<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(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
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(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization)
One Seaport Plaza, New York, New York 10292-0128
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(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 10.
<PAGE>
FOGELMAN MORTGAGE L.P. I
(a limited partnership)
Table of Contents
<TABLE>
<S> <C> <C>
PART I PAGE
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.............................................................. 10
SIGNATURES................................................................................. 13
</TABLE>
2
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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
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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
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<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
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<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>
<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
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<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>
<PAGE>
PART IV
<TABLE>
<CAPTION>
Page in
Annual Report
<S> <C> <C> <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:
2
Report of Independent Accountants at December 31, 1997 and 1996 and for
the years then ended
2A
Independent Auditors' Report for the year ended December 31, 1995
Financial Statements:
3
Statements of Financial Condition--December 31, 1997 and 1996
4
Statements of Operations--Three years ended December 31, 1997
4
Statements of Changes in Partners' Capital--Three years ended
December 31, 1997
5
Statements of Cash Flows--Three years ended December 31, 1997
6
Notes to Financial Statements
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
Separate Financial Statements for Pointe Royal Project and Westmont Project
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
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>
<S> <C> <C> <C> <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
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<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
10.1 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)
10.2 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)
10.3 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)
10.4 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)
10.5 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)
10.6 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)
10.7 Amended and Restated Payoff Agreement dated January 30, 1998 between the
Registrant, Fogelman Enterprises, L.P. and ABF (filed herewith)
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>
<S> <C> <C> <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>
10
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<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
11
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<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.
12
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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: March 31, 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: March 31, 1998
----------------------------------------
Brian J. Martin
President, Chief Executive Officer,
Chairman of the Board of Directors and
Director
By: /s/ Barbara J. Brooks Date: March 31, 1998
----------------------------------------
Barbara J. Brooks
Vice President-Finance and Chief
Financial Officer
By: /s/ Eugene D. Burak Date: March 31, 1998
----------------------------------------
Eugene D. Burak
Vice President
By: /s/ Frank W. Giordano Date: March 31, 1998
----------------------------------------
Frank W. Giordano
Director
By: /s/ Nathalie P. Maio Date: March 31, 1998
----------------------------------------
Nathalie P. Maio
Director
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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.
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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.
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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.
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(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.
(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
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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 MLP'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 transmition,
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
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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
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.
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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
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.
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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 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]
12
<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,
Its General Partner Inc.
By: Fogelman Properties, Inc. By: _______
Name: _____
Title: ____
By: _______
Richard L. Fogelman Date signed:__________________
President
Date Signed:
ABF:
____
AVRON B. FOGELMAN
Date Signed: ___
13
<PAGE>
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: ____
Name:___
Title:__
14
<PAGE>
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.
A-1
<PAGE>
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.
2. Monthly installments of interest only at 7.28%
per annum are payable for thirty-six (36) months.
A-2
<PAGE>
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.
A-3
<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.
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.
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>
<PAGE>
FOGELMAN MORTGAGE L.P. I
LETTER TO THE UNIT HOLDERS
FOR THE YEAR ENDED DECEMBER 31, 1997
1
<PAGE>
<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>
<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>
<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>
<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>
<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>
<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>
<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>
<PAGE>
BULK RATE
Peck Slip Station
U.S. POSTAGE
P.O. Box 2016
PAID
New York, NY 10272
Automatic Mail
FMLP/170970
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
The Schedule contains summary financial
information extracted from the financial
statements for Fogelman Mortgage LP 1
and is qualified in its entirety by reference
to such financial statements
</LEGEND>
<RESTATED>
<CIK> 0000800608
<NAME> Fogelman Mortgage LP 1
<MULTIPLIER> 1
<FISCAL-YEAR-END> Dec-31-1997
<PERIOD-START> Jan-1-1997
<PERIOD-END> Dec-31-1997
<PERIOD-TYPE> 12-Mos
<CASH> 420,884
<SECURITIES> 0
<RECEIVABLES> 25,701,746
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 285,565
<DEPRECIATION> 0
<TOTAL-ASSETS> 26,408,195
<CURRENT-LIABILITIES> 336,485
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 26,071,710
<TOTAL-LIABILITY-AND-EQUITY> 26,408,195
<SALES> 0
<TOTAL-REVENUES> 1,682,766
<CGS> 0
<TOTAL-COSTS> 525,757
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,157,009
<EPS-PRIMARY> 16.93
<EPS-DILUTED> 0
</TABLE>
