<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
Quarterly Report Under Section 13 or 15(d) of the
Securities Exchange Act of 1934
For Quarter Ended: JUNE 30, 1996 Commission File Number: 0-16840
------------------------ ------------
PSH MASTER L.P.I
------------------------------------------------------
(Exact Name of Registrant as Specified in its Charter)
DELAWARE 31-1204568
----------------------- ------------------------------------
(State of Organization) (IRS Employer Identification Number)
P.O. BOX 18035, COLUMBUS, OH 43218
------------------------------------------------------------
(Address of Principal Executive Offices, including Zip Code)
(614) 227-4235
----------------------------------------------------
(Registrant's Telephone Number, including Area Code)
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.
X Yes No
----- -----
The number of outstanding Units of Limited Partner Interest in the Registrant,
as represented by Depository Receipts at August 14, 1996 was 3,110,000.
<PAGE> 2
PSH MASTER L.P. I
REPORT ON FORM 10-Q
FOR THE QUARTER ENDED JUNE 30, 1996
INDEX
-----
<TABLE>
<CAPTION>
Page
NUMBER
------
<S> <C>
Part I. Financial Information
Item 1: Financial Statements:
Balance Sheets 3
Statements of Operations 5
Statements of Cash Flows 7
Notes to Financial Statements 8
Item 2: Management's Discussion and Analysis of 11
Financial Condition and Results of Operation
Part II. Other Information
Items 1 through 6 15
Signatures 16
</TABLE>
2
<PAGE> 3
PSH MASTER L.P.I
BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
ASSETS June 30, 1996 December 31, 1995
- - ------ ---------------------- --------------------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 1,164,797 $ 579,253
Accounts receivable, trade 1,106,415 986,029
Inventories 104,206 103,444
Prepaid expenses and other 390,883 335,179
Cash held in escrow 707,747 346,089
---------------------- --------------------------
Total current assets 3,474,048 2,349,994
---------------------- --------------------------
Property and equipment:
Land 3,780,000 3,780,000
Leasehold interest in land 7,440,000 7,440,000
Hotels 36,254,531 36,191,902
Furniture, fixtures and equipment 11,367,159 11,104,168
---------------------- --------------------------
Total 58,841,690 58,516,070
Less accumulated depreciation and amortization
(23,347,755) (22,338,504)
---------------------- --------------------------
Total property and equipment, net 35,493,935 36,177,566
---------------------- --------------------------
Other assets:
Replacement reserve fund 248,279 46,524
China, glass, linen and silver, net 781,590 781,590
Deferred financing fees, organization costs
and other, net 224,688 319,563
---------------------- --------------------------
Total other assets 1,254,557 1,147,677
---------------------- --------------------------
Total assets $ 40,222,540 $ 39,675,237
====================== ==========================
</TABLE>
The accompanying notes are an integral part of these financial statements.
3
<PAGE> 4
PSH MASTER L.P.I
BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
LIABILITIES AND PARTNERS' DEFICIT June 30, 1996 December 31, 1995
- - --------------------------------- ---------------------- --------------------------
<S> <C> <C>
Current liabilities:
Current portion of mortgage notes payable $ 288,324 $ 273,979
Accounts payable 1,113,901 1,739,648
Due to affiliates 45,959 37,442
Accrued expenses:
Payroll and related taxes 372,287 342,265
Real estate and other taxes 536,017 95,671
Interest 12,813 0
Other 235,118 171,966
---------------------- --------------------------
Total current liabilities 2,604,419 2,660,971
---------------------- --------------------------
Note payable 500,000 500,000
Mortgage notes payable, less current portion 45,367,781 45,528,387
---------------------- --------------------------
Partners' Deficit:
General Partner (252,060) (267,409)
Limited Partners (3,110,000 units outstanding) (7,997,600) (8,746,712)
---------------------- --------------------------
Total partners' deficit (8,249,660) (9,014,121)
---------------------- --------------------------
Total liabilities and partners' deficit $ 40,222,540 $ 39,675,237
====================== ==========================
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
<PAGE> 5
PSH MASTER L.P.I
STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Six Six
Months Ended Months Ended
June 30, 1996 June 30, 1995
---------------------- ----------------------
<S> <C> <C>
Revenues:
Suites $ 10,192,428 $ 9,175,616
Other 2,838,735 2,624,510
---------------------- ----------------------
Total revenues 13,031,163 11,800,126
---------------------- ----------------------
Operating costs and expenses:
Direct operating:
Suites 2,074,082 1,919,734
Other 1,962,666 1,853,492
Other operating:
Sales, general and administrative 2,641,793 2,442,868
Energy and maintenance 1,003,838 996,578
Rents, taxes and other 1,040,944 972,588
Partnership administrative 102,021 108,232
Depreciation and amortization 1,104,126 954,905
---------------------- ----------------------
Total operating costs and expenses 9,929,470 9,248,397
---------------------- ----------------------
Income from operations 3,101,693 2,551,729
Interest income 36,624 10,810
Interest expense 2,373,856 2,388,047
---------------------- ----------------------
Net income $ 764,461 $ 174,492
====================== ======================
Net income per unit of
limited partnership interest $ 0.24 $ 0.06
====================== ======================
</TABLE>
The accompanying notes are an integral part of these financial statements.
5
<PAGE> 6
PSH MASTER L.P.I
STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Quarter ended Quarter ended
June 30, 1996 June 30, 1995
---------------------- ----------------------
<S> <C> <C>
Revenues:
Suites $ 5,065,283 $ 4,511,119
Other 1,390,059 1,280,117
---------------------- ----------------------
Total revenues 6,455,342 5,791,236
---------------------- ----------------------
Operating costs and expenses:
Direct operating:
Suites 1,068,315 983,199
Other 996,481 917,609
Other operating:
Sales, general and administrative 1,311,534 1,190,280
Energy and maintenance 510,799 522,624
Rents, taxes and other 512,115 466,286
Partnership administrative 46,169 41,635
Depreciation and amortization 552,063 494,969
---------------------- ----------------------
Total operating costs and expenses 4,997,476 4,616,602
---------------------- ----------------------
Income from operations 1,457,866 1,174,634
Interest income 12,811 5,221
Interest expense 1,185,994 1,193,181
---------------------- ----------------------
Net income (loss) $ 284,683 $ (13,326)
====================== ======================
Net income (loss) per unit of
limited partnership interest $ 0.09 $ (0.004)
====================== ======================
</TABLE>
The accompanying notes are an integral part of these financial statements.
6
<PAGE> 7
PSH MASTER L.P.I
STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Six Six
Months Ended Months Ended
June 30, 1996 June 30, 1995
---------------------- ----------------------
<S> <C> <C>
Cash provided (used) by operations:
Net income $ 764,461 $ 174,492
Changes not requiring cash:
Depreciation and amortization 1,104,126 954,905
Working capital changes:
(Increase) decrease in accounts receivable, trade (120,386) 70,455
(Increase) decrease in inventories,
prepaid expenses and other (56,466) 17,350
Increase (decrease) in accounts payable and
accrued expenses (92,227) 143,303
Increase (decrease) in accrued interest payable 12,813 (368,759)
Increase in due to affiliates 8,517 4,266
---------------------- ----------------------
Cash provided by operations 1,620,838 996,012
---------------------- ----------------------
Investment and other transactions:
(Increase) decrease in replacement reserve fund (201,755) 541,444
Increase in cash escrow for real estate taxes (361,658) (515,312)
Additions to property and equipment, net (325,620) (646,101)
Payments of mortgages (146,261) (230,527)
---------------------- ----------------------
Cash used by investment and other transactions (1,035,294) (850,496)
---------------------- ----------------------
Increase in cash and cash equivalents $ 585,544 $ 145,516
====================== ======================
Supplemental disclosure of cash flow information--
cash paid for interest $ 2,361,043 $ 2,756,807
====================== ======================
</TABLE>
The accompanying notes are an integral part of these financial statements.
7
<PAGE> 8
NOTES TO THE FINANCIAL STATEMENTS
(1) BASIS OF PRESENTATION
The accompanying financial statements of PSH Master L.P. I (the Partnership)
have been prepared on a going concern basis which contemplates the realization
of assets and the satisfaction of liabilities in the normal course of business.
The Partnership has incurred net losses since its inception and at June 30,
1996, the Partnership had a partners' deficit of $8,249,660.
The final payment on the Partnership's real estate mortgage notes due on August
1, 1997 (see Note 5), the accumulated Partners' deficits and the uncertainty of
the Partnership's ability to refinance the first mortgage debt on maturity,
raise substantial doubt about the Partnership's ability to continue as a going
concern for a reasonable period of time. The financial statements do not
include any adjustments relating to the recoverability and classification of
recorded asset amounts or the amounts and classification of liabilities that
might be necessary should the Partnership be unable to continue as a going
concern. The General Partner has begun to explore the various alternatives
which may be available to the Partnership. These alternatives include further
renegotiations with the current lender, an infusion of equity into the
Partnership, securing subordinated debt or the sale of one or more of the
hotels. For some of these alternatives, the General Partner may be required to
seek the approval of the Limited Partners in accordance with the Partnership
Agreement.
(2) ORGANIZATION AND BUSINESS
The Partnership is a Delaware limited partnership which owns three all-suite
hotels located in Tampa, Florida; WALT DISNEY WORLD(R) Village in Lake Buena
Vista, Florida; and in the Research Triangle area near Raleigh/Durham, North
Carolina.
(3) SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation:
In the opinion of Management, the accompanying financial statements contain all
adjustments (all of which are normal and recurring in nature) necessary to
present fairly the financial position of the Partnership at June 30, 1996 and
December 31, 1995 and the results of its operations for the year-to-date and
quarterly periods ended June 30, 1996 and 1995. The Partnership has considered
Statement of Financial Accounting Standard Number 109 "Accounting for Income
Taxes" and, given the cumulative operating losses, has concluded that this
standard will have no impact on the Partnership's financial statements.
<PAGE> 9
(4) RELATED PARTIES
The General Partner, an affiliate, is generally empowered by the Partnership
Agreement to conduct, direct and exercise full control over all activities of
the Partnership.
Total fees charged by Doubletree to the Partnership for management,
advertising, reservation and accounting services were $560,088, and $387,079
during the second quarter of 1996 and 1995, respectively. Nuho Company, a
successor to PH Management Company (a previous management company) pursuant to
the bankruptcy plan, received residual management fees of $151,698 and $140,735
during the second quarter of 1996 and 1995, respectively. Year-to-date,
Doubletree earned $1,126,728 for its services compared to $899,019 in the first
two quarters of 1995. Of these amounts, Nuho Company received residual fees of
$304,893 compared to $282,551 received in the first two quarters of 1995. The
total fees earned by Doubletree in the first half of 1995 reflect a credit to
the Partnership of $117,119 to be used for expenses, including signage costs,
associated with the conversion to the Doubletree name.
(5) REAL ESTATE MORTGAGE NOTES
The nonrecourse notes are secured by the first mortgages on the hotels,
including the ground lease at the Disney hotel. The Partnership makes monthly
payments of principal and interest based upon a 30-year amortization schedule.
A final payment, including interest, is due on August 1, 1997. The lender will
receive appreciation interest equal to 25% of the net proceeds, as defined, at
sale of the hotels, or net proceeds based upon market value if the hotels are
not sold prior to the maturity of the loan.
Doubletree has made a loan commitment of up to $1,000,000, to fund cash
deficits in the event the Partnership cannot meet its obligation to make debt
service payments. No amounts have been borrowed under the debt service
agreement at June 30, 1996.
(6) NOTE PAYABLE
On October 26, 1994, the Partnership borrowed $500,000 from Doubletree for
capital improvements. This nonrecourse note is secured by second mortgages on
the hotels and is due at the termination of the management agreement with
Doubletree. Interest is computed at 10.25% and payment is equal to the lesser
of the monthly computed interest due or monthly available cash flow from the
Partnership.
<PAGE> 10
(7) PARTNERSHIP DISTRIBUTIONS AND ALLOCATIONS
Pursuant to the terms of the renegotiated debt, the Partnership is precluded
from making cash distributions to the partners until such time as the interest
capitalized by the lender has been repaid. Such repayment is not expected to
occur prior to the maturity of the first mortgage loans on August 1, 1997.
For financial statement reporting purposes, net income (loss) is allocated 99
percent to the Unitholders and 1 percent to the General Partner. The net income
(losses) allocated to the Unitholders for the quarter ended June 30, 1996 and
1995 were $281,836, or $.09 per unit, and ($13,193), or ($.004) per unit,
respectively. The net income allocated to the Unitholders for the first six
months of 1996 were $756,816, or $.24 per unit, compared to $172,747, or $.06
per unit, for the same period of the previous year.
(8) INCOME TAXES
The Revenue Act of 1987 included a provision which will treat publicly-traded
partnerships, such as the Partnership, as corporations for Federal income tax
purposes beginning January 1, 1998. The effect of treating publicly-traded
partnerships as corporations will be to tax the income of the partnership at
the entity level and reflect distributions to partners as dividends. Additional
costs to the Partnership for such taxes would reduce the amount available for
distribution to the partners.
<PAGE> 11
PART I. FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATION
LIQUIDITY AND CAPITAL RESOURCES
The Partnership has incurred net losses since its inception and at June 30,
1996, the Partnership had a partners' deficit of $8,249,660. The Partners'
accumulated deficits and the uncertainty of the Partnership's ability to
refinance the first mortgage debt on maturity (see Note 5) raise substantial
doubt about the Partnership's ability to continue as a going concern for a
reasonable period of time. Accordingly, the opinion the Partnership received
from its independent auditors for the year ended December 31, 1995 included a
going concern qualification. The financial statements do not include any
adjustments relating to the recoverability and classification of recorded asset
or liability amounts that might be necessary should the Partnership be unable
to continue as a going concern.
During the first half of 1996, the Partnership made monthly payments of
principal and interest on its first mortgage debt based upon a 30-year
amortization schedule at the contract rate of 10.25%, in accordance with the
restructured loans. Cash from operations, after funding replacement reserves,
exceeded the required debt service by $1,199,819, significantly improving the
Partnership's working capital and current ratio positions. This excess amount
is expected to decline in the second half of the year due to the seasonal
business of the hotels. The Partnership's liquidity is supplemented by the loan
commitment of Doubletree, up to $1,000,000, to fund cash deficits in the event
the properties cannot meet the revised loan terms. No amounts have been
borrowed under such agreement at June 30, 1996.
Hotel operations are the Partnership's primary and on-going source of cash to
pay its operating expenses, to meet its reserve requirements and to make cash
distributions to its partners. Hotel occupancy is seasonal by nature. Cash
flows track this seasonality closely due to the nature of trade receivables.
Other trade receivables include wholesale and travel agent accounts, and
corporate and group billings, the majority of which are collected within 30
days. The Partnership earns interest income from its various operating cash
accounts including the balances held in the Replacement Reserve Funds.
In addition to its hotel operations, the Partnership will receive annual
payments in 1996 and 1997 on its unsecured claim against the General Partner,
which in 1991 filed for protection against its creditors under Chapter 11 of
the U.S. Bankruptcy Code. The debtors estimate that through June 30, 1996
approximately $160,000 is due the Partnership from the bankruptcy estate in
satisfaction of its claim. This amount includes profits from a hotel owned by
the General Partner. The Partnership will receive against its unsecured claim
its share of the future operating profits of this hotel and, if the hotel is
sold, its share of net sale proceeds, if any.
<PAGE> 12
The Partnership is required by its Management Agreement to maintain Replacement
Reserve Fund balances of specified amounts to facilitate operating the Hotels
as "first-class" suite accommodations. Separate Replacement Reserve Funds have
been established for replacements, substitutions and additions to furniture and
equipment and these were funded at the rate of 4% of total revenues during the
first half of 1996.
In addition, the Partnership borrowed $500,000 from Doubletree to be used for
capital improvements on October 26, 1994. Interest is computed at 10.25%,
payable monthly in arrears.
The Partnership deposits cash each month into escrow for the payment of real
and personal property taxes, as required by the lender. The monthly deposits to
the escrow account are sufficient to meet these tax obligations as they come
due.
The Partnership's mortgage obligations mature on August 1, 1997, requiring a
balloon payment of approximately $45,500,000. In addition, the lender will
receive 25% of the net proceeds, as defined, upon sale of the hotels, or net
proceeds based upon market value if the hotels are not sold prior to the
maturity of the loan, as appreciation interest. Given the underwriting
standards of first mortgage lenders with respect to loan to value ratios and
debt service coverage ratios, it is unlikely that the Partnership can
refinance, in total, its present debt with a new first mortgage lender. The
General Partner has begun to explore the various alternatives which may be
available to the Partnership. These alternatives include further
renegotiations with the current lender, an infusion of equity into the
Partnership, securing subordinated debt or the sale of one or more of the
hotels. For some of these alternatives, the General Partner may be required to
seek the approval of the Limited Partners in accordance with the Partnership
Agreement.
<PAGE> 13
RESULTS OF OPERATIONS
The Tampa and Disney hotels opened in April 1986 and March 1987, respectively,
and the Durham hotel opened in December 1987. The following table summarizes
combined operating information for the hotels:
<TABLE>
<CAPTION>
Six Months Six Months
Quarter Ended Quarter Ended Ended Ended
June 30, 1996 June 30, 1995 June 30, 1996 June 30, 1995
------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Available suites 57,785 57,785 115,570 114,935
Occupancy percentage 82.76% 80.03% 80.97% 79.19%
Average daily rate $105.91 $97.55 $108.92 $100.81
Direct operating costs as a percent
of total revenues 32.0% 32.8% 31.0% 32.0%
Income before depreciation and
amortization expense
$836,746 $481,643 $1,868,587 $1,129,397
Income before
depreciation and
amortization expense
per unit of limited
partnership interest $.27 $.15 $.59 $.36
</TABLE>
SIX MONTHS ENDED JUNE 30, 1996
Total revenues increased 10.4% during the first six months of 1996, driven by
increases in both volume and average daily rate. Occupancy increased due to
strong volume increases at the Disney hotel. Occupancy at the Tampa hotel also
increased, while volumes at Raleigh/Durham declined slightly. Average daily
rates increased at each of the hotels, with the largest gains being recorded by
the Raleigh/Durham hotel. Food, beverage and other revenues increased 8.2% over
the prior year, based upon both higher volumes and price increases.
<PAGE> 14
Direct operating costs increased by 7.0% in the first six months, compared to
the same period of 1995, but declined slightly as a percent of sales due to
increased room volume and average daily rate and other revenue gains. Sales,
general and administrative expenses, up 8.1%, reflect a signage rebate of
$117,119 recorded in the second quarter of 1995 in connection with the
conversion to the Doubletree brand. Adjusted for this one-time rebate, sales,
general and administrative expenses increased 3.2%. Increased payroll
associated with staffing additions, higher management fees and credit card
commissions (based upon higher revenue levels) and increased security expenses
also contributed to higher administrative fees during 1996. Energy and
maintenance costs remained steady compared to 1995. Rents, taxes and other
expenses increased 7.0% over 1995 due to increased ground rents at the Disney
property which are based on total revenues.
Partnership administrative expenses consist primarily of quarterly and annual
report costs, tax processing and transfer agent charges, and legal and audit
fees.
QUARTER ENDED JUNE 30, 1996
Room revenues increased 12.3% from the second quarter of 1995, based upon a
8.6% increase in average daily rate and a 3.4% increase in occupancy. Average
daily rate increased at each hotel while volume gains in the Florida hotels
were partially offset by lower occupancy at Raleigh/Durham. Food, beverage and
other revenues increased from last year, based upon higher volumes and price
increases.
Direct operating costs associated with the suites department increased 8.7% in
the quarter, however, direct operating costs as a percentage of revenues
declined slightly, compared to the second quarter of 1995. Suites costs were
negatively impacted by higher labor costs in Disney and Raleigh/Durham
Reservations expense and rooms commissions increased due to higher revenue
volumes.
Sales, general and administrative expenses, up 10.2%, reflect a signage rebate
of $117,119 recorded in the second quarter of 1995 in connection with the
conversion to the Doubletree brand. Adjusted for this one-time rebate, sales,
general and administrative expenses reflect a minimal increase. Increased
payroll associated with staffing additions, higher management fees and credit
card commissions (based upon higher revenue levels) and increased security
expenses also contributed to higher administrative fees during the second
quarter of 1996.
Energy and maintenance costs decreased 2.3% during the quarter, due to fewer
repairs and maintenance projects being completed by outside contractors,
primarily landscaping jobs.
<PAGE> 15
PART II. OTHER INFORMATION
ITEMS 1 THROUGH 6
Information required in Items 1 through 6 is not applicable to the Registrant
for the quarter ended June 30, 1996.
<PAGE> 16
SIGNATURES
Pursuant to the requirements of the Security Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
PSH MASTER L. P. I
- - ------------------
(Registrant)
By: PC Development Limited Partnership,
General Partner
By: PH Management Company,
-------------------------------
General Partner
By: /s/ JAMES V. PICKETT 8/14/96
---------------------------- -------
James V. Pickett, Chairman Date
By: /s/ STEPHEN C. DENZ 8/14/96
----------------------------- -------
Stephen C. Denz, Controller Date
(Principal Financial Officer)
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000813897
<NAME> PSH MASTER L.P.I.
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> JUN-30-1996
<CASH> 1,164,797
<SECURITIES> 0
<RECEIVABLES> 1,106,415
<ALLOWANCES> 0
<INVENTORY> 104,206
<CURRENT-ASSETS> 3,474,048
<PP&E> 58,841,690
<DEPRECIATION> 23,347,755
<TOTAL-ASSETS> 40,222,540
<CURRENT-LIABILITIES> 2,604,419
<BONDS> 45,867,781
0
0
<COMMON> 0
<OTHER-SE> (8,249,660)
<TOTAL-LIABILITY-AND-EQUITY> 40,222,540
<SALES> 13,031,163
<TOTAL-REVENUES> 13,067,787
<CGS> 0
<TOTAL-COSTS> 9,929,470
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,373,856
<INCOME-PRETAX> 764,461
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 764,461
<EPS-PRIMARY> .24
<EPS-DILUTED> .24
</TABLE>
