1996
U.S. RESTAURANT PROPERTIES MASTER L.P. CONSOLIDATED BALANCE SHEETS
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
U.S. RESTAURANT PROPERTIES MASTER L.P. CONSOLIDATED STATEMENTS OF INCOME
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
U.S. RESTAURANT PROPERTIES MASTER L.P. CONSOLIDATED STATEMENTS OF CASH FLOWS
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
U.S. RESTAURANT PROPERTIES MASTER L.P. CONSOLIDATED STATEMENTS OF PARTNERS' CAPITAL
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION
U.S. Restaurant Properties Master L.P. (Partnership), formerly Burger King Investors Master L.P., a Delaware limited partnership, was formed on December 10, 1985. The Partnership, through its 99% limited partnership interest in U.S. Restaurant Properties Operating Limited Partnership (Operating Partnership), also a Delaware Limited Partnership, acquired from Burger King Corporation (BKC) in February 1986 an interest in 128 restaurant properties (Properties) owned or leased by BKC and leased or subleased on a net lease basis to BKC franchisees for $94,592,000. (The Partnership is the sole limited partner of the Operating Partnership, and they are referred to collectively as the "Partnerships".) U.S. Restaurant Properties, Inc., formerly QSV Properties, Inc., (QSV), the managing general partner and BKC, the special general partner, were both indirect wholly-owned subsidiaries of Grand Metropolitan PLC prior to May 17, 1994, at which time QSV was sold to the current owners. On January 20, 1995, the Partnership paid Burger King Corporation $16,000 for its 0.02% interest in the Operating and Master Limited Partnership.
The Partnership may issue an unlimited number of units. The units outstanding as of December 31, 1995 and 1994 totaled 4,659,167 and 4,635,000, respectively.
2. ACCOUNTING POLICIES
The financial statements have been prepared in accordance with generally accepted accounting principles; however, this will not be the basis for reporting taxable income to unitholders (see Note 9 for a reconciliation of financial reporting income to taxable income). The financial statements reflect the consolidated accounts of the Partnerships after elimination of significant inter-partnership transactions.
Cash and equivalents include short-term, highly liquid investments with original maturities of three months or less.
Marketable securities consist of U.S. treasury securities which have been treated as trading securities as of December 31, 1994. As a result, they are stated at market value.
An intangible asset was recorded for the excess of cost over the net investment in direct financing leases in 1986. This intangible asset represents the acquired value of future contingent rent receipts (based on a percentage of each restaurant's sales) and is being amortized on a straight-line basis over 40 years.
Also included in intangible assets is the amount paid to acquire certain leases with favorable rents payable to third party lessors. This amount is being amortized over the remaining lease terms.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. ACCOUNTING POLICIES (CONTINUED)
DEPRECIATION
Depreciation is computed using the straight-line method over estimated useful lives of 10 to 20 years for financial statement purposes. Accelerated and straight-line methods are used for tax purposes.
USE OF ESTIMATES
The preparation of financial statements, in conformity with generally accepted accounting principles, requires management to make estimates and assumptions that affect reported amounts of certain assets, liabilities, and revenues and expenses as of and for the reporting periods. Actual results may differ from such estimates.
LONG-LIVED ASSETS
In March 1995, Statement of Financial Accounting Standard ("SFAS") No. 121, "Accounting for the Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed of" was issued. The Partnerships adopted SFAS No. 121 in 1995. Long-lived assets include real estate, direct financing leases, and intangibles which are evaluated on an individual property basis. Based on the Partnership's policy for reviewing impairment of long-lived assets, there was no adjustment necessary to the accompanying consolidated financial statements.
INCOME TAXES
No federal or, in most cases, state income taxes are reflected in the consolidated financial statements because the Partnerships are not taxable entities. The partners must report their allocable shares of taxable income or loss in their individual income tax returns.
FAIR VALUE DISCLOSURE OF FINANCIAL INSTRUMENTS
The notes receivable and the line of credit are carried at amounts that approximate their fair value.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. ACCOUNTING POLICIES (CONTINUED)
STOCK-BASED COMPENSATION
In October 1995, Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation," was issued, effective for calendar year 1996. This statement applies to transactions in which an entity issues its equity instruments to acquire goods or services from non-employees. Those transactions must be accounted for based on the fair value of the consideration received or the fair value of the equity instruments issued, whichever is more reliably measurable. The Partnership has not completed the process of evaluating the impact that will result from adopting such statement and therefore is unable to disclose the impact the adoption will have on its financial position and results of operations. Additionally, the effect of adopting the statement will depend on the calculated value of the units issued and the extent to which units are used in acquiring real estate properties in the future.
3. OTHER BALANCE SHEET INFORMATION
Total purchase deposits of $1,791,682 included $1,075,000 of non-refundable deposits.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
4. PROPERTIES
On December 31, 1995, the Partnerships owned the land at 79 Properties and leased the land at 60 Properties from third party lessors under operating leases. The Partnerships in turn leased or subleased the land primarily to BKC franchisees under operating leases.
On December 31, 1995, the Partnerships owned the buildings on 124 Properties and leased the buildings on 14 Properties from third party lessors under leases accounted for as capital leases. The Partnerships own one property in which only the land is owned and leased. The Partnerships leased 28 owned buildings to franchisees under operating leases. These 28 buildings are stated at cost, net of accumulated depreciation, on the balance sheet. A total of 109 buildings are leased primarily to franchisees under direct financing leases. The net investment in the direct financing leases represents the present value of the future minimum lease receipts for these 109 buildings. One property is not currently leased.
On December 31, 1995, there were 138 Partnership restaurant sites in operation, and there was one closed site. The Partnerships continue to seek a suitable tenant for the remaining site. The write-down of the closed site was $11,061 and $73,739 in 1994 and 1993, respectively.
5. GUARANTEED STOCK PRICE
Three properties were acquired on October 10, 1995, with a combination of cash and 54,167 partnership units. The partnership units are guaranteed to have a value of $24 per unit three years from the transaction date. The unit price on the date issued was $18 3/8. Any difference between the guaranteed value and the actual value of the units at the end of the three year period is to be paid in cash. These properties were recorded at the guaranteed value of the units discounted to reflect the present value on the date the units were issued.
6. LINE OF CREDIT
On December 31, 1995, $10,930,647 had been drawn on the $20 million line of credit. All properties are included as collateral on this line of credit. The interest rate floats at 1.8 percentage points above LIBOR. The LIBOR rate at December 31, 1995, was 5.375%. The line of credit also requires the Partnerships to maintain a tangible net worth in excess of $40,500,000, a debt to tangible net worth ratio of not more than 0.5 to 1, and a cash flow coverage ratio of not less than 2 to 1 based upon a Proforma Five Year Bank Debt Amortization. The $20 million line of credit matures on June 27, 1998.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
7. INVESTMENTS AND COMMITMENTS AS LESSOR
The Partnerships lease land and buildings primarily to BKC franchisees. The building portions of most of the leases are direct financing leases while the land portions are operating leases. The leases generally provide for a term of 20 years from the opening of the related restaurant, and do not contain renewal options. The Partnerships, however, have agreed to renew a franchise lease if BKC renews or extends the lessee's franchise agreement. As of December 31, 1995, the remaining lease terms ranged from 1 to 28 years. The leases provide for minimum rents and contingent rents based on a percentage of each restaurant's sales, and require the franchisee to pay executory costs.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
7. INVESTMENTS AND COMMITMENTS AS LESSOR (CONTINUED)
If the restaurant properties are not adequately maintained during the term of the tenant leases, such properties may have to be rebuilt before the leases can be renewed, either by the Partnership as it considers necessary or pursuant to Burger King's successor policy. The successor policy, which is subject to change from time to time in Burger King's discretion, is intended to encourage the reconstruction, expansion, or other improvement of older Burger King restaurants and generally affects properties that are more than ten years old or are the subject of a franchise agreement that will expire within five years.
Under the current partnership agreement, Burger King can require that a restaurant property be rebuilt. If the tenant does not elect to undertake the rebuilding, the Partnership would be required to make the required improvement itself. However, as a condition to requiring the Partnership to rebuild, Burger King would be required to pay the Partnership its percentage share ("Burger King's Percentage Share") of the rebuilding costs. Such percentage share would be equal to (i) the average franchise royalty fee percentage rate payable to Burger King with respect to such restaurant, divided by (ii) the aggregate of such average franchise royalty fee percentage rate and the average percentage rate payable to the Partnership with respect to such restaurant property. The managing general partner believes that Burger King's Percentage Share would typically be 29% for a restaurant property.
The managing general partner believes it is unlikely that any material amount of rebuilding of Burger King restaurant properties will be required in the next several years, if ever.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
8. COMMITMENTS
The land at 46 Properties and the land and buildings at 14 Properties are leased by the Partnerships from third party lessors. The building portions of the leases are generally capital leases while the land portions are operating leases. Commitment leases provide for an original term of 20 years and most are renewable at the Partnership's option. As of December 31, 1995, the remaining lease terms (excluding renewal option terms) ranged from 1 to 11 years. If all renewal options are taken into account, the terms ranged from 8 to 33 years. Rents payable may escalate during the original lease and renewal terms. For six properties, the leases provide for contingent rent based on each restaurant's sales.
(A) MINIMUM LEASE OBLIGATIONS HAVE NOT BEEN REDUCED BY MINIMUM SUBLEASE RENTALS.
On July 21, 1995, the managing general partner authorized the Partnership to repurchase up to 300,000 of its units in the open market. During 1995, 30,000 units were repurchased by the Partnership.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
9. RECONCILIATION OF FINANCIAL REPORTING INCOME TO TAXABLE INCOME
Financial reporting income differs from taxable income primarily because generally accepted accounting principles reflect the building portion of leases from Partnerships to franchisees as a net investment in direct financing leases. For tax purposes, these leases are treated as operating leases. In addition, differences exist in depreciation methods and asset lives.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
10. RELATED PARTY TRANSACTIONS
The managing general partner is responsible for managing the business and affairs of the Partnerships. The Partnerships pay the managing general partner a non-accountable annual allowance (adjusted annually to reflect increases in the Consumer Price Index), plus reimbursement of out-of-pocket costs incurred to other parties for services rendered to the Partnerships. The allowance for the years ended December 31, 1995, 1994, and 1993, was $585,445, $542,508, and $528,000, respectively. The Partnerships' accounts payable balance includes $187,204 and $135,627 for this allowance as of December 31, 1995 and 1994, respectively. The managing general partner paid no out-of-pocket costs to other parties on behalf of the Partnerships during 1995, 1994, and 1993.
To compensate the Managing General Partner for its efforts and increased internal expenses with respect to additional properties, the Partnership will pay the Managing General Partner, with respect to each additional property purchased: (i) a one-time acquisition fee equal to one percent of the purchase price for such property and (ii) an annual fee equal to one percent of the purchase price for such property, adjusted for increases in the Consumer Price Index. For 1995, the one-time acquisition fee equaled $109,238 which was capitalized, and the increase in the non-accountable annual fee equaled $29,375. In addition, if the Rate of Return (as defined) on the Partnership's equity in all additional properties exceeds 12 percent per annum for any fiscal year, the Managing General Partner will be paid an additional fee equal to 25 percent of the cash flow received with respect to such additional properties in excess of the cash flow representing a 12 percent Rate of Return thereon. However, to the extent such distributions are ultimately received by the Managing General Partner in excess of those provided by its 1.98 percent Partnership interest, they will reduce the fee payable with respect to such excess flow from any additional properties.
In 1994, the Partnerships with the consent and financial participation of BKC, continued rent relief for three properties.
In 1993, the Partnerships sold two non-operating properties at slightly less than their book values to BKC. At that time, BKC was the special general partner and had an ownership interest of 0.02% in the Partnerships.
The managing general partner has agreed to make available to the Partnership an unsecured, interest-free, revolving line of credit in the principal amount of $500,000 to provide the Partnerships with the necessary working capital to minimize or avoid seasonal fluctuation in the amount of quarterly cash distributions. No loans were made or were outstanding at any time during the years ended December 31, 1995, 1994, and 1993.
A note receivable of $255,000 is due from Arkansas Restaurants #10 L.P. at December 31, 1995. The note receivable is due on September 1, 1996, and has an interest rate of 9.0% per annum.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
As of December 31, 1995, the managing general partner owned 90% of Arkansas Restaurants #10 L.P..
On March 17, 1995 the limited partners granted the managing general partner options to acquire up to 400,000 units, subject to certain adjustments under anti-dilution provisions. The initial exercise price of each option is $15.50 which is the average closing price of the depository receipts for the units on the New York Stock Exchange for the five trading days immediately after the date of grant. The options are non-transferable except by operation of law and vest and become exercisable on the first anniversary of the date as of which the exercise price is determined, subject to earlier vesting and exercisability if the managing general partner is removed as general partner. The term of the options expires on the tenth anniversary of the date as of which the exercise price is determined.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
11. DISTRIBUTIONS AND ALLOCATIONS
Under the amended partnership agreement, cash flow from operations of the Partnerships each year will be distributed 98.02% to the unitholders and 1.98% to the general partners until the unitholders have received a 12% simple (noncumulative) annual return for such year on the unrecovered capital per unit ($20.00, reduced by any prior distributions of net proceeds of capital transactions); then any cash flow for such year will be distributed 75.25% to the unitholders and 24.75% to the general partners until the unitholders have received a total simple (noncumulative) annual return for such year of 17.5% on the unrecovered capital per unit; and then any excess cash flow for such year will be distributed 60.40% to the unitholders and 39.60% to the general partners. The unitholders received 98.02% of all cash flow distributions for 1995 and 98% for 1994 and 1993.
Under the amended partnership agreement, net proceeds from capital transactions (for example, disposition of the Properties) will be distributed 98.02% to the unitholders and 1.98% to the general partners until the unitholders have received an amount equal to the unrecovered capital per unit plus 12.0% cumulative, simple return on the unrecovered capital per unit outstanding from time to time (to the extent not previously received from distribution of cash flow or proceeds of prior capital transactions); then such proceeds will be distributed 75.25% to the unitholders and 24.75% to the general partners until the unitholders have received the total cumulative, simple return of 17.5% on the unrecovered capital per unit; and then such proceeds will be distributed 60.40% to the unitholders and 39.60% to the general partners. There were no capital transactions in 1995 or 1994.
During 1993 two non-operating properties were sold at slightly less than their book values. Both dispositions were capital transactions and resulted in the special distributions to unitholders of 11 cents and 13 cents per unit on September 13, and December 13, 1993, respectively.
All operating income and loss of the Partnership for each year generally will be allocated among the partners in the same aggregate ratio as cash flow is distributed for that year. Gain and loss from a capital transaction generally will be allocated among the partners in the same aggregate ratio as proceeds of the capital transactions are distributed except to the extent necessary to reflect capital account adjustments.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
12. SUMMARY BY QUARTER (UNAUDITED)
* REPRESENTS AMOUNTS DECLARED AND PAID IN THE FOLLOWING QUARTER.
** INCLUDES SPECIAL CASH DISTRIBUTIONS OF $0.11 FOR THE SECOND QUARTER AND $0.13 FOR THE THIRD QUARTER.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
13. PROFORMA (UNAUDITED)
The 1995 acquisitions consisted of 16 properties that were valued at $10,731,187 based upon the purchase method of accounting. These properties were acquired on various dates from March 1995 through December 1995. Three of the properties were acquired with a combination of cash and 54,167 partnership units. The 54,167 partnership units are guaranteed to have a market value of $24 three years from the transaction date and have certain registration rights.
The following proforma information was prepared by adjusting the actual consolidated results of the Partnership for the years ended December 31, 1995 and 1994 for the effects of the 1995 acquisitions as if all such acquisitions and related financing transactions including the issuance of 54,167 units had occurred on January 1, 1994. Interest expense for proforma purposes was calculated assuming a 7.7% interest rate for both years presented, which approximates the rate the Partnership paid during 1995.
These proforma operating results are not necessarily indicative of what the actual results of operations of the Partnership would have been assuming all of the properties were acquired as of January 1, 1994, and they do not purport to represent the results of operations for future periods.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
14. SUBSEQUENT EVENTS
In January 1996, 23 properties were purchased in six separate transactions. The total purchase price was $14 million which consisted of cash and 327,836 Partnership units. Among the properties acquired were 13 Burger Kings, 3 Dairy Queens, and 2 KFCs. Of the 327,836 units issued, 299,575 units have a guaranteed market price of $24 per unit within two years of the date issued, any difference being payable through issuance of additional partnership units. The units must be registered by the Partnership by January 1997, which will result in related registration costs. The remaining units have a guaranteed market price of $23 per unit within three years of the date issued, any difference being payable through issuance of additional partnership units. There is no registration requirement in respect to the latter units.
On February 15, 1996, the $20 million line of credit was increased to $40 million.
U.S. RESTAURANT PROPERTIES MASTER L.P. FORM 10-K SUPPLEMENTAL SCHEDULE: REAL ESTATE AND ACCUMULATED DEPRECIATION DECEMBER 31, 1995
EXHIBIT INDEX
2.1 Amended and Restated Purchase and Sale Agreement dated as of February 3, 1986. (Incorporated by reference to Exhibit 10(a) to Amendment No. 2 to the Registration Statement).
3.1 The original Certificate of Limited Partnership of U.S. Restaurant Properties Master L.P. (Incorporated by reference to Exhibit 4.3 to the Registration Statement). Amendments filed on July 1, 1994, November 7, 1994 and November 30, 1994. (Incorporated by reference to Exhibit 3.1 to the Registrant's 10-K Annual Report for the year ended December 31, 1994.)
3.2 Second Amended and Restated Agreement of Limited Partnership of U.S. Restaurant Properties Master L.P. dated as of March 17, 1995. (Incorporated by reference to Exhibit 3.2 to the Registrant's 10-K Annual Report for the year ended December 31, 1994.)
3.3 Certificate of Limited Partnership of U.S. Restaurant Properties Operating L.P. (Incorporated by reference to Exhibit 4.4 to the Registrant Statement.) Amendments filed on July 26, 1994 and November 30, 1994. (Incorporated by reference to Exhibit 3.3 to the Registrant's 10-K Annual Report for the year ended December 31, 1994.)
3.4 Second Amended and Restated Agreement of Limited Partnership of U.S. Restaurant Properties Operating L.P. dated as of March 17, 1995. (Incorporated by reference to Exhibit 3.4 to the Registrant's 10-K Annual Report for the year ended December 31, 1994.)
4.1 Deposit Agreement and Form of Depositary Receipt and Application for Transfer of Depositary Units. (Incorporated by reference to Exhibit 4.5 to Amendment No. 3 to the Registration Statement.) First Amendment to Deposit Agreement. (Incorporated by reference to Exhibit (4)A to Registrant's 8-K Current Report dated September 30, 1987.)
10.1 Amendment No. 91 - Burger King Corporation Withdrawal as Special General Partner and Name Change (Incorporated by reference to Exhibit 10.1 to the Registrant's 10-Q Report for the period ended September 30, 1994.)
10.2 Consulting Agreement dated April 30, 1987. (Incorporated by reference to Exhibit 10.2 to the Registrant's 10-K Annual Report for the year ended December 31, 1987.)
#10.3 Option Agreement, dated as of March 24, 1995, between U.S. Restaurant Properties Master L.P. and QSV Properties Inc. (Incorporated by reference to Exhibit 10.3 to the Registrant's 10-K Annual Report for the year ended December 31, 1994.)
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#10.4 Agreement between BKC and Robert J. Stetson regarding sale of QSV Properties Inc. (Incorporated by reference to Exhibit 10.1 to the Registrant's 10-Q Report for the period ended June 30, 1994.)
10.5 Letter re change of Registrar and Stock Transfer Agent. (Incorporated by reference to Exhibit 10.2 to the Registrant's 10-Q Report for the period ended September 30, 1994.)
*10.6 Amended and Restated Secured Loan Agreement dated as of February 15, 1996 between Registrant and various banks.
12.1 Subsidiaries of the Registrant. (Incorporated by reference to Exhibit 22.1 to the Registrant's 10-K Annual Report for the year ended December 31, 1994.)
27.1 Financial Data Schedule __________________ * Filed herewith. # Management compensatory document.
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