<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, 1997 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 March, 31, 1998, based upon the
average bid and ask prices as reported by the National Association of Securities
Dealers OTC Bulletin Board on that date, was $544,250.
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 was the
operation of its all-suite hotels, which were sold in July 1997 (See Note 3 to
Item 8, Financial Statements and Supplementary Data).
ITEM 2. PROPERTIES.
Registrant held no property at December 31, 1997.
ITEM 3. LEGAL PROCEEDINGS.
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 for the Partnership's hotels.
Contrary to the allegations in the complaints, 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 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.
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 1099-Div) has been delayed
indefinitely until such time as the costs of defending the complaint have been
determined.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF UNITHOLDERS.
2
<PAGE> 3
The Registrant submitted no matters to a vote of Unitholders during the quarter
ended December 31, 1997.
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.
1996 HIGH BID LOW BID
---- -------- -------
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 0/0
1997
----
1st Quarter ended March 31 1 3/4 1 1/4
2nd Quarter ended June 30 4 3/4 4 1/4
3rd Quarter ended September 30 5 3/8 4 3/4
4th Quarter ended December 31 4 9/16 4 1/2
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.
The high bid at March 31, 1998 was $0.25 per unit and the low bid was
$0.10 per unit.
(B) HOLDERS
On December 31, 1997, there were 771 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. No cash distributions were made in 1997. January 31,
1998, the Partnership distributed $5.00 per unit. (See Notes 10 and 12 to
Item 8, Financial Statements and Supplementary Data).
3
<PAGE> 4
ITEM 6. SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
OPERATIONS:
<S> <C> <C> <C>
Operating revenues $16,683,775 $24,684,803 $21,887,229
Total revenues $17,076,961 $24,751,149 $21,905,694
Net income(loss) $25,065,569 $ 434,196 $(770,442)
Net income(loss) to Limited Partners $24,814,913 $ 429,854 $(762,738)
Cash distributions to
Limited Partners $ -0- $ -0- $ -0-
FINANCIAL POSITION:
Property and equipment, net $ 449 $35,393,099 $36,177,566
Total assets $16,905,340 $39,824,694 $39,675,237
Current maturities of long-term
Obligations $ 0 $45,502,185 $ 273,979
Long-term obligations (excluding
current maturities) $ 0 $ 500,000 $46,028,387
Total partners' equity (deficit) $16,485,644 $(8,579,925) $(9,014,121)
Limited partners' equity (deficit) $16,498,055 $(8,316,858) $(8,746,712)
PER UNIT:
Cash distributions to
Limited Partners $ 0.00 $ 0.00 $ 0.00
Net income(loss) to Limited Partners $ 7.98 $ 0.14 $ (0.25)
Limited Partners' equity (deficit) $ 5.30 $ (2.67) $ (2.81)
Total units outstanding 3,110,000 3,110,000 3,110,000
</TABLE>
4
<PAGE> 5
ITEM 6. SELECTED FINANCIAL DATA (CONTINUED)
<TABLE>
<CAPTION>
1994 1993
---- ----
<S> <C> <C>
OPERATIONS: (UNAUDITED) *
Operating revenues $20,782,668 $19,799,331 *
Total revenues $20,805,044 $19,828,011 *
Net loss $(1,073,093) $(2,233,357) *
Net loss to Limited Partners $(1,062,362) $(2,211,023) *
Cash distributions to
Limited Partners $ -0- $ -0- *
*
FINANCIAL POSITION: (UNAUDITED * (UNAUDITED) *
Property and equipment, net $36,959,885 * $37,720,719 *
Total assets $40,802,523 * $41,491,644 *
Current maturities of long-term *
Obligations $ 268,759 * $ 223,391
Long-term obligations (excluding
current maturities) $46,403,119 * $46,171,876 *
Total partners' deficit $(8,243,679 * $(7,170,586) *
Limited partners' deficit $(7,983,974 * $(6,921,612) *
PER UNIT:
Cash distributions to
Limited Partners $ 0.00 $ 0.00
Net loss to Limited Partners $ (0.34)* $ (0.71) *
Limited Partners' deficit $ (2.57)* $ (2.23) *
Total units outstanding 3,110,000 3,110,000
</TABLE>
* The Operations data for 1993 and the Financial Position data for 1993 and 1994
is unaudited due to a disclaimer of opinion by the auditor of the financial
statements.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATION
LIQUIDITY AND CAPITAL RESOURCES
A cash distribution of $5.00 per unit of Limited Partnership Interest was paid
on January 31, 1998 to owners of record on January 22, 1998. The total payment
of $15,707,071 represents a partial liquidating distribution resulting from the
sale of the Partnership's three hotels in July 1997. The General Partner
returned to the Partnership $125,000, representing the distribution on its
25,000 Units of Limited Partnership Interest in accordance with the bankruptcy
plan. The Partnership is retaining approximately $1.1 million as a reserve for
legal and accounting expense associated with the liquidation of the Partnership
and to satisfy possible indemnification claims by affiliates of the General
Partner for legal costs resulting from the lawsuit discussed in Item 3. Any
remaining cash in the
5
<PAGE> 6
Partnership after the resolution of this lawsuit and payment of all liquidation
expenses will be paid to the partners in a final liquidating distribution.
Due to the uncertainty of the lawsuit, no estimate of a final distribution can
be made at this time.
RESULTS OF OPERATIONS
Due to the sale of the hotels on July 28, 1997, the results of operations for
the quarter and twelve months ended December 31, 1997 is not presented herein.
6
<PAGE> 7
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
PSH MASTER L.P. I
INDEX
Page
Number
------
Balance Sheets 8
Statements of Operations 10
Statements of Partners' Equity (Deficit) 11
Statements of Cash Flows 12
Notes to the Financial Statements 13
Independent Auditors' Report 19
7
<PAGE> 8
PSH MASTER L.P.I
BALANCE SHEETS
<TABLE>
<CAPTION>
Assets December 31, 1997 December 31, 1996
- - ------ ----------------- -----------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $16,833,186 $1,586,070
Accounts receivable, trade 71,705 1,095,968
Inventories 119,462
Prepaid expenses and other 401,083
Cash held in escrow 268,907
----------- -----------
Total current assets 16,904,891 3,471,490
----------- -----------
Property and equipment:
Land 3,780,000
Leasehold interest in land 7,440,000
Hotels 36,401,424
Furniture, fixtures and equipment 7,695 12,139,268
----------- -----------
Total 7,695 59,760,692
Less accumulated depreciation and amortization (7,246) (24,367,593)
----------- -----------
Total property and equipment, net 449 35,393,099
----------- -----------
Other assets:
Replacement reserve fund 49,111
China, glass, linen and silver 781,590
Deferred financing fees, organization costs
and other, net 129,404
----------- -----------
Total other assets 960,105
----------- -----------
Total assets $16,905,340 $39,824,694
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
8
<PAGE> 9
PSH MASTER L.P.I
BALANCE SHEETS
<TABLE>
<CAPTION>
Liabilities and Partners' Equity (Deficit) December 31, 1997 December 31, 1996
- - ------------------------------------------ ----------------- -----------------
<S> <C> <C>
Current liabilities:
Mortgage notes payable $ 0 $ 45,502,185
Accounts payable 22,557 1,542,608
Due to affiliates 43,212
Accrued expenses:
Payroll and related taxes 524,870
Real estate and other taxes 397,139 115,370
Interest 4,271
Other 172,103
----------- -----------
Total current liabilities 419,696 47,904,619
----------- -----------
Note payable 500,000
----------- -----------
Partners' Equity (Deficit)
General Partner - 1% interest (12,411) (263,067)
Limited Partners - 99% interest
(3,110,000 units authorized and outstanding) 16,498,055 (8,316,858)
----------- -----------
Total partners' equity (deficit) 16,485,644 (8,579,925)
----------- -----------
Total liabilities and partners' equity (deficit) $16,905,340 $39,824,694
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
9
<PAGE> 10
PSH MASTER L.P.I
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Year ended Year ended Year ended
December 31, 1997 December 31, 1996 December 31, 1995
----------------- ----------------- -----------------
<S> <C> <C> <C>
Revenues:
Suites $13,267,745 $19,271,365 $ 16,917,194
Other 3,416,030 5,413,438 4,970,035
Gain on the sale of hotels 22,908,631
----------- ----------- ------------
Total revenues 39,592,406 24,684,803 21,887,229
----------- ----------- ------------
Operating costs and expenses:
Direct operating:
Suites 2,094,169 4,105,760 3,686,203
Other 2,313,740 3,842,769 3,534,968
Other operating:
Sales, general and administrative 3,605,267 5,131,917 4,743,202
Energy and maintenance 1,270,890 2,140,891 1,995,534
Rents, taxes and other 1,415,981 1,971,428 1,809,115
Partnership administrative 161,868 164,885 160,520
Depreciation and amortization 1,303,957 2,219,247 1,977,413
----------- ----------- ------------
Total operating costs and expenses 12,165,872 19,576,897 17,906,955
----------- ----------- ------------
Income from operations 4,517,903 5,107,906 3,980,274
Interest income 393,186 66,346 18,465
Interest expense 2,754,151 4,740,056 4,769,181
----------- ----------- ------------
Net income(loss) $25,065,569 $ 434,196 $ (770,442)
=========== =========== ============
Net income(loss) per unit of
limited partnership interest $ 7.98 $ 0.14 $ (0.25)
=========== =========== ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
10
<PAGE> 11
PSH MASTER L.P.I
STATEMENTS OF PARTNERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
General Limited
Partner Partners Total
------- -------- -----
<S> <C> <C> <C>
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)
Net income 250,656 24,814,913 25,065,569
--------- ------------ ------------
Equity balance, December 31, 1997 $ (12,411) $ 16,498,055 $ 16,485,644
========= ============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
11
<PAGE> 12
PSH MASTER L.P.I
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year ended Year ended Year ended
December 31, 1997 December 31, 1996 December 31, 1995
----------------- ----------------- -----------------
<S> <C> <C> <C>
Cash provided (used) by operations:
Net income(loss) $ 25,065,569 $ 434,196 $ (770,442)
Changes not requiring cash:
Depreciation and amortization 1,303,957 2,219,247 1,977,413
Gain on the sale of hotels (22,908,631)
Working capital changes:
(Increase) decrease in accounts
receivable, trade 1,024,263 (109,939) 76,856
(Increase) decrease in inventories,
prepaid expenses and other 520,545 (81,922) (146,544)
Increase (decrease) in accounts payable
and accrued expenses (1,935,255) 5,401 417,034
Increase (decrease) in accrued
interest payable (4,271) 4,271 (403,639)
Increase (decrease) in due to
affiliates (43,212) 5,770 (727)
------------ ----------- -----------
Cash provided by operations 3,022,965 2,477,024 1,149,951
------------ ----------- -----------
Financing and capital transactions:
Guaranty payments from General
Partner 880,262 47,535 41,589
Payment of notes payable (500,000)
Payments of mortgages (45,502,185) (300,181) (369,512)
------------ ----------- -----------
Cash used by financing
and capital transactions (45,121,923) (252,646) (327,923)
------------ ----------- -----------
Investment and other transactions:
(Increase) decrease in
replacement reserve fund 49,111 (2,587) 657,766
(Increase) decrease in cash escrow
for real estate taxes 268,907 77,182 (158,950)
Net proceeds from sale of hotels 57,258,156
Additions to property and
equipment (230,100) (1,292,156) (1,046,723)
------------ ----------- -----------
Cash provided (used) by investment and
other transactions 57,346,074 (1,217,561) (547,907)
------------ ----------- -----------
Increase (decrease) in cash and
cash equivalents $ 15,247,116 $ 1,006,817 $ 274,121
============ =========== ===========
Supplemental disclosure of cash flow
information-cash paid for interest $ 2,758,422 $ 4,735,783 $ 5,172,820
============ =========== ===========
The accompanying notes are an integral part of these financial statements.
</TABLE>
12
<PAGE> 13
NOTES TO THE FINANCIAL STATEMENTS
For The Years Ended December 31, 1997, 1996, and 1995
(1) BASIS OF PRESENTATION
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). The General Partner expects to liquidate the Partnership
upon resolution of the litigation. (See Note 12).
(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 by the Partnership against its unsecured claim total $1,638,132. The
Partnership expects to receive no further payments from the General Partner. The
Plan also provides that PC Development Limited Partnership will continue as the
General Partner of the Partnership.
(3) 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 Suites Hotels,
Inc., for a gross sales price of $64,800,000. All building, improvements and
inventories were included in the sale. The sale, which was approved by a vote of
the Limited Partners, resulted in a net gain of $22,908,631.
(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 were as follows:
Inventories:
- - ------------
Inventories, consisting principally of food and beverages, were valued at the
lower of cost (first-in, first-out) or market.
13
<PAGE> 14
Property and equipment:
- - -----------------------
Any cash payments made by the General Partner pursuant to its Guaranty Agreement
(see Notes 2 and 10) were recorded as a reduction in the cost of the hotels.
Depreciation and amortization were 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.
China, glass, linen and silver:
- - -------------------------------
The base stock method of accounting was used whereby the cost of maintaining and
replenishing the base stock of china, glass, linen and silver 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 were
amortized over five years using the straight-line method. Such fees and costs
are net of accumulated amortization of $0, and $1,570,798 at December 31, 1997
and December 31, 1996, respectively.
Self-Insurance Program:
- - -----------------------
The Partnership used a retrospective self-insurance plan for workers'
compensation. A provision was made in the financial statements, based on
information available, which represented the expected future payments based on
the estimated ultimate cost for incidents incurred prior to the balance sheet
dates. Encompassed in this provision were refundable workers' compensation
deposits which resulted 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.
Net income per unit of limited partnership interest
- - ---------------------------------------------------
Net income per unit of limited partnership interest is computed by dividing net
income (loss) which is allocated to the Limited Partners, by the weighted
average number of units outstanding (3,110,000).
(5) REPLACEMENT RESERVE FUND
As required under previous 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
14
<PAGE> 15
revenues at all three hotels. During the years ended December 31, 1997, 1996,
and 1995, $0, $990,026, and $526,745 respectively, were reserved to fund capital
improvements.
(6) LEASES
The land for the Disney hotel was 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 paid 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 $498,754 in 1997, $726,177 in 1996,
and $596,269 in 1995.
(7) REAL ESTATE MORTGAGE NOTES
The nonrecourse notes in the original aggregate amount of $43,300,000 were
secured by the first mortgages on the hotels, including the ground lease at the
Disney hotel. 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 1995, 1996 and 1997, the Partnership made
monthly payments of principal and interest based upon a 30-year amortization
schedule. The lender was repaid in full upon the sale of the hotels, including
$4,585,023 as appreciation interest which was netted against the gain on the
sale of the hotels.
Due to the Partnership's financial condition at December 31, 1996 and excessive
cost, assessment of fair market 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 was secured by second mortgages on
the hotels and is due at the termination of the management agreement with
DoubleTree. Interest was computed at 10.25% payable monthly in arrears. The debt
was paid July 28, 1997 upon the sale of the hotels. Interest expense for 1997
was $29,470.
Due to the Partnership's financial condition at December 31, 1996 and excessive
cost, assessment of fair market 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 $1,476,321 $2,151,820, and $1,793,723,
during 1997, 1996, and 1995, . The Partnership is retaining approximately $1.1
million as a reserve for legal and accounting expense associated with the
liquidation of the Partnership and to satisfy possible indemnification claims by
affiliates of the General Partner for legal costs resulting from the lawsuit
discussed in Item 3. Any
15
<PAGE> 16
remaining cash in the Partnership after the resolution of this lawsuit and
payment of all liquidation expenses will be paid to the partners in a final
liquidating distribution. respectively. Nuho Company, a successor to PH
Management Company (a previous management company) pursuant to the bankruptcy
plan, received residual management fees of $393,141 $579,078,and $515,669,
during 1997, 1996, and 1995, respectively. These fees were used by Nuho Company
to fund required payments to the creditors in the bankruptcy, including the
Partnership.
(10) PARTNERSHIP DISTRIBUTIONS AND ALLOCATIONS
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.
16
<PAGE> 17
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 July 31, 1997. The equity accounts of the
Limited Partners and the General Partner reflect a 99 percent and 1 percent
allocation, respectively, of cumulative income and losses through December 31,
1997.
(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 has concluded
that this standard has no impact on the Partnership's current financial
statements.
The net income for 1997, as reported on the Partnership's federal tax return was
$18,039,079. The net income (loss) for 1996 and 1995, as reported on the
Partnership's federal tax return was $535,339 and ($701,970),respectively and
differs 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 1997, 1996, and 1995, were $17,858,689 or $5.74 per unit,
$331,167 or $.11 per unit, and ($653,778) or ($.21) 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.
(12) PENDING LITIGATION
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,
17
<PAGE> 18
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 for the Partnership's hotels.
Contrary to the allegations in the complaints, 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 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.
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 1099-Div) has been delayed
indefinitely until such time as the costs of defending the complaint have been
determined.
No costs have been accrued for this at December 31, 1997. Due to the uncertainty
of the lawsuit, no estimate of legal costs can be made at this time.
(13) SUBSEQUENT EVENTS
A cash distribution of $5.00 per Unit of Limited Partnership Interest was paid
on January 31, 1998 to owners of record on January 22, 1998. The total payment
of $15,707,071 represents a partial liquidating distribution resulting from the
sale of the Partnership's three hotels in July 1997. The General Partner
returned to the Partnership $125,000, representing the distribution on its
25,000 Units of Limited Partnership Interest in accordance with the bankruptcy
plan. The Partnership is retaining approximately $1.1 million as a reserve for
legal and accounting expense associated with the liquidation of the Partnership
and to satisfy possible indemnification claims by affiliates of the General
Partner for legal costs resulting from the lawsuit discussed in Note 12. Any
remaining cash in the Partnership after the resolution of this lawsuit and
payment of all liquidation expenses will be paid to the partners in a final
liquidating distribution.
18
<PAGE> 19
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, 1997, and 1996, and the related
statements of operations, partners' equity (deficit), and cash flows for each of
the three years in the period ended December 31, 1997. These financial
statements are the responsibility of the Partnership's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all
material respects, the financial position of the Partnership as of December 31,
1997 and 1996, and the results of its operations and its cash flows for each of
the three years in the period ended December 31, 1997 in conformity with
generally accepted accounting principles.
As discussed in Notes 3 and 12 to the financial statements, on July 28,
1997, all of the Partnership's hotels were sold to FelCor Suites Limited
Partnership and the Partnership will be liquidated upon resolution of the
pending litigation.
/s/
DELOITTE & TOUCHE LLP
Columbus, Ohio
March 25, 1998
19
<PAGE> 20
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.
Present Position with
Name Age PH Management Company
- - ---- --- ---------------------
James V. Pickett 56 President/Director
Stephen C. Denz 40 Secretary/Director
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., Metatec
Corporation, and Karrington Health, Inc.
Mr. Denz has served as Secretary and Director of PH Management Company since
1992. Mr. Denz is a Vice-President of the real estate investment group of Banc
One Capital Corporation.
ITEM 11. EXECUTIVE COMPENSATION.
The Registrant has no executive officers or other employees. The General Partner
receives no compensation for its services.
20
<PAGE> 21
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. Mr. Pickett's mailing address is c/o The Pickett Companies, 150 E. Gay
Street, 19th Floor, Columbus, Ohio 43215
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
21
<PAGE> 22
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
<TABLE>
<CAPTION>
Document Location
- - -------- --------
<S> <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>
22
<PAGE> 23
<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>
23
<PAGE> 24
<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 ***
27 Financial Data Schedule Page 26
</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.
24
<PAGE> 25
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)
<TABLE>
<CAPTION>
<S> <C> <C>
By: PC Development Limited Partnership, General Partner
By: PH Management Company, General Partner
/s/
By: James V. Pickett 4/9/98
--------------------------------------------- -----------
James V. Pickett, Chairman and President Date
/s/
By: Stephen C. Denz 4/9/97
--------------------------------------------- -----------
Stephen C. Denz, Secretary and Controller Date
(Principal Financial Officer)
</TABLE>
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.
<TABLE>
<CAPTION>
<S> <C> <C>
/s/
James V. Pickett 4/9/97
--------------------------------------------- -----------
James V. Pickett, Chairman of the Board of Date
Directors and President of PH Management Company
/s/
Stephen C. Denz 4/9/97
--------------------------------------------- -----------
Stephen C. Denz, Secretary and Director of Date
PH Management Company
</TABLE>
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.
25
<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-31-1997
<PERIOD-END> DEC-31-1997
<CASH> 16,833,186
<SECURITIES> 0
<RECEIVABLES> 71,705
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 16,904,891
<PP&E> 7,695
<DEPRECIATION> 7,246
<TOTAL-ASSETS> 16,905,340
<CURRENT-LIABILITIES> 419,696
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 16,485,644
<TOTAL-LIABILITY-AND-EQUITY> 16,905,340
<SALES> 16,683,775
<TOTAL-REVENUES> 39,985,592
<CGS> 0
<TOTAL-COSTS> 12,165,872
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,754,151
<INCOME-PRETAX> 25,065,569
<INCOME-TAX> 0
<INCOME-CONTINUING> 25,065,569
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 25,065,569
<EPS-PRIMARY> 7.98
<EPS-DILUTED> 7.98
</TABLE>
