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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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SCHEDULE 14A INFORMATION
CONSENT SOLICITATION 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 Consent Solicitation Statement
|_| Confidential, for Use of the Commission
Only (as permitted by Rule 14a-6(e)(2))
|X| Definitive Consent Solicitation Statement
|_| Definitive Additional Materials
|_| Soliciting Materials Pursuant to ss. 240.14a-ll(c) or ss. 240.14a-12
FOGELMAN MORTGAGE L.P. I
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(NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
FOGELMAN MORTGAGE L.P. I
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(NAME OF PERSONS(S) FILING CONSENT SOLICITATION STATEMENT,
IF OTHER THAN THE REGISTRANT)
PAYMENT OF FILING FEE (CHECK THE APPROPRIATE BOX):
|_| No fee required.
|X| 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:
Units of Limited Partnership Interest ("Units")
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(2) Aggregate number of securities to which transaction applies:
54,200 Units
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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):
The filing fee of $9,660 has been calculated in accordance with
Rule 0-11 under the Exchange Act and is equal to 1/50 of 1% of
$48,300,000 (the aggregate of the cash presently estimated to be
received by the Registrant).
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(4) Proposed maximum aggregate value of transaction:
$48,300,000
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(5) Total fee paid:
$9,660
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|X| Fee paid previously with preliminary materials.
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|_| 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, of the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:____________________________________________
(2) Form, Schedule or Registration Statement No.:______________________
(3) Filing Party:______________________________________________________
(4) Date Filed:________________________________________________________
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FOGELMAN MORTGAGE L.P. I
One Seaport Plaza
New York, New York 10292
Dear Unitholders:
We are writing to request your consent to the payoff of the two outstanding
mortgage loans ("Mortgage Loans") payable to Fogelman Mortgage L.P. I
("Partnership"), for a minimum of $48,000,000 in cash. This constitutes the
disposition of substantially all of the assets of the Partnership
("Disposition"). Holders of a majority of the Partnership's outstanding Units
must consent to the proposal for the transaction to proceed.
The enclosed materials discuss the transaction in detail, but we would like
to summarize our reasons for recommending that you consent to the proposal.
o The Disposition is expected to result in the distribution of
approximately $886 per Unit.
o The General Partner believes that the Disposition is the most
attractive alternative available to the Partnership.
o The Partnership has received an opinion from Scott-Macon Securities,
Inc., the financial advisor to the Partnership, that the consideration
to be received in connection with the Disposition is fair to the
Partnership and Unitholders from a financial point of view (see "THE
DISPOSITION - Fairness Opinion" in the attached Consent Solicitation
Statement).
o In determining the fairness of the Disposition, the financial advisor
to the Partnership solicited other offers to purchase the Mortgage
Loans and the proposed Disposition represented the most favorable
terms.
The primary disadvantage to the Disposition is that the amount of cash the
Partnership is to receive from the Disposition (a minimum of $48,000,000 which
may be increased based on certain additional interest payments which may be
made) does not equal the total amount outstanding on the Mortgage Loans
including accrued interest at December 31, 1997 ($57,772,000) and is less than
the $49,800,000 appraisal of the properties underlying the Mortgage Loans, dated
April 15, 1997.
Unitholders who dissent from the consent of the majority in approving or
disapproving the Disposition do not have any rights of appraisal or similar
rights.
YOU ARE ENCOURAGED TO READ THE CONSENT SOLICITATION STATEMENT IN ITS
ENTIRETY, INCLUDING THE OPINION OF SCOTT-MACON SECURITIES, INC., WHICH IS
APPENDED TO THE CONSENT SOLICITATION STATEMENT AS APPENDIX II. WE REQUEST THAT
YOU APPROVE THE PROPOSED TRANSACTION BY SIGNING AND RETURNING THE ENCLOSED
CONSENT CARD IN THE ACCOMPANYING POSTAGE-PAID ENVELOPE. Your participation is
extremely important, and your early response could save your Partnership the
substantial costs associated with a follow-up mailing and other communications.
<PAGE>
If you have questions regarding the proposed Disposition or need assistance
in completing and returning your consent card, you may call the Partnership's
Soliciting Agent, Morrow & Co., Inc., at (800) 566-9061.
Dated: April 23, 1998 PRUDENTIAL-BACHE PROPERTIES, INC.
General Partner
By: /s/ BRIAN J. MARTIN
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Brian J. Martin
President
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FOGELMAN MORTGAGE L.P. I
One Seaport Plaza
New York, New York 10292
NOTICE OF CONSENT SOLICITATION
To The Unitholders of Fogelman Mortgage L.P. I
NOTICE IS HEREBY GIVEN to holders ("Unitholders") of units of beneficial
interest of limited partnership interest ("Units") in Fogelman Mortgage L.P. I,
a Tennessee limited partnership ("Partnership") that Prudential-Bache
Properties, Inc. ("General Partner") is soliciting written consents to approve
the payoff of the two outstanding mortgage loans ("Mortgage Loans") payable to
the Partnership, constituting the disposition of substantially all of the
Partnership's assets ("Disposition"). The Partnership will dispose of the
Mortgage Loans for a minimum of $48,000,000 in cash pursuant to the Payoff
Agreement effective on December 1, 1997, as amended as of January 30, 1998
("Payoff Agreement"), by and among the Partnership, Fogelman Enterprises, L.P.,
a Delaware limited partnership ("FELP") and Avron B. Fogelman ("A. Fogelman,"
together with FELP, "Fogelman"). Under the terms of the Amended and Restated
Certificate and Agreement of Limited Partnership ("Partnership Agreement") of
the Partnership, the disposition of all of the Partnership's assets and the
receipt of the final payment with respect thereto, automatically results in the
termination and dissolution of the Partnership 120 days following such
consummation of the Disposition. Following the consummation of the Disposition,
a distribution of net payoff proceeds and net assets will be made to the
Unitholders.
The sale of all or substantially all of the Partnership's assets must be
approved by Unitholders holding a majority of the outstanding Units. Because the
Disposition will result in the disposition of substantially all of the
Partnership's assets and the termination and dissolution of the Partnership, the
approval of the Unitholders owning a majority of the outstanding Units is being
sought. Only Unitholders of record at the close of business on April 1, 1998 are
entitled to notice of the solicitation of consents and to give their consent to
the Disposition. In order to be valid, all consents must be received before 5:00
P.M., New York City time, on May 26, 1998, unless such date or time is extended
for a period ending not more than 60 days from the date the Consent Solicitation
is mailed, in the sole discretion of the General Partner or unless the necessary
vote to approve the Disposition is received earlier, then upon such date
("Expiration Date"). In no event shall the consummation of the Disposition occur
later than May 29, 1998 unless such later date is approved by Fogelman, in its
sole discretion. The vote will be obtained through the solicitation of written
consents, and no meeting of Unitholders will be held. A consent may be revoked
by written notice of revocation or by a later dated consent containing different
instructions received at any time on or before the Expiration Date.
Under the terms of the Partnership Agreement, annual reports are required
to be delivered to Unitholders. Appendix III of the enclosed Consent
Solicitation Statement contains the annual report on Form 10-K/A for the year
ended December 31, 1997 which, other than the exhibits thereto, is hereby
incorporated by reference. Please note that the exhibits attached to the annual
report are not a part of the Consent Solicitation Statement. A separate annual
report will not be mailed to Unitholders.
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YOUR APPROVAL IS IMPORTANT -- PLEASE READ THE CONSENT SOLICITATION
STATEMENT CAREFULLY AND THEN COMPLETE, SIGN AND DATE THE ENCLOSED CONSENT CARD
AND RETURN IT PRIOR TO THE EXPIRATION DATE TO THE PARTNERSHIP'S SOLICITING AGENT
IN THE ACCOMPANYING SELF-ADDRESSED, POSTAGE-PAID ENVELOPE. Any consent card
which is signed and does not specifically disapprove the Disposition will be
treated as approving the Disposition. Your prompt response will be appreciated.
Dated: April 23, 1998 PRUDENTIAL-BACHE PROPERTIES, INC.,
General Partner
By: /s/ BRIAN J. MARTIN
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Brian J. Martin
President
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FOGELMAN MORTGAGE L.P. I
One Seaport Plaza
New York, New York 10292
CONSENT SOLICITATION STATEMENT
This Consent Solicitation Statement ("Consent Statement") is being
furnished to holders ("Unitholders") of units of beneficial interest of limited
partnership interest ("Units") in Fogelman Mortgage L.P. I, a Tennessee limited
partnership ("Partnership"), in connection with the solicitation of written
consents ("Consents") by Prudential-Bache Properties, Inc. ("General Partner")
to approve the payoff of the two outstanding mortgage loans ("Mortgage Loans")
payable to the Partnership for a minimum of $48,000,000 in cash. This
constitutes the disposition of substantially all of the Partnership's assets
(the "Disposition"). The Partnership will dispose of the Mortgage Loans pursuant
to the Payoff Agreement effective on December 1, 1997 ("Original Payoff
Agreement"), as amended as of January 30, 1998 ("Payoff Agreement") by and among
the Partnership, Fogelman Enterprises, L.P., a Delaware limited partnership
("FELP") and Avron B. Fogelman ("A. Fogelman", together with FELP, "Fogelman"),
which agreement is attached hereto as Appendix I, and is more fully described in
the Consent Statement under the heading "THE DISPOSITION." If the Disposition is
approved and consummated, it would automatically result in the complete
termination and dissolution of the Partnership upon the expiration of 120 days
after the consummation of the Disposition. As a result of the Disposition, the
net payoff proceeds and other Partnership assets will be distributed to
Unitholders after payment of all expenses and liabilities.
This Consent Statement, the attached Notice of Consent Solicitation and the
accompanying consent card are first being mailed to Unitholders on or about
April 23, 1998.
THE DATE OF THIS CONSENT SOLICITATION STATEMENT IS APRIL 23, 1998.
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TABLE OF CONTENTS
PAGE
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SUMMARY....................................................................... 1
ACTION BY CONSENT............................................................. 5
General................................................................. 5
Matters to be Considered................................................ 5
Record Date............................................................. 5
Action by Consent....................................................... 5
Fairness of the Disposition............................................. 6
THE DISPOSITION............................................................... 6
Description of the Partnership.......................................... 6
Description of the Mortgage Loans....................................... 6
Background of the Disposition of the Mortgage Loans..................... 7
Fairness Opinion........................................................ 9
Recommendation of the General Partner...................................14
Disadvantage of the Disposition.........................................15
Failure to Approve the Disposition......................................15
Terms of the Payoff Agreement...........................................16
Benefit To General Partner From Disposition.............................17
Use of Proceeds.........................................................17
CERTAIN FEDERAL AND STATE INCOME TAX CONSEQUENCES OF THE
DISPOSITION................................................................18
General.................................................................18
Foreign Investors.......................................................19
Certain State Income Tax Considerations.................................19
Tax Conclusion..........................................................20
ACCOUNTING TREATMENT..........................................................20
NO APPRAISAL RIGHTS...........................................................20
SELECTED HISTORICAL FINANCIAL DATA............................................20
VOTING SECURITIES AND PRINCIPAL HOLDERS THEREOF...............................21
VOTING PROCEDURES.............................................................21
AVAILABLE INFORMATION.........................................................22
DOCUMENT INCORPORATED BY REFERENCE............................................22
EXHIBIT AND APPENDICES
EXHIBIT A -- Form of Consent.................................................A-1
APPENDIX I -- Payoff Agreement...............................................I-1
APPENDIX II -- Opinion of Scott-Macon Securities, Inc.......................II-1
APPENDIX III -- Annual Report on Form 10-K/A for the year ended December 31,
1997 ....................................................................III-1
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SUMMARY
The following is a summary of the material aspects of the Disposition
contained in this Consent Statement. References are made to, and this summary is
qualified in its entirety by, the more detailed information contained in this
Consent Statement. Unless otherwise defined herein, terms used in this summary
have the respective meanings ascribed to them elsewhere in this Consent
Statement. Unitholders are urged to read this Consent Statement in its entirety.
THE PARTNERSHIP
Fogelman Mortgage L.P. I.....................The Partnership is the holder of
two Mortgage Loans. The principal
offices of the Partnership are
located at One Seaport Plaza, New
York, New York 10292, and its
telephone number is (212) 214-3500.
THE DISPOSITION
General......................................The proposal to be approved by the
Unitholders is the payoff of the
Mortgage Loans for $48,000,000 plus
an amount, if any, by which the
aggregate amount of interest paid
to the Partnership with respect to
the Mortgage Loans for the period
October 1, 1997 through the
consummation of the Disposition is
less than interest on the face
amount of the mortgage loans at an
annual rate of 7.7%. This
constitutes the disposition of
substantially all of the
Partnership's assets. See "THE
DISPOSITION - Terms of the Payoff
Agreement."
Background of the Disposition................See "THE DISPOSITION-Background of
the Disposition."
Recommendation of the General Partner........The General Partner has carefully
considered the Disposition and has
concluded that the Disposition is
fair and in the best interests of
the Partnership and the
Unitholders. Such conclusion is
based, in part, on the fairness
opinion which was rendered by the
financial advisor to the
Partnership and on the other
factors discussed under "THE
DISPOSITION - Recommendation of the
General Partner." See APPENDIX II
to this Consent
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Statement. Accordingly, the General
Partner approved the Disposition.
Disadvantages of the Disposition.............The primary disadvantage of the
Disposition is that the amount of
cash the Partnership is to receive
from the Disposition (a minimum of
$48,000,000 which may be increased
based on certain additional
interest payments which may be paid
to the Partnership) is less than
the most recent appraised value of
the Properties underlying the
Mortgage Loans ($49,800,000) and
less than the amount due on such
Mortgage Loans including accrued
interest at December 31, 1997
($57,772,000).
Security Ownership
and Voting Thereof...........................At the Record Date, neither the
General Partner nor any executive
officer or director of the General
Partner, owned directly or
beneficially any Units, except that
Prudential Securities, Inc.
("PSI"), an affiliate of the
General Partner, beneficially owns
835 Units and PSI intends to
consent to the Disposition. PSI is
not making a recommendation to the
Unitholders regarding whether
Unitholders should consent to the
Disposition. See "VOTING SECURITIES
AND PRINCIPAL HOLDERS THEREOF."
Opinion of Financial Advisor.................Scott-Macon Securities, Inc.
("Scott-Macon") acted as a
financial advisor to the
Partnership in connection with the
Disposition. The General Partner
has received a fairness opinion
from Scott-Macon that the
consideration to be received by the
Partnership in connection with the
Disposition is fair, from a
financial point of view, to the
Partnership and the Unitholders.
See "THE DISPOSITION-Fairness
Opinion."
Consummation of the Disposition..............The Disposition will be consummated
as promptly as practical after
obtaining the requisite approval by
the Unitholders of the Disposition.
See "THE DISPOSITION-Terms of the
Payoff Agreement."
2
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No Appraisal Rights..........................If the Disposition is approved by
Unitholders owning a majority in
interest of the outstanding Units,
dissenting Unitholders will not
have appraisal rights or similar
rights in connection with the
Disposition. See "NO APPRAISAL
RIGHTS."
Certain Federal and State
Income Tax Consequences......................The Partnership expects to
recognize taxable income of
approximately $1,000,000 from the
Disposition. The Partnership would
have taxable income in a comparable
amount regardless of whether it
received an equivalent amount of
proceeds at the maturity of the
Mortgage Loans (were they held
until then), or upon the
Disposition. The Disposition
proceeds distributed to the
Unitholders are expected to exceed
the Unitholders' income tax
liability attributed to the
Disposition. See "CERTAIN FEDERAL
AND STATE INCOME TAX CONSEQUENCES
OF THE DISPOSITION."
Distribution of Net Payoff Amount............As promptly as practicable
following the consummation of the
Disposition, the General Partner
will determine the amount of funds
that it believes will be sufficient
to provide for the Partnership's
liabilities, including contingent
liabilities, if any. The balance of
the Partnership's funds will be
distributed to the Unitholders and
General Partner in accordance with
the Partnership Agreement. Once all
liabilities have been satisfied,
the Partnership will distribute its
remaining net assets and dissolve.
It is expected that a portion of
the net "Payoff Amount" (as defined
under "THE DISPOSITION - Terms of
the Payoff Agreement") will be
distributed as soon as practicable
following the consummation of the
Disposition and the balance will be
distributed within 120 days of the
consummated Disposition. The net
"Payoff Amount" is expected to
result in a
3
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distribution to Unitholders of
approximately $886 per Unit.
ACTION BY WRITTEN CONSENT
Termination of Consent
Solicitation.................................Consents must be received by mail
or facsimile before May 26, 1998,
at 5:00 P.M., New York City time,
unless such date or time is
extended for a period ending not
more than 60 days from the date the
Consent Solicitation Statement is
mailed, in the sole discretion of
the General Partner, or unless the
necessary vote to approve the
Disposition is received earlier,
then upon such date ("Expiration
Date").
Record Date; Units
Entitled to Consent..........................Unitholders of record at the close
of business on April 1, 1998 are
entitled to approve the Disposition
by written Consent. At such date
there were outstanding 54,200
Units, each of which will entitle
the record owner thereof to one
vote.
Purpose of the Action........................Written Consents are being
solicited to approve the payoff of
the Mortgage Loans, constituting
the disposition of substantially
all of the assets of the
Partnership.
Soliciting Agent.............................The Partnership has retained Morrow
& Co., Inc. to act as Soliciting
Agent and assist in the
solicitation of Consents.
Completed, signed consent cards
must be returned to Morrow & Co.,
Inc., 909 Third Avenue, New York,
New York, 10022-4799 by mail or
facsimile before the Expiration
Date. If you have any questions,
please call Morrow & Co., Inc. at
(800) 566-9061.
Consent Required.............................The proposal must be approved by
Unitholders holding a majority of
all outstanding Units.
Revocability of Consent......................A consent may be revoked by written
notice of revocation or by a later
dated consent containing different
instructions received at any time
on or before the Expiration Date.
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ACTION BY CONSENT
GENERAL
This Consent Statement is being furnished on behalf of the Partnership to
the Unitholders of the Partnership in connection with the solicitation of
Consents by Prudential-Bache Properties, Inc., as the General Partner.
This Consent Statement, the attached Notice of Consent Solicitation and
accompanying consent card are first being mailed to Unitholders on or about
April 23, 1998.
MATTERS TO BE CONSIDERED
Consents are being solicited to approve the payoff of the Mortgage Loans
for a minimum of $48,000,000 in cash, constituting the disposition of
substantially all of the Partnership's assets. Upon the Disposition, the General
Partner will make a distribution to the Unitholders of substantially all of the
net Payoff Amount and other Partnership assets after payment or the retention of
proceeds to pay all expenses and liabilities. The Disposition will be followed
by the complete liquidation and dissolution of the Partnership upon the
expiration of 120 days following such consummation of the Disposition, at which
time any remaining proceeds will be distributed.
The General Partner proposes that the Unitholders approve the Disposition
for a minimum of $48,000,000 in cash of substantially all of the Partnership's
assets, which consist of the two Mortgage Loans: (i) a loan in the face amount
of $22,745,000 ("Pointe Royal Loan") made to FPI Royal View, Ltd. ("Royal
View"), and (ii) a loan in the face amount of $23,320,000 ("Westmont Loan") made
to FPI Chesterfield, L.P. ("Chesterfield", together with Royal View, the
"Fogelman Partnerships"), pursuant to the Payoff Agreement attached hereto as
APPENDIX I.
RECORD DATE
The close of business on April 1, 1998 ("Record Date") has been fixed by
the General Partner for determining the Unitholders entitled to receive notice
of the solicitation of Consents and to give their Consent to the Disposition. On
the Record Date, there were 54,200 issued and outstanding Units entitled to vote
held of record by 4,956 holders.
ACTION BY CONSENT
The Partnership Agreement requires Unitholders to approve the sale of all
or substantially all of the Partnership's assets. Because the Disposition would
result in the disposition of substantially all of the Partnership's assets and
the automatic termination and dissolution of the Partnership, the approval of
the Disposition by the Unitholders owning a majority of the outstanding Units is
being sought to effect the Disposition. Such approval will be obtained through a
solicitation of written Consents from Unitholders, and no meeting of Unitholders
will be held to vote on the Disposition. Under Tennessee law and under the
Partnership Agreement, any matter upon which the limited partners and
Unitholders are entitled to act may be submitted for a vote by written consent
without a meeting. Any Consent given pursuant to this solicitation may be
revoked by the person given it at any time before 5:00 P.M., New York City time,
on May 26, 1998 (unless the expiration of the solicitation is shortened or
extended), by sending a written notice of revocation or a later dated Consent
containing different instructions to the solicitation agent at Morrow & Co.,
Inc., 909 Third Avenue, New York, New York, 10022-4799.
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In addition to solicitation by use of the mails, officers, directors and
employees of the General Partner or their affiliates may solicit Consents in
person or by telephone, facsimile or other means of communication. Such
officers, directors and employees will not receive additional compensation for
such services but may be reimbursed for reasonable out-of-pocket expenses in
connection with such solicitation. Arrangements have been made with custodians,
nominees and fiduciaries, where applicable, for the forwarding of consent
solicitation materials to beneficial owners of Units held of record by such
custodians, nominees and fiduciaries and the Partnership will reimburse such
custodians, nominees and fiduciaries for reasonable expenses incurred in
connection therewith. In addition, the Partnership has hired Morrow & Co., Inc.
to assist in the solicitation of the Consents, and will pay an estimated fee of
$10,000 plus the usual and customary fees and expenses associated with such
solicitation assistance. All costs and expenses of the solicitation of Consents,
including the costs of preparing and mailing this Consent Statement, will be
borne by the Partnership. The aggregate expenses anticipated to be incurred by
the Partnership relating to this solicitation, including legal fees are expected
to be approximately $380,000.
FAIRNESS OF THE DISPOSITION
The General Partner believes that the terms of the Disposition are fair and
reasonable and that the Disposition is in the best interests of the Unitholders
and the Partnership and has, therefore, approved the Disposition. In determining
the fairness of the Disposition, the General Partner considered each of the
factors discussed in the section of this Consent Statement entitled "THE
DISPOSITION--Recommendation of the General Partner." In addition, the General
Partner relied upon the fairness opinion rendered by the financial advisor to
the Partnership that is set forth as APPENDIX II hereto. See "THE DISPOSITION
- --Fairness Opinion."
THE DISPOSITION
DESCRIPTION OF THE PARTNERSHIP
The Partnership, a Tennessee limited partnership, was formed on September
4, 1986 and will terminate on December 31, 2016 unless terminated sooner under
the Partnership Agreement. In 1987, 54,200 Units were sold to the public at
$1,000 per unit. The offering closed in July 1987 and the net proceeds were used
to fund two Mortgage Loans which provided construction financing and permanent
financing for the development of two multi-family residential apartment
complexes.
DESCRIPTION OF THE MORTGAGE LOANS
The Partnership is the holder of the two Mortgage Loans. The Pointe Royal
Loan is secured by a first mortgage and related security documents encumbering
the Pointe Royal Apartments which is a 437 unit project in Overland Park, Kansas
("Pointe Royal Apartments"). The Pointe Royal Loan is payable by a Fogelman
Partnership in which A. Fogelman and FELP are the general partners, and matures
on April 23, 1999. The Westmont Loan is secured by a first mortgage and related
security documents encumbering the Westmont Apartments which is a 489 unit
project in Chesterfield, Missouri ("Westmont Apartments" collectively with the
Pointe Royal Apartments, "Properties"). The Westmont Loan is also payable by a
Fogelman Partnership in which A. Fogelman and FELP are the general partners, and
matures on July 8, 1999.
6
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The Mortgage Loans were structured as interest only loans with interest
payable annually at a rate of 9.50% per annum and a bullet repayment at the end
of twelve years. The Mortgage Loans were initially guaranteed by A. Fogelman,
however, after a restructuring in 1990 as described below, the guaranty was
removed. The Mortgage Loans are solely nonrecourse notes collateralized by the
Pointe Royal Apartments and the Westmont Apartments.
The Mortgage Loans were amended effective January 1, 1990. If property cash
flow is insufficient to pay the interest, then the interest paid is equal to the
property cash flow and the difference is accrued and bears interest at 9.50% per
annum. During 1992, A. Fogelman, the Partnership and other defendants settled
litigation with certain investors in the Partnership who brought a suit against
the Partnership, alleging that the Partnership violated certain provisions of
the Securities Act of 1933, as amended and the Securities Exchange Act of 1934,
as amended in connection with the sale of the Units. The investors claimed the
Partnership misstated or failed to disclose material facts in the registration
statement and prospectus that accompanied the offering material. Pursuant to the
settlement, funds placed by A. Fogelman in trust to satisfy his guaranty related
to the Mortgage Loans were released to the Partnership and applied as payment of
accrued interest. A. Fogelman was then released from his guaranty on the
Mortgage Loans and A. Fogelman and affiliated entities withdrew as general
partners from the Partnership. In connection with the settlement, and until
negotiations commenced with respect to the Payoff Agreement, there have been no
material contracts, arrangements, understandings, relationships, negotiations or
transactions between A. Fogelman and his affiliates and the Partnership, except
with respect to the Mortgage Loans. In accordance with the transfer of funds to
the Partnership, the Pointe Royal Apartments and the Westmont Apartments
recorded second mortgage notes payable to A. Fogelman in the amounts of
$1,063,000 and $1,089,000, respectively, which were the amounts transferred to
the Partnership. These notes bear interest at the prime rate plus 2%, adjustable
monthly, and the notes mature on April 23, 1999 and July 8, 1999, respectively.
The notes and interest are subordinate to the Mortgage Loans and related
interest payable to the Partnership.
The principal amount due on the Mortgage Loans and the twelve year bullet
maturity were unchanged in the restructuring. Therefore, the Pointe Royal Loan
current balance remains at $22,745,000 and matures on April 23, 1999, while the
Westmont Loan current balance remains at $23,320,000 and matures on July 8,
1999. The total current face amount of the Mortgage Loans is $46,065,000. The
total accrued interest on the Mortgage Loans at December 31, 1997 was
approximately $11,707,000 which, when added to the principal amounts
outstanding, increases the total obligation on the Mortgage Loans to
approximately $57,772,000. At maturity, the total amount due with respect to the
Mortgage Loans will equal the sum of (i) the face amount of the Mortgage Loans,
(ii) total accrued interest on the Mortgage Loans, and (iii) any contingent
interest due under the Mortgage Loans.
BACKGROUND OF THE DISPOSITION OF THE MORTGAGE LOANS
In March 1997, an officer and counsel of Fogelman met with officers of the
General Partner to discuss the possibility of paying off the Mortgage Loans for
an aggregate payoff amount of approximately $36,000,000. The General Partner
believed such amount was inadequate because it was substantially below (i) the
amount due on the Mortgage Loans, (ii) the face amount (the principal amount due
on the Mortgage Loans) of the Mortgage Loans, and (iii) the March 1996 appraised
value of the Properties as evidenced by a March 1996 appraisal prepared by
Cushman & Wakefield in the amount of $51,500,000. Therefore, the General Partner
declined to accept the offer.
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Following the first offer by Fogelman, the General Partner concluded that
it would be appropriate to obtain a current appraisal of the Properties in the
expectation that additional offers may follow and instructed Cushman & Wakefield
to prepare a new appraisal of the Properties. Cushman & Wakefield is a
nationwide commercial real estate company which provides a broad array of
services including a valuations and appraisals. Cushman & Wakefield was selected
to perform the appraisals based on their qualifications, expertise and
reputation as well as this firm's prior performance for other partnerships
sponsored by the General Partner or its affiliates. Other than with respect to
the appraisals, Cushman & Wakefield had no prior relationship with the
Partnership. Cushman & Wakefield has, from time to time, acted as a financial
consultant to or provided appraisal on valuation services for the General
Partner and its affiliates and may do so in the future.
Cushman & Wakefield prepared complete, self-contained appraisal reports
regarding the Properties. In the process of conducting each of the appraisals,
Cushman & Wakefield prepared a sales comparison approach and income
capitalization approach, whereby Cushman & Wakefield interviewed the asset
manager and property manager; reviewed historical leasing activity, concessions,
occupancy levels and current rent roll; reviewed historical and budgeted
operating statements; conducted a market survey of competing projects relative
to rents and occupancies; developed a stabilized net operating income and
11-year cash flow projection for purposes of direct capitalization and
discounted cash flow analysis; and analyzed recent sales of comparable apartment
properties within the relevant market area (capitalization rates, price per
unit, expense ratios and effective gross income multipliers).
The Partnership imposed no conditions or limitations on the scope of
Cushman and Wakefield's appraisals or the methods or procedures in producing
such appraisals and did not give Cushman & Wakefield instructions regarding how
to perform the appraisals or as to any other matters. Cushman & Wakefield did
not determine the Payoff Amount.
In September 1997, on one occasion an officer and counsel of Fogelman met
with officers of the General Partner concerning paying off the Mortgage Loans,
this time offering an aggregate of $44,500,000. The focus of the meeting was on
the valuation of the Mortgage Loans. The parties discussed the decline in the
market value of the Properties, the difficulty of realizing the value of the
Mortgage Loans if they were held until maturity and the present availability to
Fogelman of favorable financing with which to pay off the Mortgage Loans. The
outstanding face amount of the Mortgage Loans equaled $46,065,000 which, when
added to the accrued interest thereon, aggregated approximately $56,788,000, as
of September 30, 1997. Having received an updated appraisal from Cushman &
Wakefield dated April 15, 1997 indicating that the value of the Properties was
$49,800,000 which showed a decline of $1,700,000 from the March 1996 appraisals.
The General Partner determined that it was in the best interest of the
Unitholders to respond to Fogelman's offer by entering into negotiations with
Fogelman concerning the possible payoff of the Mortgage Loans. Numerous
telephone conversations were held regarding the valuation of the Mortgage Loans
and the determination of the Payoff Amount, as well as other specific terms and
conditions such as whether there would be a financing contingency, the need for
a fairness opinion and who would pay various fees and expenses. As a result of
such negotiations, Fogelman increased the offer to an amount equal to
$46,065,000 plus certain costs of the Consent Solicitation and guarantees
related to interest payments. Following such negotiations, the Board of
Directors of the General Partner met and unanimously authorized management to
enter into an agreement providing for the Payoff Amount, subject to receiving a
fairness opinion with regard to the transaction from an investment banking firm,
and to negotiate any additional terms.
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The General Partner considered various factors that it determined important
which are discussed under "The Disposition--Recommendations of the General
Partner," below.
The General Partner determined that it would be fair and in the best
interest of the Partnership to enter into the Original Payoff Agreement subject
to, among other things, obtaining a fairness opinion and the consent of
Unitholders.
Other than with respect to the filing of the Consent Solicitation
materials, no federal or state regulatory requirements must be complied with or
approval obtained in connection with the Disposition.
The General Partner determined to make any acceptance of the Payoff
Agreement conditioned on obtaining a fairness opinion, as described below. The
General Partner agreed to the Payoff Amount and Scott-Macon did not set such
price. As part of the process of rendering a fairness opinion, Scott-Macon
conducted an open bid process as described under "THE DISPOSITION--Fairness
Opinion" below. As a result of that process, Fogelman raised its payoff offer to
$48,000,000 and an amount equal to the aggregate of interest payments previously
made on the Mortgage Loan during a specified period. The Original Payoff
Agreement was amended to reflect this increased Payoff Amount, the completion of
due diligence by lenders to Fogelman, the lack of a financing contingency and
certain other changes. See Appendix I for a copy of the Payoff Agreement.
FAIRNESS OPINION
The Partnership initially consulted with Scott-Macon, at the end of
November 1997, to act as its financial advisor and to render an opinion to the
Board of Directors of the General Partner of the Partnership, as to the fairness
to the Partnership, from a financial point of view, of the total consideration
to be received for the Mortgage Loans pursuant to the Original Payoff Agreement
with Fogelman. Scott-Macon determined that a selling process was necessary in
order for it to provide a fairness opinion and informed the Board of Directors
of the General Partner. On December 1, 1997, the Board of Directors entered into
an agreement with Scott-Macon for the completion of a selling process in
accordance with the terms of its engagement letter and, subsequent to that
selling process, provide the Fairness Opinion for the selected offer.
Scott-Macon is an investment banking firm that provides a wide range of
financial advisory and valuation services. It was selected by the Board of
Directors to provide such services based upon the firm's qualifications,
expertise and reputation, as well as its previous performance as an investment
banker with respect to other partnerships sponsored by the General Partner or
its affiliates, although it had not previously provided services to the
Partnership. The Partnership imposed no conditions or limitations on the scope
of Scott-Macon's investigation or the methods of procedures to be followed in
conducting the selling process or rendering its Fairness Opinion, nor did it
give Scott-Macon any instructions regarding how to conduct such process or
render its Fairness Opinion.
On January 30, 1998, Scott-Macon delivered to the Board of Directors of the
General Partner its Fairness Opinion, which stated that as of such date, the
total consideration to be received by the Partnership, for the Mortgage Loans,
pursuant to the Payoff Agreement, was fair to the Partnership and the
Unitholders from a financial point of view. The decision to enter into the
Payoff Agreement, however, was made by the Board of Directors of the General
Partner.
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A copy of the full text of the Fairness Opinion, which sets forth
assumptions made, matters considered, and limits on the review undertaken by
Scott-Macon, is attached hereto as Appendix II. Unitholders are urged to read
this Fairness Opinion in its entirety. The Fairness Opinion, which is directed
only to the offer being made pursuant to the Payoff Agreement, was for the
information of the Board of Directors and does not constitute a recommendation
to any Unitholder. The summary of the Fairness Opinion set forth in this Consent
Statement is qualified in its entirety by reference to the full text of such
Fairness Opinion.
For purposes of the Fairness Opinion, Scott-Macon: (i) reviewed the offers
received for the Mortgage Loans, (ii) reviewed the Original Payoff Agreement and
the Payoff Agreement, (iii) analyzed all loan documentation associated with the
Mortgage Loans, (iv) analyzed certain publicly available financial statements
for the Partnership, (v) analyzed certain financial statements and other
financial and operating data concerning the Mortgage Loans and the two
underlying Properties prepared by the Properties' management, as well as an
appraisal of the Properties prepared by Cushman & Wakefield, (vi) analyzed
certain budgets of the Properties, prepared by the Properties' management, (vii)
received information from members of the senior management of the Partnership on
past and current business operations and the financial condition and future
prospects of the Partnership, (viii) at the direction of the Board of Directors
of the General Partner, participated in completing a selling process in which
twenty-five firms were contacted to determine any interest in acquiring the
Mortgage Loans, (ix) reviewed and evaluated reported market prices of the
Partnership's Units, and (x) conducted such other studies, analyses, and
examinations it deemed necessary, including reviewing information concerning
public mortgage real estate investment trusts to determine if any were
comparable in an effort to value the Partnership's assets and analyzing the
financial statements of the publicly traded company which submitted one of the
written bids.
In connection with its review, Scott-Macon relied upon and assumed, without
independent verification, the accuracy and completeness of the financial and
other information regarding the Mortgage Loans and the Properties provided to
Scott-Macon by the Partnership and its representatives and by the Properties'
management. With respect to the financial information, Scott-Macon assumed that
they had been reasonably prepared on bases reflecting the best currently
available estimates and judgments of the Properties' management as to the future
financial performance of the Properties. Scott-Macon was not retained to conduct
a physical inspection of the Properties, nor did Scott-Macon make any
independent valuation or appraisal of the Properties' or the Partnership's
assets or liabilities. Scott-Macon also assumed that the Payoff Agreement in all
respects is and will be in compliance with all laws and regulations that are
applicable to the Partnership.
Scott-Macon's Fairness Opinion was based solely upon the information
available to it and the economic, market and other circumstances as they existed
as of January 30, 1998. Events occurring after that date could materially affect
the assumptions and conclusions contained in the Fairness Opinion. Scott-Macon
does not undertake to reaffirm or revise its Fairness Opinion or otherwise take
account of any events occurring after January 30, 1998.
In connection with rendering its Fairness Opinion, Scott-Macon performed a
variety of financial analyses, which included those summarized below. Although
the evaluation of the fairness, from a financial point of view, of the total
consideration to be paid pursuant to the Payoff Agreement was to some extent a
subjective one based on the experience and judgment of Scott-Macon and not
merely the result of mathematical analyses of financial data, Scott-Macon relied
on several basic financial valuation methodologies in its determinations.
Scott-Macon believes its analyses must be considered as a whole
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and that selecting portions of such analyses and factors considered by
Scott-Macon without considering all such analyses and factors could create an
incomplete view of the process underlying Scott-Macon's Fairness Opinion. In its
analyses, Scott-Macon made numerous assumptions with respect to business,
market, monetary and economic conditions, industry performance and other
matters, many of which are beyond the Partnership's control. Any estimates
contained in Scott-Macon's analyses are not necessarily indicative of future
results or values, which may be significantly more or less favorable than such
estimates. None of the analyses performed by Scott-Macon was assigned a greater
significance by Scott-Macon than any other.
Scott-Macon prepared a selling memorandum which contained detailed
information on the Mortgage Loans and summary information on the underlying
Properties, which memorandum was distributed as part of the bid process.
Scott-Macon approached twenty-five firms which it believed would be likely
buyers of the Mortgage Loans based on its experience as investment bankers,
suggestions from industry consultants with whom Scott-Macon had previously
worked (and which deal with buyers of mortgage loans) and on a lead based on
prior correspondence received by the General Partner. Of these twenty-five
firms, three submitted written offers to purchase the Mortgage Loans, while four
verbally indicated an initial interest to purchase the Mortgage Loans. All of
the verbal indications were below the written offers and were not pursued.
Scott-Macon completed a "modified open bid process" which meant that, although
the bidders did not have access to the other bidders or their bids, Scott-Macon
could communicate with each of the three firms (two bidders and Fogelman)
concerning the general terms and conditions required to continue the process,
including pricing and what contingencies each bidder was imposing (such as due
diligence or financing). Scott-Mason could add to the terms and conditions as
the process evolved and it determined what one of the bidders was willing to
include in their offers. In addition, the modified bid process is flexible and
does not limit the number of times an entity can change its bid during the
process. This process also allowed Scott-Macon to determine the timing of
completing the process.
Upon receiving the two bids, each for $48,500,000, Scott-Macon communicated
to one of the bidders, a private firm which, to the knowledge of the General
Partner, primarily engages in making tender offers, that to be competitive in
the bidding process, its offer needed to be made without any financial or due
diligence contingencies. Such bidder did not comply with Scott-Macon's request.
Scott-Macon communicated to the other bidder, a large publicly traded real
estate investment trust, that in order for its bid to be considered, it must
forego its due diligence contingency which would otherwise affect the certainty
of closing and of receiving the offered price, but the bidder refused to do so.
Scott-Macon indicated to Fogelman that for Fogelman to remain competitive it
must increase its offer and, after further discussion with Scott-Macon, Fogelman
increased its offer to a base of $48,000,000 and to continue to provide certain
additional interest payments. Fogelman subsequently informed Scott-Macon that it
was willing to offer these terms but would not continue to be willing to pay for
certain expenses of solicitation which it had previously agreed to pay. As a
result of the bid process, Fogelman contacted the Partnership and agreed to
modify the Original Payoff Agreement to contain the new terms. Although the two
bids were for an amount in excess of the minimum Payoff Amount, they were not
considered by Scott-Macon to be as favorable as the offer under the Payoff
Agreement after considering the guaranteed interest portion of the Payoff
Agreement, the risks and possible delays associated with the due diligence
contingency in both offers and the risks associated with the financing
contingency in one offer, which conditions created less certainty of closing and
of receiving the offered price.
Scott-Macon completed a discounted cash flow analysis which considered two
cases as follows: (i) Case 1 assumed that a foreclosure on the underlying
properties occurred either (x) fifteen months
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from closing at the time the Mortgage Notes mature, i.e. April 1999 and July
1999, due to failure to repay the outstanding obligation; or, if the owners of
the Properties enter into bankruptcy, (y) thirty months from closing (fifteen
months from maturity of the Mortgage Notes), i.e. October 2000; and (ii) Case 2
assumed that (x) at maturity, the full obligations of the Mortgage Notes were
repaid; and (y) if the obligations were not repaid, a foreclosure occurred
thirty months from closing (fifteen months from maturity of the Mortgage Notes)
as part of a bankruptcy proceeding, i.e. October 2000. Within each case, two
alternatives were reviewed: (1) Alternative A assumed no growth in the combined
net operating income of the two Properties; and (2) Alternative B assumed a 6%
annual compound growth in the combined net operating income of the two
Properties. Based on these two cases and two alternatives, four scenarios were
analyzed; Case 1A, Case 1B, Case 2A and Case 2B.
The model utilized nine assumptions as follows: (i) the closing of a
potential transaction was assumed to occur on April 30, 1998 while the Mortgage
Notes were assumed to mature on July 31, 1999; (ii) the six percent growth rate
used in Alternative B was used since it was slightly higher than the growth rate
in net operating income in any one of the last three years and was also slightly
higher than the five year annual compound growth rate; (iii) in valuing the
Properties, capitalization rates of 9.0%, 9.5% and 10.0% were utilized as they
were consistent with the capitalization rates utilized by Cushman & Wakefield in
their appraisal on the Properties completed on April 15, 1997; (iv) for the
fifteen month period from a potential closing to the maturity of the Mortgage
Notes and for the thirty month period from a potential closing to the end of a
possible bankruptcy, the value of the Properties were reduced by (x) $1,000,000
to reflect an estimate of the potential legal costs associated with a property
foreclosure; and (y) $11,500 per month to reflect the costs associated with
operating the Partnership through either July, 1999 or October, 2000; (v) for
Case 2, the total obligation at maturity was calculated by adding the current
accrued interest to the principal balance and estimating the additional accrued
interest from closing to maturity; (vi) 75% of the interest due at 9.5% was
assumed to be paid and, therefore, 25% of the interest due accrued as this
percentage was consistent with the period from 1990 to 1996 when the actual
interest paid to the interest due ranged from a low of approximately 71% to a
high of approximately 81% with an average of 76%; (vii) the accrued interest as
well as the accrued interest balance at closing earned interest at 9.5%; (viii)
in calculating the net present value, the interest paid on the Mortgage Notes on
a current basis, i.e. the 75% of the interest due, was added to the total amount
paid at maturity; and (ix) discount rates of 13%, 18% and 23% were utilized in
calculating the net present value as these discount rates appropriately
reflected alternative investments with risk attributes similar to that of the
Mortgage Notes. The total consideration reflected in the offer was compared to
the values derived from the discounted cash flow model. The overall results in
Case 1A ranged from a low net present value of approximately $32,800,000 to a
high net present value of approximately $44,800,000 with an average of the
eighteen net present value calculations of approximately $38,700,000. The
overall results in Case 1B ranged from a low net present value of approximately
$37,000,000 to a high net present value of approximately $47,800,000 with an
average of the eighteen net present value calculations of approximately
$41,900,000. The overall results for Case 2A ranged from a low net present value
of approximately $32,800,000 to a high net present value of approximately
$52,400,000 with an average of the twelve net present value calculations of
approximately $40,400,000. The overall results for Case 2B ranged from a low net
present value of approximately $37,000,000 to a high net present value of
approximately $52,400,000 with an average of the twelve net present value
calculations of approximately $44,000,000. In all four cases, the average net
present value was lower than the Offer and only in Case 2A and Case 2B did the
net present value exceed the face amount of the Mortgage Notes and that occurred
only under the assumption that the total obligations of the Mortgage Notes were
repaid in full at maturity which is estimated to be approximately $61,600,000.
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Scott-Macon compared the results of the selling process and the net present
value analysis in conjunction with the Cushman & Wakefield appraisal at April
15, 1997. Cushman & Wakefield calculated fair market values using the sales
approach and the income approach for the Pointe Royal Apartment Complex of
$24,200,000 and for the Westmont Apartment Complex of $25,600,000 for a total
value of the two apartment complexes of $49,800,000. In all four net present
value cases, the average net present value was lower than the Payoff Amount and
only in Case 2A and Case 2B did the net present value exceed the face amount of
the Mortgage Notes and that occurred only under the assumption that the total
obligations of the Mortgage Notes were repaid in full at maturity which is
estimated to be approximately $61,600,000. Although Scott-Macon did consider the
total amount due on the loans of approximately $61,600,000 in its net present
value analysis, Scott-Macon determined that the likelihood of repayment was
highly unlikely given that the underlying collateral value, based on the Cushman
& Wakefield appraisal at April 15, 1997 was $49,800,000. Scott-Macon believes
that the present value analysis support the finding as to fairness.
Scott-Macon reviewed the limited partnership secondary market price for the
Partnership's Units as stated in the January 1998 issue of the Dow Jones
Investment Advisor, which was the latest issue available at the time of
rendering the Fairness Opinion. According to the publication, the market prices
are based upon eleven secondary market firms which provide individual unit
transactions to compute a weighted average per unit and a 12-month high/low
pricing range. The listing indicated that for the latest period, the twelve
months ended October 31, 1997, the highest trading price for the Partnership's
Units was $720 while the lowest trading price was $505. With 54,200 Partnership
Units outstanding, this equated to a high market value of approximately
$39,000,000 and a low value of approximately $27,400,000; both values
substantially less than the total consideration received by the Partnership
pursuant to the Payoff Agreement and substantially less than the $886 per Unit
which the Partnership expects to distribute from the net Payoff Amount.
Furthermore, the trading market in the Partnership's Units is extremely thin
(i.e. 17 trades were completed in the month of October 1997), casting doubt on
the ability of all Unitholders to receive the reported trading prices for their
units.
The total consideration to be received by the Partnership pursuant to the
Payoff Agreement includes a cash payment of $48,000,000 which may be increased
based on certain additional payments which may be paid to the Partnership. The
Payoff Agreement provides for a guaranty of 7.7% interest on the Mortgage Loans
from October 1, 1997 through closing. According to the Payoff Agreement, from
October 1, 1997 through November 30, 1997, the shortfall (which was $329,553)
between the 7.7% interest guaranty and the property cash flow (as defined in the
original loan documents) accumulates and is paid at closing, unless paid prior
to closing. From December 1, 1997 through closing, the Payoff Agreement requires
that the 7.7% interest guaranty be paid on a current monthly basis. From 1990
through 1997, the cumulative interest paid on the Mortgage Loans resulted in an
effective interest rate of 6.47%. The interest paid for the four months from
December 1997 through March 1998 of $1,340,137 was in excess of $1,182,336
($295,584 monthly 7.7% interest guaranty for the four months) and, therefore,
reduced the interest guaranty presently due at closing to approximately
$172,000.
Based on all of the foregoing considerations, Scott-Macon rendered its
Fairness Opinion.
Scott-Macon received a fee for the preparation and rendering of its
Fairness Opinion in the amount of $100,000. In connection with the Fairness
Opinion, Scott-Macon and its affiliates have also performed investment banking
services for the Partnership by acting as financial advisor to the Partnership
and including conducting the bidding process in connection with the sale of the
Mortgage
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Loans, and have received or will receive fees for such services up to $250,000
but have informed the General Partner such fees do not constitute a significant
portion of its revenues.
RECOMMENDATION OF THE GENERAL PARTNER
The General Partner believes that the Disposition is fair and in the best
interests of the Partnership and the Unitholders.
IN REACHING ITS DETERMINATION THAT THE DISPOSITION IS FAIR, THE GENERAL
PARTNER CONSIDERED THE FOLLOWING FACTORS WITH RESPECT TO THE DISPOSITION:
(i) The Fairness Opinion of Scott-Macon that the consideration to be
received by the Partnership in connection with the Disposition is fair to the
Partnership and the Unitholders from a financial point of view. If this opinion
had not been obtained, the Disposition would not be consummated;
(ii) The open bidding process used by Scott-Macon resulted in two bids for
$48,500,000 which were higher than the Fogelman offer but were not more
favorable because they were subject to financing and due diligence, creating
uncertainty of closing and the possibility that the final purchase price to be
paid by these bidders could be reduced (see "THE DISPOSITION--Fairness
Opinion");
(iii) The Disposition, including its terms, is being submitted for the
approval by a majority in interest of the Unitholders;
(iv) The value of the Properties has declined by $1,700,000 since the
previous appraisal was conducted in March 1996, and may continue to decline as
construction with newer and superior amenities adds to the competitive pressure
on the property values, particularly in Overland, Park, Kansas where Pointe
Royal Apartments is located;
(v) The relatively small difference (which was expected to be less than
$1,800,000) between the value of such Properties as of the most recent appraisal
and the Payoff Amount;
(vi) If the Partnership were to hold the Mortgage Loans until maturity, the
Partnership was unlikely to recover the full amount due to it and would likely
need to institute foreclosure proceedings, resulting in the ultimate sale of the
Properties, which process would be costly and would reduce the funds available
for ultimate distribution and delay such distributions; and
(vii) Fogelman has indicated that due to significant tax consequences which
would result to it from a sale or foreclosure of the Properties, were the
Partnership to try to foreclose at maturity or otherwise exercise its remedies,
Fogelman would consider putting the Fogelman Partnerships into bankruptcy
proceedings which would likely cause a delay in and increase the cost of the
Partnership recovering amounts due under the Mortgage Loans and create
significant uncertainty as to the expectations for amounts ultimately
recoverable under the Mortgage Loans.
The General Partner also considered the disadvantages of the transaction as
described below under "THE DISPOSITION--Disadvantages of the Disposition"
recognizing that the Disposition would prevent the Partnership from receiving
the benefit from any appreciation in the value of the Properties
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and that the Disposition would result in the Partnership recovering less than
the most recent appraised value and less than the total amount due on the
Mortgage Loans.
The most critical factor in the General Partner's analysis was that no
Disposition would occur unless a fairness opinion was obtained because receiving
such an opinion was a condition precedent to the consummation of the
Disposition. The General Partner viewed all of the remaining factors in their
totality, believing that each had importance but that any single factor, viewed
independently, might not have been sufficient to lead the General Partner to
conclude that the transaction was fair. It considered the disadvantages, as well
as the advantages and on balance, the General Partner concluded that the
Disposition was fair.
The General Partner's decision that it was in the Partnership's best
interests to proceed with the Disposition at this time was based not only in its
belief that the Disposition was fair, but also upon its belief that more of the
Partnership's capital was likely to be preserved by a Disposition at this time.
In making this decision, the General Partner considered: (a) the amount likely
to be distributed to the Unitholders if the Disposition were to occur; and (b)
the business risks to which the Partnership would be exposed if the Disposition
were not to occur and the Partnership continued to hold the Mortgage Loans until
maturity. Because the Mortgage Loans are non-recourse and interest is only
required to be paid out of available cash flow, the Partnership is, in essence,
subject to the risks inherent in the ownership of real estate. These business
risks seemed exacerbated to the General Partner because of the decrease in the
appraised value of the Properties between the March 1996 appraisal and the April
1997 appraisal, the competitive pressures produced by new construction of
properties, particularly in the area where Pointe Royal Apartments is located,
and the indications from Fogelman that it might take actions which would delay
the receipt by the Partnership of payments due under the Mortgage Loans and make
it more costly to collect and possibly reduce the amount ultimately collected.
These considerations led the General Partner to conclude that it was unlikely
that the Partnership would ever recover the face value of the Mortgage Loans
when the Mortgage Loans matured and to determine that it was in the best
interest of the Partnership to liquidate its assets by consummating the
Disposition.
For all of these reasons the General Partner determined to proceed to
recommend the Disposition to the Unitholders at this time.
DISADVANTAGES OF THE DISPOSITION
The primary disadvantage of disposing of the assets pursuant to the
Disposition is that the Payoff Amount (a minimum of $48,000,000) to be received
by the Partnership from the Disposition is less than the most recent appraised
value of the Properties underlying the Mortgage Loans ($49,800,000) and less
than the amount due on such Mortgage Loans including accrued interest at
December 31, 1997 ($57,772,000). There can be no assurance that the value of the
Properties will not improve, thereby providing the Partnership with a payment
upon the maturity of the Mortgage Loans or the foreclosure of the Properties
which exceeds the Payoff Amount. Consummation of the Disposition will eliminate
the ability of Unitholders to benefit from any such improvements.
FAILURE TO APPROVE THE DISPOSITION
The General Partner believes that the consummation of the Disposition is
the preferable course of action at this time. If the Unitholders fail to approve
the Disposition, the Partnership will continue to hold the Mortgage Loans. It
will consider any other reasonable offers should any be made prior to
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maturity. If the Partnership continues to hold the Mortgage Loans at maturity
and the Fogelman Partnerships fail to pay the full amounts when due, the
Partnership will use all reasonable efforts to pursue its remedies but no
assurance can be given as to the expense or outcome of such efforts or the
timing of any relief.
TERMS OF THE PAYOFF AGREEMENT
The following is a summary of the material terms of the Payoff Agreement
entered into, by and among the Partnership, FELP and A. Fogelman. THIS SUMMARY
DOES NOT PURPORT TO BE COMPLETE AND REFERENCE IS MADE TO THE OF PAYOFF AGREEMENT
ATTACHED HERETO AS APPENDIX I. Capitalized terms used but not defined herein
have the meaning ascribed to them in the Payoff Agreement.
Payoff Amount and Satisfaction
The Payoff Agreement provides for FELP to pay to the Partnership in full
satisfaction of its Mortgage Loan obligations, (i) $48,000,000; and (ii) an
amount, if any, by which the aggregate amount of interest paid to the
Partnership with respect to the Mortgage Loans for the period October 1, 1997
through the consummation of the Disposition is less than interest on the face
amount of the Mortgage Loans at an annual rate of 7.7% ("Payoff Amount").
Condition Precedent to Closing
The obligations of the Partnership to close under the Payoff Agreement is
subject to the approval of the Disposition by a majority in interest of the
Unitholders.
Fogelman's obligation to close under the Payoff Agreement is subject to the
consummation of the Disposition on a date no later than May 29, 1998, unless
Fogelman in its sole discretion agrees to the consummation of the Disposition on
a later date.
Although the obligations of Fogelman to consummate the Payoff Agreement is
not subject to obtaining financing, Fogelman has indicated that it has reached
an agreement in principle with (i) Connecticut General Life Insurance Company
("CIGNA") respecting the terms and conditions of obtaining financing in
connection with the payoff of the Mortgage Loans (the "CIGNA Loans") and (ii)
General Electric Capital Corporation ("GECC") respecting the terms of an equity
investment with respect to the Properties (the "GECC Equity"). The CIGNA Loans
and the GECC Equity, together with funds provided by FELP or its affiliates,
would repay the Mortgage Loans. Fogelman's agreement with CIGNA and CECC is
subject to the consummation of the Disposition by May 29, 1998.
Termination
The Partnership and Fogelman each have the right to terminate the Payoff
Agreement in the event of a breach by the other. Fogelman may terminate the
Payoff Agreement in the event of damage, destruction or condemnation of any of
the Properties.
The Partnership may also terminate the Payoff Agreement if required to do
so because of certain fiduciary obligations to the Partnership. In such event,
the Partnership shall promptly repay Fogelman any payments of interest with
respect to the Mortgage Loans which the Partnership received from Fogelman, to
the extent such interest payments exceeded the property cash flows for the
period preceding the Partnership's termination of the Payoff Agreement.
16
<PAGE>
BENEFIT TO GENERAL PARTNER FROM DISPOSITION
The General Partner will benefit from the Disposition by receiving its
interest in the net Payoff Amount in accordance with the Partnership Agreement,
which is estimated to be approximately $25,000. At the same time the General
Partner receives its share of the proceeds, the Unitholders will receive the
remaining balance of distributable cash (which amount will exceed 99% of such
proceeds). Because disposition proceeds will not be sufficient to pay
Unitholders their preferred distributions under the Partnership Agreement, the
General Partner will not be entitled to any additional fees or distributions
from the net Payoff Amount. Because the economic benefits to the General Partner
from the Disposition are aligned with those of the Unitholders, there were no
conflicts of interest for the General Partner to consider in connection with
approving and recommending the Disposition. Furthermore, the General Partner
will be negatively impacted by the Disposition in that it presently receives a
distribution equal to .5% of the Mortgage Loans' principal balance outstanding,
payable quarterly and aggregating $230,325 per annum, which it will no longer
receive if the Disposition is consummated.
An affiliate of the General Partner owns 835 Units and will receive the
same distributions per Unit as the other Unitholders.
In addition, because the Disposition will result in the termination and
dissolution of the Partnership, the General Partner's liability for the ongoing
activities of the Partnership will also cease.
USE OF PROCEEDS
The Partnership anticipates that the proceeds will be used as follows
(based on estimated amounts):
<TABLE>
<S> <C> <C>
Mortgage Payoff Amount $48,000,000
Less: Expenses of Disposition and Liquidation ($920,000)(1)
Reduced by Expenses incurred through December 31, 1997 170,000 (750,000)
--------
Add: Current Assets in Excess of Current Liabilities as of December 31, 1997 85,000
===========
Subtotal 47,335,000
Add: Additional Interest Due from FELP and ABF for the Period From October 1,
1997 through November 30, 1997 Pursuant to the Payoff Agreement 330,000
Add: Estimated Cash Flow from Mortgages at 7.7% for Period from December 1, 1997
through May 29, 1998 1,775,000
Less: Fourth quarter 1997 Distributions from Operations Paid to Unitholders and
General Partner in 1998 (630,000)
Less: Estimated First Quarter 1998 Distributions from Operations Payable to
Unitholders and General Partner in 1998 (750,000)(2)
-----------
Net Distributable Amount 48,060,000(3)
Less: Liquidating Distributions to General Partner $ 25,000
-----------
Liquidating Distributions to Unitholders $48,035,000
===========
Liquidating Distributions to Unitholders per Unit $ 886
===========
</TABLE>
17
<PAGE>
(1) Disposition and liquidation expenses of the Partnership have been estimated
by the General Partner to be the following amounts: filing fee ($10,000);
legal ($250,000) accounting and tax services ($25,000); solicitation
($20,000); printing and postage ($75,000); investment banking ($350,000);
and liquidation-related ($190,000). The liquidation-related expenses
include: accounting and tax services ($40,000); report printing and postage
($30,000); legal ($20,000); and other general and administrative expenses
($100,000).
(2) Includes Special Distributions to General Partner through May 29, 1998.
(3) Of this amount, the General Partner initially will withhold up to
$1,000,000 (approximately $19 per Unit) as a reserve against the future
liabilities and unforeseen contingent obligations of the Partnership.
However, all Disposition proceeds will be available to pay all ongoing
liabilities and expenses of the Partnership (which can only be estimated) and
there can be no assurances that this exact amount will be distributed to
Unitholders.
CERTAIN FEDERAL AND STATE INCOME TAX CONSEQUENCES OF THE DISPOSITION
GENERAL
The Disposition, if approved, will have certain tax implications to the
Unitholders that must be considered. The following summarizes the material
federal income tax consequences to Unitholders arising from the Disposition and
provides a general overview of certain state income tax considerations. This
summary is based upon the Internal Revenue Code of 1986, as amended (the
"Code"), Treasury regulations, court decisions and published positions of the
Internal Revenue Service (the "Service"), each as in effect on the date of this
Consent Statement. There can be no assurance that the Service will agree with
the conclusions stated herein or that future legislation or administrative
changes or court decisions will not significantly modify the federal or state
income tax law regarding the matters described herein, potentially with
retroactive effect. This summary is not intended to, and should not, be
considered an opinion respecting the federal or state income tax consequences of
the Disposition.
A partnership is not a taxable entity and incurs no federal income tax
liability. Instead, each Partner is required to take into account in computing
his or her income tax liability, his or her allocable share of the Partnership's
items of income, gain, loss, deduction and credit (hereinafter referred to as
"income or loss") in accordance with the Partnership Agreement.
For federal tax purposes the Disposition will be treated as a payoff of the
outstanding balances of the two Mortgage Loans (i.e., the Pointe Royal Loan and
the Westmont Loan).
Any excess of the amounts received on the Disposition over the principal
amounts outstanding of the respective Mortgage Loans plus interest that was
previously accrued for federal income tax purposes will be considered interest
income for federal income tax purposes. The Partnership estimates that the
interest income to be recognized on the Disposition will be approximately
$1,000,000. The Partnership would have taxable income in a comparable amount
regardless of whether it received an equivalent amount of proceeds at the
maturity of the Mortgage Loans (were they held until then) or upon the
Disposition. The interest income will not be passive income but, rather, will be
portfolio income for purposes of the Code Section 469 passive activity loss
rules.
18
<PAGE>
Any excess of the Disposition ("Disposition Expenses") paid by the
Partnership will be considered "deductions related to portfolio income" and will
be reported as such on the Partnership's tax returns. The Disposition Expenses
will also be considered "investment expenses" for purposes of calculating any
investment interest expense limitation for non-corporate taxpayers under Code
Section 163(d).
FOREIGN INVESTORS
The rules governing the United States income, gift and estate taxation of
individuals who are neither citizens nor residents of the Untied States, and
foreign corporations, foreign partnerships, foreign estates and foreign trusts
(collectively "Foreign Investors") are extremely complex and depend not only
upon United States federal and state income, gift and estate tax principles, but
also upon the treaties, if any, between the United States and the country of the
nonresident investor, as well as such country's internal revenue provisions.
Accordingly, such taxpayers are strongly urged to consult their tax advisors
concerning the impact of these rules (and treaties, if any) upon their
particular situation.
Foreign Investors who purchased Units generally are not considered as
engaged in a trade or business in the United States by reason of ownership of
such Units. However, because the obligors of the Mortgage Loans are residents of
the United States, the amounts received that are classified as interest income
on the Mortgage Loans will be U.S. source income, subject to a U.S. income
withholding tax of 30%, absent an applicable treaty provision. As a result, the
Partnership may be required to withhold U.S. income tax equal to 30% of the
gross amount of interest income allocable to Foreign Investors, unless, in
general (i) the Foreign Investor is engaged in a U.S. trade or business, (ii)
the income from the Partnership is effectively connected with that trade or
business, and (iii) the Foreign Investor timely files with the Partnership an
appropriate statement claiming exemption from withholding pursuant to Section
1.1441-4(a)(2) of the Treasury Regulations. Such statement must be made on a
duly completed IRS Form 4424. In order to take advantage of an applicable treaty
provision reducing or eliminating the withholding tax, the Foreign Investor must
furnish the Partnership with a duly completed IRS Form 1001.
The 30% tax will be withheld on the gross amount of the interest with no
offset for deductions. While Code Section 871(h) eliminated the 30% tax on
so-called "portfolio interest" received with respect to obligations issued on or
after July 19, 1984, the interest on the Mortgage Loans does not qualify as
portfolio interest.
If the taxable income of the Partnership is effectively connected with the
conduct of a trade or business in the U.S., then pursuant to Code Section 1446
the Partnership will withhold U.S. federal income taxes on the effectively
connected taxable income of the Partnership at a 39.6% rate.
CERTAIN STATE INCOME TAX CONSIDERATIONS
Because each state's tax law varies, it is impossible to predict the tax
consequences to the Unitholders in all the state tax jurisdictions in which they
are subject to tax or in which the assets are located. Accordingly, the
following is a general summary of certain common (but not necessarily uniform)
principles of state income taxation. State income tax consequences to each
Unitholder will depend upon the provisions of the state tax laws to which the
Unitholder is subject. Most states modify or adjust the taxpayer's federal
taxable income to arrive at the amount of income potentially subject to state
tax. Resident individuals generally pay state tax on 100% of such state-modified
income, while
19
<PAGE>
corporations and other taxpayers generally pay state tax only on that portion of
state-modified income assigned to the taxing state under the state's own
apportionment and allocation rules.
TAX CONCLUSION
The discussion set forth above is only a summary of the material federal
income tax consequences to the Unitholders of the Disposition and of certain
state income tax considerations. It does not address all potential tax
consequences that may be applicable to the Unitholders and to certain other
categories of Unitholders, such as non-United States persons, corporations,
insurance companies, Subchapter S corporations, partnerships or financial
institutions. It also does not address the state, local or foreign tax
consequences of the transactions. ACCORDINGLY, UNITHOLDERS SHOULD CONSULT THEIR
OWN TAX ADVISORS REGARDING THE SPECIFIC INCOME TAX CONSEQUENCES OF THE
DISPOSITION TO THEM, INCLUDING THE APPLICABILITY AND EFFECT OF FEDERAL, STATE,
LOCAL AND FOREIGN TAX LAWS.
ACCOUNTING TREATMENT
For financial reporting purposes, the transaction will be treated as a
gain on the disposition of the investments in mortgage loans and recorded in the
Partnership's financial statements, reduced by expenses from the Disposition.
Under generally accepted accounting principles, the Partnership is expected to
realize a gain of approximately $22,000,000 from the Disposition. In addition,
unamortized deferred general partner's fees (which was approximately $300,000 at
December 31, 1997) will be expensed for both financial statement and tax
purposes at the time of consummation of the Disposition.
NO APPRAISAL RIGHTS
If Unitholders owning a majority of the outstanding Units on the Record
Date consent to the Disposition, such approval will bind all Unitholders. The
Partnership Agreement and the Tennessee Revised Uniform Limited Partnership Act,
under which the Partnership is governed, do not give rights of appraisal or
similar rights to Unitholders who dissent from the consent of the majority in
approving or disapproving the Disposition. Accordingly, dissenting Unitholders
do not have the right to have their Units appraised or to have the value of
their Units paid to them if they disapprove of the action of a majority in
interest of the Unitholders.
SELECTED HISTORICAL FINANCIAL DATA
The following selected historical financial data for each of the years in
the five-year period ended December 31, 1997 has been derived from the
Partnership's audited financial statements. The selected financial data set
forth below should be read in conjunction with "MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS," in the Partnership's
Annual Report on Form 10-K/A for the year ended December 31, 1997, attached
hereto as Appendix III.
20
<PAGE>
<TABLE>
<CAPTION>
Year ended December 31
-------------------------------------------------------------------
1997 1996 1995 1994 1993
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Equity income from the
underlying properties $ 1,633,515 $ 2,557,797 $ 2,166,858 $ 2,267,243 $ 2,082,554
Net income $ 1,157,009 $ 2,314,871 $ 1,929,656 $ 1,997,698 $ 1,773,686
Net income per Unit $ 16.93 $ 38.08 $ 31.04 $ 32.28 $ 28.19
Total assets $26,408,195 $28,321,329 $29,783,810 $31,191,034 $32,349,343
Total Unitholder distributions $ 2,940,892 $ 3,354,437 $ 3,116,500 $ 2,981,000 $ 2,879,387
Unitholder distributions per Unit: $ 54.26 $ 61.89 $ 57.50 $ 55.00 $ 53.13
</TABLE>
VOTING SECURITIES AND PRINCIPAL HOLDERS THEREOF
On the Record Date, there were 54,200 Units issued and outstanding and
entitled to vote held of record by 4,956 Unitholders. Unitholders do not vote
directly on matters submitted to a vote by Unitholders. Under the Partnership
Agreement, Prudential-Bache Investor Securities II, Inc. (the "Assignor Limited
Partner"), is required to canvass the preferences of all Unitholders and vote
the Units in accordance with written consents, with each Unit entitled to one
vote. All signed written consents received will be voted in favor of the
Disposition unless otherwise marked. If the Assignor Limited Partner does not
receive signed consents from a Unitholder prior to the Expiration Date, the
Assignor Limited Partner shall not vote such Units. Prudential Securities, Inc.,
an affiliate of the General Partner, owns beneficially or directly 835 Units and
intends to consent to the Disposition.
VOTING PROCEDURES
Each Unitholder shall be entitled to one (1) vote for each Unit owned of
record by such Unitholder on the Record Date. Approval of the Disposition
requires the affirmative consent of Unitholders holding a majority in interest
of the Units. A duly executed consent card on which a consent or an indication
of withholding consent is not indicated will be deemed a consent to the
Disposition. A consent may be revoked by written notice of revocation or by a
later dated consent containing different instructions at any time on or before
the Expiration Date.
This Consent Statement is accompanied by a separate consent card. Consent
cards should be completed, signed and returned by the Expiration Date to Morrow
& Co., Inc. at the address specified below in this Consent Statement. A
self-addressed, prepaid envelope for return of the consent card is included with
this Consent Statement:
BY MAIL: FOR INFORMATION CALL:
MORROW & CO., INC. (800) 566-9061
909 THIRD AVENUE
NEW YORK, NEW YORK 10022-4799
21
<PAGE>
AVAILABLE INFORMATION
The Partnership is subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and, in
accordance therewith, files reports, statements and other information with the
Securities and Exchange Commission (the "Commission"). Such reports, statements
and other information can be inspected and copied, at prescribed rates, at the
public reference facilities maintained by the Commission at 450 Fifth Street,
N.W., Washington, D.C. 20549, and should be available at the Commission's
regional offices at 500 West Madison, 14th Floor, Chicago, Illinois 60661-2511
and 7 World Trade Center, 13th Floor, New York, New York 10048. Such material
may also be accessed on the World Wide Web through the Commission's Internet
address at "http://www.sec.gov."
If you would like to request documents from the Partnership, please do
so by contacting Prudential-Bache Properties, Inc. (800) 535-2077.
DOCUMENT INCORPORATED BY REFERENCE
The Partnership's annual report on Form 10-K/A for the year ended December
31, 1997 which, other than the exhibits thereto, is hereby incorporated by
reference.
April 23, 1998 PRUDENTIAL-BACHE PROPERTIES, INC.
General Partner
By: /s/ BRIAN J. MARTIN
-------------------------------
Brian J. Martin
President
22
<PAGE>
FOGELMAN MORTGAGE L.P. I
ONE SEAPORT PLAZA
NEW YORK, NEW YORK 10292
This written consent is being provided to Prudential-Bache Investor
Services II, Inc., the Assignor Limited Partner (the "Assignor Limited Partner")
of Fogelman Mortgage L.P. I., a Tennessee limited partnership (the
"Partnership"), and seeks approval of the payoff, for a minimum of $48,000,000,
of the two outstanding mortgage loans payable to the Partnership. This
constitutes the disposition of substantially all of the Partnership's assets in
the manner described in the accompanying Consent Solicitation Statement, and is
solicited by Prudential-Bache Properties, Inc., the General Partner of the
Partnership. All written consents must be received by mail or facsimile before
5:00 p.m., New York time, on May 26, 1998 to be valid, unless such date or time
is extended for a period ending not more than 60 days from the date the Consent
Solicitation Statement is mailed, in the sole discretion of the General Partner,
or unless the necessary vote to approve the Disposition is received earlier. ALL
SIGNED WRITTEN CONSENTS WILL BE VOTED BY THE ASSIGNOR LIMITED PARTNER FOR THE
DISPOSITION UNLESS OTHERWISE MARKED.
[_] FOR THE DISPOSITION
[_] AGAINST THE DISPOSITION
[_] ABSTAIN FROM CONSENTING TO THE DISPOSITION
Dated: _______________, 1998 ______________________________
Signature
Dated: _______________, 1998 _______________________________
Signature
(Please sign as name appears below.
When signing as an attorney, executor,
administrator, trustee, fiduciary,
guardian or in any other
representative capacity, please give
full title)
A-1
<PAGE>
APPENDIX I
AMENDED AND RESTATED PAYOFF AGREEMENT
I-1
<PAGE>
AMENDED AND RESTATED PAYOFF AGREEMENT
THIS AMENDED AND RESTATED PAYOFF AGREEMENT ("Agreement") is made and
entered as of the 30th day of January, 1998, into by and between FOGELMAN
ENTERPRISES, L.P., a Delaware limited partnership ("FELP"), AVRON B. FOGELMAN,
an individual resident of Memphis, Tennessee ("ABF" and together with FELP, the
"General Partners") and FOGELMAN MORTGAGE L.P. I, a Tennessee limited
partnership ("FMLP").
RECITALS:
A. FMLP is the holder of two mortgage loans (collectively, the "Mortgage
Loans"): (1) a loan (the "Pointe Royal Loan") in the face amount of $22,745,000
made to FPI Royal View, Ltd., L.P. ("Royal View"), which is secured by a first
mortgage and related security documents encumbering the Pointe Royal Apartments,
which is a 437 unit residential rental property located in Overland Park, Kansas
(the "Pointe Royal Property"); and (2) a loan (the "Westmont Loan") in the face
amount of $23,320,000 made to FPI Chesterfield, L.P. ("Chesterfield" and
together with Pointe Royal, the "Partnerships"), which is secured by a first
mortgage and related security documents that encumber the Westmont Apartments, a
489 unit residential rental property located in Chesterfield, Missouri (the
"Westmont Property" and together with the Pointe Royal Property, the
"Properties").
B. The Pointe Royal Loan matures on April 23, 1999, and the Westmont Loan
matures on July 8, 1999.
C. Each of the Mortgage Loans is a non-recourse loan that bears interest
(the "Basic Interest") at 9.5% per annum. The Basic Interest is payable monthly
in an amount equal to 100% of the Property Cash Flow (as defined in the
documents evidencing and securing the Mortgage Loans), and to the extent that
the Property Cash Flow is insufficient to pay the Basic Interest, the difference
between the Basic Interest calculated at 9.5% per annum and the Property Cash
Flow accrues and bears interest at 9.5% compounded annually.
D. In addition to the Basic Interest, contingent interest is payable from
any Property Cash Flow or the proceeds of a sale or refinancing of the
Properties as follows: (1) 75% thereof until the Basic Interest plus contingent
interest results in a yield of 10.75% per annum on each respective Mortgage
Loan; (2) 50% of the remaining balance until the Basic Interest plus contingent
interest results in a yield of 12.75% per annum on each respective Mortgage
Loan; and (3) 25% of the remaining balance thereof.
E. Under the terms of the documents (the "Loan Documents") evidencing and
securing the Mortgage Loans, the entire principal balance, together with accrued
and unpaid interest, is due and payable on the respective maturity date of each
of the Mortgage Loans.
F. ABF and FELP are the general partners of each of the Partnerships.
I-2
<PAGE>
G. CIGNA Investments, Inc. ("CIGNA") has issued commitments to affiliates
of the General Partners respecting two first mortgage loans (the "CIGNA Loans")
secured by the Properties, which such loans will be cross-collateralized. A
description of the CIGNA Loans is provided on Exhibit "A" attached hereto.
H. General Electric Capital Corporation ("GECC") has issued a commitment
to an affiliate of the General Partners respecting the terms and conditions of
an equity investment (the "GECC Equity") with respect to the Properties. A
description of the GECC Equity is provided on Exhibit "A" attached hereto.
I. The CIGNA Loans and the GECC Equity, together with funds provided by
FELP or its affiliates, will enable the Payoff Amount (hereinafter defined) to
be paid in full satisfaction of the obligations of the Partnerships in respect
of the Mortgage Loans.
J. In order to fix the interest rate payable in respect of the CIGNA Loans
and to commence its formal application and due diligence process, CIGNA has
required the payment of $410,000; and the completion of the process required the
payment of an additional $410,000. Furthermore, GECC required that FELP agree to
commit to pay its expenses in connection with its formal due diligence and
approval process. FELP was willing to commit such amounts only if FMLP agreed to
accept the Payoff Amount in full satisfaction of the Mortgage Loans.
K. Through its general partner, Prudential-Bache Properties, Inc. ("PBP"),
FMLP has advised FELP that FMLP will accept the Payoff Amount in full
satisfaction of the Mortgage Loans, if (1) FMLP obtains a written opinion (the
"Fairness Opinion") in form and substance satisfactory to PBP from a financial
advisory firm to the effect that the transactions (the "Transactions")
contemplated in this Agreement are fair to FMLP and its partners from a
financial point of view, and (2) the Transactions are approved by a majority in
interest of the limited partners of FMLP.
L. PBP has further advised FELP that FMLP has retained the firm of
Scott-Macon Securities, Inc. ("Scott-Macon") to serve as its exclusive financial
advisor with respect to the Transactions and to render the Fairness Opinion.
M. Scott-Macon has advised PBP that Scott-Macon is willing to render the
Fairness Opinion only if the Mortgage Loans are first offered to a selected list
of potential buyers in an open bidding process (the "Marketing Process") to be
conducted by Scott-Macon.
N. Scott-Macon has completed the Marketing Process, together with such
other analysis, review and investigation as it deems necessary, and has advised
PBP that it is now willing to issue the Fairness Opinion with respect to the
Transactions.
O. The form and substance of the Fairness Opinion are satisfactory to PBP.
I-3
<PAGE>
P. The parties hereto entered into that certain Payoff Agreement executed
by the General Partners on December 1, 1997, and executed by FMLP and PBP on
November 26, 1997 (the "Prior Agreement").
Q. Certain of the conditions contained in the Prior Agreement have been
satisfied, certain of the terms respecting the repayment of the Mortgage Loans
have been revised, and the parties hereto desire to enter into this Agreement to
amend and restate the Prior Agreement in its entirety and to evidence their
agreements respecting the repayment of the Mortgage Loans.
NOW, THEREFORE, in consideration of the mutual covenants, agreements,
representations and warranties set forth in this Agreement, and for other good
and valuable consideration, the receipt and legal sufficiency of which are
hereby acknowledged, the parties hereto hereby amend and restate the Prior
Agreement in its entirety and agree as follows:
1. Payoff and Satisfaction.
(a) Subject to terms and conditions hereinafter set forth, FELP agrees
to pay (or cause to be paid on behalf of the Partnerships) to FMLP an
amount (the "Payoff Amount") in cash or immediately available funds equal
to the sum of:
(i) $48,000,000; and
(ii) an amount, if any, by which the aggregate amount of interest
paid to FMLP by the Partnerships in respect of the Mortgage Loans for
the period from October 1, 1997, through the Closing Date (hereinafter
defined) is less than interest on the face amount of the Mortgage
Loans during such period calculated at an annual rate of 7.7%.
(b) Subject to the terms and conditions hereinafter set forth, FMLP
agrees to accept the Payoff Amount in full satisfaction of all obligations
owed by the Partnerships to FMLP in respect of the Mortgage Loans.
(c) To the extent not earlier paid pursuant to any provision of this
Agreement, the Payoff Amount shall be payable at the Closing (hereinafter
defined) in cash or immediately available funds, and upon receipt of the
Payoff Amount, FMLP shall (i) release the liens and encumbrances securing
each Mortgage Loan; (ii) cancel each promissory note evidencing the
respective Mortgage Loan and return the same to the respective Partnership
marked "Paid in Full"; and (ii) provide to each Partnership and affiliates
thereof general releases with respect to the Mortgage Loans.
2. Additional Representations, Warranties and Covenants of FELP and ABF.
Each of FELP and ABF represents, warrants and covenants as follows:
(a) Each of FELP and ABF shall use its reasonable best efforts to
consummate the Transactions.
I-4
<PAGE>
(b) The partners in each of the Partnerships have substantial negative
capital accounts which would trigger the allocation of a substantial amount
of phantom income or gain (income or gain in excess of cash distributions)
if either of the Properties was sold or transferred in a taxable
transaction.
(c) Each of FELP and ABF agrees that, for a period of one (1) year
from the Closing Date, neither FELP nor ABF will sell or otherwise transfer
any interest in either of the Properties, other than (i) the transfers
described on Exhibit "A" attached hereto, and (ii) transfers of the
interests owned by FELP and/or ABF in the entities described on Exhibit "A"
attached hereto to affiliates or immediate family members.
(d) For the period commencing December 1, 1997 and continuing through
the last day of the month immediately preceding the month in which the
Closing occurs, ABF and FELP shall cause the Partnerships to pay to FMLP
not less than $295,583.75 each month as interest in respect of the Mortgage
Loans, which such interest shall be payable in arrears on the date
specified in the documents evidencing and securing the Mortgage Loans.
3. Fairness Opinion and Limited Partner Approval.
(a) Subject to the satisfaction of any other condition set forth in
Section 5 hereof, PBP has advised FELP that PBP is willing to cause FMLP to
consummate the Transactions only if the Transactions are approved by a
majority in interest of the limited partners of FMLP. Accordingly, in
addition to the satisfaction of any other condition set forth in Section 5
hereof, FMLP's obligation to consummate the Transactions shall be
contingent upon obtaining the approval of a majority in interest of the
limited partners of FMLP.
(b) Promptly following its execution of this Agreement, (i) PBP shall
take all steps necessary to solicit the approval of FMLP's limited partners
to the Transactions; and (ii) in connection with such solicitation, PBP
shall recommend that such limited partners approve the Transactions.
(i) Subject to any right or obligation contained in Section 11
hereof, in connection with the solicitation of the approval of FMLP's
limited partners, PBP shall: (A) cause to be prepared a statement (the
"Consent Statement") to be furnished to the limited partners of FMLP,
(B) cause FMLP to file the Consent Statement, together with such other
documents and instruments as may be required by applicable law, with
the Securities and Exchange Commission (the "SEC"), (C) use its
reasonable best efforts to cause such filing to be made on or before
February 20, 1998, and (D) use its reasonable best efforts to obtain
the SEC's timely approval of the Consent Statement.
(ii) PBP shall include FELP and its counsel on the distribution
list to receive drafts of the Consent Statement.
I-5
<PAGE>
(c) If a majority in interest of FMLP's limited partners approves or
disapproves the Transactions, FMLP shall provide notice thereof to FELP not
later than the business day following such approval or disapproval.
4. Conditions to FELP's Obligation to Close. The obligation of FELP to
consummate the Transactions is conditioned upon and subject to each of the
following:
(a) The Transactions are consummated on or before May 29, 1998; and
(b) FMLP having performed and complied with all agreements, covenants
and conditions to be performed or complied with on or before the Closing
Date.
5. Conditions to FMLP's Obligation to Close. Subject to the right to
terminate pursuant to Section 11 hereof, the obligation of FMLP to consummate
the Transactions is conditioned upon and subject to each of the following:
(a) The Transactions shall have been approved by a majority in
interest of FMLP's limited partners; and
(b) FELP having performed and complied (or shall have caused the
Partnerships to have performed and complied) with all agreements, covenants
and conditions to be performed or complied with on or before the Closing
Date.
6. Closing. The Transactions shall be consummated (the "Closing") on a date
(the "Closing Date") and at a time and place acceptable to FELP and FMLP, which
such date shall be on or before ten (10) business days following notice from
FMLP to FELP that a majority in interest of the limited partners of FMLP have
approved the Transactions but in no event later than May 29, 1998.
(a) At Closing, FELP shall deliver, or cause to be delivered, to FMLP
the following:
(i) To the extent not previously paid, the Payoff Amount, which
shall be paid by federal wire transfer of immediately available funds;
and
(ii) A general release releasing each of FMLP, PBP and their
respective partners, agents, affiliates, successors and assigns from
any and all liability in respect of the Mortgage Loans.
(b) At the Closing, FMLP shall deliver to FELP the following:
(i) Such documents and instruments as are necessary to release
each and every lien and encumbrance securing the Mortgage Loans;
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(ii) Either (A) the original of the promissory notes evidencing
each Mortgage Loan, which such notes shall be marked "Paid in Full";
or (B) such other documentation evidencing the payment and
satisfaction of the Mortgage Loans as may be agreeable to the parties;
(iii) A general release releasing each of the Partnerships and
their respective partners, agents, affiliates, successors and assigns
from any and all liability in respect of the Mortgage Loans; and
(iv) Such other, further and different documents which are
reasonably necessary or appropriate to consummate the Transactions.
7. Costs and Expenses. The costs, fees and expenses incurred in connection
with the Transactions shall be payable as follows:
(a) FMLP shall pay:
(i) the fees and expenses of Scott-Macon incurred in connection
with the rendering of the Fairness Opinion;
(ii) any and all costs associated with the winding-up of its
affairs; and
(iii) any and all costs, fees and expenses (the "FMLP Transaction
Costs") incurred by or on behalf of FMLP in connection with the
Transactions, including, without limitation, the fees and expenses
incurred in connection with (A) the preparation and review of this
Agreement and the Prior Agreement (including the determination to
proceed with the Transactions), and (B) the solicitation of the
consent of FMLP's limited partners and the consummation of the
Transactions, which such fees and expenses shall include, without
limitation, all legal and accounting fees and expenses, all
solicitation costs, all printing and filing fees and expenses.
(b) FELP shall pay any and all costs, fees and expenses incurred by or
on behalf of FELP, ABF, the Partnerships or any party, other than FMLP or
PBP, in connection with the Transactions, including, without limitation,
the fees and expenses incurred in connection with (i) the preparation and
review of this Agreement and the Prior Agreement (including the
determination to proceed with the Transactions); and (ii) the fees and
expenses incurred in connection with the CIGNA Loans or the GECC Equity.
(c) If the Transactions are not consummated because FMLP exercises any
of its rights of termination provided in this Agreement, except for the
right of termination provided in Section 10.(b) hereof, in addition to the
costs described in Section 7.(a) hereof, FMLP shall promptly pay to FELP
the amount, if any, by which the aggregate payments made pursuant to
Section 2.(d) hereof exceed the Property Cash Flow for the applicable
period.
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8. Damage or Destruction of the Properties. In the event that all or any
portion of either of the Properties is damaged or destroyed by fire or other
casualty prior to the Closing Date, FELP shall have the option to:
(a) terminate this Agreement, in which event, this Agreement shall be
null, void and of no further force or effect, except for the provisions of
Section 7 hereof; or
(b) terminate this Agreement with respect to the Property to which
such damage or destruction has occurred and consummate the Transactions
with respect to the remaining Property, in which case, the Payoff Amount
shall be reduced by an amount equal to the face amount of the Mortgage Loan
encumbering the Property which was damaged or destroyed; or
(c) consummate the Transactions and require FMLP to deliver to FELP at
Closing a duly executed assignment, in form and substance reasonably
satisfactory to FELP, assigning all of FMLP's right, title and interest in
and to all insurance proceeds payable as a result of such fire or casualty.
FELP shall have fifteen (15) business days from the date of any such damage
or destruction within which to exercise its rights under this Section.
9. Condemnation. In the event that either of the Partnerships receives
written notice that any condemnation or eminent domain proceedings are
threatened or initiated which might result in a taking of all or any part of the
Properties, FELP may:
(a) terminate this Agreement, in which event, this Agreement shall be
null, void and of no further force or effect, except for the provisions of
Section 7 hereof; or
(b) terminate this Agreement with respect to the Property which is the
subject of the condemnation or eminent domain proceeding and consummate the
Transactions with respect to the remaining Property, in which case, the
Payoff Amount shall be reduced by an amount equal to the face amount of the
Mortgage Loan encumbering the Property that is the subject of such
condemnation or eminent domain proceeding; or
(c) consummate the Transactions and require FMLP to deliver to FELP at
Closing a duly executed assignment, in form and substance reasonably
satisfactory to FELP, assigning all of FMLP's right, title and interest in
and to all proceeds payable as a result of such condemnation or eminent
domain proceeding.
10. Breach of Agreement.
(a) If FMLP should breach any of its covenants or agreements contained
in this Agreement or in any other agreement, instrument, certificate or
document delivered pursuant to this Agreement or if FMLP should fail to
consummate the Transactions for any reason other than FELP's default or the
exercise of FMLP's right to terminate this Agreement in accordance
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with the terms hereof, FELP may: (i) terminate this Agreement, in which
event, this Agreement shall be null, void and of no further force or
effect, including the provisions of Section 7 hereof; or (ii) enforce
specific performance of this Agreement.
(b) If FELP or ABF should breach any of their covenants or agreements
contained in this Agreement, except the agreement contained in Section
2.(c) hereof, or in any other agreement, instrument, certificate or
document delivered pursuant to this Agreement or if FELP should fail to
consummate the Transactions for any reason other than FMLP's default or
FELP's termination of this Agreement in accordance with the terms hereof,
FMLP may (i) terminate this Agreement and recover its actual out-of pocket
expenses incurred in connection with the Transactions as full and final
liquidated damages; or (ii) enforce specific performance of this Agreement.
FMLP and FELP hereby acknowledge that in the event of FELP's failure to
consummate the Transactions, the actual damages suffered by FMLP would be
difficult and/or inconvenient to determine or ascertain.
(c) In the event that FELP breaches the agreement contained in Section
2.(c) hereof, FMLP shall be entitled to receive from FELP as liquidated
damages the greater of (i) $1.0 million, or (ii) the excess, if any, of the
amount received by FELP as a result of any such sale or transfer over that
portion of the Payoff Amount set forth in Section 1.(a)(i) hereof.
11. Other Termination Rights. Notwithstanding anything contained herein to
the contrary, in the event that after the date on which FMLP receives the
Fairness Opinion but prior to the Closing Date, FMLP or PBP has received one or
more written offers to purchase the Mortgage Loans from FMLP which PBP has
determined to be more favorable to FMLP and its partners than the terms and
conditions contained in this Agreement, PBP may consider such offers, and to the
extent that it believes it would be in the best interest of FMLP and its
partners to do so, may accept such offer and terminate this agreement by
providing written notice thereof to FELP, in which event all of the rights,
duties and obligations of the parties hereto shall immediately terminate and
this Agreement shall be null, void and of no further force or effect; provided,
however, FMLP shall have no such right of termination unless, not less than five
(5) business days prior to the exercise of such right of termination, FMLP shall
have provided to FELP written notice setting forth with particularity the terms
of such offer and FELP shall have failed to agree to meet or exceed the terms of
such offer; provided further, however, contemporaneously with the exercise of
its right of termination provided in this Section 11, FMLP shall pay to FELP a
break up fee of $750 thousand.
(a) Notwithstanding the foregoing, from and after the date on which
FMLP receives the Fairness Opinion, neither FMLP nor PBP will (y) initiate
or solicit any offer to purchase the Mortgage Loans or any similar
transaction; or (z) negotiate with or provide any information respecting
the Mortgage Loans to any person or entity; provided, however, PBP may
(i) furnish such information as may be required to be contained
in the Consent Statement or as may otherwise be required to be
furnished in connection with the solicitation of the consent of FMLP's
limited partners, or
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(ii) furnish such information or enter into such negotiations
that PBP in good faith determines to be required in the exercise of
its fiduciary duty.
(b) PBP agrees to provide to FELP prompt written notice of any and all
information provided or negotiations entered into in reliance upon
subsection 11.(a)(ii) hereof.
12. Notice. All notices, demands, requests and other communications
required or permitted to be given by any provision of this Agreement shall be in
writing and sent by first class, regular, registered, certified mail, commercial
delivery service, overnight courier, telegraph, telex, telecopier or facsimile
transmission, air or other courier or hand delivery to the party to be notified,
addressed as follows:
If to FELP or ABF: Fogelman Enterprises, L.P.
5400 Poplar Avenue
Memphis, Tennessee 38119
Attention: Richard L. Fogelman, President
Telephone: (901) 762-6720
Telecopier: (901) 762-6708
With Required Copy to: Krivcher Magids PLC
International Place II
6410 Poplar Avenue
Suite 300
Memphis, Tennessee 38119
Attention: L. Don Campbell, Jr., Esq.
Telephone: (901) 682-6431
Telecopier: (901) 682-6453
If to FMLP: Fogelman Mortgage L.P. I
c/o Prudential-Bache Properties, Inc.
199 Water Street
28th Floor
New York, New York 10292
Attention: Chester A. Piskorowski
Telephone: (212) 214-1339
Telecopier: (212) 214-1422
With a Required Copy to: Greenberg Traurig
200 Park Avenue
New York, New York 10166
Attention: Judith D. Fryer, Esq.
Telephone: (212) 801-9330
Telecopier: (212) 801-6400
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Any such notice, demand, request or communication shall be deemed to have
been given and received for all purposes under this Agreement: (i) three (3)
business days after the same is deposited in any official depository or
receptacle of the United States Postal Service first class, certified mail,
return receipt requested, postage-prepaid; (ii) on the date of transmission when
delivered by telecopier or facsimile transmission, telex, telegraph or other
communication device (provided receipt is confirmed and such notice is promptly
confirmed by notice given by some other means described herein); (iii) on the
next business day after the same is deposited with a nationally recognized
overnight delivery service that guarantees overnight delivery; and (iv) on the
date of actual delivery to such party by any other means; provided, however, if
the day such notice, demand, request or communication shall be deemed to have
been given as aforesaid is not a business day, such notice, demand, request or
communication shall be deemed to have been given and received on the next
business day.
Any party to this Agreement may change such party's address for the purpose
of notice, demands, requests and communications required or permitted hereunder
by providing written notice of such change of address to all of the parties
hereto by written notice as provided herein.
13. Entire Agreement. This Agreement contains the entire agreement between
the parties regarding the subject matter hereof. Any prior agreements,
discussions or representations not expressly contained herein shall be deemed to
be replaced by the provisions hereof and no party has relied upon any such prior
agreements, discussions or representations as an inducement to the execution
hereof. Without limiting the generality of the foregoing, this Agreement amends,
restates and replaces the Prior Agreement, which shall become null, void and of
no further force and effect upon the execution of this Agreement by all of the
parties hereto.
14. Amendments. This Agreement may be modified or amended only by a written
instrument executed by all the parties hereto.
15. Waiver. Each and every waiver of any covenant, representation, warranty
or other provision of this Agreement must be in writing and signed by the party
whose interest are adversely affected by such waiver. No waiver granted in any
one instance shall be construed as a continuing waiver applicable in any other
instance.
16. Section Headings. The section headings contained in this Agreement are
for reference purposes only and shall not affect the interpretation of this
Agreement.
17. Governing Law. This Agreement shall be governed in all respects,
including validity, interpretation and effect by and shall be enforceable in
accordance with the internal laws of the State of New York, without regard to
conflicts of laws principles.
18. Jurisdiction. Each party to this Agreement hereby consents to the
exclusive jurisdiction of all courts of the State of New York and the United
States District Court for the Southern District of New York, as well as to the
jurisdiction of all courts from which any appeal may be taken from such courts,
for the purpose of any suit, action or other proceeding arising out of or with
respect to this Agreement, and any other agreements, instruments, certificates
or other
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documents executed in connection herewith, or any of the transactions
contemplated hereby or thereby.
19. Successors and Assigns. This Agreement shall be binding upon and shall
inure to the benefit of the parties hereto and their respective successors and
assigns.
20. Assignment. This Agreement and any of FELP's rights hereunder may be
assigned by FELP prior to the Closing Date upon written notice to FMLP and
without the prior consent of FMLP; provided, however, the right of FELP to make
any such assignment shall be conditioned upon such assignee executing a document
satisfactory to FMLP, pursuant to which such assignee agrees to be bound by the
terms and conditions hereof and FELP agrees to guarantee the obligations
assigned. FMLP may not assign any of its rights or obligations hereunder prior
to the Closing Date without the express written consent of FELP.
21. Time of Essence. Time is of the essence with respect to this Agreement.
22. Lawful Authority. If any party executing this Agreement is a
corporation, the person executing on behalf of the corporation hereby personally
represents and warrants to all of the parties that he has been fully authorized
to execute and deliver this Agreement on behalf of the corporation, pursuant to
a duly adopted resolution of its board of directors or by virtue of its bylaws.
23. Attorneys Fees. If any legal action or other proceeding is brought for
the enforcement of this Agreement or because of any alleged dispute, breach,
default or misrepresentation in connection with any provisions of this Agreement
and such action is successful, the prevailing party shall be entitled to recover
reasonably attorneys fees, court costs and all reasonable expenses, even if not
taxable or assessable as court costs (including, without limitation, all such
fees, costs and expenses incident to appeal) incurred in that action or
proceeding in addition to any other relief to which such party may be entitled.
24. Counterpart Execution. This Agreement may be executed in multiple
counterparts, each of which shall be deemed an original, but all of which shall
be considered together as one and the same instrument. Further, in making proof
of this Agreement, it shall not be necessary to produce or account for more than
one such counterpart. Execution by a party of a signature page hereto shall
constitute due execution and shall create a valid, binding obligation of the
party so signing and it shall not be necessary or required that the signatures
of all parties appear on a single signature page hereto.
25. Waiver of Jury Trial. FMLP and FELP, for themselves and their
respective successors and assigns, knowingly, voluntarily and intelligently
waive all right to trial by jury in any action or proceeding to enforce or
defend any rights or remedies under this Agreement.
26. Business Day. The term "business day" shall mean and refer to any day
other than a Saturday, a Sunday or a day on which national banks located in
Memphis, Tennessee are
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obligated or authorized to close their regular banking business.
27. Further Assurances. Each of the parties hereto agrees to execute such
other, further and different documents and perform such other acts as may
reasonably be necessary or desirable to carry out the intents and purposes of
this Agreement.
[SIGNATURES FOLLOW]
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their duly authorized representatives on the dates set forth below.
FELP: FMLP:
FOGELMAN ENTERPRISES, L.P. FOGELMAN MORTGAGE L.P. I
By: Fogelman Limited Partnership By: Prudential-Bache Properties, Inc.
Its General Partner
By: Fogelman Properties, Inc. By: /s/ BRIAN J. MARTIN
--------------------------
Name: Brian J. Martin
By: /s/ RICHARD L. FOGELMAN
--------------------------
Richard L. Fogelman Title: President
President
Date signed: 1/30/98
---------
Date Signed: 1/30/98
---------
ABF:
/s/ AVRON B. FOGELMAN
- -----------------------------------
AVRON B. FOGELMAN
Date Signed: 1/30/98
---------
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JOINDER BY PBP
As of the date of execution on behalf of FMLP, PBP joins in and executes
this Agreement to evidence its obligations as the general partner of FMLP under
Section 3 hereof.
PBP:
PRUDENTIAL-BACHE PROPERTIES, INC.
By: /s/ BRIAN J. MARTIN
-----------------------------
Name: Brian J. Martin
Title: President
--------------------------
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EXHIBIT A
DESCRIPTION OF CIGNA LOANS, GECC EQUITY
AND RELATED TRANSACTIONS
The following description of the GECC Equity, the CIGNA Loans and the
related transactions is intended only for quick reference, is neither complete
nor exact, and is subject in all respects to the documents and instruments which
will evidence the GECC Equity, the CIGNA Loans and the related transactions.
Furthermore, the amount of either the CIGNA Loans or the GECC Equity may vary,
pursuant to final agreements among CIGNA, GECC and the General Partners, and the
capital interests of GECC and the Fogelman Party (hereinafter defined) will be
adjusted to reflect any such variance; provided, however, any change in the
amount of the CIGNA Loans or the GECC Equity will not alter the Payoff Amount.
GECC Equity
GECC and FELP and/or its affiliates (FELP and/or such affiliates is
hereinafter referred to as the "Fogelman Party") will form a limited liability
company ("Funding LLC") to facilitate the acquisition, refinancing and operation
the Properties. Each of the Properties will be owned by a separate limited
liability company, and Funding LLC will be the sole member in each separate
sub-tier entity that will own and hold title to the Properties.
GECC will contribute $5,000,000 in cash to the capital of Funding LLC, and
the Fogelman Party will make cash contributions to Funding LLC equal to
$3,000,000. In exchange for its capital contributions, GECC will hold an 62.5%
preferred capital interest in Funding LLC, and the Fogelman Party will hold a
37.5% subordinated capital interest therein. The capital contributions of GECC
shall earn preferred returns as follows: (i) a preferred return (the "Class A
Preferred Return") equal to 12% per annum, which will be cumulative and will be
compounded annually; (ii) a preferred return (the "Class B Preferred Return")
equal to 8% per annum, which shall be cumulative, but not compounded; and (iii)
a preferred return of 25% per annum (with annual compounding) on any additional
funds (the "Default Contributions") contributed to the capital of Funding LLC by
GECC that should have been made by the Fogelman Party.
Cash flow generated by the operation of the Properties after payment of
operating expenses, debt service, approved capital expenditures and operating
reserves shall be distributed as follows: first, to pay the 25% preferred
returns on any Default Contributions and then to repay all Default
Contributions; second, 100% to GECC until the Class A Preferred Return
(including any unpaid portion from prior years) is fully paid; third, 100% to
GECC until the Class B Preferred Return (including any unpaid portion from prior
years) is fully paid; and the balance, if any, to the Fogelman Party.
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The net proceeds of any sale or refinancing of the Properties shall be
distributed as follows: first, to pay the 25% preferred returns on any Default
Contributions and then to repay all Default Contributions; second, 100% to GECC
until the Class A Preferred Return (including any unpaid portion from prior
years) is fully paid; third, 100% to GECC until the Class B Preferred Return
(including any unpaid portion from prior years) is fully paid; fourth, to return
to GECC its initial capital contribution; and the balance, if any, to the
Fogelman Party.
In order to comply with GECC's requirement that each Property be owned by a
separate limited liability company and that the cash flow from both Properties
be combined for purposes of determining the cash flow available to pay preferred
returns, while avoiding a taxable transfer of the Properties, the following
transactions will occur:
1. Royal View will contribute the Point Royal Property to Point Royal,
LLC in exchange for 100% of the membership interests therein; and
Chesterfield will contribute the Westmont Property to Chesterfield,
LLC in exchange for 100% of the membership interests therein.
2. Royal View will contribute the membership interests in Point Royal,
LLC to Royal Fogelman, LLC in exchange for a membership interest
therein; Chesterfield will contribute the membership interests in
Chesterfield, LLC to Royal Fogelman, LLC in exchange for a membership
interest therein; and the Fogelman Party will contribute cash equal to
$3,000,000 to Royal Fogelman, LLC in exchange for a membership
interest therein. The membership interest of each of the members in
Royal Fogelman have not been determined as of the date of this
Agreement.
3. Royal Fogelman, LLC will contribute $3,000,000 in cash, the Point
Royal, LLC membership interest and the Chesterfield, LLC membership
interest to Funding LLC in exchange for a membership interest therein;
and GECC (or a wholly owned subsidiary thereof) will contribute
$5,000,000 cash to Funding LLC in exchange for a membership interest
therein.
CIGNA Loans
CIGNA will make the CIGNA Loans in the aggregate amount of $41,000,000; one
in the amount of $19,800,000 secured by a first mortgage and related security
interests that will encumber the Point Royal Property; and one in the amount of
$21,200,000 that will be secured by a first mortgage and related security
interests that will encumber the Westmont Property. In addition to the first
mortgage and related security interests, each CIGNA Loan will be cross-defaulted
and cross-collateralized. Other than the Property that will serve as the primary
security and matters of local law, the terms of each of the CIGNA Loans will be
identical, which such terms are summarized as follows:
1. Each of the CIGNA Loans will bear interest at a fixed rate equal to
7.28% per annum.
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2. Monthly installments of interest only at 7.28% per annum are payable
for thirty-six (36) months.
3. During the period that interest only is payable, monthly deposits in
an amount that approximates the principal payments that would be
required ($23,400 for the Pointe Royal Property and $25,000 for the
Westmont Property) had the CIGNA Loans been amortizing are payable
into an escrow account, and the amounts on deposit therein are
available to be used for capital improvements at the applicable
Property.
4. After the end of the interest-only period, installments of principal
and interest, each in an amount sufficient to amortize the principal
balance of the CIGNA Loans over a term of twenty-five (25) years, are
payable monthly.
5. The CIGNA Loans mature on the first day of the first calendar month
following the seventh anniversary of the closing date; provided,
however, upon the satisfaction of certain conditions, either of the
CIGNA Loans may be extended for an additional thirty-six (36) months.
6. The CIGNA Loans are closed to pre-payment for a period of three (3)
years. Thereafter, the CIGNA Loans may be prepaid in whole, but not in
part, on any monthly payment date; provided, that the applicable
borrower gives CIGNA at least forty-five (45) days prior written
notice and pays a prepayment premium equal to 3% of the loan balance
on any of the 25th through the 60th monthly payment dates; 2% of the
loan balance on any of the 61st through the 70th monthly payment dates
and 1% of the loan balance on any of the 71st through the 80th monthly
payment dates. The CIGNA Loans are open to prepayment at par from and
after the 81st monthly payment date.
7. With certain exceptions, the CIGNA Loans shall be nonrecourse to the
applicable borrower.
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<PAGE>
APPENDIX II
FAIRNESS OPINION
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<PAGE>
SCOTT-MACON SECURITIES, INC.
800 THIRD AVENUE
NEW YORK. N.Y. 10022-7604
212-755-8200
212-755-8255 (FAX)
January 30, 1998
Board of Directors
Prudential-Bache Properties, Inc., General Partner
Fogelman Mortgage L.P. I
One Seaport Plaza
New York, N.Y. 10292-0324
Gentlemen:
The Board of Directors of Prudential-Bache Properties, Inc. ("PBP"), in its
capacity as General Partner of Fogelman Mortgage L.P. I (the "Partnership"), has
requested our opinion as to the fairness to the Partnership, from a financial
point of view, of the total consideration to be received by the Partnership
pursuant to the offer (the "Offer") from Fogelman Enterprises, L.P. and Avron B.
Fogelman (collectively, the "Purchaser") for the two mortgage notes held by the
Partnership (the "Mortgage Notes").
The terms of the Offer are set forth in a payoff agreement (the "Agreement").
Our opinion is based on the terms of the Agreement. Subject to the terms and
conditions in the Agreement, the Purchaser has offered to purchase the Mortgage
Notes from the Partnership for $48.0 million in cash plus an additional sum
resulting from the guaranty of interest on the Mortgage Notes through closing in
an amount of up to $1.5 million assuming a closing date of April 30, 1998. The
capitalized terms used herein but not defined shall have the meanings ascribed
to such terms in the Agreement.
In connection with this opinion, we have reviewed, among other things:
1. The offers received for the Mortgage Notes
2. The Offer and the Agreement
3. The original Prospectus of the Partnership
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<PAGE>
SCOTT-MACON SECURITIES, INC.
Board of Directors January 30, 1998
Prudential-Bache Properties, Inc. Page 3
4. The Royal View Loan Documents
a. Loan Agreement
b. Amendment to Loan Agreement
c. Second Amendment to Loan Agreement
d. Third Amendment to Loan Agreement
e. Assignment
f. Pointe Royal Multi-Family Housing Facility Note
g. Promissory Note Modification Agreement
h. Second Promissory Note Modification Agreement
i. Mortgage and Security Agreement Modification Agreement
j. First Amendment to Mortgage and Security Modification Agreement
k. Guaranty
l. Release, Discharge and Cancellation of Guaranty
5. The Chesterfield Loan Documents
a. Loan Agreement
b. Amendment to Loan Agreement
c. Second Amendment to Loan Agreement
d. Chesterfield Multi-Family Housing Facility Note
e. Promissory Note Modification Agreement
f. Deed of Trust and Assignment of Rents and Leases
g. First Amendment to Deed of Trust, Assignment of Rents and Leases
h. Guaranty
i. Release, Discharge and Cancellation of Guaranty
6. The Fogelman Mortgage Settlement
7. The Cushman & Wakefield April 15, 1997 Appraisal of Real Property -
Pointe Royal Apartments
8. The Cushman & Wakefield April 15, 1997 Appraisal of Real Property -
Westmont Apartments
9. Form 10-K and all other filings with the Securities and Exchange
Commission for the Partnership for the years ending December 31, 1994,
1995 and 1996
10. The Annual Reports of the Partnership for the years ending December
31, 1994, 1995 and 1996 and the Form 10-Q Quarterly Reports of the
Partnership for the quarters ending March 31, 1997, June 30, 1997 and
September 30, 1997
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<PAGE>
SCOTT-MACON SECURITIES, INC.
Board of Directors January 30, 1998
Prudential-Bache Properties, Inc. Page 4
11. A summary of the Income and Expense Reports of the Pointe Royal
Apartments and the Westmont Apartments (the "Properties") for the
years ending December 31, 1992, 1993, 1994, 1995 and 1996
12. A summary of the Budgeted Income and Expense reports of the Properties
estimated for the year ending December 31, 1997 and budgeted for the
year ending December 31, 1998
13. Such other studies, analyses and investigations as we deem appropriate
We also have received information from members of the senior management of the
Partnership and the Properties regarding past and current business operations,
financial condition and future prospects of the Properties. In addition, we have
reviewed the reported price and trading activity in the secondary market for the
units of interest in the Partnership.
At the direction of the Board of Directors of PBP, we have participated in
completing a selling process in which twenty-five firms were contacted to
determine if there was any interest in acquiring the Mortgage Notes. Of the
twenty-five firms, three had submitted a written offer to purchase the Mortgage
Notes while four verbally indicated an initial interest to purchase the Mortgage
Notes. All of the verbal indications were below the written offers and were not
pursued. Scott-Macon completed a "modified open bid process" in which the three
firms had knowledge of the general terms and conditions required to continue the
process.
We relied upon and assumed, without independent verification, the accuracy and
completeness of the financial and other information regarding the Mortgage Notes
and the Properties provided to Scott-Macon by the Partnership and its
representatives. With respect to the financial forecasts, we assumed, with your
consent, that they have been reasonably prepared on a basis reflecting the best
currently available estimates and judgements of the management of the Properties
as to the future financial performance of the Properties. We have also assumed,
without having responsibility for independent verification, that the statements
made to us by the management of the Properties are true and correct. Scott-Macon
was not retained to conduct a physical inspection of the Properties, nor did
Scott-Macon make any independent valuation or appraisal of the assets or
liabilities of the Properties or the Partnership. Scott-Macon also assumed that
the Offer in all respects is and will be in compliance with all laws and
regulations that are applicable to the Partnership.
Scott-Macon's opinion was based solely upon the information available to it and
the economic, market and other circumstances as they existed as of January 30,
1998. Events occurring after that date could materially affect the assumptions
and conclusions contained in the opinion. Scott-Macon does not undertake to
reaffirm or revise its opinion or otherwise take account of any events occurring
after January 30, 1998.
II-4
<PAGE>
SCOTT-MACON SECURITIES, INC.
Board of Directors January 30, 1998
Prudential-Bache Properties, Inc. Page 5
This opinion letter is for the information and benefit of the Board of Directors
of PBP in connection with its consideration of the Offer. A description of this
opinion may be included in the consent solicitation material to the unitholders
of the Partnership and may be referred to in other fillings with the Securities
and Exchange Commission pertaining to this subject matter, but only if a copy of
the report or opinion in its entirety is also included in the consent
solicitation material. Any such description will be submitted to Scott-Macon for
its review prior to its release. This opinion shall not otherwise be reproduced,
distributed or referred to without our prior written permission. Our opinion is
not intended to be and will not constitute a recommendation to any unitholder as
to whether such unitholder should vote for the proposed transaction.
We have not been engaged to act as, and we do not act as, an agent or fiduciary
of any of the unitholders or any other third party.
Scott-Macon has received a fee in connection with this opinion. In the past,
Scott-Macon and its affiliates have separately performed certain investment
banking services for the Board of Directors of PBP and received fees customary
for such services.
Based upon and subject to the foregoing, we are of the opinion on the date
hereof that the consideration to be received by the Partnership pursuant to the
Offer for the Mortgage Notes is fair to the Partnership and the unitholders from
a financial point of view.
Very truly yours,
SCOTT-MACON SECURITIES, INC.
/s/ JEFFREY M. TEPPER
------------------------------
Jeffrey M. Tepper
Managing Director
II-5
<PAGE>
APPENDIX III
ANNUAL REPORT ON FORM 10-K/A FOR THE YEAR ENDED DECEMBER 31, 1997
<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K/A
(Mark One)
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the fiscal year ended December 31, 1997
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 0-19123
FOGELMAN MORTGAGE L.P. I
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Tennessee 62-1317805
- --------------------------------------------------------------------------------
(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization)
One Seaport Plaza, New York, New York 10292-0128
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (212) 214-3500
Securities registered pursuant to Section 12(g) of the Act:
Depositary Units
- --------------------------------------------------------------------------------
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 CK 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. [ CK ]
DOCUMENTS INCORPORATED BY REFERENCE
Amended and Restated Certificate and Agreement of Limited Partnership dated
November 12, 1986, included as part of the Registration Statement (File No.
33-8596) filed with the Securities and Exchange Commission on November 26, 1986
pursuant to Rule 424(b) under the Securities Act of 1933, as amended on December
31, 1991 and on December 24, 1992, is incorporated by reference into Part IV of
this Annual Report on Form 10-K
Annual Report to Unitholders for the year ended December 31, 1997 is
incorporated by reference into Parts II and IV of this Annual Report on Form
10-K
Index to exhibits can be found on pages 9 through 11.
<PAGE>
This Annual Report on Form 10-K/A for the Registrant for the
year ended December 31, 1997 is being filed to include herewith
certain exhibits under Item 14(a) not previously included in the
original Form 10-K filing on March 31, 1998.
<PAGE>
FOGELMAN MORTGAGE L.P. I
(a limited partnership)
Table of Contents
<TABLE>
<CAPTION>
PART I PAGE
<S> <C> <C>
Item 1 Business......................................................................... 3
Item 2 Properties....................................................................... 5
Item 3 Legal Proceedings................................................................ 5
Item 4 Submission of Matters to a Vote of Unitholders................................... 5
PART II
Item 5 Market for Registrant's Units and Related Unitholder Matters..................... 5
Item 6 Selected Financial Data.......................................................... 6
Item 7 Management's Discussion and Analysis of Financial Condition and Results of
Operations..................................................................... 6
Item 8 Financial Statements and Supplementary Data...................................... 6
Item 9 Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure..................................................................... 6
PART III
Item 10 Directors and Executive Officers of the Registrant............................... 6
Item 11 Executive Compensation........................................................... 7
Item 12 Security Ownership of Certain Beneficial Owners and Management................... 8
Item 13 Certain Relationships and Related Transactions................................... 8
PART IV
Item 14 Exhibits, Financial Statement Schedules and Reports on Form 8-K.................. 9
Financial Statements and Financial Statement Schedules........................... 9
Exhibits......................................................................... 9
Reports on Form 8-K.............................................................. 11
SIGNATURES................................................................................. 14
</TABLE>
2
<PAGE>
PART I
Item 1. Business
General
Fogelman Mortgage L.P. I (the 'Registrant'), a Tennessee limited partnership,
was formed on September 4, 1986 and will terminate on December 31, 2016 unless
terminated sooner under the provisions of the Amended and Restated Certificate
and Agreement of Limited Partnership, as amended (the 'Partnership Agreement').
(See the discussion below concerning the Payoff Agreement and the possible
earlier termination of the Partnership.) The Registrant was formed to invest in
mortgage loans with the proceeds raised from the initial sale of 54,200
depositary units ('Units'). The Registrant invested in two mortgage loans (the
'Mortgage Loans'), which provided construction and permanent financing for the
development of two multi-family residential apartment complexes. The
Registrant's fiscal year for book and tax purposes ends on December 31.
The Mortgage Loans consist of: (1) a loan (the 'Pointe Royal Loan') in the
face amount of $22,745,000 made to FPI Royal View, Ltd., L.P. ('Pointe Royal'),
which is secured by a first mortgage and related security documents encumbering
the Pointe Royal Apartments, which is a 437 unit residential rental property
located in Overland Park, Kansas (the 'Pointe Royal Property'); and (2) a loan
(the 'Westmont Loan') in the face amount of $23,320,000 made to FPI
Chesterfield, L.P. ('Westmont' and together with Pointe Royal, the
'Partnerships'), which is secured by a first mortgage and related security
documents that encumber the Westmont Apartments, a 489 unit residential rental
property located in Chesterfield, Missouri (the 'Westmont Property' and together
with the Pointe Royal Property, the 'Properties'). Fogelman Enterprises, L.P., a
Delaware limited partnership ('FELP'), and Avron B. Fogelman, an individual
('ABF') are the general partners of each of the Partnerships.
On January 30, 1998, the Registrant entered into an agreement (the 'Payoff
Agreement') with FELP and ABF which supersedes the November 26, 1997 agreement
previously entered into by the parties. Through its general partner,
Prudential-Bache Properties, Inc. ('PBP'), the Registrant has advised FELP that
the Registrant will accept the Payoff Amount, as hereinafter defined, in full
satisfaction of the Mortgage Loans if the Transactions, as hereinafter defined,
are approved by a majority in interest of the unitholders of the Registrant. PBP
has received a written opinion from its advisor to the effect that the offer to
payoff the Mortgage Loans pursuant to the terms of the Payoff Agreement (the
'Transactions') are fair to the Registrant and the Unitholders from a financial
point of view. If the Transactions are approved by the Unitholders, the
Registrant intends to consummate the Transactions, distribute the Payoff Amount
(net of expenses) and the remaining net assets of the Registrant and liquidate
the Registrant.
Pursuant to the Payoff Agreement, FELP has agreed to pay to the Registrant
the payoff amount ('Payoff Amount') of $48,000,000 and an amount, if any, by
which the aggregate amount of interest paid to the Registrant by the
Partnerships in respect of the Mortgage Loans for the period from October 1,
1997, through the closing of the Transactions is less than the interest on the
face amount of the Mortgage Loans during such period calculated at an annual
rate of 7.7%.
The Transactions must be consummated not later than May 29, 1998.
The Registrant is engaged solely in the business of investing in mortgage
loans; therefore, presentation of industry segment information is not
applicable. For more information regarding the Registrant's operations, see Item
7 Management's Discussion and Analysis of Financial Condition and Results of
Operations.
General Partner
The general partner of the Registrant is Prudential-Bache Properties, Inc.
('PBP' or the 'General Partner').
3
<PAGE>
Mortgage Loans and Properties Underlying Mortgage Loans
The Pointe Royal project, which secures the Pointe Royal Loan, is located in
Overland Park, Kansas and is a townhouse apartment community consisting of 52
buildings on approximately 35 acres of land. As of December 31, 1997, the
monthly rents at the Pointe Royal project range from $610 to $930.
The Westmont project, which secures the Westmont Loan, is located in
Chesterfield, Missouri and is an apartment community consisting of 25 buildings
on approximately 58 acres of land. As of December 31, 1997, the monthly rents at
the Westmont project range from $605 to $840.
<TABLE>
<CAPTION>
Information on
Underlying Properties
---------------------------------------
Original Interest Average
Amount of Rate on Average Monthly
Mortgage Mortgage Maturity Occupancy Rental Rental Units
Property Closing Date Loan Loan Date Rates Rates Available
- ---------------- --------------- ----------- ------------ -------------- --------- -------------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Pointe Royal
Overland Park,
Kansas April 23, 1987 $22,745,000 9.5% April 23, 1999 96.7% $793 437
Westmont
Chesterfield,
Missouri July 8, 1987 23,320,000 9.5 July 8, 1999 96.7 710 489
- ---------------
Average occupancy and rental rates are for the twelve months ended December 31, 1997.
</TABLE>
The interest pay rate on the Mortgage Loans has been modified and is equal to
the net property cash flow generated by the respective Properties payable
monthly (4.5% for 1997), with the difference between the amount actually paid
and the original pay rate of 9.5% per annum being accounted for in a separate
account for each Property, which itself bears interest at 9.5% per annum
('Unpaid Interest'). The Mortgage Loans require current payments of interest
only with balloon payments of the entire principal and Unpaid Interest amounts
due from sale or refinancing proceeds or upon maturity. The ultimate
collectibility of the Unpaid Interest as well as the full principal of the
Mortgage Loans will depend upon the value of the underlying properties which are
currently estimated, based on third party appraisals, to be less than the
amounts due. However, the estimated property values exceed the Registrant's
carrying amount of the Mortgage Loans, which is recorded based upon the equity
method of accounting. A full appraisal for both properties was obtained in 1997.
The values of Pointe Royal and Westmont estimated in the appraisal reports were
$24,200,000 and $25,600,000, respectively, as of April 15, 1997. (See above
discussion of proposed payoff of Mortgage Loans.)
Following is the interest received from each of the Registrant's Mortgage
Loans as a percentage of total interest received and the equity income on the
underlying properties as a percentage of total equity income:
<TABLE>
<CAPTION>
Interest Received Equity Income
---------------------- ----------------------
1997 1996 1995 1997 1996 1995
<S> <C> <C> <C> <C> <C> <C>
---- ---- ---- ---- ---- ----
Pointe Royal 34.6% 43.2% 49.4% 43.5% 44.3% 46.8%
Westmont 65.4% 56.8% 50.6% 56.5% 55.7% 53.2%
</TABLE>
For summary financial statements of the underlying properties, see Note F to
the financial statements in the Registrant's Annual Report to Unitholders for
the year ended December 31, 1997 ('Registrant's Annual Report') which is filed
as an exhibit hereto.
Competition
The General Partner has formed various entities to engage in businesses which
may be competitive with the Registrant. Both of the Properties collateralizing
the Mortgage Loans are located in markets where the property manager manages
other apartment complexes.
The Registrant's business is affected by competition to the extent that the
underlying properties from which it derives interest payments are subject to
competition from neighboring properties. The Westmont
4
<PAGE>
apartments are located in the St. Louis metropolitan area and the Pointe Royal
apartments are located in the Kansas City metropolitan area. The Properties'
occupancy and rental rates are comparable to their competitors. However, the
value of the Properties has declined between the two most recent appraisals and
may continue to decline as construction with newer and superior amenities adds
to the competitive pressure on the property values, particularly in Overland,
Park, Kansas where the Pointe Royal Apartments is located.
Employees
The Registrant has no employees. Management and administrative services for
the Registrant are performed by the General Partner and its affiliates pursuant
to the Partnership Agreement. The General Partner receives compensation and
reimbursement of expenses in connection with such activities as described in
Sections 9 and 10 of the Partnership Agreement. See Note E to the financial
statements in the Registrant's Annual Report which is filed as an exhibit
hereto.
Item 2. Properties
The Registrant does not own or lease any property.
Item 3. Legal Proceedings
None
Item 4. Submission of Matters to a Vote of Unitholders
None
PART II
Item 5. Market for Registrant's Units and Related Unitholder Matters
As of March 5, 1998 there were 4,979 holders of record owning 54,200 Units. A
significant secondary market for the Units has not developed and it is not
expected that one will develop in the future. There are also certain
restrictions set forth in the Partnership Agreement limiting the ability of a
Unitholder to transfer Units. Consequently, holders of Units may not be able to
liquidate their investments in the event of an emergency or for any other
reason.
The following per Unit cash distributions were paid to Unitholders during the
following calendar quarters.
<TABLE>
<CAPTION>
Quarter Ended 1997 1996
<S> <C> <C>
- ------------------- ------ ------
March 31 $15.63 $15.00
June 30 15.63 15.63
September 30 11.50 15.63
December 31 11.50 15.63
</TABLE>
There are no material legal restrictions upon the Registrant's present or
future ability to make distributions in accordance with the provisions of the
Partnership Agreement. Cash distributions paid in 1997 were funded from current
and prior undistributed cash flow from operations. Approximately $2,023,000 and
$1,291,000 of the distributions paid to Unitholders during 1997 and 1996,
respectively, represent a return of capital on a generally accepted accounting
principles (GAAP) basis. The return of capital on a GAAP basis is calculated as
Unitholder distributions less net income allocated to Unitholders. The
Registrant currently does not expect that quarterly cash distributions will
continue to be paid in the future subject to the approval by the Unitholders of
the proposed disposition of the Mortgage Loans. (See Item 1 above for discussion
of proposed payoff of Mortgage Loans.) However, if the Mortgage Loans are paid
off pursuant to the Payoff Agreement, distributions of the net Payoff Amount and
the remaining assets will be made to Unitholders.
5
<PAGE>
Item 6. Selected Financial Data
The following table presents selected financial data of the Registrant. This
data should be read in conjunction with the financial statements of the
Registrant and the notes thereto on pages 2 through 9 of the Registrant's Annual
Report which is filed as an exhibit hereto.
<TABLE>
<CAPTION>
Year ended December 31,
-------------------------------------------------------------------
1997 1996 1995 1994 1993
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Equity income from the
underlying properties $ 1,633,515 $ 2,557,797 $ 2,166,858 $ 2,267,243 $ 2,082,554
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
Net income $ 1,157,009 $ 2,314,871 $ 1,929,656 $ 1,997,698 $ 1,773,686
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
Net income per Unit $ 16.93 $ 38.08 $ 31.04 $ 32.28 $ 28.19
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
Total assets $26,408,195 $28,321,329 $29,783,810 $31,191,034 $32,349,343
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
Total Unitholder
distributions $ 2,940,892 $ 3,354,437 $ 3,116,500 $ 2,981,000 $ 2,879,387
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
Unitholder
distributions per Unit $ 54.26 $ 61.89 $ 57.50 $ 55.00 $ 53.13
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
</TABLE>
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
This information is incorporated by reference to pages 10 and 11 of the
Registrant's Annual Report which is filed as an exhibit hereto.
Item 8. Financial Statements and Supplementary Data
The financial statements are incorporated by reference to pages 2 through 9
of the Registrant's Annual Report which is filed as an exhibit hereto.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
Reference is made to the Registrant's Current Report on Form 8-K dated May
14, 1996, as filed with the Securities and Exchange Commission on May 16, 1996
regarding the change in the Registrant's certifying accountant from Deloitte &
Touche LLP to Price Waterhouse LLP.
PART III
Item 10. Directors and Executive Officers of the Registrant
There are no directors or executive officers of the Registrant. The
Registrant is managed by the General Partner.
Section 16(a) Beneficial Ownership Reporting Compliance
The Registrant, the Registrant's General Partner and its directors and
executive officers, and any persons holding more than ten percent of the
Registrant's Units are required to report their initial ownership of such Units
and any subsequent changes in that ownership to the Securities and Exchange
Commission on Forms 3, 4 and 5. Such executive officers, directors and
Unitholders who own greater than ten percent of the Registrant's Units are
required by Securities and Exchange Commission regulations to furnish the
Registrant with copies of all Forms 3, 4 or 5 they file. All of these filing
requirements were satisfied on a timely basis. In making these disclosures, the
Registrant has relied solely on written representations of the General Partner's
directors and executive officers and Unitholders who own greater than ten
percent of the Registrant's Units or copies of the reports they have filed with
the Securities and Exchange Commission during and with respect to its most
recent fiscal year.
6
<PAGE>
Prudential-Bache Properties, Inc.
The directors and executive officers of PBP and their positions with regard
to managing the Registrant are as follows:
Name Position
Brian J. Martin President, Chief Executive Officer,
Chairman of the Board of Directors
and Director
Barbara J. Brooks Vice President--Finance and Chief
Financial Officer
Eugene D. Burak Vice President and Chief Accounting Officer
Chester A. Piskorowski Senior Vice President
Frank W. Giordano Director
Nathalie P. Maio Director
BRIAN J. MARTIN, age 47, is the President, Chief Executive Officer, Chairman of
the Board of Directors and a Director of PBP. He is a Senior Vice President of
Prudential Securities Incorporated ('PSI'), an affiliate of PBP. Mr. Martin also
serves in various capacities for certain other affiliated companies. Mr. Martin
joined PSI in 1980. Mr. Martin is a member of the Pennsylvania Bar.
BARBARA J. BROOKS, age 49, is the Vice President--Finance and Chief Financial
Officer of PBP. She is a Senior Vice President of PSI. Ms. Brooks also serves in
various capacities for other affiliated companies. She has held several
positions within PSI since 1983. Ms. Brooks is a certified public accountant.
EUGENE D. BURAK, age 52, is a Vice President of PBP. He is a First Vice
President of PSI. Prior to joining PSI in September 1995, he was a management
consultant for three years and was with Equitable Capital Management Corporation
from March 1990 to May 1992. Mr. Burak is a certified public accountant.
CHESTER A. PISKOROWSKI, age 54, is a Senior Vice President of PBP. He is a
Senior Vice President of PSI and is the Senior Manager of the Specialty Finance
Asset Management area. Mr. Piskorowski has held several positions within PSI
since April 1972. Mr. Piskorowski is a member of the New York and Federal Bars.
FRANK W. GIORDANO, age 55, is a Director of PBP. He is a Senior Vice President
and Senior Counsel of PSI. Mr. Giordano also serves in various capacities for
other affiliated companies. He has been with PSI since July 1967.
NATHALIE P. MAIO, age 47, is a Director of PBP. She is a Senior Vice President
and Deputy General Counsel of PSI and supervises non-litigation legal work for
PSI. She joined PSI's Law Department in 1983; presently, she also serves in
various capacities for other affiliated companies.
Thomas F. Lynch, III ceased to serve as President, Chief Executive Officer,
Chairman of the Board of Directors and a Director of Prudential-Bache
Properties, Inc. effective May 2, 1997. Effective May 2, 1997, Brian J. Martin
was elected President, Chief Executive Officer, Chairman of the Board of
Directors and a Director of Prudential-Bache Properties, Inc.
There are no family relationships among any of the foregoing directors or
officers. All of the foregoing officers and/or directors have indefinite terms.
Item 11. Executive Compensation
The Registrant does not pay or accrue any fees, salaries or any other form of
compensation to directors and officers of the General Partner for their
services. Certain officers and directors of the General Partner receive
compensation from affiliates of the General Partner, not from the Registrant,
for services performed for various affiliated entities, which may include
services performed for the Registrant; however, the General Partner believes
that any compensation attributable to services performed for the Registrant is
immaterial. See Item 13 Certain Relationships and Related Transactions for
information regarding reimbursement to the General Partner for services provided
to the Registrant.
7
<PAGE>
Item 12. Security Ownership of Certain Beneficial Owners and Management
As of March 5, 1998, no director or officer of the General Partner owns
directly or beneficially any interest in the voting securities of the General
Partner.
As of March 5, 1998, no director or officer of the General Partner owns
directly or beneficially any of the Units issued by the Registrant.
As of March 5, 1998, no beneficial owners who are neither a director nor
officer of the General Partner beneficially own more than five percent of the
Units issued by the Registrant.
Item 13. Certain Relationships and Related Transactions
The Registrant has and will continue to have certain relationships with the
General Partner and its affiliates. However, there have been no direct financial
transactions between the Registrant and the directors or officers of the General
Partner.
Reference is made to Notes A and E to the financial statements in the
Registrant's Annual Report, which is filed as an exhibit hereto, which identify
the related parties and discuss the services provided by these parties and the
amounts paid or payable for their services.
8
<PAGE>
PART IV
<TABLE>
<CAPTION>
Page in
Annual Report
<C> <S> <C>
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a) 1. Financial Statements and Report of Independent Accountants--incorporated by
reference to the Registrant's Annual Report which is filed as an exhibit
hereto
Reports of Independent Accountants
Report of Independent Accountants at December 31, 1997 and 1996 and for
the years then ended 2
Independent Auditors' Report for the year ended December 31, 1995
Statements of Financial Condition--December 31, 1997 and 1996 3
Statements of Operations--Three years ended December 31, 1997 4
Statements of Changes in Partners' Capital--Three years ended
December 31, 1997 4
Statements of Cash Flows--Three years ended December 31, 1997 5
Notes to Financial Statements 6
2. Financial Statement Schedule and Report of Independent Accountants
Report of Independent Accountants on Financial Statement Schedule
Schedule:
IV--Mortgage Loans on Real Estate--December 31, 1997
Financial Statements:
Report of Independent Auditors
Statements of Assets, Liabilities and Project Deficit--December 31, 1997
and 1996
Statements of Revenues and Expenses and Changes in Project Deficit--Three
years ended December 31, 1997
Statements of Cash Flows--Three years ended December 31, 1997
Notes to Financial Statements
Separate Financial Statements for Pointe Royal Project and Westmont Project
All other schedules have been omitted because they are not applicable or
the required information is included in the financial statements or notes
thereto.
</TABLE>
<TABLE>
<C> <S> <C>
3. Exhibits
Description:
3.1 Amended and Restated Certificate and Agreement of Limited Partnership dated
November 12, 1986 (incorporated by reference to Registration Statement No.
33-8596 filed November 26, 1986)
3.2 Second Amendment to Amended and Restated Certificate and Agreement of
Limited Partnership dated December 24, 1992 (incorporated by reference to
the Registrant's Annual Report on Form 10-K for the year ended December 31,
1992)
</TABLE>
9
<PAGE>
<TABLE>
<C> <S> <C>
10.1 Loan Agreement dated as of April 23, 1987 and amended as of July 7, 1987,
between FPI Royal View, Ltd., L.P. and the Registrant (filed herewith)
10.2 Loan Agreement dated as of July 8, 1987, between FPI Chesterfield, L.P. and
the Registrant (filed herewith)
10.3 Promissory Note Modification Agreement dated as of April 23, 1987 between
FPI Royal View, Ltd., L.P. and The Merchants Bank (filed herewith)
10.4 Promissory Note Modification Agreement dated as of January 1, 1990 between
FPI Chesterfield, L.P. and the Registrant (filed herewith)
10.5 Amendment to Loan Agreement dated as of January 1, 1990 between the
Registrant and FPI Chesterfield, L.P. (filed herewith)
10.6 Second Amendment to Loan Agreement dated as of January 1, 1990 between the
Registrant and FPI Royal View, Ltd., L.P. (filed herewith)
10.7 Deed of Trust, Assignment of Rents and Leases and Security Agreement dated
as of July 8, 1987 and amended as of January 1, 1990 between FPI
Chesterfield, L.P. and the Registrant (filed herewith)
10.8 Second Promissory Note Modification Agreement dated as of January 1, 1990
between FPI Royal View, Ltd., L.P. and the Registrant (filed herewith)
10.9 Mortgage and Security Agreement Modification Agreement dated as of April 23,
1987 and amended as of January 1, 1990 between FPI Royal View Ltd., L.P. and
the Registrant (filed herewith)
10.10 Guaranty dated as of July 8, 1987 by Avron B. Fogelman ('ABF') in favor of
the Registrant with respect to the indebtedness of FPI Chesterfield, L.P.
(filed herewith)
10.11 Guaranty dated as of April 23, 1987 by ABF in favor of the Registrant with
respect to the indebtedness of FPI Royal View Ltd., L.P. (filed herewith)
10.12 Assignment of Partnership Interest by Fogelman Assignor L.P., Inc. to
Prudential-Bache Investor Services II, Inc. dated December 14, 1992
(incorporated by reference to the Registrant's Annual Report on Form 10-K
for the year ended December 31, 1992)
10.13 Assignment of Partnership Interest by Fogelman Mortgage Partners I, Inc. to
Prudential-Bache Properties, Inc. dated December 14, 1992 (incorporated by
reference to the Registrant's Annual Report on Form 10-K for the year ended
December 31, 1992)
10.14 Assignment of Partnership Interest by ABF to Prudential-Bache Properties,
Inc. dated December 14, 1992 (incorporated by reference to the Registrant's
Annual Report on Form 10-K for the year ended December 31, 1992)
10.15 Second Amendment to Loan Agreement dated as of December 24, 1992 between the
Registrant and FPI Chesterfield, L.P. (incorporated by reference to the
Registrant's Annual Report on Form 10-K for the year ended December 31,
1992)
10.16 Release, Discharge and Cancellation of Guaranty between the Registrant and
Avron B. Fogelman dated December 24, 1992 (incorporated by reference to the
Registrant's Annual Report on Form 10-K for the year ended December 31,
1992)
10.17 Third Amendment to Loan Agreement dated December 24, 1992 between the Regis-
trant and FPI Royal View, Ltd., L.P. (incorporated by reference to the
Registrant's Annual Report on Form 10-K for the year ended December 31,
1992)
10.18 Amended and Restated Payoff Agreement dated January 30, 1998 between the
Registrant, Fogelman Enterprises, L.P. and ABF (filed herewith)
</TABLE>
10
<PAGE>
<TABLE>
<C> <S> <C>
13.1 Registrant's Annual Report to Unitholders for the year ended December 31,
1997 (with the exception of the information and data incorporated by
reference in Items 7 and 8 of this Annual Report on Form 10-K, no other
information or data appearing in the Registrant's Annual Report is to be
deemed filed as part of this report)
16.1 Letter dated May 15, 1996 from Deloitte & Touche LLP to the Securities and
Exchange Commission regarding change in certifying accountant (incorporated
by reference to Exhibit 16.1 to the Registrant's Current Report on Form 8-K
dated May 14, 1996)
19.1 First Amendment to Amended and Restated Certificate and Agreement of Limited
Partnership dated December 31, 1991 (incorporated by reference to the
Registrant's Annual Report on Form 10-K for the year ended December 31,
1992)
19.2 Amended Stipulation of Settlement dated February 25, 1992 (incorporated by
reference to the Registrant's Annual Report on Form 10-K for the year ended
December 31, 1992)
27 Financial Data Schedule (filed herewith)
</TABLE>
<TABLE>
<C> <S> <C>
(b) Reports on Form 8-K
Registrant's Current Report on Form 8-K dated November 26, 1997, as filed with the
Securities and Exchange Commission on December 10, 1997 relating to Item 5
regarding the entering into an agreement to payoff the Registrant's two mortgage
loans.
Registrant's Current Report on Form 8-K dated January 30, 1998, as filed with the
Securities and Exchange Commission on February 5, 1998 relating to Item 5
regarding the entering into a revised agreement to payoff the Registrant's two
mortgage loans.
</TABLE>
11
<PAGE>
Price Waterhouse LLP (LOGO)
1177 Avenue of the Americas
New York, NY 10036
Telephone 212 596-7000
Facsimile 212 596-8910
Report of Independent Accountants on
Financial Statement Schedule
February 13, 1998
To the Unitholders and
General Partner of Fogelman Mortgage L.P. I
Our audit of the financial statements referred to in our report dated February
13, 1998 appearing in the 1997 Annual Report to Unitholders of Fogelman Mortgage
L.P. I (which report and financial statements are incorporated by reference in
this Annual Report on Form 10-K) also included an audit of the Financial
Statement Schedule listed in Item 14(a) of this Form 10-K. In our opinion, this
Financial Statement Schedule presents fairly, in all material respects, the
information set forth therein when read in conjunction with the related
financial statements.
/s/ Price Waterhouse LLP
12
<PAGE>
FOGELMAN MORTGAGE L.P. I
Schedule IV--Mortgage Loans On Real Estate
December 31, 1997
MORTGAGE LOANS ON REAL ESTATE
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------
Periodic
Final maturity payment Face amount of
Description Interest rate date terms Prior liens mortgage
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Pointe Royal
First Mortgage Loan (A) 9.5%(C) April 23, 1999 (C) None $22,745,000
Westmont
First Mortgage Loan (B) 9.5%(C) July 8, 1999 (C) None 23,320,000
---------------
$46,065,000
---------------
---------------
<CAPTION>
Carrying amount of
Description mortgage (D)
- --------------------------------------------------------------
<S> <C>
Pointe Royal
First Mortgage Loan (A) $ 13,236,500
Westmont
First Mortgage Loan (B) 12,465,246
------------------
$ 25,701,746
------------------
------------------
</TABLE>
(A) Multi-family residential apartment complex--Overland Park, Kansas
(B) Multi-family residential apartment complex--Chesterfield, Missouri
(C) The interest pay rate has been modified and is equal to the net property
cash flow generated by the respective Properties payable monthly (4.5% for
1997), with the difference between the amount actually paid and the original
pay rate of 9.5% per annum being accounted for in a separate account for
each Property, which itself bears interest at 9.5% per annum. The Mortgage
Loans require current payments of interest only with balloon payments of the
entire principal and Unpaid Interest amounts due from sale or refinancing
proceeds or upon maturity (the twelfth anniversary of the respective loan
closing dates). The Mortgage Loans as of December 31, 1997, may be prepaid
in whole with no prepayment penalty.
(D) See Note C to the financial statements in the Registrant's Annual Report
which is filed as an exhibit hereto. No principal amount of the loans is
subject to delinquent interest because the loans have been modified to a
cash flow basis.
13
<PAGE>
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.
Fogelman Mortgage L.P. I
By: Prudential-Bache Properties, Inc.
A Delaware corporation, General Partner
By: /s/ Eugene D. Burak Date: April 20, 1998
----------------------------------------
Eugene D. Burak
Vice President and Chief Accounting
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
Registrant and in the capacities (with respect to the General Partner) and on
the dates indicated.
By: Prudential-Bache Properties, Inc.
A Delaware corporation, General Partner
By: /s/ Brian J. Martin Date: April 20, 1998
----------------------------------------
Brian J. Martin
President, Chief Executive Officer,
Chairman of the Board of Directors and
Director
By: /s/ Barbara J. Brooks Date: April 20, 1998
----------------------------------------
Barbara J. Brooks
Vice President-Finance and Chief
Financial Officer
By: /s/ Eugene D. Burak Date: April 20, 1998
----------------------------------------
Eugene D. Burak
Vice President
By: /s/ Frank W. Giordano Date: April 20, 1998
----------------------------------------
Frank W. Giordano
Director
By: /s/ Nathalie P. Maio Date: April 20, 1998
----------------------------------------
Nathalie P. Maio
Director
14
<PAGE>
Audited Financial Statements
Pointe Royal Project
Years ended December 31, 1997, 1996, and 1995
with Report of Independent Auditors
(LOGO)
<PAGE>
Pointe Royal Project
Audited Financial Statements
Years ended December 31, 1997, 1996, and 1995
Contents
Report of Independent Auditors 1
Audited Financial Statements
Statements of Assets, Liabilities and Project Deficit 2
Statements of Revenues and Expenses and Changes in Project Deficit 3
Statements of Cash Flows 4
Notes to Financial Statements 5
<PAGE>
[LETTERHEAD OF ERNST & YOUNG LLP]
Report of Independent Auditors
To the Partners of
FPI Royal View, Ltd., L.P.
We have audited the accompanying statements of assets, liabilities and
project deficit of the Pointe Royal Project (the Project) as of December
31, 1997 and 1996, and the related statements of revenues and expenses
and changes in project deficit and cash flows for each of the three
years in the period ended December 31, 1997. These financial statements
are the responsibility of the Project's management. Our responsibility
is to express an opinion on these financial statements 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 the
Project at December 31, 1997 and 1996, and the results of its
operations and its cash flows for each of the three years in
the period ended December 31, 1997, in conformity with generally
accepted accounting principles.
/s/ ERNST & YOUNG LLP
Memphis, Tennessee
January 30, 1998
1
<PAGE>
Pointe Royal Project
Statements of Assets, Liabilities and
Project Deficit
<TABLE>
<CAPTION>
December 31
1997 1996
<S> <C> <C>
Assets
Property, at cost $23,970,628 $23,288,629
Less accumulated depreciation (7,869,324) (7,065,474)
16,101,304 16,223,155
Restricted funds and escrows 145,221 157,191
Cash 72,186 3,400
Total assets $16,318,711 $16,383,746
Liabilities and Project Deficit
Mortgage notes payable $23,808,000 $23,808,000
Due to FPI Royal View, Ltd., L.P.
and related entities 1,180,778 1,183,763
Accrued interest payable 6,278,092 4,235,079
Accrued real estate taxes 172,135 177,100
Security deposits 57,520 64,890
Other accrued expenses 66,527 64,043
Total liabilities 31,563,052 29,532,875
Project deficit (15,244,341) (13,149,129)
Total liabilities and project deficit $16,318,711 $16,383,746
</TABLE>
See accompanying notes.
2
<PAGE>
Pointe Royal Project
Statements of Revenues and Expenses and
Changes in Project Deficit
<TABLE>
<CAPTION>
Year ended December 31
1997 1996 1995
<S> <C> <C> <C>
Revenues
Rental income $ 3,734,047 $ 3,771,718 $ 3,615,886
Interest and other income 128,129 165,052 137,665
3,862,176 3,936,770 3,753,551
Expenses
Operating expenses 2,398,690 2,064,220 1,686,854
Interest 2,754,848 2,600,663 2,524,077
Depreciation 803,850 745,929 749,890
Loss on disposal of property - 43,941 354,386
5,957,388 5,454,753 5,315,207
Expenses in excess of revenues (2,095,212) (1,517,983) (1,561,656)
Project deficit at beginning of year (13,149,129) (11,631,146) (10,069,490)
Project deficit at end of year $(15,244,341) $(13,149,129) $(11,631,146)
</TABLE>
See accompanying note.
3
<PAGE>
Pointe Royal Project
Statements of Cash Flows
<TABLE>
<CAPTION>
Year ended December 31
1997 1996 1995
<S> <C> <C> <C>
Operating activities
Expenses in excess of revenues $ (2,095,212) $ (1,517,983) $ (1,561,656)
Adjustments to reconcile
expenses in excess of
revenues to net cash
provided by operating
activities:
Depreciation 803,850 745,929 749,890
Loss on disposal of property - 43,941 354,386
Decrease in restricted
funds and escrows 11,970 7,210 10,188
(Decrease) increase in
Due to FPI Royal View,
Ltd., L.P. and related
entities (2,985) (48,669) 13,077
Increase in accrued
interest payable 2,043,013 1,063,483 766,521
(Decrease) increase in
accrued real estate
taxes (4,965) (1,761) 35,308
Decrease in security deposits (7,370) (8,190) (20,781)
Increase (decrease) in
other accrued expenses 2,484 28,708 (92,223)
Net cash provided by
operating activities 750,785 312,668 254,710
Investing activities
Property additions (681,999) (395,525) (340,910)
Net increase (decrease) in cash 68,786 (82,857) (86,200)
Cash at beginning of year 3,400 86,257 12,457
Cash at end of year $ 72,186 $ 3,400 $ 86,257
</TABLE>
See accompanying notes.
4
<PAGE>
Pointe Royal Project
Notes to Financial Statements
December 31, 1997
1. Project Description
The Pointe Royal Project (the Project) is a 437
unit residential rental property on 34.74 acres in
Overland Park, Kansas. The Project, which is not a
separate legal entity, is owned by FPI Royal View,
Ltd., L.P. (the Partnership), a Kansas limited
partnership. Avron B. Fogelman and Fogelman
Enterprises, L.P. (FELP), which is directly and
indirectly owned by Avron B. Fogelman, are general
partners of the Partnership. FELP is also the sole
limited partner. Through December 24, 1992, Avron
B. Fogelman was also a general partner of Fogelman
Mortgage L.P. I (FMLP), which holds the first
mortgage note on the Project's property (see Note
4). However, as of December 24, 1992, pursuant to
settlement of certain claims brought by investors
in FMLP, Mr. Fogelman and an affiliated entity
withdrew as general partners from FMLP (see Note
4).
Units are leased under short-term operating leases
with monthly rentals due in advance. The Project,
existing and future leases, and rents have been
assigned as collateral for the related mortgage
notes (see Note 4).
2. Summary of Significant Accounting Policies
Basis of Reporting
The accompanying financial statements are prepared
on the accrual basis of accounting and represent
the cumulative operations of the Project beginning
with the inception of the FMLP loan agreement on
April 23, 1987 (see Note 4).
Use of Estimates
The preparation of 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.
Statements of Cash Flows
The Project made payments of $711,835, $1,537,180,
and $1,757,556, for interest during the years ended
December 31, 1997, 1996, and 1995, respectively.
5
<PAGE>
Pointe Royal Project
Notes to Financial Statements (continued)
2. Summary of Significant Accounting Policies (continued)
Restricted Funds and Escrows
Included in restricted funds and escrows are
security deposits and real estate tax escrow
deposits.
Income Taxes
No income taxes are paid by the Project or the
Partnership since the results of operations are
allocated to the partners of the Partnership. Any
income tax liability or benefit resulting therefrom
is the responsibility of the partners rather than
the Partnership or the Project.
3. Property
Property is stated at cost. Depreciation is
provided for financial statement reporting purposes
using the straight-line method over estimated
useful lives as follows:
<TABLE>
<CAPTION>
Useful Cost at December 31
Life 1997 1996
<S> <C> <C> <C>
Land N/A $ 3,496,000 $ 3,496,000
Buildings 30 years 16,537,712 16,537,712
Land improvements 15 years 1,864,748 1,618,401
Furniture and fixtures 5-7 years 2,072,168 1,636,516
$ 23,970,628 $ 23,288,629
</TABLE>
Construction period interest incurred during
Project development amounted to $1,347,428 and has
been capitalized as a component of property costs.
The Project follows Financial Accounting Standards
Board Statement No. 121, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of, which 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 Project adopted
Statement 121 during 1996, with no effect on its
financial statements.
As a result of normal capital improvements at the
Project, certain property was replaced. The net
book value of this property was written off and is
reflected as a loss on disposal of property in the
accompanying financial statements.
6
<PAGE>
Pointe Royal Project
Notes to Financial Statements (continued)
4. Mortgage Notes Payable
The Project is financed with nonrecourse mortgage
notes payable consisting of the following at
December 31, 1997 and 1996:
<TABLE>
<CAPTION>
1997 1996
Accrued Accrued
Interest Interest
Principal Payable Principal Payable
<S> <C> <C> <C> <C>
First mortgage note
payable to FMLP $22,745,000 $5,587,575 $22,745,000 $3,717,722
Second mortgage note
payable to Avron B.
Fogelman 1,063,000 690,517 1,063,000 517,357
$23,808,000 $6,278,092 $23,808,000 $4,235,079
</TABLE>
The first mortgage note was amended effective
January 1, 1990 pursuant to a consensual
reorganization of the business affairs of Avron B.
Fogelman and related entities. The note, as
amended, bears interest at the basic interest rate
of 9.50% per annum and is payable monthly with the
principal balance due April 23, 1999. If Property
Cash Flow, as defined, is insufficient to pay the
basic interest, then the interest paid shall be
equal to the Property Cash Flow. Such insufficiency
between basic interest at 9.50% and Property Cash
Flow is accrued and bears interest at 9.50%,
compounded monthly. If Property Cash Flow exceeds
the basic interest, then the excess shall be
applied against any unpaid accrued interest until
all such accrued interest has been paid.
Thereafter, any excess Property Cash Flow shall be
paid to FMLP to be held in escrow as additional
collateral for future interest obligations. If
Property Cash Flow exceeds the basic interest for
six consecutive months after payment of all accrued
basic interest, then cash held as additional
collateral shall be paid as contingent interest as
provided under the original terms of the first
mortgage note.
Contingent interest is payable from any Property
Cash Flow, sale or refinancing proceeds received
after January 1, 1989 as follows: (a) 75% thereof
until the total interest (basic interest plus
contingent interest) paid results in a 10.75% yield
on the note; (b) 50% of the remaining balance until
the total interest paid results in a 12.75% yield
on the note; and (c) 25% of the remaining balance
thereof.
Under the first mortgage note agreement, effective
January 1, 1994, the principal may be repaid in
whole, but not in part, upon the payment of a
prepayment penalty equal to 5% of the outstanding
principal balance. Thereafter, prepayment penalties
decline 1% annually.
7
<PAGE>
Pointe Royal Project
Notes to Financial Statements (continued)
4. Mortgage Notes Payable (continued)
During 1992, Mr. Fogelman, FMLP and other
defendants settled litigation with certain
investors in FMLP, the holder of the Project's
first mortgage note. Pursuant thereto, funds placed
by Mr. Fogelman in trust to satisfy his guarantee
related to the mortgage note were released to FMLP
and applied as payment of accrued basic interest.
Mr. Fogelman was then released from his guarantee
on the note and Mr. Fogelman and an affiliated
entity withdrew as general partners from FMLP.
Accordingly, the first mortgage note payable to
FMLP is solely a nonrecourse note collateralized by
the Project.
In accordance with the transfer of funds to FMLP
discussed in the preceding paragraph, the Project
recorded a second mortgage note payable to Mr.
Fogelman in the amount of $1,063,000, which was the
amount of funds transferred to FMLP. The note bears
interest at the prime rate plus 2%, adjustable
monthly (10.5% and 10.25% at December 31, 1997 and
1996, respectively), and the principal and accrued
interest mature April 23, 1999. The note and
interest thereon are subordinate to the first
mortgage note and related interest payable to FMLP
discussed above. The note may be prepaid, subject
to the subordination provisions above, at any time
without penalty.
5. Related Party Transactions
Fogelman Management Co. (FMC), which is owned by
Mr. Fogelman, manages the Project and charges
management fees equal to 5% of gross operating
revenues, as defined in the management agreement.
Management fees paid by the Project were
approximately $193,000, $196,000, and $188,000 for
1997, 1996, and 1995, respectively.
FMC obtains insurance coverage for all properties
it manages and allocates the related costs
proportionately among the properties.
6. Fair Values of Financial Instruments
The following methods and assumptions were used by
the Project's management in estimating fair value
disclosures for financial instruments:
The carrying amounts reported in the balance sheet
for restricted funds and escrows, Due to FPI Royal
View, Ltd., L. P. and related entities, and other
accrued expenses approximate fair value.
The fair value of the first mortgage note and
accrued interest, when combined with the
outstanding amount of the first mortgage note and
accrued interest of FPI Chesterfield, L.P.
($29,439,179), an affiliate, approximates the
payoff amount described in Note 7.
8
<PAGE>
Pointe Royal Project
Notes to Financial Statements (continued)
6. Fair Values of Financial Instruments (continued)
Management of the Project has determined that it is
not practicable to estimate the fair value of the
second mortgage note payable to Mr. Fogelman and
related accrued interest since these obligations
are subordinate to the first mortgage note.
7. Subsequent Event
On January 30, 1998, FELP, Avron B. Fogelman and
FMLP entered into an agreement ("Payoff Agreement")
which provides that FELP will pay (or cause to be
paid on behalf of the Partnership) to FMLP, in full
satisfaction of the first mortgage loan and related
accrued interest of the Partnership, as well as,
the first mortgage loan and related accrued
interest of FPI Chesterfield, L.P. (collectively
referred to as "Mortgage Loans"), the following:
(i) $48,000,000 and (ii) an amount, if any, by
which the aggregate amount of interest paid to FMLP
with respect to the Mortgage Loans for the period
October 1, 1997 through the closing is less than
interest on the principal amount of the Mortgage
Loans ($46,065,000) at an annual interest rate of
7.7%.
The obligation of FMLP to close under the Payoff
Agreement is subject to the approval by a majority
in interest of the unitholders of FMLP.
Additionally, FELP's obligation to close is subject
to the closing occurring on or before May 29, 1998,
unless FELP in its sole discretion agrees to the
closing on a later date.
FELP and Avron B. Fogelman have reached an
agreement in principle with (i) Connecticut General
Life Insurance Company ("CIGNA") respecting the
terms and conditions of new first mortgage
financing and (ii) General Electric Capital
Corporation ("GECC") respecting the terms of a new
equity investment. The funds from CIGNA and GECC,
together with funds provided by FELP and/or its
affiliates, would repay the Mortgage Loans.
9
<PAGE>
Audited Financial Statements
Westmont Project
Years ended December 31, 1997, 1996, and 1995
with Report of Independent Auditors
(LOGO)
<PAGE>
Westmont Project
Audited Financial Statements
Years ended December 31, 1997, 1996, and 1995
Contents
Report of Independent Auditors 1
Audited Financial Statements
Statements of Assets, Liabilities and Project Deficit 2
Statements of Revenues and Expenses and Changes in
Project Deficit 3
Statements of Cash Flows 4
Notes to Financial Statements 5
<PAGE>
[LETTERHEAD OF ERNST & YOUNG LLP]
Report of Independent Auditors
To the Partners of
FPI Chesterfield, L.P.
We have audited the accompanying statements of assets,
liabilities and project deficit of the Westmont Project
(the Project) as of December 31, 1997 and 1996, and the
related statements of revenues and expenses and changes
in project deficit and cash flows for each of the three
years in the period ended December 31, 1997. These
financial statements are the responsibility of the
Project's management. Our responsibility is to express
an opinion on these financial statements 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 the Project at December 31, 1997
and 1996, and the results of its operations and its
cash flows for each of the three years in the period
ended December 31, 1997, in conformity with generally
accepted accounting principles.
/s/ ERNST & YOUNG LLP
Memphis, Tennessee
January 30, 1998
<PAGE>
Westmont Project
Statements of Assets, Liabilities and
Project Deficit
<TABLE>
<CAPTION>
December 31
1997 1996
<S> <C> <C>
Assets
Property, at cost $23,480,010 $23,093,158
Less accumulated depreciation (8,397,855) (7,597,138)
15,082,155 15,496,020
Restricted funds and escrows 163,243 126,294
Cash 176,411 151,421
Total assets $15,421,809 $15,773,735
Liabilities and Project Deficit
Mortgage notes payable $24,409,000 $24,409,000
Due to FPI Chesterfield, L.P.
and related entities 611,413 613,701
Accrued interest payable 6,826,586 5,289,419
Security deposits 165,333 121,410
Other accrued expenses 138,698 59,008
Total liabilities 32,151,030 30,492,538
Project deficit (16,729,221) (14,718,803)
Total liabilities and project
deficit $15,421,809 $15,773,735
</TABLE>
See accompanying notes.
2
<PAGE>
Westmont Project
Statements of Revenues and Expenses and
Changes in Project Deficit
<TABLE>
<CAPTION>
Year ended December 31
1997 1996 1995
<S> <C> <C> <C>
Revenues
Rental income $ 3,761,133 $ 3,669,349 $ 3,547,581
Interest and other income 137,721 137,427 161,780
3,898,854 3,806,776 3,709,361
Expenses
Operating expenses 2,173,193 1,651,281 1,812,435
Interest 2,881,056 2,774,158 2,693,697
Depreciation 837,524 782,138 795,726
Loss on disposal of property 17,499 - -
5,909,272 5,207,577 5,301,858
Expenses in excess of
revenues (2,010,418) (1,400,801) (1,592,497)
Project deficit at
beginning of year (14,718,803) (13,318,002) (11,725,505)
Project deficit at end of
year $(16,729,221) $(14,718,803) $(13,318,002)
</TABLE>
See accompanying notes.
3
<PAGE>
Westmont Project
Statements of Cash Flows
<TABLE>
<CAPTION>
Year ended December 31
1997 1996 1995
<S> <C> <C> <C>
Operating activities
Expenses in excess of revenues $ (2,010,418) $ (1,400,801) $(1,592,497)
Adjustments to reconcile
expenses in excess of
revenues to net cash
provided by operating
activities:
Depreciation 837,524 782,138 795,726
Loss on disposal of property 17,499 - -
(Increase) decrease in
restricted funds and
escrows (36,949) 127,426 2,853
(Decrease) increase in
Due to FPI Chesterfield,
L.P. and related entities (2,288) (42,850) 5,532
Increase in accrued
interest payable 1,537,167 749,884 891,362
Increase (decrease) in
security deposits 43,923 4,500 (8,695)
Increase (decrease) in
other accrued expenses 79,690 10,041 (17,537)
Net cash provided by
operating activities 466,148 230,338 76,744
Investing activities
Property additions (441,158) (160,749) (122,556)
Net increase (decrease) in cash 24,990 69,589 (45,812)
Cash at beginning of year 151,421 81,832 127,644
Cash at end of year $ 176,411 $ 151,421 $ 81,832
</TABLE>
See accompanying notes.
4
<PAGE>
Westmont Project
Notes to Financial Statements
December 31, 1997
1. Project Description
The Westmont Project (the Project) is a 489 unit
residential rental property on 57.65 acres in
Chesterfield, Missouri. The Project, which is not a
separate legal entity, is owned by FPI
Chesterfield, L.P. (the Partnership), a Missouri
limited partnership. Avron B. Fogelman and Fogelman
Enterprises, L.P. (FELP), which is directly and
indirectly owned by Avron B. Fogelman, are general
partners of the Partnership. Avron B. Fogelman is
also the sole limited partner. Through December 24,
1992, Avron B. Fogelman was also a general partner
of Fogelman Mortgage L.P. I (FMLP), which holds the
first mortgage note on the Project's property (see
Note 4). However, as of December 24, 1992, pursuant
to settlement of certain claims brought by
investors in FMLP, Mr. Fogelman and an affiliated
entity withdrew as general partners from FMLP (see
Note 4).
Units are leased under short-term operating leases
with monthly rentals due in advance. The Project,
existing and future leases, and rents have been
assigned as collateral for the related mortgage
notes (see Note 4).
2. Summary of Significant Accounting Policies
Basis of Reporting
The accompanying financial statements are prepared
on the accrual basis of accounting and represent
the cumulative operations of the Project beginning
with the inception of the FMLP loan agreement on
July 8, 1987 (see Note 4).
Use of Estimates
The preparation of 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.
Statements of Cash Flows
The Project made payments of $1,343,889,
$2,024,274, and $1,802,335, for interest during the
years ended December 31, 1997, 1996, and 1995,
respectively.
5
<PAGE>
Westmont Project
Notes to Financial Statements (continued)
2. Summary of Significant Accounting Policies (continued)
Restricted Funds and Escrows
Included in restricted funds and escrows are
security deposits and real estate tax escrow
deposits.
Income Taxes
No income taxes are paid by the Project or the
Partnership since the results of operations are
allocated to the partners of the Partnership. Any
income tax liability or benefit resulting therefrom
is the responsibility of the partners rather than
the Partnership or the Project.
3. Property
Property is stated at cost. Depreciation is
provided for financial statement reporting purposes
using the straight-line method over estimated
useful service lives as follows:
<TABLE>
<CAPTION>
Useful Cost at December 31
Life 1997 1996
<S> <C> <C> <C>
Land N/A $ 2,386,320 $ 2,386,320
Buildings 30 years 17,029,627 17,027,526
Land improvements 15 years 2,001,847 1,931,757
Furniture and fixtures 5-7 years 2,062,216 1,747,555
$23,480,010 $23,093,158
</TABLE>
Construction period interest incurred during
Project development amounted to $1,358,694 and has
been capitalized as a component of property costs.
The Project follows Financial Accounting Standards
Board Statement No. 121, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of, which 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 Project adopted
Statement 121 during 1996, with no effect on its
financial statements.
As a result of normal capital improvements at the
Project, certain property was replaced. The net
book value of this property was written off and is
reflected as a loss on disposal of property in the
accompanying financial statements.
6
<PAGE>
Westmont Project
Notes to Financial Statements (continued)
4. Mortgage Notes Payable
The Project is financed with nonrecourse mortgage
notes payable consisting of the following at
December 31, 1997 and 1996:
<TABLE>
<CAPTION>
1997 1996
Accrued Accrued
Interest Interest
Principal Payable Principal Payable
<S> <C> <C> <C> <C>
First mortgage
note payable
to FMLP $23,320,000 $6,119,179 $23,320,000 $4,759,407
Second mortgage
note payable
to Avron B.
Fogelman 1,089,000 707,407 1,089,000 530,012
$24,409,000 $6,826,586 $24,409,000 $5,289,419
</TABLE>
The first mortgage note was amended effective
January 1, 1990 pursuant to a consensual
reorganization of the business affairs of Avron B.
Fogelman and related entities. The note, as
amended, bears interest at the basic interest rate
of 9.50% per annum and is payable monthly with the
principal balance due July 1, 1999. If Property
Cash Flow, as defined, is insufficient to pay the
basic interest, then the interest paid shall be
equal to the Property Cash Flow. Such insufficiency
between basic interest at 9.50% and Property Cash
Flow is accrued and bears interest at 9.50%,
compounded monthly. If Property Cash Flow exceeds
the basic interest, the excess shall be applied
against any unpaid accrued interest until all such
accrued interest has been paid. Thereafter, any
excess Property Cash Flow shall be paid to FMLP to
be held in escrow as additional collateral for
future interest obligations. If Property Cash Flow
exceeds the basic interest for six consecutive
months after payment of all accrued basic interest,
then cash held as additional collateral shall be
paid as contingent interest as provided under the
original terms of the first mortgage note.
Contingent interest is payable from any Property
Cash Flow, sale or refinancing proceeds received
after January 1, 1989 as follows: (a) 75% thereof
until the total interest (basic interest plus
contingent interest) paid results in a 10.75% yield
on the note; (b) 50% of the remaining balance until
the total interest paid results in a 12.75% yield
on the note; and (c) 25% of the remaining balance
thereof.
Under the first mortgage note agreement, effective
January 1, 1994, the principal may be repaid in
whole, but not in part, upon the payment of a
prepayment penalty equal to 5% of the outstanding
principal balance. Thereafter, prepayment penalties
decline 1% annually.
7
<PAGE>
Westmont Project
Notes to Financial Statements (continued)
4. Mortgage Notes Payable (continued)
During 1992, Mr. Fogelman, FMLP and other
defendants settled litigation with certain
investors in FMLP, the holder of the Project's
first mortgage note. Pursuant thereto, funds placed
by Mr. Fogelman in trust to satisfy his guarantee
related to the mortgage note were released to FMLP
and applied as payment of accrued basic interest.
Mr. Fogelman was then released from his guarantee
on the note and Mr. Fogelman and an affiliated
entity withdrew as general partners from FMLP.
Accordingly, the first mortgage note payable to
FMLP is solely a nonrecourse note collateralized by
the Project.
In accordance with the transfer of funds to FMLP
discussed in the preceding paragraph, the Project
recorded a second mortgage note payable to Mr.
Fogelman in the amount of $1,089,000, which was the
amount of funds transferred to FMLP. The note bears
interest at the prime rate plus 2%, adjustable
monthly (10.5% and 10.25% at December 31, 1997 and
1996, respectively), and the principal and accrued
interest mature July 1, 1999. The note and interest
thereon are subordinate to the first mortgage note
and related interest payable to FMLP discussed
above. The note may be prepaid, subject to the
subordination provisions above, at any time without
penalty.
5. Related Party Transactions
Fogelman Management Co. (FMC), which is owned by
Mr. Fogelman, manages the Project and charges
management fees equal to 5% of gross operating
revenues, as defined in the management agreement.
Management fees paid by the Project were
approximately $195,000, $190,000, and $185,000, for
1997, 1996, and 1995, respectively.
FMC obtains insurance coverage for all properties
it manages and allocates the related costs
proportionately among the properties.
6. Fair Values of Financial Instruments
The following methods and assumptions were used by
the Project's management in estimating fair value
disclosures for financial instruments:
The carrying amounts reported in the balance sheet
for restricted funds and escrows, Due to FPI
Chesterfield, L. P. and related entities, and other
accrued expenses approximate fair value.
The fair value of the first mortgage note and
accrued interest, when combined with the
outstanding amount of the first mortgage note and
accrued interest of FPI Royal View, Ltd., L.P.
($28,332,575), an affiliate, approximates the
payoff amount described in Note 7.
8
<PAGE>
Westmont Project
Notes to Financial Statements (continued)
6. Fair Values of Financial Instruments (continued)
Management of the Project has determined that it is
not practicable to estimate the fair value of the
second mortgage note payable to Mr. Fogelman and
related accrued interest since these obligations
are subordinate to the first mortgage note.
7. Subsequent Event
On January 30, 1998, FELP, Avron B. Fogelman and
FMLP entered into an agreement ("Payoff Agreement")
which provides that FELP will pay (or cause to be
paid on behalf of the Partnership) to FMLP, in full
satisfaction of the first mortgage loan and related
accrued interest of the Partnership, as well as,
the first mortgage loan and related accrued
interest of FPI Royal View, Ltd., L.P.
(collectively referred to as "Mortgage Loans"), the
following: (i) $48,000,000 and (ii) an amount, if
any, by which the aggregate amount of interest paid
to FMLP with respect to the Mortgage Loans for the
period October 1, 1997 through the closing is less
than interest on the principal amount of the
Mortgage Loans ($46,065,000) at an annual interest
rate of 7.7%.
The obligation of FMLP to close under the Payoff
Agreement is subject to the approval by a majority
in interest of the unitholders of FMLP.
Additionally, FELP's obligation to close is subject
to the closing occurring on or before May 29, 1998,
unless FELP in its sole discretion agrees to the
closing on a later date.
FELP and Avron B. Fogelman have reached an
agreement in principle with (i) Connecticut General
Life Insurance Company ("CIGNA") respecting the
terms and conditions of new first mortgage
financing and (ii) General Electric Capital
Corporation ("GECC") respecting the terms of a new
equity investment. The funds from CIGNA and GECC,
together with funds provided by FELP and/or its
affiliates, would repay the Mortgage Loans.
9
<PAGE>
1997
- --------------------------------------------------------------------------------
Fogelman Mortgage L.P. I Annual
Report
<PAGE>
Price Waterhouse LLP (LOGO)
1177 Avenue of the Americas
New York, NY 10036
Telephone 212 596-7000
Facsimile 212 596-8910
Report of Independent Accountants
February 13, 1998
To the Unitholders and
General Partner of
Fogelman Mortgage L.P. I
In our opinion, the accompanying statements of financial condition and the
related statements of operations, changes in partners' capital and cash flows
present fairly, in all material respects, the financial position of Fogelman
Mortgage L.P. I at December 31, 1997 and 1996, and the results of its operations
and its cash flows for the years then ended in conformity with generally
accepted accounting principles. These financial statements are the
responsibility of the general partner; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with generally accepted auditing
standards which 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, assessing the
accounting principles used and significant estimates made by the general
partner, and evaluating the overall financial statement presentation. We believe
that our audits provide a reasonable basis for the opinion expressed above.
/s/ Price Waterhouse LLP
2
<PAGE>
Deloitte & Touche LLP (LOGO)
Two World Financial Center
New York, New York 10281-1414
Telephone (212) 436-2000
Facsimile (212) 436-5000
Independent Auditors' Report
To the Partners of
Fogelman Mortgage L.P. I
We have audited the accompanying statements of operations, changes in partners'
capital and cash flows of Fogelman Mortgage L.P. I (a Tennessee Limited
Partnership) for the year ended December 31, 1995. These financial statements
are the responsibility of the General Partner. Our responsibility is to express
an opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatements. 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
the General Partner, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable
basis for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the results of operations and cash flows of Fogelman Mortgage L.P. I
for the year ended December 31, 1995 in conformity with generally accepted
accounting principles.
/s/ Deloitte & Touche LLP
February 12, 1996
2A
<PAGE>
FOGELMAN MORTGAGE L.P. I
(a limited partnership)
STATEMENTS OF FINANCIAL CONDITION
<TABLE>
<CAPTION>
December 31,
---------------------------
1997 1996
<S> <C> <C>
- --------------------------------------------------------------------------------------------------
ASSETS
Investments in mortgage loans $25,701,746 $26,123,955
Cash and cash equivalents 420,884 1,708,313
Deferred general partner's fees (net of accumulated amortization
of $2,153,435 in 1997 and $1,949,939 in 1996) 285,565 489,061
----------- -----------
Total assets $26,408,195 $28,321,329
----------- -----------
----------- -----------
LIABILITIES AND PARTNERS' CAPITAL
Liabilities
Deposits held for tax obligations of underlying properties $ 86,068 $ 88,550
Due to affiliates 73,238 71,794
Accrued expenses 177,179 45,362
----------- -----------
Total liabilities 336,485 205,706
----------- -----------
Partners' capital
Unitholders (54,200 units issued and outstanding) 26,305,236 28,328,711
General partner (233,526) (213,088)
----------- -----------
Total partners' capital 26,071,710 28,115,623
----------- -----------
Total liabilities and partners' capital $26,408,195 $28,321,329
----------- -----------
----------- -----------
- --------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these statements.
</TABLE>
3
<PAGE>
FOGELMAN MORTGAGE L.P. I
(a limited partnership)
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Year ended December 31,
----------------------------------------
1997 1996 1995
<S> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------
REVENUES
Equity income from the underlying properties $1,633,515 $2,557,797 $2,166,858
Interest income 49,251 85,190 103,340
---------- ---------- ----------
1,682,766 2,642,987 2,270,198
---------- ---------- ----------
EXPENSES
General and administrative 322,261 124,620 137,046
Amortization of deferred general partner's fees 203,496 203,496 203,496
---------- ---------- ----------
525,757 328,116 340,542
---------- ---------- ----------
Net income $1,157,009 $2,314,871 $1,929,656
---------- ---------- ----------
---------- ---------- ----------
ALLOCATION OF NET INCOME
Unitholders $ 917,417 $2,063,701 $1,682,338
---------- ---------- ----------
---------- ---------- ----------
General partner:
Special distribution $ 230,325 $ 230,325 $ 230,325
Other 9,267 20,845 16,993
---------- ---------- ----------
$ 239,592 $ 251,170 $ 247,318
---------- ---------- ----------
---------- ---------- ----------
Net income per depositary unit $ 16.93 $ 38.08 $ 31.04
---------- ---------- ----------
---------- ---------- ----------
- ----------------------------------------------------------------------------------------------------
</TABLE>
FOGELMAN MORTGAGE L.P. I
(a limited partnership)
STATEMENTS OF CHANGES IN PARTNERS' CAPITAL
<TABLE>
<CAPTION>
GENERAL
UNITHOLDERS PARTNER TOTAL
<S> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------
Partners' capital (deficit)--December 31, 1994 $31,053,609 $(185,566) $30,868,043
Net income 1,682,338 247,318 1,929,656
Distributions (3,116,500) (261,805) (3,378,305)
----------- --------- -----------
Partners' capital (deficit)--December 31, 1995 29,619,447 (200,053) 29,419,394
Net income 2,063,701 251,170 2,314,871
Distributions (3,354,437) (264,205) (3,618,642)
----------- --------- -----------
Partners' capital (deficit)--December 31, 1996 28,328,711 (213,088) 28,115,623
Net income 917,417 239,592 1,157,009
Distributions (2,940,892) (260,030) (3,200,922)
----------- --------- -----------
Partners' capital (deficit)--December 31, 1997 $26,305,236 $(233,526) $26,071,710
----------- --------- -----------
----------- --------- -----------
- ----------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these statements.
</TABLE>
4
<PAGE>
FOGELMAN MORTGAGE L.P. I
(a limited partnership)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year ended December 31,
-------------------------------------------
1997 1996 1995
<S> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES
Interest received from mortgage loans $ 2,055,724 $ 3,561,452 $ 3,559,892
Interest received from cash equivalents 49,251 85,190 103,340
Cash received for tax obligations of underlying
properties 640,207 480,838 615,068
Cash paid for tax obligations of underlying properties (642,689) (620,853) (586,186)
General and administrative expenses paid (189,000) (143,315) (124,503)
----------- ----------- -----------
Net cash provided by operating activities 1,913,493 3,363,312 3,567,611
CASH FLOWS FROM FINANCING ACTIVITIES
Distributions to partners (3,200,922) (3,618,642) (3,378,305)
----------- ----------- -----------
Net increase (decrease) in cash and cash equivalents (1,287,429) (255,330) 189,306
Cash and cash equivalents at beginning of year 1,708,313 1,963,643 1,774,337
----------- ----------- -----------
Cash and cash equivalents at end of year $ 420,884 $ 1,708,313 $ 1,963,643
----------- ----------- -----------
----------- ----------- -----------
RECONCILIATION OF NET INCOME TO NET CASH
PROVIDED BY OPERATING ACTIVITIES
Net income $ 1,157,009 $ 2,314,871 $ 1,929,656
----------- ----------- -----------
Adjustments to reconcile net income to net cash
provided by operating activities:
Amortization of deferred general partner's fees 203,496 203,496 203,496
Equity income from the underlying properties (1,633,515) (2,557,797) (2,166,858)
Interest received from mortgage loans 2,055,724 3,561,452 3,559,892
Changes in:
Deposits held for tax obligations of underlying
properties (2,482) (140,015) 28,882
Due to affiliates 1,444 (24,161) 12,022
Accrued expenses 131,817 5,466 521
----------- ----------- -----------
Total adjustments 756,484 1,048,441 1,637,955
----------- ----------- -----------
Net cash provided by operating activities $ 1,913,493 $ 3,363,312 $ 3,567,611
----------- ----------- -----------
----------- ----------- -----------
- -----------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these statements.
</TABLE>
5
<PAGE>
FOGELMAN MORTGAGE L.P. I
(a limited partnership)
NOTES TO FINANCIAL STATEMENTS
A. General
Fogelman Mortgage L.P. I (the 'Partnership'), a Tennessee limited
partnership, was formed on September 4, 1986 and will terminate on December 31,
2016 unless terminated sooner under the provisions of the Amended and Restated
Certificate and Agreement of Limited Partnership, as amended ('Partnership
Agreement'). The Partnership was formed to invest in and hold loans evidenced by
notes secured by first liens on two apartment complexes developed by affiliates
of Avron B. Fogelman ('ABF'). The Partnership invested in two mortgage loans
(the 'Mortgage Loans') which provided construction and permanent financing for
the development of two multi-family residential apartment complexes.
The general partner of the Partnership is Prudential-Bache Properties, Inc.
('PBP' or the 'General Partner'), a wholly owned subsidiary of Prudential
Securities Group Inc. Prudential-Bache Investor Services II, Inc. is the
Assignor Limited Partner of the Partnership. ABF and Fogelman Mortgage Partners
I, Inc. ('FMPI') withdrew from the Partnership and transferred their interests
as general partners to PBP as of December 14, 1992.
On January 30, 1998, the Partnership entered into an amended and restated
payoff agreement (the 'Payoff Agreement') with Fogelman Enterprises, L.P., a
Delaware limited partnership ('FELP') and ABF. Through PBP, the Partnership has
advised FELP that the Partnership will accept the Payoff Amount, as hereinafter
defined, in full satisfaction of the Mortgage Loans if the Transactions, as
hereinafter defined, are approved by a majority in interest of the Unitholders
of the Partnership. PBP has received a written opinion from its advisor to the
effect that the offer to pay off the Mortgage Loans pursuant to the terms of the
Payoff Agreement (the 'Transactions') are fair to the Partnership and the
Unitholders from a financial point of view. If the Transactions are approved by
the Unitholders, the Partnership intends to consummate the Transactions,
distribute the Payoff Amount (net of expenses) and the remaining net assets of
the Partnership and liquidate the Partnership.
Pursuant to the Payoff Agreement, FELP has agreed to pay to the Partnership
the payoff amount ('Payoff Amount') of $48,000,000 and an amount, if any, by
which the aggregate amount of interest paid to the Partnership in respect of the
Mortgage Loans for the period from October 1, 1997, through the closing of the
Transactions is less than the interest on the face amount of the Mortgage Loans
during such period calculated at an annual rate of 7.7%.
The Transactions must be consummated not later than May 29, 1998.
B. Summary of Significant Accounting Policies
Basis of accounting
The books and records of the Partnership are maintained on the accrual basis
of accounting in accordance with generally accepted accounting principles.
The preparation of financial statements in conformity with generally accepted
accounting principles requires the General Partner to make estimates and
assumptions that affect the reported amounts of assets and liabilities and the
disclosure of contingent assets and liabilities at the date of the financial
statements as well as the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Deferred general partner's fees
Deferred general partner's fees are amortized on a straight-line basis over
the lives of the mortgage loans, which are twelve years.
Investments in mortgage loans
Investments in mortgage loans are accounted for on the equity method. Such
investments are adjusted for net income or loss from the underlying properties
(before the accrual of interest expense and depreciation of certain capitalized
costs not financed by the Partnership) and are decreased by interest received
from the mortgage loans.
6
<PAGE>
Cash and cash equivalents
Cash and cash equivalents include money market funds whose cost approximates
market value.
Income taxes
The Partnership is not required to provide for, or pay, any Federal or state
income taxes. Income tax attributes that arise from its operations are passed
directly to the individual partners. The Partnership may be subject to other
state and local taxes in jurisdictions in which it operates.
Profit and loss allocation and distributions
Net profits or losses are allocated 99% to the Unitholders and 1% to the
General Partner after giving effect to the allocation of the special
distribution. As more fully described in the Partnership Agreement, PBP receives
a special distribution equal to 0.5% per annum of the mortgage loan principal
outstanding, limited to 10% of all distributions of adjusted cash from
operations, payable quarterly. In addition, distributions of cash are made based
on adjusted cash flow from operations as defined in the Partnership Agreement
after giving effect to the special distribution to the General Partner.
C. Investments in Mortgage Loans
A summary of the investments in mortgage loans is as follows:
<TABLE>
<CAPTION>
Pointe Royal Westmont
Loan Loan Total
<S> <C> <C> <C>
------------------ -------------- -----------
Balance at December 31, 1994 $ 14,386,564 $ 14,134,080 $28,520,644
Equity income from the underlying properties 1,013,501 1,153,357 2,166,858
Interest received from mortgage loans (1,757,556) (1,802,336) (3,559,892)
------------------ -------------- -----------
Balance at December 31, 1995 13,642,509 13,485,101 27,127,610
Equity income from the underlying properties 1,132,286 1,425,511 2,557,797
Interest received from mortgage loans (1,537,179) (2,024,273) (3,561,452)
------------------ -------------- -----------
Balance at December 31, 1996 13,237,616 12,886,339 26,123,955
Equity income from the underlying properties 710,719 922,796 1,633,515
Interest received from mortgage loans (711,835) (1,343,889) (2,055,724)
------------------ -------------- -----------
Balance at December 31, 1997 $ 13,236,500 $ 12,465,246 $25,701,746
------------------ -------------- -----------
------------------ -------------- -----------
</TABLE>
The Partnership has invested in Mortgage Loans with two partnerships in which
ABF and FELP are the general partners: FPI Royal View Ltd., L.P. on April 23,
1987 for $22,745,000 (the 'Pointe Royal Loan') and FPI Chesterfield, L.P. on
July 8, 1987 for $23,320,000 (the 'Westmont Loan'). At December 31, 1997, the
accrued interest liability at the property level was approximately $5,588,000
and $6,119,000 for Pointe Royal and Westmont, respectively. This accrued
interest plus the original loan principal balances aggregate approximately
$57,772,000. The ultimate collectibility of the accrued interest as well as the
full principal balances of the mortgages will depend upon the value of the
underlying properties, which are estimated, based on the most recent third party
appraisals, to be less than the amounts due. However, the estimated property
values exceed the carrying amount of the Partnership's investment in mortgage
loans which is recorded using the equity method of accounting. The values of
Pointe Royal and Westmont estimated in the appraisal reports were $24,200,000
and $25,600,000, respectively, as of April 15, 1997. (See Note A for discussion
of the proposed payoff of the Mortgage Loans.)
A plan for the consensual reorganization of the business and affairs of ABF
and related entities closed on July 31, 1990 (the 'Plan'). The Plan provided
for, among other things, the modification of loans and credit relationships
between lenders and ABF and related affiliates, including those of the
Partnership. The two notes executed by FPI Royal View, Ltd., L.P. and FPI
Chesterfield, L.P. and the loan agreements executed in connection with such
notes and the two mortgages with respect to Westmont Apartments and Pointe Royal
Apartments securing those notes were modified, effective as of January 1, 1990.
The principal effect of such modifications was to make the indebtedness
evidenced by the notes repayable on a cash flow basis, with the difference
between the amount actually paid and the original pay rate of 9.5% per annum
being accrued
7
<PAGE>
in a separate account on the books of FPI Royal View, Ltd., L.P. and FPI
Chesterfield, L.P., as discussed above, and bearing interest at 9.5% per annum.
For the three years ended December 31, 1997, interest received from the net
property cash flow has been less than the original pay rate of 9.5% per annum.
D. Income Taxes
The following is a reconciliation of net income for financial reporting
purposes to net income for tax reporting purposes.
<TABLE>
<CAPTION>
Year ended December 31,
-----------------------------------------
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
Net income per financial statements $1,157,009 $2,314,871 $1,929,656
Equity income from the underlying properties (1,633,515 ) (2,557,797 ) (2,166,858 )
Interest received from mortgage loans 2,055,724 3,561,452 3,559,892
----------- ----------- -----------
Tax basis net income $1,579,218 $3,318,526 $3,322,690
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
The differences between the tax basis and book basis of partners' capital are
primarily attributable to the cumulative effect of the book to tax income
adjustments and the timing of distributions.
E. Related Parties
The General Partner and its affiliates perform services for the Partnership
which include, but are not limited to: accounting and financial management;
registrar, transfer and assignment functions; asset management; investor
communications; printing and other administrative services. The amount of
reimbursement from the Partnership for these services is limited by the
provisions of the Partnership Agreement. The costs and expenses were
approximately $79,000, $52,000 and $79,000 for the years ended December 31,
1997, 1996 and 1995, respectively.
An affiliate of FMPI continues to manage the properties for which it earned
approximately $388,000, $386,000 and $373,000 for the years ended December 31,
1997, 1996 and 1995, respectively.
The Partnership maintains an account with the Prudential Institutional
Liquidity Portfolio Fund, an affiliate of PBP, for investment of its available
cash in short-term instruments pursuant to the guidelines established by the
Partnership Agreement.
Prudential Securities Incorporated, an affiliate of PBP, owns 835 units at
December 31, 1997.
F. Summarized Property Financial Information
Presented below is summarized property financial information for the
properties underlying the Partnership's two mortgage loan investments.
<TABLE>
<CAPTION>
December
December 31, 1997 December 31, 1996 31, 1995
WESTMONT POINTE ROYAL TOTAL WESTMONT POINTE ROYAL TOTAL WESTMONT
<S> <C> <C> <C> <C> <C> <C> <C>
----------- ------------ ------------ ----------- ------------ ------------ -----------
Assets:
Property, net of
accumulated
depreciation $15,082,155 $ 16,101,304 $31,183,459 $15,496,020 $ 16,223,155 $31,719,175 $16,117,409
Other assets 339,654 217,407 557,061 277,715 160,591 438,306 335,552
----------- ------------ ------------ ----------- ------------ ------------ -----------
$15,421,809 $ 16,318,711 $31,740,520 $15,773,735 $ 16,383,746 $32,157,481 $16,452,961
----------- ------------ ------------ ----------- ------------ ------------ -----------
----------- ------------ ------------ ----------- ------------ ------------ -----------
Liabilities:
First mortgage note
payable to the
Partnership $23,320,000 $ 22,745,000 $46,065,000 $23,320,000 $ 22,745,000 $46,065,000 $23,320,000
Second mortgage note
payable to ABF 1,089,000 1,063,000 2,152,000 1,089,000 1,063,000 2,152,000 1,089,000
Other liabilities 7,742,030 7,755,052 15,497,082 6,083,538 5,724,875 11,808,413 5,361,963
----------- ------------ ------------ ----------- ------------ ------------ -----------
$32,151,030 $ 31,563,052 $63,714,082 $30,492,538 $ 29,532,875 $60,025,413 $29,770,963
----------- ------------ ------------ ----------- ------------ ------------ -----------
----------- ------------ ------------ ----------- ------------ ------------ -----------
<CAPTION>
POINTE ROYAL TOTAL
<S> <C> <C>
------------ ------------
Assets:
Property, net of
accumulated
depreciation $ 16,617,500 $32,734,909
Other assets 250,658 586,210
------------ ------------
$ 16,868,158 $33,321,119
------------ ------------
------------ ------------
Liabilities:
First mortgage note
payable to the
Partnership $ 22,745,000 $46,065,000
Second mortgage note
payable to ABF 1,063,000 2,152,000
Other liabilities 4,691,304 10,053,267
------------ ------------
$ 28,499,304 $58,270,267
------------ ------------
------------ ------------
</TABLE>
8
<PAGE>
<TABLE>
<CAPTION>
Year Ended
Year Ended Year Ended December
December 31, 1997 December 31, 1996 31, 1995
----------------------------------------- ----------------------------------------- -----------
WESTMONT POINTE ROYAL TOTAL WESTMONT POINTE ROYAL TOTAL WESTMONT
----------- ------------ ------------ ----------- ------------ ------------ -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues:
Rental income $ 3,761,133 $ 3,734,047 $ 7,495,180 $ 3,669,349 $ 3,771,718 $ 7,441,067 $ 3,547,581
Interest and other
income 137,721 128,129 265,850 137,427 165,052 302,479 161,780
----------- ------------ ------------ ----------- ------------ ------------ -----------
3,898,854 3,862,176 7,761,030 3,806,776 3,936,770 7,743,546 3,709,361
----------- ------------ ------------ ----------- ------------ ------------ -----------
Expenses:
Operating 2,173,193 2,398,690 4,571,883 1,651,281 2,064,220 3,715,501 1,812,435
Interest 2,881,056 2,754,848 5,635,904 2,774,158 2,600,663 5,374,821 2,693,697
Depreciation 837,524 803,850 1,641,374 782,138 745,929 1,528,067 795,726
Write-off of fixed
assets 17,499 -- 17,499 -- 43,941 43,941 --
----------- ------------ ------------ ----------- ------------ ------------ -----------
5,909,272 5,957,388 11,866,660 5,207,577 5,454,753 10,662,330 5,301,858
----------- ------------ ------------ ----------- ------------ ------------ -----------
Net loss $(2,010,418) $ (2,095,212) $(4,105,630 ) $(1,400,801) $ (1,517,983) $(2,918,784 ) $(1,592,497)
----------- ------------ ------------ ----------- ------------ ------------ -----------
----------- ------------ ------------ ----------- ------------ ------------ -----------
<CAPTION>
POINTE ROYAL TOTAL
------------ ------------
<S> <C> <C>
Revenues:
Rental income $ 3,615,886 $ 7,163,467
Interest and other
income 137,665 299,445
------------ ------------
3,753,551 7,462,912
------------ ------------
Expenses:
Operating 1,686,854 3,499,289
Interest 2,524,077 5,217,774
Depreciation 749,890 1,545,616
Write-off of fixed
assets 354,386 354,386
------------ ------------
5,315,207 10,617,065
------------ ------------
Net loss $ (1,561,656) $(3,154,153 )
------------ ------------
------------ ------------
</TABLE>
G. Subsequent Event
On January 30, 1998, the Partnership entered into the Payoff Agreement with
FELP and ABF (see Note A).
In February 1998, distributions of approximately $623,000 were paid to the
Unitholders and distributions of approximately $6,000 were paid to the General
Partner for the quarter ended December 31, 1997.
9
<PAGE>
FOGELMAN MORTGAGE L.P. I
(a limited partnership)
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Liquidity and Capital Resources
The Partnership provides permanent financing for two multi-family residential
apartment complexes. As of December 31, 1997, the Partnership had $421,000 of
funds available which may be used to pay distributions, unanticipated or
extraordinary expenses, real estate taxes and other costs relating to the
operation and administration of the Partnership's business. Significant amounts
of cash were expended at the properties in 1997 for improvements and repairs and
maintenance. These expenditures partially offset cash flow paid by the
properties to the Partnership in the form of interest.
The distribution for the three months ended December 31, 1997 was funded from
current and prior undistributed cash flow from operations. Because of the
increased competition in the two market areas in which the properties underlying
the Partnership's mortgage loan investments are located, there has been an
increase in the properties' capital expenditures in order to maintain their
competitiveness. As a result of these increased capital expenditures, the
General Partner has lowered the distribution to 4.6% on an annualized basis or
$11.50 per unit per quarter beginning with the distribution made for the second
quarter of 1997. The Partnership currently does not expect that quarterly cash
distributions will continue to be paid in the future subject to the approval by
the Unitholders of the proposed disposition of the Mortgage Loans. (See Note A
to the financial statements.)
Results of Operations
Net income decreased by $1,158,000 and increased by $385,000 for the years
ended December 31, 1997 and 1996, respectively, as compared to the prior years.
For financial reporting purposes, the Partnership's Mortgage Loans are
considered, in substance, to be investments in real estate and are accounted for
using the equity method. Equity income from the underlying properties (which
increases the carrying value of the original investment) decreased $924,000 and
increased $391,000 for the years ended December 31, 1997 and 1996, respectively,
as compared to the prior years. The 1997 decrease was primarily due to increased
repairs and maintenance at Pointe Royal and Westmont of $269,000 and $431,000,
respectively. In addition, depreciation expense increased at Pointe Royal and
Westmont by $58,000 and $55,000, respectively, as a result of increased capital
improvements at both properties. The 1996 increase was primarily due to higher
rental rates at both properties.
Interest received from mortgage loans for the years ended December 31, 1997
and 1996 of $2,056,000 and $3,561,000, respectively, is accounted for as
distributions and, accordingly, reduces the carrying value of the original
investment. Interest received (paid from property cash flow) decreased
$1,505,000 for the year ended December 31, 1997 as compared to the same period
in 1996 primarily due to the reasons discussed above in addition to an increase
in capital improvements at the properties. Capital improvements increased
$286,000 and $280,000 at Pointe Royal and Westmont, respectively, in 1997 as
compared to 1996.
At December 31, 1997, the accrued interest liability at the property level
was $5,588,000 and $6,119,000 for Pointe Royal and Westmont, respectively. This
accrued interest plus the original loan principal balances aggregate
$57,772,000. As of December 31, 1997, 1996 and 1995, the cumulative differences
between the original pay rate of 9.5% per annum and the cash paid were
$11,707,000, $8,477,000 and $6,975,000, respectively, including accrued interest
on the unpaid balance. The ultimate collectibility of the accrued interest as
well as the full principal balances of the mortgage loans will depend upon the
value of the underlying properties which are estimated, based on the most recent
third party appraisals, to be less than the amounts due. However, the estimated
property values exceed the Partnership's carrying amount of the investment in
mortgage loans which is recorded using the equity method of accounting. (See
Note A to the financial statements for discussion of the proposed payoff of the
Mortgage Loans.)
10
<PAGE>
Average occupancy rates for the underlying properties were as follows:
<TABLE>
<CAPTION>
December 31,
------------------------
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Westmont 96.7% 96.2% 96.2%
Pointe Royal 96.7 98.0 98.3
</TABLE>
Despite the occupancy rates, competition in local markets results in rental
rates that are below what is required to pay debt service at the original pay
rate of 9.5%.
Interest income from cash equivalents decreased by $36,000 and $18,000
respectively, for 1997 and 1996 as compared to the respective prior years
primarily due to lower cash balances in 1997 compared to 1996 and lower interest
rates in 1996 compared to 1995.
General and administrative expenses increased by $198,000 in 1997 and
decreased by $12,000 in 1996. The increase in 1997 was primarily due to
professional fees incurred in connection with the Partnership preparing a
consent solicitation statement to the Unitholders in connection with the
proposed payoff of the Partnership's Mortgage Loans.
11
<PAGE>
OTHER INFORMATION
The Partnership's Annual Report on Form 10-K as filed with the Securities and
Exchange Commission is available to Unitholders without charge upon written
request to:
Fogelman Mortgage L.P. I
P.O. Box 2016
Peck Slip Station
New York, New York 10272-2016
12
<PAGE>
BULK RATE
Peck Slip Station
U.S. POSTAGE
P.O. Box 2016
PAID
New York, NY 10272
Automatic Mail
FMLP/170970
