<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[X] Annual report pursuant to Section 13 or 15 (d) of The Securities Exchange
Act of 1934 (Fee required of $250.)
For the fiscal year ended: December 31, 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
--- ---
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. [ ]
The aggregate market value of the Registrant's outstanding Units of Limited
Partner Interest held by non-affiliates on February 28, 1997, based upon the
average bid and ask prices as reported by the National Association of
Securities Dealers OTC Bulletin Board on that date, was $2,852,813.
DOCUMENTS INCORPORATED BY REFERENCE
None
<PAGE> 2
PART I
ITEM 1. BUSINESS.
BUSINESS OF THE REGISTRANT
PSH Master L.P.I. (the Partnership) is a Delaware limited partnership formed in
1987 for the purpose of acquiring from PC Development Limited Partnership (the
General Partner) 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. The Partnership's business is the
operation of its all-suite hotels. The hotels have been developed to cater to
commercial travelers and small business groups, as well as individuals and
families traveling for pleasure. Each hotel is designed to have the ambiance of
a first-class hotel, with prices in the upper-middle market range. The
principal focus of each hotel is on comfort and convenience for the individual
guest, rather than on such common amenities as specialty restaurants,
entertainment lounges, and ballrooms. The three hotels include a total of 635
suites, most of which approximate 625 square feet. Each suite contains a
working-living area suitable for small business meetings, a large separate
bedroom and a separate dressing-bathing area and is equipped with a stocked,
built-in refrigerator and a wet bar. The working-living area is furnished with
a dining-conference table, a desk, a sleeper sofa and a large easy chair. Each
suite also has three television sets, located in the living area, bedroom and
bathroom. The Partnership's hotels are operated as DoubleTree Guest Suites.
OPERATION OF THE HOTELS AND CONVERSION TO DOUBLETREE GUEST SUITES
The Partnership is a party to a Management Agreement with DoubleTree Hotels
Corporation (DoubleTree), to operate and manage the hotels. The Management
Agreement expires on December 29, 2011 with two consecutive ten year renewal
options.
DoubleTree is a national hotel chain formed by the December, 1993 merger of two
regional hotel brands, Guest Quarters Suite Hotels and DoubleTree Hotels. The
two brands were operated separately until February, 1995 when the two regional
brands were united into one national brand known as DoubleTree. DoubleTree's
November, 1996 acquisition of Red Lion Hotels added 56 hotels with nearly
15,000 rooms to their portfolio. DoubleTree currently operates 230 properties
with more than 50,000 rooms in 36 states, the District of Columbia, Mexico and
the Caribbean. They are the fifth largest U.S. lodging chain operating under
one brand name in the upscale market segment. The DoubleTree portfolio consists
of the following three company brands:
DOUBLETREE HOTELS are full service, first class, 4-star, all-suite hotels
geographically located in major markets in the United States, Mexico and the
Caribbean. They compete against all major first class brands including
Marriott, Hyatt, Sheraton, Embassy, Hilton and Wyndham.
DOUBLETREE GUEST SUITES is the nation's second largest, full service, first
class, 4-star, all-suite hotel brand. They are geographically located in major
urban markets throughout the United States. DoubleTree Guest Suites compete
against all major first class brands, and particularly all-suite brands
including Embassy Suites, Marriott Suites and Sheraton Suites.
2
<PAGE> 3
CLUB HOTELS BY DOUBLETREE are limited service, 3-star, mid-scale hotels
geographically located in secondary and tertiary markets throughout the United
States. Club Hotels compete against all major mid-scale brands including
Radisson, Holiday Inn, Ramada, Courtyard by Marriott, and Four Points by ITT
Sheraton.
Pursuant to the Management Agreement, DoubleTree operates each hotel in such a
manner as is customary and usual in the operation of first-class hotels, and
DoubleTree provides to each hotel the same services it provides to other hotels
managed by it. Management services provided by DoubleTree include, without
limitation, supervision of the day-to-day operations, determination and
implementation of programs and policies for hotel operations, preparation of
budgets and reports, maintenance of each hotel's books and records, negotiation
of leases and other agreements on behalf of the Partnership, maintenance of
hotel furniture and equipment (to the extent funds are available for that
purpose) and coordination of hotel marketing and advertising. The Partnership
has no employees. All hotel personnel, including the general manager for each
hotel, are employed by DoubleTree.
The Hotels are included in regional and national advertising placed by
DoubleTree. Each hotel's staff includes sales people who promote the hotel in
the local market for both individual reservations and group meetings and
national direct sales people who solicit business from major travel agencies
and corporate travel departments in major cities throughout the United States.
Prior to 1995, DoubleTree assessed the hotels up to three and one-half percent
of total revenues for national advertising and central reservations. During
1995, DoubleTree assessed the hotels four percent of total room sales for
centralized reservation services and national advertising expenses. This change
resulted from the Guest Quarters hotels being integrated into the DoubleTree
central reservation system. Beginning in 1996, DoubleTree assesses the hotels
three and one-half percent of total room sales for national advertising and
central reservation expenses.
All DoubleTree hotels, including the Partnership's hotels, are included in a
nationwide, toll-free reservation system. In addition, the Disney hotel is
included in the Disney reservation system. Travelers who call Walt Disney
World(R) for recommendations on accommodations are referred to Walt Disney
World(R) Hotels and then to other hotels within the Disney complex, on a
rotating basis, including the Partnership's Disney hotel.
HOSPITALITY INDUSTRY AND ALL-SUITE HOTELS
An all-suite hotel is a lodging facility that caters to transient guests and
guests visiting the facility to conduct small group meetings. It is
distinguished from traditional hotels in that all of its guest rooms are suites
of two or more rooms, with physically separate functional areas for sleeping,
bathing, dressing, dining, meeting and lounging. Most all-suite facilities have
small common areas and limited or no food service facilities. The business goal
of all-suite hotels is to create a superior price/value relationship for the
traveler compared with traditional hotels featuring rooms in the same price
category, while achieving a higher gross operating profit margin.
3
<PAGE> 4
COMPETITION AND SEASONALITY
Each hotel experiences significant competition in its market from other hotels,
some of which are affiliated with national and regional chains with greater
financial and other resources than the Partnership or the General Partner. The
hotels compete by offering first-class accommodations at prices in the
upper-middle market range.
The hotels' occupancies are seasonal by nature. The occupancy of the Disney
hotel has been strongest from late February through August. The Tampa Hotel
caters primarily to business travelers and has experienced its highest
occupancy during January through May, October, and November. The Durham hotel
has recorded its highest occupancies from February through June and from August
through November.
Of the three markets in which the Partnership's hotels compete, the Disney
market has faced the most competition in terms of increases in the supply of
hotel rooms. The Walt Disney organization has followed a very aggressive growth
strategy in the development of new hotels within the Disney parks and plans to
continue this pattern into the future. In addition to the hotels developed by
the Walt Disney organization, numerous other hotels have been opened or are in
development. Nearly 3,900 hotel rooms have or are expected to open between
June, 1996 and September, 1997 in and around the Walt Disney World(R) grounds.
One of the new properties is an all-suite hotel. These supply additions are
expected to place increased pressure on revenues and profits at the
Partnership's Disney hotel.
In the Tampa and Raleigh/Durham markets, additions to supply have been
negligible in recent years, although some development activity has been
announced or is under way. A new office building, scheduled to open next to the
Tampa Bay hotel in October, 1997, should have a positive impact on the hotel's
occupancy. In Tampa, city council has announced its support for the development
of a Sheraton hotel near the downtown convention center. Due to its downtown
location, this development is not expected to have a significant impact on the
Partnership's hotel. In August, 1997 Embassy Suites is scheduled to open a 250
suite hotel with considerable meeting space in Cary, North Carolina, close to
Raleigh. Announcements of plans for up to 30 new hotels in the Raleigh/Durham
area, primarily in the limited service and full-service categories, have been
made. It is unclear at this time which of these will be built or when. Overall,
the opening of additional hotels is not expected to have a significant impact
since there is great depth in the demand for hotel rooms now and there is
expected growth in future demand from numerous commercial expansion projects.
ITEM 2. PROPERTIES.
The Tampa hotel is situated on Rocky Point Harbor in the Rocky Point
development in the West Shore area of Tampa, Florida. The Disney hotel is
located within the boundaries of the WALT DISNEY WORLD(R) Village. The Durham
hotel is in the Research Triangle near Raleigh/Durham, North Carolina. The
Tampa and Durham hotels each contain 203 suites and the Disney hotel has 229
suites. Construction was completed and the Tampa hotel opened in April, 1986
and the Disney and Durham hotels were completed and opened in March and
December of 1987, respectively.
4
<PAGE> 5
For the fiscal year ended December 31, 1996 the occupancy and average rates of
these hotels were as follows:
<TABLE>
<CAPTION>
Raleigh/
Tampa Disney Durham
----- ------ --------
<S> <C> <C> <C>
Average Occupancy 75.3% 83.1% 74.2%
Average Daily Rate $98.35 $121.25 $96.60
Revenue Per Available Room $74.01 $100.77 $71.70
</TABLE>
The Tampa and Disney hotels were purchased by the Partnership in July, 1987,
and the Raleigh/Durham hotel was purchased in December, 1987. The Partnership
owns the Tampa and Durham hotels in fee title. The Disney hotel is subject to a
ground lease from Lake Buena Vista Communities, Inc. The initial term of the
lease expires on March 11, 2032 with a renewal option for an additional period
of 25 years. The hotels are subject to first mortgage notes. For a further
description of the terms of the Disney ground lease and the mortgage notes, see
Notes 6 and 7 to the Financial Statements included in Item 8. Financial
Statements and Supplementary Data.
In addition to the ongoing replacement of furniture, fixtures and equipment,
which is funded with replacement reserves (see also Item 7), in March, 1997 the
Registrant has completed the waterproofing and painting of the exterior of the
Tampa hotel. This work was completed at the Disney and Raleigh/Durham hotels in
previous years. In the past three years all three hotels have installed new On
Command(R) video movie services and have upgraded their telephone and
restaurant computer systems. Additionally, the parking lots have been patched,
resealed and painted at the Disney and Raleigh properties and the landscaping
has been upgraded at the Disney and Tampa hotels.
ITEM 3. LEGAL PROCEEDINGS.
The Registrant was not a party to any material pending legal proceedings as of
March 28, 1997.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF UNITHOLDERS.
The Registrant submitted no matters to a vote of Unitholders during the fiscal
year ended December 31, 1996.
5
<PAGE> 6
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S UNITS OF LIMITED PARTNER INTEREST AND
DEPOSITORY RECEIPTS THEREFOR AND RELATED UNITHOLDER MATTERS.
a) MARKET INFORMATION
The Registrant's units of limited partner interest and depository
receipts therefor (the "Units") were previously listed in the Quotations
List of the National Association of Securities Dealers, Inc. (NASD)
under the symbol PSHPZ. The Partnership was removed from the automated
quotation system of the NASD on December 18, 1991 as a result of its
failure to meet the capital and surplus requirements of the NASD. The
Partnership's units are now traded through the NASD's "OTC Bulletin
Board", an electronic, screened-based market.
The following table summarizes the high and low bid information for the
Registrant's Units information as reported on the OTC Bulletin Board.
<TABLE>
<CAPTION>
<S> <C> <C>
1994 HIGH BID LOW BID
---- -------- -------
1st Quarter ended March 31 1/2 1/4
2nd Quarter ended June 30 1/2 1/4
3rd Quarter ended September 30 1/2 1/4
4th Quarter ended December 31 1/2 1/4
1995
----
1st Quarter ended March 31 1/2 1/4
2nd Quarter ended June 30 3/4 1/4
3rd Quarter ended September 30 3/4 1/4
4th Quarter ended December 31 7/8 3/8
1996
----
1st Quarter ended March 31 7/8 3/8
2nd Quarter ended June 30 1 1/8 5/8
3rd Quarter ended September 30 1 3/8 7/8
4th Quarter ended December 31 1 1/2 1
</TABLE>
The above bid quotations do not necessarily represent actual
transactions as they may reflect inter-dealer prices, without retail
mark-up, mark-down or commission.
(b) HOLDERS
On December 31, 1996, there were 2,257 holders of record of the
Registrant's Units.
(c) DISTRIBUTIONS
The General Partner had previously guaranteed that the Partnership would
make annual cash distributions to Unitholders through 1990 in the amount
of $1.10 per unit. The General Partner did not make the cash payments to
the Partnership to fund the cash distributions for the third and fourth
quarters of 1990, and no subsequent cash distributions have been made
(see Note 10 to Item 8. Financial Statements and Supplementary Data).
6
<PAGE> 7
ITEM 6. SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
OPERATIONS:
Operating revenues $24,684,803 $21,887,229 $20,782,668
Total revenues $24,751,149 $21,905,694 $20,805,044
Net income(loss) $ 434,196 $ (770,442) $(1,073,093)
Net income(loss) to Limited Partners $ 429,854 $ (762,738) $(1,062,362)
Cash distributions to
Limited Partners $ -0- $ -0- $ -0-
FINANCIAL POSITION:
Property and equipment, net $35,393,099 $36,177,566 $36,959,885
Total assets $39,824,694 $39,675,237 $40,802,523
Long-term obligations (excluding
current maturities) $ 500,000 $46,028,387 $46,403,119
Total partners' deficit $(8,579,925) $(9,014,121) $(8,243,679)
Limited partners' deficit $(8,316,858) $(8,746,712) $(7,983,974)
PER UNIT:
Cash distributions to
Limited Partners $ 0.00 $ 0.00 $ 0.00
Net income(loss) to Limited Partners $ 0.14 $ (0.25) $ (0.34)
Limited Partners' deficit $ (2.67) $ (2.81) $ (2.57)
Total units outstanding 3,110,000 3,110,000 3,110,000
</TABLE>
7
<PAGE> 8
ITEM 6. SELECTED FINANCIAL DATA (CONTINUED)
<TABLE>
<CAPTION>
1993 1992
---- ----
<S> <C> <C>
OPERATIONS:
Operating revenues $19,799,331 $19,112,677
Total revenues $19,828,011 $19,144,195
Net loss $(2,233,357) $(3,719,660)
Net loss to Limited Partners $(2,211,023) $(3,682,463)
Cash distributions to
Limited Partners $ -0- $ -0-
FINANCIAL POSITION:
Property and equipment, net $37,720,719 $38,763,416
Total assets $41,491,644 $42,489,594
Long-term obligations (excluding
current maturities) $46,171,876 $41,300,000 (1)
Total partners' deficit $(7,170,586) $(4,937,229)
Limited partners' deficit $(6,921,612) $(4,710,589)
PER UNIT:
Cash distributions to
Limited Partners $ 0.00 $ 0.00
Net loss to Limited Partners $ (0.71) $ (1.18)
Limited Partners' deficit $ (2.23) $ (1.51)
Total units outstanding 3,110,000 3,110,000
</TABLE>
(1) Includes $41,300,000 at December 31, 1992 classified as current due to
mortgage notes being in default at that time.
8
<PAGE> 9
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATION
LIQUIDITY AND CAPITAL RESOURCES
The Partnership has incurred cumulative net losses since its inception and the
General Partner has not paid cash to the Partnership to cover these shortfalls
in full pursuant to the Performance and Break-even Guaranty. The final payment
on the Partnership's real estate mortgage notes due on August 1, 1997 (see Note
7 to the financial statements), the Partners' accumulated deficits and the
uncertainty of the Partnership's ability to refinance the first mortgage debt
on maturity (see Notes 1 and 7), raise substantial doubt about the
Partnership's ability to continue as a going concern for a reasonable period of
time. Because of the possible material effects of this uncertainty the
independent auditors did not express an opinion on the financial statements.
However, as disclosed in the auditors' report, 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.
In 1996 and 1995, the Partnership made monthly payments of principal and
interest based upon a 30-year amortization schedule at the contract rate of
10.25%, in accordance with the restructured loans. Cash from operations, after
required replacement reserves, exceeded the required debt service by $1,367,688
and $460,426, respectively. These excess amounts have served to significantly
improve the Partnership's working capital and current ratio positions. Based
upon anticipated revenue levels, Management believes that cash from operations
will be sufficient to meet expected cash requirements during the next twelve
months with the exception of the required balloon payment on the existing first
mortgage debt.
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 Partnership expects to receive total payments of
approximately $2,000,000, including $757,870 received through 1996, in
satisfaction of its claim.
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 must be funded each accounting period.
9
<PAGE> 10
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, at the sale of the hotels, or 25%
of the net proceeds based upon market value if the hotels are not sold prior to
the maturity of the loan, as appreciation interest. The General Partner is
presently in discussion with potential buyers of all three hotels. Although
purchase and sale agreements have not been executed with any buyer, the General
Partner believes that the hotels can be sold or refinanced prior to the
maturity of the existing first mortgage debt. To sell all three hotels within a
twelve-month period, the General Partner must seek the approval from the
holders of a majority of the Units of Limited Partnership Interest.
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>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Total suites 635 635 635
Available suites per year 232,410 231,775 231,775
Occupancy percentage 77.8% 75.3% 73.8%
Average daily rate $106.65 $96.86 $94.40
Direct operating costs as a percent
of total revenues:
Suites 21.3% 21.8% 20.8%
Other 71.0% 71.1% 72.6%
Total 32.2% 33.0% 32.4%
</TABLE>
Tracking the macro trends of the hospitality industry, the Partnership's hotels
have achieved significant revenue gains during the last three years, driven by
improvements in occupancy and average daily rate and in food and beverage sales
volumes. Year-over-year increases in total revenues were 5.0%, 5.3%, and 12.8%
during the years 1994 through 1996. These revenue gains resulted in profit
improvements which allowed the Partnership to meet the required payments of its
restructured debt obligations in the three year period.
10
<PAGE> 11
1996 compared to 1995
Total revenues increased 12.8% from 1995, based upon a 10.1% increase in
average daily rate and a 3.2% increase in occupancy. Average daily rate
increases were achieved at all three hotels. Occupancy remained strong at
Disney, while Tampa and Raleigh/Durham experienced slight decreases in volume.
Overall, occupancy increased to 77.8% from 75.3% one year earlier. Based on the
increases in average daily rate and occupancy, suites revenues increased 13.9%
from $16,917,194 in 1995 to $19,271,365 in 1996. Food, beverage and other
revenues increased 8.9% from 1995, based upon higher volumes and price
increases. Rents and concessions income increased due to the addition of
meeting space and a sundries shop at the Disney hotel. Other revenue increases
include higher movie rentals and vending income.
Suites operating expenses decreased slightly as a percent of revenues, compared
to 1995, reflecting steady cost controls by DoubleTree. Rooms commissions,
guest supplies, laundry, cleaning supplies and linen expenses increased as a
direct result of increased volume. Those same expenses remained constant as a
percent of room revenues, totaling approximately 5.4% of rooms revenues each
year. Payroll and DoubleTree's cookie program expense increases were partially
offset by decreases in reservations expense, contracted services, guest
transportation and stationery.
Other direct operating expenses increased $307,801 or 8.7% of which $38,303
represents a credit against workers' compensation expense in 1995. Of the
remaining amount, $60,420 reflects higher movie rental expenses associated with
higher volumes. Food and beverage cost of sales increased $25,560 or 2.4% due
to higher volumes. Food and beverage payroll also increased due to higher
volumes, growing by $131,276 or 8.2%.
The variance in sales, general and administrative expenses, up $388,715, or
8.2%, reflects a signage rebate of $117,119 recorded in the second quarter of
1995 and a credit of $31,607 against workers' compensation expense in the third
quarter of 1995. Adjusted for these one-time rebates, sales, general and
administrative expenses increased $239,989 or 5.1%. This increase reflects
higher payroll expenses of $247,687 associated with staffing additions in the
sales departments of each hotel and increases in revenue-driven expenses,
including management fees and credit-card commissions, which increased $133,028
and $36,176, respectively. Offsetting these higher expenses were reductions in
recruiting and relocation costs of $15,515, a reduction in central marketing
expenses of $176,009 and lower bad debt expense of $61,105. Cost control
measures also helped reduce general expense levels in the current year.
Energy and maintenance costs increased $145,357 or 7.3% due in part to
increased labor costs associated with increased staffing levels. Energy costs
increased $99,209 or 10.1% due to higher usage at the Florida hotels. The
reduction of the use of maintenance contracts partially offset staffing
additions in 1996.
Rents, taxes and other expenses increased $162,313 or 9.0% in 1996, due
primarily to an increase in Disney land rent of $129,908, driven by revenue and
volume increases. Equipment rental, storage space rental and association dues
also increased. These increases were partially offset by reductions in primary
umbrella insurance of $11,445 and Disney transportation costs of $6,748.
Partnership administrative expenses consist primarily of quarterly and annual
report costs, tax processing and transfer agent charges and legal and audit
fees.
11
<PAGE> 12
1995 compared to 1994
Year to date, revenues increased 5.3% from 1994, based upon a 2.6% increase in
average daily rate and a 2.1% increase in occupancy. Average daily rate
increases were achieved at the Tampa and Raleigh/Durham hotels while the Disney
hotel experienced a slight rate decline. Occupancy remained strong for Disney
and Raleigh/Durham with a slight decline at the Tampa hotel. Suite revenues
increased $775,600 or 4.8% from 1994 to 1995. Food, beverage and other revenues
increased 7.1% from 1994, based upon higher volumes and price increases. Other
revenue increases include higher telephone and vending income.
Direct operating expenses increased as a percent of revenues, compared to 1994,
reflecting higher labor-related costs in 1995. Costs in the suites department
increased $329,968 or 9.8% which includes a credit against workers'
compensation expense in the third quarter of 1995 of $52,567. Of the increase,
$169,874 reflects higher payroll levels to meet volume and service needs and
$90,267 reflects increases in guest supplies, laundry, linen, and room
commissions due to increased volume.
Other direct operating expenses increased $167,545 or 5.0% which includes
$38,303 as a credit against workers' compensation expense in 1995. Food and
beverage cost of sales increased $52,435 due to higher volumes. Food and
beverage payroll also increased due to higher volumes, growing by $42,326 or
2.7%. There were also increases in laundry and linen costs in the food and
beverage department and payroll in the telephone department associated with
higher volumes.
Sales, general and administrative expenses, up $206,656, or 4.6%, includes a
credit of $31,607 against workers' compensation expense, recorded in the third
quarter of 1995. Adjusted for this one-time credit, sales, general and
administrative expenses reflect a net increase of $238,263 or 5.3%. This
increase reflects higher payroll expenses of $6,406, and revenue-driven
management fees expense, which increased $51,422. Increases were also incurred
in central accounting services, security costs, relocation costs, and credit
card commissions. Offsetting these higher expense levels in 1995 were
reductions in office expenses and advertising and promotional expenses.
Energy and maintenance costs increased $84,894, or 4.4% from 1994 to 1995.
Property maintenance labor increased $27,271 or 8.7% from 1994 levels. The cost
of air conditioning and refrigeration repairs increased $11,688, while grounds
maintenance and landscaping increased by $13,909. The cost of operating
supplies for the maintenance department increased $11,844.
Rents, taxes and other expenses declined $111,724 or 5.8%. Of this amount
$117,529 was due to cost reductions in real estate and property taxes from
lower assessed values achieved at the properties. The tax decreases were
partially offset by increased rental of furniture and equipment.
Partnership administrative expenses consist primarily of quarterly and annual
report costs, tax processing and transfer agent charges, legal and audit fees,
and, amortization of start-up costs. The increase of $16,340 consists of
increases in legal, data processing and Unitholder report costs.
12
<PAGE> 13
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
PSH MASTER L.P.I
INDEX
<TABLE>
<CAPTION>
Page
Number
------
<S> <C>
Balance Sheets 14
Statements of Operations 16
Statements of Partners' Deficit 17
Statements of Cash Flows 18
Notes to the Financial Statements 19
Independent Auditors' Report 25
</TABLE>
13
<PAGE> 14
PSH MASTER L.P.I
BALANCE SHEETS
<TABLE>
<CAPTION>
Assets December 31, 1996 December 31, 1995
- - ------ ----------------------- -----------------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 1,586,070 $ 579,253
Accounts receivable, trade 1,095,968 986,029
Inventories 119,462 103,444
Prepaid expenses and other 401,083 335,179
Cash held in escrow 268,907 346,089
------------------------ -----------------------
Total current assets 3,471,490 2,349,994
------------------------ -----------------------
Property and equipment:
Land 3,780,000 3,780,000
Leasehold interest in land 7,440,000 7,440,000
Hotels 36,401,424 36,191,902
Furniture, fixtures and equipment 12,139,268 11,104,168
------------------------ -----------------------
Total 59,760,692 58,516,070
Less accumulated depreciation and amortization (24,367,593) (22,338,504)
------------------------ -----------------------
Total property and equipment, net 35,393,099 36,177,566
------------------------ -----------------------
Other assets:
Replacement reserve fund 49,111 46,524
China, glass, linen and silver 781,590 781,590
Deferred financing fees, organization costs
and other, net 129,404 319,563
------------------------ -----------------------
Total other assets 960,105 1,147,677
------------------------ -----------------------
Total assets $ 39,824,694 $ 39,675,237
======================== =======================
</TABLE>
The accompanying notes are an integral part of these financial statements.
14
<PAGE> 15
PSH MASTER L.P.I
BALANCE SHEETS
<TABLE>
<CAPTION>
Liabilities and Partners' Deficit December 31, 1996 December 31, 1995
- - --------------------------------- ------------------------- ---------------------------
<S> <C> <C>
Current liabilities:
Current portion of mortgage notes payable $ 45,502,185 $ 273,979
Accounts payable 1,542,608 1,739,648
Due to affiliates 43,212 37,442
Accrued expenses:
Payroll and related taxes 524,870 342,265
Real estate and other taxes 115,370 95,671
Interest 4,271 0
Other 172,103 171,966
------------------------ -------------------------
Total current liabilities 47,904,619 2,660,971
------------------------ -------------------------
Note payable 500,000 500,000
Mortgage notes payable, less current portion 0 45,528,387
------------------------ -------------------------
Partners' Deficit:
General Partner - 1% interest (263,067) (267,409)
Limited Partners - 99% interest
(3,110,000 units authorized and outstanding) (8,316,858) (8,746,712)
------------------------ -------------------------
Total partners' deficit (8,579,925) (9,014,121)
------------------------ -------------------------
Total liabilities and partners' deficit $ 39,824,694 $ 39,675,237
======================== =========================
</TABLE>
The accompanying notes are an integral part of these financial statements.
15
<PAGE> 16
PSH MASTER L.P.I
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Year ended Year ended Year ended
December 31, 1996 December 31, 1995 December 31, 1994
--------------------------------------------------------------------
<S> <C> <C> <C>
Revenues:
Suites $ 19,271,365 $ 16,917,194 $ 16,141,594
Other 5,413,438 4,970,035 4,641,074
-----------------------------------------------------------------
Total revenues 24,684,803 21,887,229 20,782,668
-----------------------------------------------------------------
Operating costs and expenses:
Direct operating:
Suites 4,105,760 3,686,203 3,356,235
Other 3,842,769 3,534,968 3,367,423
Other operating:
Sales, general and administrative 5,131,917 4,743,202 4,536,546
Energy and maintenance 2,140,891 1,995,534 1,910,640
Rents, taxes and other 1,971,428 1,809,115 1,920,839
Partnership administrative 164,885 160,520 144,180
Depreciation and amortization 2,219,247 1,977,413 1,888,789
-----------------------------------------------------------------
Total operating costs and expenses 19,576,897 17,906,955 17,124,652
-----------------------------------------------------------------
Income from operations 5,107,906 3,980,274 3,658,016
Interest income 66,346 18,465 22,376
Interest expense 4,740,056 4,769,181 4,753,485
-----------------------------------------------------------------
Net income(loss) $ 434,196 $ (770,442) $ (1,073,093)
=================================================================
Net income(loss) per unit of
limited partnership interest $ 0.14 $ (0.25) $ (0.34)
=================================================================
</TABLE>
The accompanying notes are an integral part of these financial statements.
16
<PAGE> 17
PSH MASTER L.P.I
STATEMENTS OF PARTNERS' DEFICIT
<TABLE>
<CAPTION>
General Limited
Partner Partners Total
--------------------------------------------------------------------
<S> <C> <C> <C>
Deficit balance, December 31, 1993 $ (248,974) $ (6,921,612) $ (7,170,586)
Net loss (10,731) (1,062,362) (1,073,093)
--------------------------------------------------------------------
Deficit balance, December 31, 1994 (259,705) (7,983,974) (8,243,679)
Net loss (7,704) (762,738) (770,442)
--------------------------------------------------------------------
Deficit balance, December 31, 1995 (267,409) (8,746,712) (9,014,121)
Net Income 4,342 429,854 434,196
--------------------------------------------------------------------
Deficit balance, December 31, 1996 $ (263,067) $ (8,316,858) $ (8,579,925)
====================================================================
</TABLE>
The accompanying notes are an integral part of these financial statements.
17
<PAGE> 18
PSH MASTER L.P.I
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year ended Year ended Year ended
December 31, 1996 December 31, 1995 December 31, 1994
------------------------------------------------------------------
<S> <C> <C> <C>
Cash provided (used) by operations:
Net income(loss) $ 434,196 $ (770,442) $ (1,073,093)
Changes not requiring cash:
Depreciation and amortization 2,219,247 1,977,413 1,888,789
Working capital changes:
(Increase) decrease in accounts
receivable, trade (109,939) 76,856 (249,664)
Increase in inventories, prepaid
expenses and other (81,922) (146,544) (46,272)
Increase in accounts payable
and accrued expenses 5,401 417,034 9,980
Increase (decrease) in accrued
interest payable 4,271 (403,639) 93,889
Increase (decrease) in due to
affiliates 5,770 (727) 3,492
------------------------------------------------------------------
Cash provided by operations 2,477,024 1,149,951 627,121
------------------------------------------------------------------
Financing and capital transactions:
Guaranty payments from General
Partner 47,535 41,589 53,475
Proceeds from notes payable 500,000
Payments of mortgages (300,181) (369,512) (223,389)
------------------------------------------------------------------
Cash provided (used) by financing
and capital transactions (252,646) (327,923) 330,086
------------------------------------------------------------------
Investment and other transactions:
(Increase) decrease in
replacement reserve fund (2,587) 657,766 (331,199)
Increase in china, glass, linen,
and silver, net (1,866)
(Increase) decrease in cash escrow
for real estate taxes 77,182 (158,950) 13,141
Additions to property and
equipment (1,292,156) (1,046,723) (991,477)
------------------------------------------------------------------
Cash used by investment and
other transactions (1,217,561) (547,907) (1,311,401)
------------------------------------------------------------------
Increase (decrease) in cash and
cash equivalents $ 1,006,817 $ 274,121 $ (354,194)
------------------------------------------------------------------
Supplemental disclosure of cash flow
information-cash paid for interest $ 4,735,783 $ 5,172,820 $ 4,659,596
==================================================================
</TABLE>
The accompanying notes are an integral part of these financial statements.
18
<PAGE> 19
NOTES TO THE FINANCIAL STATEMENTS
For The Years Ended 1996, 1995, and 1994
(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 incurred net losses from inception through 1995. However, in
1996 the Partnership realized net income of $434,196. Net losses for the years
1995 and 1994 were ($770,442) and ($1,073,093), respectively. The Partnership
had a partners' deficit of ($8,579,925) at December 31, 1996.
The final payment on the Partnership's real estate mortgage notes due on August
1, 1997 (see Note 7), 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 is presently in discussion with potential buyers
of all three hotels. Although purchase and sale agreements have not been
executed with any buyer, the General Partner believes that the hotels can be
sold or refinanced prior to the maturity of the existing first mortgage debt.
To sell all three hotels within a twelve-month period, the General Partner must
seek the approval from the holders of a majority of the Units of Limited
Partnership Interest.
(2) BANKRUPTCY OF GENERAL PARTNER
On February 1, 1991, PC Development Limited Partnership, the General Partner,
along with one of its general partners and two affiliated corporations, filed
for protection from creditors under Chapter 11 of the U.S. Bankruptcy Code. On
December 30, 1991, the debtors filed a Joint Plan of Reorganization and
Disclosure Statement and, on April 19, 1992, the court confirmed the Plan.
An unsecured claim in the amount of $5,038,658 was filed in the bankruptcy case
on behalf of the Partnership due to the General Partner's default under the
Performance and Break-even Guaranty (the Guaranty Agreement). Total payments
received to date by the Partnership against its unsecured claim total $757,870.
The Partnership expects to receive total payments of approximately $2,000,000,
including amounts previously received. This amount includes operating profits
and sale proceeds from a hotel owned by the General Partner. Due to the
remaining variables in the Plan, however, there are no assurances as to the
actual amount to be received. The Plan also provides that PC Development
Limited Partnership will continue as the General Partner of the Partnership.
19
<PAGE> 20
(3) ORGANIZATION AND BUSINESS
The Partnership is a Delaware limited partnership formed on April 3, 1987. The
Partnership will continue in existence until the close of Partnership business
on December 31, 2037, or until its earlier termination in accordance with the
provisions of the Amended and Restated Agreement of Limited Partnership (the
Partnership Agreement).
On July 23, 1987, the Partnership received the net proceeds of an initial
public offering of 3,110,000 Units of Limited Partner Interest representing
gross offering proceeds of $31,100,000. On July 30, 1987, the Partnership
purchased from its General Partner the Tampa hotel and the Disney hotel. On
December 15, 1987, the Partnership purchased and opened the Raleigh/Durham
hotel.
The Partnership is a party to a Management Agreement with DoubleTree to operate
and manage the hotels. The Management Agreement expires on December 29, 2011
with two consecutive ten year renewal options. The Partnership pays a base
management fee of 4.75% of hotel revenues. DoubleTree assessed the properties
three and one-half percent of total departmental revenues for national
advertising during 1994 and four percent of room revenues for national
advertising and centralized reservation services in 1995. Effective January 1,
1996, DoubleTree assessed the properties three and one-half percent of room
revenues for national advertising and centralized reservation services. Other
centralized services such as accounting are provided by DoubleTree to the
Partnership's properties based upon each hotel's share of such costs.
(4) SIGNIFICANT ACCOUNTING POLICIES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates. The
Partnership's significant accounting policies are as follows:
Inventories:
Inventories, consisting principally of food and beverages, are valued at the
lower of cost (first-in, first-out) or market.
Property and equipment:
The initial purchase price allocation to land, leasehold interest in land,
hotels, and furniture, fixtures and equipment was based upon independent
appraisals obtained in connection with the public offering. Any cash payments
made by the General Partner pursuant to its Guaranty Agreement (see Notes 2, 9,
and 10) are recorded as a reduction in the purchase price originally allocated
to the hotels. Depreciation and amortization are provided using the
straight-line method over the estimated useful lives or lease terms, as
follows:
Leasehold interest in land--initial lease life of 45 years; hotels--45
years; furniture, fixtures and equipment--3, 5, and 10 years.
20
<PAGE> 21
China, glass, linen and silver:
A portion of the initial purchase price was allocated to china, glass, linen
and silver for the amounts on-hand on the date of acquisition. The base stock
method of accounting is used whereby the cost of maintaining and replenishing
the base stock is expensed as incurred.
Deferred financing fees and organization costs:
Deferred financing fees are amortized over the life of the related loans and
credit agreements using the straight-line method. Organization costs are
amortized over five years using the straight-line method. Such fees and costs
are net of accumulated amortization of $1,570,798 and $1,380,640 at December
31, 1996 and December 31, 1995, respectively.
Self-Insurance Program:
The Partnership uses a retrospective self-insurance plan for workers'
compensation. A provision has been made in the financial statements, based on
information currently available, which represents the expected future payments
based on the estimated ultimate cost for incidents incurred prior to the
balance sheet dates. Encompassed in this provision are refundable workers'
compensation deposits which result from deposit payments made in excess of the
estimated ultimate cost expected to be incurred.
Cash and cash equivalents:
The Partnership considers all highly liquid debt instruments purchased with a
maturity of three months or less to be cash equivalents. Cash is primarily held
in one bank.
(5) REPLACEMENT RESERVE FUND
As required under current debt agreements the Partnership funded replacement
reserves based upon revenue percentages of 2% for the Tampa and Raleigh/Durham
hotels and 3% for the Disney hotel during 1995, and 1994. Beginning in 1996
replacement reserves were calculated at 4% of revenues at all three hotels.
During the years ended December 31, 1996, 1995, and 1994, $990,026, $526,745
and $503,104, respectively, were reserved to fund capital improvements.
(6) LEASES
The land for the Disney hotel is leased by the Partnership under an operating
lease, the initial term of which expires March 11, 2032, with a renewal option
for an additional period of 25 years. The Partnership pays annual rent based
upon specified percentages of suite, food and beverage, and other hotel
revenues, subject to a $100,000 minimum annual rent. Rent is computed and paid
quarterly. Rent expense under this lease was $726,177 in 1996, $596,269 in
1995, and $592,453 in 1994.
21
<PAGE> 22
(7) REAL ESTATE MORTGAGE NOTES
The nonrecourse notes in the original aggregate amount of $43,300,000 are
secured by the first mortgages on the hotels, including the ground lease at the
Disney hotel. In February, 1991, the lender applied $2,000,000 of the General
Partner's funds, previously held in escrow, against the principal balance of
the notes. On May 26, 1993, the Partnership modified certain terms of the
mortgage loan documents. Accordingly, during 1993 unpaid interest accruing in
the aggregate amount of $4,876,267 was added to the principal balance of the
mortgage computed at the contract rate of 10.25%. Additionally, the Partnership
borrowed $219,000 during 1993 to pay for closing costs incurred with the
modifications. Beginning in February, 1994 interest was payable at an annual
rate of 10.25% of $41,300,000 (original loan balance). During 1994, 1995 and
1996, the Partnership made monthly payments of principal and interest on the
outstanding principal of $46,395,267 based upon a 30-year amortization
schedule. A final payment, which will include principal of $45,502,185 and
interest, is due on August 1, 1997. The lender will also receive 25% of the net
proceeds, as defined, at the sale of the hotels, or 25% of the net proceeds
based upon market value if the hotels are not sold prior to the maturity of the
loan, as appreciation interest.
The Partnership is subject to prepayment penalties at all times except on the
interest adjustment date and during the last three months of the loan term. Any
future subordinate financing to be secured by all or any of the hotels is
subject to the lender's prior consent.
Due to the Partnership's current financial condition and excessive cost,
assessment of the fair value was determined to be impracticable.
(8) 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 (see Note 3). Interest is computed at 10.25% payable monthly in
arrears and payment is equal to the lesser of the monthly computed interest due
or monthly available cash flow from the Partnership.
Due to the Partnership's current financial condition and excessive cost,
assessment of the fair value was determined to be impracticable.
(9) 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 $2,151,820, $1,793,723,
and $1,919,253 during 1996, 1995, and 1994, respectively. Nuho Company, a
successor to PH Management Company (a previous management company) pursuant to
the bankruptcy plan, received residual management fees of $579,078, $515,669,
and $487,783 during 1996, 1995, and 1994, respectively. These fees were used by
Nuho Company to fund required payments to the creditors in the bankruptcy,
including the Partnership.
22
<PAGE> 23
(10) 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 (see Note 7) has been repaid. This is not expected to
occur prior to the maturity of the first mortgage loans on August 1, 1997.
Cash flow available for distribution will be distributed 99 percent to the
Unitholders and 1 percent to the General Partner until the Unitholders have
received cash distributions sufficient to provide a 10 percent (11 percent for
the fiscal years 1987 through 1990) non-compounded, cumulative return on the
weighted average balances of the net invested capital (originally $31,100,000
in the aggregate) outstanding during such year. Any remaining cash flow
available for distribution in excess of the foregoing amounts will be
distributed 15 percent to the General Partner and 85 percent to the
Unitholders, until the General Partner has received an amount equal to 10
percent of all cash flow available for distribution which has been distributed
and, thereafter, 90 percent to the Unitholders and 10 percent to the General
Partner.
Sale or refinancing proceeds, net of any appreciation interest due the lender
(see Note 7), will be distributed 99 percent to the Unitholders and 1 percent
to the General Partner until the Unitholders have received (from all prior
distributions of cash, regardless of source) a 10 percent non-compounded
cumulative return on their weighted average net invested capital and a return
of their net invested capital balances. Any remaining sale or refinancing
proceeds will be distributed 70 percent to the Unitholders and 30 percent to
the General Partner.
Distributions resulting from a liquidation of the Partnership will be paid to
the Partners in accordance with their positive capital account balances after
such balances have been adjusted to reflect allocations of taxable income and
taxable loss.
For federal income tax purposes, taxable income, whether from operations or the
sale of a hotel, is allocated first to restore any deficit balances of the
General Partner and Unitholders on a proportionate basis. Unitholders and the
General Partner are then allocated taxable income 99 percent and 1 percent,
respectively, (to the extent of cash distributions in this ratio) until the
Unitholders have been allocated an amount equal to their net invested capital
plus a 10 percent (11 percent for fiscal years 1987 through 1990)
non-compounded, cumulative return on the weighted average balances of the net
invested capital outstanding plus all prior distributions to the Unitholders of
sale or refinancing proceeds. Thereafter, taxable income is allocated in the
same proportions as and to the extent of distributions of cash.
For federal income tax purposes, taxable loss, whether from operations or the
sale of a hotel, is allocated first to the extent of previously allocated
taxable income in excess of distributions of cash and, thereafter, 99 percent
to the Unitholders and one percent to the General Partner, except that the
General Partner shall receive a special loss allocation to the extent of its
cash payments pursuant to the Guaranty Agreement. Unitholders of record on the
last day of each month will be allocated the proportionate share of income or
loss for that entire month.
23
<PAGE> 24
Cash payments made by the General Partner pursuant to its Guaranty Agreement
have been recorded as a reduction of the purchase price of the hotels.
Accordingly, net property and equipment has been reduced by $10,469,829,
reflecting $12,477,870 in payments by the General Partner net of accumulated
depreciation of $2,008,041, through December 31, 1996. The equity accounts of
the Limited Partners and the General Partner reflect a 99 percent and 1 percent
allocation, respectively, of cumulative losses through December 31, 1996.
(11) INCOME TAXES
Partnership taxable income or loss is allocated to the Partners according to
the Partnership Agreement for inclusion in the determination of their taxable
income. Accordingly, the accompanying financial statements include no provision
for income taxes. 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 has no impact on
the Partnership's current financial statements.
The net income for 1996, as reported on the Partnership's federal tax return
was $535,339. The net losses for 1995 and 1994, as reported on the
Partnership's federal tax return were ($701,970) and ($1,934,790),
respectively, and differ from the net losses as reported in the accompanying
financial statements primarily due to the difference between tax and book
depreciation charges. This difference is due principally to cash payments made
by the General Partner pursuant to its Guaranty Agreement (See Note 2) being
recorded as a capital contribution for tax purposes versus a reduction in net
property and equipment for financial reporting purposes and different
depreciation lives for tax and book purposes. The net income/(losses) for tax
purposes allocable to the Unitholders during 1996, 1995, and 1994 were $331,167
or $.11 per unit, ($653,778) or ($.21) per unit, and ($1,862,502) or ($.60) per
unit, respectively.
Under the Revenue Act of 1987, the Partnership's interest income is taxable to
its Partners in the current year as portfolio income while the loss from
operations for tax purposes is suspended. This suspended loss can only be used
to offset future taxable income of the Partnership or can be recognized by a
partner upon a complete disposition of his interest in the Partnership. The
provision of the Revenue Act of 1987 which taxes publicly traded partnerships
as corporations does not apply to PSH Master L.P.I. until 1998.
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.
24
<PAGE> 25
INDEPENDENT AUDITORS' REPORT
To the Partners of PSH Master L.P.I:
We have audited the accompanying balance sheets of PSH Master L.P.I
(the "Partnership") as of December 31, 1996, and 1995, and the related
statements of operations, partners' deficit, and cash flows for each of the
three years in the period ended December 31, 1996. These financial statements
are the responsibility of the Partnership's management. Our responsibility is
to express (or disclaim) 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 report.
The accompanying financial statements have been prepared assuming that
the Partnership will continue as a going concern. As discussed in Note 1 to the
financial statements, the Partners' accumulated deficits and uncertainty
regarding the Partnership's ability to make the final payment on the mortgage
loan on August 1, 1997 or refinance the debt raise substantial doubt about its
ability to continue as a going concern. Management's plans concerning these
matters are also described in Note 1. The financial statements do not include
any adjustments that might result from the outcome of this uncertainty.
Because of the possible material effects of the uncertainty referred
to in the preceding paragraph, we are unable to express, and we do not express,
an opinion on the accompanying financial statements.
/s/
- - --------------------------
DELOITTE & TOUCHE LLP
Columbus, Ohio
February 14, 1997
25
<PAGE> 26
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
Not applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The Registrant has no directors or executive officers. Management functions of
the Registrant are performed by the General Partner. The following information
is provided regarding the officers and directors of PH Management Company, the
corporate general partner of the Registrant's general partner.
<TABLE>
<CAPTION>
Present Position with
Name Age PH Management Company
- - ---- --- ---------------------
<S> <C> <C>
James V. Pickett 55 President/Director
Stephen C. Denz 39 Secretary/Director
</TABLE>
Mr. Pickett has been the Chairman of the Board of Directors of PH Management
Company since its formation in 1984. Mr. Pickett serves as the Managing
Director of the real estate investment group of Banc One Capital Corporation
and also serves on the Board of Directors of Wendy's International, Inc., The
Fishel Company, Metatec Corporation, and Karrington Health, Inc.
Mr. Denz has served as controller, secretary, treasurer and director since 1987
of various companies controlled by Mr. Pickett.
ITEM 11. EXECUTIVE COMPENSATION.
The Registrant has no executive officers or other employees. The General
Partner receives no compensation for its services.
26
<PAGE> 27
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
James V. Pickett, Chairman and President of PH Management Company, the general
partner of the Partnership's general partner - PC Development Limited
Partnership, purchased 200,000 units in November, 1995 and an additional
200,000 units in June, 1996 which, in total, represents approximately 12.9% of
the outstanding units, bringing the total units owned by Mr. Pickett, both
directly and indirectly to 425,000 units, or approximately 13.7% of the
outstanding units.
McDonald & Company Securities, Inc., 800 Superior Avenue, Cleveland, Ohio
44114, is the beneficial owner of 565,575 Limited Partnership Units which
represents 18.18% of the total outstanding units.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Not applicable
27
<PAGE> 28
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
<TABLE>
<CAPTION>
Document Location
- - -------- --------
<S> <C> <C> <C>
(a) 1. Financial Statements Item 8.
2. Financial Statement Schedules Item 14.(d)
3. Exhibits:
3.1 Amended and Restated Agreement of PSH Master L.P.I *
3.2 Certificate of Limited Partnership of PSH Master L.P.I *
4.1 Promissory Note (Durham) **
4.2 Deed of Trust, Assignment of Rents and Security
Agreement (Durham) **
4.3 Promissory Note (Orlando) **
4.4 Leasehold Mortgage and Security Agreement (Orlando) **
4.5 Promissory Note (Rocky Point) **
4.6 Mortgage and Security Agreement (Rocky Point) **
10.1 Performance and Breakeven Guaranty *
10.2 Management Agreement *
10.3 Purchase Agreement ****
10.4 Escrow Agreement ****
10.5 Deposit Agreement (including form of Depository Receipt) ****
10.6 The Disney Ground Lease *
10.8 Non-Competition Agreement ****
10.9 Consent to Submanagement Agreement and
Amendment to Management Agreement *****
10(a) Future Advance Promissory Note (Orlando) dated as of
January 1, 1992, from PSH Master L.P.I to Aetna Life
Insurance Company. ******
10(b) Consolidated and Renewal Promissory Note (Orlando)
dated as of January 1, 1992, from PSH Master L.P.I to Aetna
Life Insurance Company. ******
10(c) Future Advance Promissory Note (Deferred Interest/
Orlando) dated as of January 1, 1992, from PSH Master
L.P.I to Aetna Life Insurance Company. ******
10(d) Modification Agreement (Orlando/Tampa) dated as of
January 1, 1992, between PSH Master L.P.I and Aetna
Life insurance Company. ******
10(e) Future Advance Promissory Note (Tampa) dated as of
January 1, 1992, from PSH Master L.P.I to Aetna Life
Insurance Company. ******
10(f) Consolidated and Renewal Promissory Note (Tampa)
dated as of January 1, 1992, from PSH Master L.P.I to
Aetna Life Insurance Company. ******
</TABLE>
28
<PAGE> 29
<TABLE>
<CAPTION>
Document Location
- - -------- --------
<S> <C> <C>
10(g) Future Advance Promissory Note (Deferred Interest/
Tampa) dated as of January 1, 1992, from PSH Master L.P.I
to Aetna Insurance Company. ******
10(h) Modification Agreement (Tampa/Orlando) dated as of
January 1, 1992, between PSH Master L.P.I to Aetna Life
Insurance Company. ******
10(i) Future Advance Promissory Note (Durham) dated as of
January 1, 1992, from PSH Master L.P.I to Aetna Life
Insurance Company. ******
10(j) Consolidated and Renewal Promissory Note (Durham)
dated as of January 1, 1992, from PSH Master L.P.I to
Aetna Life Insurance Company. ******
10(k) Future Advance Promissory Note (Deferred Interest/
Durham) dated as of January 1, 1992, from PSH Master L.P.I
to Aetna Life Insurance Company. ******
10(l) Modification Agreement (Durham) dated as of January 1,
1992, from PSH Master L.P.I to Aetna Life
Insurance Company. ******
10(m) Mortgage and Security Agreement dated as of January 1,
1992, from PH Master L.P.I to Aetna Life Insurance
Company. ******
10(n) Consolidation and Modification Agreement dated as of
January 1, 1992, from PSH Master L.P.I to Aetna Life
Insurance Company. ******
10(o) Deferred Interest and Payment Agreement dated as of
January 1, 1992, between PSH Master L.P.I and Aetna
Life Insurance Company. ******
10(p) Assignment of Claim dated as of May 24, 1993, between
PSH Master L.P.I and Aetna Life Insurance Company. ******
10(q) Improvement Reserve Escrow Agreement dated as of
May 24, 1993, among PSH Master L.P.I, Aetna Life
Insurance Company, and BancBoston Mortgage Corp. ******
10(r) Promissory Note dated as of May 24, 1993, from PSH Master
L.P.I to Guest Quarters Hotels Partnership in the
original principal amount of $500,000. ******
10(s) Promissory Note dated as of May 24, 1993, from PSH Master
L.P.I to Guest Quarters Hotels Partnership in the
original principal amount of $1,000,000. ******
10(t) Mortgage and Security Agreement (Rocky Point) dated as
of May 24, 1993, from PSH Master L.P.I to Guest Quarters
Hotels Partnership. ******
10(u) Leasehold Mortgage and Security Agreement (Orlando/
Disney) dated as of May 24, 1993, from PSH Master L.P.I
</TABLE>
29
<PAGE> 30
<TABLE>
<CAPTION>
Document Location
- - -------- --------
<S> <C> <C>
to Guest Quarters Hotels Partnership. ******
10(v) Deed of Trust dated as of May 24, 1993, from PSH Master
L.P.I to Guest Quarters Hotels Partnership. ******
10(w) Third Amendment to Management Agreement dated as
of May 24, 1993, between PSH Master L.P.I and Guest
Quarters Hotels Partnership. ******
16.1 Letter regarding Change in Certifying Accountant ***
</TABLE>
* Previously filed with the Securities and Exchange Commission in
connection with the Registration Statement on Form S-1 of
Pickett Suite Hotel Master L.P.I, Registration No. 33-13961,
dated July 15, 1987.
** Previously filed with the Securities and Exchange Commission Form
8-K, dated December 15, 1987.
*** Previously filed with the Securities and Exchange Commission Form
8-K, dated December 8, 1988.
**** Previously filed with the Securities and Exchange Commission Form
10-K, dated December 31, 1987.
***** Previously filed with the Securities and Exchange Commission Form
8-K, dated December 6, 1989.
****** Previously filed with the Securities and Exchange Commission Form
8-K dated August 13, 1993.
(b) None.
(c) All required exhibits have previously been filed as described in
Paragraph (a) of this Item 14.
(d) Financial Statement Schedules are omitted because of the absence of the
condition under which they are required.
30
<PAGE> 31
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.
PSH MASTER L.P.I
- - ----------------
(Registrant)
By: PC Development Limited Partnership, General Partner
By: PH Management Company, General Partner
/s/ JAMES V. PICKETT 3/28/97
---------------------------- -------------
By: James V. Pickett Date
Chairman and President
/s/ STEPHEN C. DENZ 3/28/97
---------------------------- -------------
By: Stephen C. Denz Date
Secretary and Controller
(Principal Financial Officer)
Pursuant to the requirements of the Securities and Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the date indicated.
/s/ JAMES V. PICKETT 3/28/97
---------------------------- -------------
By: James V. Pickett Date
Chairman and President of
PH Management Company
No proxy statement, form of proxy or other proxy soliciting material has been
sent to Unitholders prior to the filing of this annual report on Form 10-K.
31
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000813897
<NAME> PSH MASTER L.P.I.
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 1,586,070
<SECURITIES> 0
<RECEIVABLES> 1,095,968
<ALLOWANCES> 0
<INVENTORY> 119,462
<CURRENT-ASSETS> 3,471,490
<PP&E> 59,760,692
<DEPRECIATION> 24,367,593
<TOTAL-ASSETS> 39,824,694
<CURRENT-LIABILITIES> 47,904,619
<BONDS> 500,000
0
0
<COMMON> 0
<OTHER-SE> (8,579,925)
<TOTAL-LIABILITY-AND-EQUITY> 39,824,694
<SALES> 24,684,803
<TOTAL-REVENUES> 24,751,149
<CGS> 0
<TOTAL-COSTS> 19,576,897
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,740,056
<INCOME-PRETAX> 434,196
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 434,196
<EPS-PRIMARY> .14
<EPS-DILUTED> .14
</TABLE>
