<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: September 30, 1997 Commission File Number: 0-16840
------------------------ -------
PSH MASTER L.P.I
- - --------------------------------------------------------------------------------
(Exact Name of Registrant as Specified in its Charter)
Delaware 31-1204568
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(State of Organization) (IRS Employer Identification Number)
P.O. Box 18035, Columbus, OH 43218
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(Address of Principal Executive Offices, including Zip Code)
(614) 227-4235
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(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 November 14, 1997 was 3,110,000.
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PSH MASTER L.P.I
REPORT ON FORM 10-Q
FOR THE QUARTER ENDED SEPTEMBER 30, 1997
Index
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<TABLE>
<CAPTION>
Page
Number
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<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
Financial Condition and Results of Operation 10
Part II. Other Information
Items 1 through 5. 11
Item 6 - Exhibits and Reports on Form 8-K 11
Signatures 12
</TABLE>
2
<PAGE> 3
PSH MASTER L.P.I
BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
Assets September 30, 1997 December 31, 1996
- - ------ -------------------------- --------------------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 15,802,965 $ 1,586,070
Accounts receivable, trade 557,667 1,095,968
Inventories 0 119,462
Prepaid expenses and other 233,825 401,083
Cash held in escrow 0 268,907
-------------------------- --------------------------
Total current assets 16,594,457 3,471,490
-------------------------- --------------------------
Property and equipment:
Land 0 3,780,000
Leasehold interest in land 0 7,440,000
Hotels 0 36,401,424
Furniture, fixtures and equipment 0 12,139,268
-------------------------- --------------------------
Total 0 59,760,692
Less accumulated depreciation and amortization
(0) (24,367,593)
-------------------------- --------------------------
Total property and equipment, net 0 35,393,099
-------------------------- --------------------------
Other assets:
Replacement reserve fund 0 49,111
China, glass, linen and silver, net 0 781,590
Deferred financing fees, organization costs
and other, net 0 129,404
-------------------------- --------------------------
Total other assets 0 960,105
-------------------------- --------------------------
Total assets $ 16,594,457 $ 39,824,694
========================== ==========================
</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' Equity September 30, 1997 December 31, 1996
- - -------------------------------- -------------------------- ---------------------------
<S> <C> <C>
Current liabilities:
Current portion of mortgage notes payable $ 0 $ 45,502,185
Accounts payable 267,845 1,542,608
Due to affiliates 0 43,212
Accrued expenses:
Payroll and related taxes 0 524,870
Real estate and other taxes 0 115,370
Interest 0 4,271
Other 0 172,103
-------------------------- ---------------------------
Total current liabilities 267,845 47,904,619
-------------------------- ---------------------------
Note payable 0 500,000
-------------------------- ---------------------------
Partners' Equity:
General Partner (14,002) (263,067)
Limited Partners (3,110,000 units outstanding) 16,340,614 (8,316,858)
-------------------------- ---------------------------
Total partners' equity 16,326,612 (8,579,925)
-------------------------- ---------------------------
Total liabilities and partners' equity $ 16,594,457 $ 39,824,694
========================== ===========================
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
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PSH MASTER L.P.I
STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Nine Nine
Months Ended Months Ended
September 30, 1997 September 30, 1996
---------------------- ----------------------
<S> <C> <C>
Revenues:
Suites $ 13,269,143 $ 14,618,084
Other 3,333,152 4,036,084
---------------------- ----------------------
Total revenues 16,602,295 18,654,168
---------------------- ----------------------
Operating costs and expenses:
Direct operating:
Suites 2,626,432 3,086,477
Other 2,303,006 2,869,193
Other operating:
Sales, general and administrative 3,272,080 3,848,063
Energy and maintenance 1,244,308 1,562,585
Rents, taxes and other 1,068,554 1,511,118
Partnership administrative 179,341 112,868
Depreciation and amortization 1,173,160 1,654,123
---------------------- ----------------------
Total operating costs and expenses 11,866,881 14,644,427
---------------------- ----------------------
Income from operations 4,735,414 4,009,741
Gain on sale of hotels 27,244,773 0
Interest income 196,806 50,657
Interest expense 7,270,455 3,557,937
---------------------- ----------------------
Net income $ 24,906,538 $ 502,461
====================== ======================
Net income per unit of
limited partnership interest $ 7.93 $ 0.16
====================== ======================
</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
September 30, 1997 September 30, 1996
---------------------- ----------------------
<S> <C> <C>
Revenues:
Suites $ 1,438,210 $ 4,425,656
Other 357,590 1,197,349
---------------------- ----------------------
Total revenues 1,795,800 5,623,005
---------------------- ----------------------
Operating costs and expenses:
Direct operating:
Suites 376,182 1,012,395
Other 347,483 906,527
Other operating:
Sales, general and administrative 439,820 1,206,270
Energy and maintenance 159,429 558,747
Rents, taxes and other 24,198 470,174
Partnership administrative 52,404 10,847
Depreciation and amortization 16,786 549,997
---------------------- ----------------------
Total operating costs and expenses 1,416,302 4,714,957
---------------------- ----------------------
Income from operations 379,498 908,048
Gain on sale of hotels 27,244,773 0
Interest income 155,777 14,033
Interest expense 4,912,316 1,184,081
---------------------- ----------------------
Net income $ 22,867,732 $ (262,000)
====================== ======================
Net income/(loss) per unit of
Limited partnership interest $ 7.28 $ (0.08)
====================== ======================
</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>
Nine Nine
Months Ended Months Ended
September 30, 1997 September 30, 1996
--------------------- --------------------------
<S> <C> <C>
Cash provided (used) by operations:
Net income $ 24,906,538 $ 502,461
Changes not requiring cash:
Depreciation and amortization 1,173,160 1,654,123
Working capital changes:
(Increase) decrease in accounts receivable, trade 538,301 (76,430)
(Increase) decrease in inventories,
prepaid expenses and other 286,720 (13,154)
Decrease in accounts payable and
accrued expenses (2,087,106) (205,529)
Increase (decrease) in accrued interest payable (4,271) 4,271
Increase (decrease) in due to affiliates (43,212) 2,959
--------------------- --------------------------
Cash provided by operations 24,770,130 1,868,701
--------------------- --------------------------
Financing and capital transactions:
Guaranty payments from
General Partner 0 47,535
--------------------- --------------------------
Cash provided by financing and capital transactions
0 47,535
--------------------- --------------------------
Investment and other transactions:
(Increase) decrease in replacement reserve fund 49,111 (53,254)
Decrease in operating stocks 781,590 0
(Increase) decrease in cash escrow for real estate taxes 268,907 (382,544)
Additions to property and equipment, net (230,100) (749,753)
Sale of property and equipment, net 34,579,442 0
Payments of mortgages and note payable (46,002,185) (222,241)
--------------------- --------------------------
Cash used by investment and other transactions
(10,553,235) (1,407,792)
--------------------- --------------------------
Increase in cash and cash equivalents $ 14,216,895 $ 508,444
===================== ==========================
Supplemental disclosure of cash flow information--
Cash paid for interest $ 7,270,455 $ 3,553,666
===================== ==========================
</TABLE>
The accompanying notes are an integral part of these financial statements.
7
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NOTES TO THE FINANCIAL STATEMENTS
(1) 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 September 30, 1997
and December 31, 1996 and the results of its operations for the year-to-date
and quarterly periods ended September 30, 1997 and 1996.
(2) 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. The Partnership will receive a final payment in 1997, in the
estimated amount of $1,035,000, 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. This final payment will increase total payments
received by the Partnership to approximately $1,793,000.
Total fees charged by Doubletree to the Partnership for management,
advertising, reservation and accounting services were $191,677 and $498,257
during the third quarter of 1997 and 1996, respectively. Nuho Company, a
successor to PH Management Company (a previous management company) pursuant to
the bankruptcy plan, received residual management fees of $43,176 and $131,852
during the third quarter of 1997 and 1996, respectively. Year-to-date,
Doubletree earned $1,476,321 for its services compared to $1,624,985 in the
first three quarters of 1996. Of these amounts, Nuho Company received residual
fees of $393,141 compared to $436,745 received in the first three quarters of
1996. In addition, Nuho Company was paid $7,150,000 by FelCor Suites Limited
Partnership in connection with the sale of the Partnership's hotels to
terminate its rights to its share of future management fees.
(3) REAL ESTATE MORTGAGE NOTES
The first mortgage notes, in the amount of $45,340,207, were paid in full in
connection with the sale of the hotels (see Note 6). Pursuant to the amended
loan agreement, additional interest of $4,585,023 was paid to the lender. This
amount was equal to 25% of the difference between the sale proceeds from the
hotel, net of closing costs, and the outstanding principal balance of the first
mortgage notes and the Doubletree loan.
(4) NOTE PAYABLE
On October 26, 1994, the Partnership borrowed $500,000 from Doubletree for
capital improvements. This note was paid in full in connection with the sale of
the hotels (see Note 6).
8
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(5) PARTNERSHIP ALLOCATIONS
For financial statement reporting purposes, net income is allocated 99 percent
to the Unitholders and 1 percent to the General Partner. The net income (loss)
allocated to the Unitholders for the quarters ended September 30, 1997 and 1996
were $22,639,055 or $7.28 per unit, and $(259,380), or $(.08) per unit,
respectively. The net income allocated to the Unitholders for the first nine
months of 1997 was $24,657,473, or $7.93 per unit, compared to $497,463, or
$.16 per unit, for the same period of the previous year.
(6) SALE OF THE HOTELS
On July 28, 1997 PSH Master L.P.I completed the sale of all three of its hotels
to FelCor Suites Limited Partnership, an affiliate of FelCor Suite Hotels,
Inc., for a gross sales price of $64,800,000. All buildings, improvements and
inventories were included in the sale. The sale, which was approved by a vote
of the Limited Partners, will result in a distribution to unit holders of all
net proceeds and a liquidation of PSH Master L.P.I. The anticipated payout will
approximate $5.50 per partnership unit.
The Partnership will make a cash distribution to the partners after receipt of
the final payment on the bankruptcy claim against the General Partner,
collection of accounts receivable and payment of accounts payable. Limited
partners will receive written instructions from the Partnership's transfer
agent, Harris Trust & Savings Bank, as to the procedures for redeeming their
Depositary Receipts for Units of Limited Partner Interest for cash. This payout
may be reduced by costs incurred in connection with the lawsuit described in
Note 7.
(7) SUBSEQUENT EVENTS
On October 17, 1997, Mr. James Pickett and Mr. Stephen Denz (Chairman and
Secretary, respectively, of PH Management company, the general partner of PC
Development Limited Partnership, the general partner of the Partnership) and
two affiliated companies, PH Management Company and Nuho Company, notified the
Partnership that they have been named as defendants in a complaint filed in
Superior Court of the Commonwealth of Massachusetts. Equity Resource Pilgrim
Fund, the plaintiff, is the owner of 131,225 units of limited partnership
interest of the Partnership, which it acquired during May through September of
1997, in part through a written offer to purchase which it delivered to other
Limited Partners of the Partnership in March, 1997. The complaint alleges that
the defendants breached their fiduciary duties by negotiating a "super premium"
buyout of Nuho Company's interest in the management fees paid to Doubletree and
obtained an inadequate purchase price for the Partnership's hotels.
Contrary to the allegations in the complaint, the General Partner, on behalf of
the Partnership, and the Partnership's lender each obtained an independent
appraisal in connection with the sale of the hotels. Further, the purchase and
sale agreement negotiated with FelCor provided
9
<PAGE> 10
the Partnership with the right to terminate the sale of the hotels if the
purchase price was less than 97% of the appraised value of the hotels, as
agreed to by the Partnership and the lender. In fact, the purchase price was in
excess of 99% of the average value of the two appraisals. Finally, the purchase
price of Nuho Company's interest in future management fees was based upon
reasonable and customary valuation methods.
Accordingly, the defendants maintain that the complaint is based upon
inaccurate assumptions and incomplete factual information and is without merit.
The defendants intend to vigorously defend themselves against the complaint and
will avail themselves to the indemnification and hold-harmless provisions of
the Partnership Agreement of the Partnership. Accordingly, the final
distribution of cash to the Limited Partners, the liquidation of the
Partnership and delivery of the final tax information to the Limited Partners
(Form K-1) have been delayed indefinitely until such time as the costs of
defending the complaint have been determined.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATION
Due to the sale of the hotels on July 28, 1997, an analysis of liquidity and
capital resources and the results of operations for the quarter and nine months
ended September 30, 1997 is not presented herein.
10
<PAGE> 11
PART II. OTHER INFORMATION
ITEMS 1 THROUGH 5
Information required in Items 1 through 5 is not applicable to the Registrant
for the quarter ended September 30, 1997.
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
No reports on Form 8-K were filed during the quarter ended September 30, 1997.
The information required to be filed on Form 8-K, pertaining to the disposition
of all three of the Partnership's hotels on July 28, 1997, has been included in
this quarter's Form 10-Q and therefore no separate filing will be made on Form
8-K.
Exhibit 27 - Financial Data Schedule is located on page 13.
11
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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
/s/
By: James V. Pickett 11/14/97
---------------------------------- --------------
James V. Pickett, Chairman Date
/s/
By: Stephen C. Denz 11/14/97
---------------------------------- --------------
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> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 15,802,965
<SECURITIES> 0
<RECEIVABLES> 557,667
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 16,594,457
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 16,594,457
<CURRENT-LIABILITIES> 267,845
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 16,326,612
<TOTAL-LIABILITY-AND-EQUITY> 16,594,457
<SALES> 13,269,143
<TOTAL-REVENUES> 16,602,295
<CGS> 0
<TOTAL-COSTS> 11,866,881
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 7,270,455
<INCOME-PRETAX> 24,906,538
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 24,906,538
<EPS-PRIMARY> 8.00
<EPS-DILUTED> 8.00
</TABLE>
