<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, 1998 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 26, 1999, based upon the
average bid and ask prices as reported by the National Association of Securities
Dealers OTC Bulletin Board on that date, was $777,500.
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 2 to
Item 8, Financial Statements and Supplementary Data).
ITEM 2. PROPERTIES.
Registrant held no property at December 31, 1998.
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 price for the Partnership's hotels. The case was
removed to the United States District Court for the District of Massachusetts. A
motion to dismiss was filed and the court granted that motion. Equity Resource
did not appeal that decision, but could refile the suit with a court having
proper jurisdiction.
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
2
<PAGE> 3
Limited Partners, the liquidation of the Partnership and delivery of final tax
information to the Limited Partners (Form 1099 DIV) have been delayed
indefinitely until such time as the costs of defending the complaint have been
determined.
The Partnership is retaining its remaining assets 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 above. 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.
No costs have been accrued for this at December 31, 1998. Due to the uncertainty
of the lawsuit, no estimate of a final distribution can be made at this time.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF UNITHOLDERS.
The Registrant submitted no matters to a vote of Unitholders during the quarter
ended December 31, 1998.
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") are traded through the "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>
1997 HIGH BID LOW BID
---- --------- -------
<S> <C> <C> <C>
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
1998
1st Quarter ended March 31 1/4 1/10
2nd Quarter ended June 30 1/6 1/8
3rd Quarter ended September 30 1/6 1/8
4th Quarter ended December 31 1/6 1/8
</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. The high bid at February 26, 1999 was $.35 per
unit and the low bid was $.15 per unit.
3
<PAGE> 4
(b) HOLDERS
On December 31, 1998, there were 729 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. On January 31, 1998, the Partnership distributed $5.00
per unit resulting from the sale of the hotels. (See Notes 7 and 8 to
Item 8, Financial Statements and Supplementary Data).
No cash distributions were made in 1997.
ITEM 6. SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
1998 1997 1996
------------ ------------ ------------
OPERATIONS:
<S> <C> <C> <C>
Operating revenues $ 37,502 $ 16,683,775 $ 24,684,803
Total revenues $ 164,137 $ 17,076,961 $ 24,751,149
Net income(loss) $ (65,363) $ 25,065,569 $ 434,196
Net income(loss) to Limited Partners $ (64,709) $ 24,814,913 $ 429,854
Cash distributions to
Limited Partners $ 15,550,000 $-0- $-0-
Cash distributions to General Partners $ 157,070
FINANCIAL POSITION:
Property and equipment, net $ 55 $ 449 $ 35,393,099
Total assets $ 1,030,387 $ 16,905,340 $ 39,824,694
Current maturities of long-term
Obligations $ 0 $ 0 $ 45,502,185
Long-term obligations (excluding
current maturities) $ 0 $ 0 $ 500,000
Total partners' equity (deficit) $ 998,211 $ 16,485,644 $ (8,579,925)
Limited partners' equity (deficit) $ 1,008,346 $ 16,498,055 $ (8,316,858)
PER UNIT:
Cash distributions to
Limited Partners $ 5.00 $ 0.00 $ 0.00
Net income(loss) to Limited Partners $ (0.02) $ 7.98 $ 0.14
Limited Partners' equity (deficit) $ 0.32 $ 5.30 $ (2.67)
Total units outstanding 3,110,000 3,110,000 3,110,000
</TABLE>
4
<PAGE> 5
ITEM 6. SELECTED FINANCIAL DATA (CONTINUED)
<TABLE>
<CAPTION>
1995 1994
------------ ------------
<S> <C> <C>
OPERATIONS:
Operating revenues $ 21,887,229 $ 20,782,668
Total revenues $ 21,905,694 $ 20,805,044
Net loss $ (770,442) $ (1,073,093)
Net loss to Limited Partners $ (762,738) $ (1,062,362)
Cash distributions to
Limited Partners $-0- $-0-
FINANCIAL POSITION: (UNAUDITED)*
Property and equipment, net $ 36,177,566 $ 36,959,885 *
Total assets $ 39,675,237 $ 40,802,523 *
Current maturities of long-term
Obligations $ 273,979 $268,759 *
Long-term obligations (excluding
current maturities) $ 46,028,387 $ 46,403,119 *
Total partners' deficit $ (9,014,121) $ (8,243,679)*
Limited partners' deficit $ (8,746,712) $ (7,983,974)*
PER UNIT:
Cash distributions to
Limited Partners $ 0.00 $ 0.00
Net loss to Limited Partners $ (0.25) $ (0.34)*
Limited Partners' deficit $ (2.81) $ (2.57)*
Total units outstanding 3,110,000 3,110,000
</TABLE>
* The Financial Position data for 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 $15,707,070 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 General Partner contributed $160,000 to the Partnership representing
final proceeds of its' bankruptcy plan. The
5
<PAGE> 6
Partnership is retaining approximately $1.0 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 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.
Due to the pending liquidation of the Partnership and its lack of operations,
the Partnership's use of computer technology in the conduct of its remaining
business is limited. An interruption of the Partnership's ability to conduct its
business due to a year 2000 readiness problem could not have a material adverse
effect on the Partnership.
RESULTS OF OPERATIONS
The majority of the fluctuations are due to the sale of the hotels on July 28,
1997 and the related decrease in operations. The increase in Partnership
Administrative expenses from fiscal year 1997 to fiscal year 1998 is primarily
due to the additional legal and accounting fees incurred by the Partnership.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
6
<PAGE> 7
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
PSH MASTER L.P.I
INDEX
<TABLE>
<CAPTION>
Page
Number
------
<S> <C>
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 17
</TABLE>
7
<PAGE> 8
PSH MASTER L.P.I
BALANCE SHEETS
<TABLE>
<CAPTION>
Assets December 31, 1998 December 31, 1997
- ------ ----------------- -----------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 1,023,996 $ 16,833,186
Accounts receivable, trade 3,406 71,705
Accounts receivable, related party 2,930
------------ ------------
Total current assets 1,030,332 16,904,891
------------ ------------
Property and equipment 7,695 7,695
Less accumulated depreciation and amortization (7,640) (7,246)
------------ ------------
Property and equipment, net 55 449
------------ ------------
Total assets $ 1,030,387 $ 16,905,340
============ ============
</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, 1998 December 31, 1997
- ------------------------------------------ ----------------- -----------------
<S> <C> <C>
Current liabilities:
Accounts payable $ 32,176 $ 22,557
Real estate and other taxes 397,139
------------ ------------
Total current liabilities 32,176 419,696
------------ ------------
Partners' Equity (Deficit)
General Partner - 1% interest (10,135) (12,411)
Limited Partners - 99% interest
(3,110,000 units authorized and outstanding)
1,008,346 16,498,055
------------ ------------
Total partners' equity
998,211 16,485,644
------------ ------------
Total liabilities and partners' equity $ 1,030,387 $ 16,905,340
============ ============
</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, 1998 December 31, 1997 December 31, 1996
----------------------------------------------------------
<S> <C> <C> <C>
Revenues:
Suites $ 37,502 $13,267,745 $19,271,365
Other 3,416,030 5,413,438
Gain on the sale of hotels 22,908,631
----------------------------------------------------
Total revenues 37,502 39,592,406 24,684,803
----------------------------------------------------
Operating costs and expenses:
Direct operating:
Suites 2,094,169 4,105,760
Other 2,313,740 3,842,769
Other operating:
Sales, general and administrative 30,778 3,605,267 5,131,917
Energy and maintenance 1,270,890 2,140,891
Rents, taxes and other 1,415,981 1,971,428
Partnership administrative 198,328 161,868 164,885
Depreciation and amortization 394 1,303,957 2,219,247
----------------------------------------------------
Total operating costs and expenses 229,500 12,165,872 19,576,897
----------------------------------------------------
Income (loss) from operations (191,998) 27,426,534 5,107,906
Interest income 126,635 393,186 66,346
Interest expense 2,754,151 4,740,056
----------------------------------------------------
Net income(loss) $ (65,363) $25,065,569 $ 434,196
====================================================
Net income(loss) per unit of
limited partnership interest $ (0.02) $ 7.98 $ 0.14
====================================================
</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>
Balance, December 31, 1995 $ (267,409) $ (8,746,712) $ (9,014,121)
Net income 4,342 429,854 434,196
--------------------------------------------------
Balance, December 31, 1996 (263,067) (8,316,858) (8,579,925)
Net income 250,656 24,814,913 25,065,569
--------------------------------------------------
Balance, December 31, 1997 $ (12,411) $ 16,498,055 $ 16,485,644
Distributions to partners (157,070) (15,550,000) (15,707,070)
($5.00 per limited partnership interest)
Guaranteed payments from partners 160,000 125,000 285,000
Net loss (654) (64,709) (65,363)
--------------------------------------------------
Equity balance, December 31, 1998 $ (10,135) $ 1,008,346 $ 998,211
==================================================
</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, 1998 December 31, 1997 December 31, 1996
------------------------------------------------------
<S> <C> <C> <C>
Cash provided (used) by operations:
Net income(loss) $ (65,363) $ 25,065,569 $ 434,196
Changes not requiring cash:
Depreciation and amortization 394 1,303,957 2,219,247
Gain on the sale of hotels (22,908,631)
Working capital changes:
(Increase) decrease in accounts
receivable 65,369 1,024,263 (109,939)
(Increase) decrease in inventories,
prepaid expenses and other 520,545 (81,922)
Increase (decrease) in accounts payable
and accrued expenses (387,520) (1,935,255) 5,401
Increase (decrease) in accrued
interest payable (4,271) 4,271
Increase (decrease) in due to
Affiliates (43,212) 5,770
--------------------------------------------------
Cash provided (used) by operations (387,120) 3,022,965 2,477,024
--------------------------------------------------
Financing and capital transactions:
Guaranty payments from General
Partner 285,000 880,262 47,535
Payment of notes payable (500,000)
Distributions to partners (15,707,070)
Payments of mortgages (45,502,185) (300,181)
--------------------------------------------------
Cash used by financing
and capital transactions (15,422,070) (45,121,923) (252,646)
--------------------------------------------------
Investment and other transactions:
(Increase) decrease in
replacement reserve fund 49,111 (2,587)
Decrease in cash escrow
for real estate taxes 268,907 77,182
Net proceeds from sale of hotels 57,258,156
Additions to property and
equipment (230,100) (1,292,156)
--------------------------------------------------
Cash provided (used) by investment and
other transactions 57,346,074 (1,217,561)
--------------------------------------------------
Increase (decrease) in cash and
cash equivalents $(15,809,190) $ 15,247,116 $ 1,006,817
==================================================
Supplemental disclosure of cash flow
Information-cash paid for interest $ 0 $ 2,758,422 $ 4,735,783
==================================================
</TABLE>
The accompanying notes are an integral part of these financial statements.
12
<PAGE> 13
NOTES TO THE FINANCIAL STATEMENTS
For The Years Ended December 31, 1998, 1997, and 1996
(1) BASIS OF PRESENTATION
The Partnership is a Delaware limited partnership formed on April 3, 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 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 10).
(2) 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 buildings, 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.
(3) 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:
Cash and cash equivalents
- -------------------------
The Partnership considers all highly liquid debt instruments 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) by the weighted average number of units outstanding.
(4) LEASES
The land for the Disney hotel was leased by the Partnership under an operating
lease. The Partnership paid annual rent based upon specified percentages of
suite, food and beverage, and
13
<PAGE> 14
other hotel revenues. Rent expense under this lease was $498,754 in 1997 and
$726,177 in 1996.
(5) 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 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.
(6) NOTE PAYABLE
On October 26, 1994, the Partnership borrowed $500,000 from DoubleTree Hotel
Corporation, the manager, 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 repaid in full upon the sale of the hotels.
Interest expense for 1997 and 1996 was $29,470 and $51,250, respectively.
(7) RELATED PARTIES
The General Partner, an affiliate, is generally empowered by the Partnership
Agreement to conduct, direct and exercise full control over all activities of
the Partnership. The General partner contributed $160,000 to the Partnership
representing final proceeds of its' bankruptcy plan.
Total fees charged by DoubleTree to the Partnership for management, advertising,
reservation and accounting services were $1,476,321 and $2,151,820 during 1997
and 1996. Nuho Company, a successor to PH Management Company(a previous
management company) pursuant to the bankruptcy plan of PC Development Limited
Partnership, the General Partner, received residual management fees of $393,141
and $579,078 during 1997 and 1996. These fees were used by Nuho Company to fund
required payments to the creditors in the bankruptcy, including the Partnership.
(8) PARTNERSHIP DISTRIBUTIONS AND ALLOCATIONS PER THE PARTNERSHIP AGREEMENT
Under the partnership agreement, cash flow available for distribution is to 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.
14
<PAGE> 15
Additionally, under the partnership agreement, sale or refinancing proceeds, net
of any appreciation interest due the lender (see Note 5), is to 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.
In July 1997, the Partnership, pursuant to a plan of liquidation, sold
substantially all of the partnership's operating assets, and in January 1998,
cash totaling $15,550,000 and $157,070 was distributed to the Unitholders and
the General Partner, respectively in accordance with the above stated
percentages. These amounts represented both a return of all remaining capital to
the Unitholders, and capital gain to the extent that distributions were in
excess of the Unitholders' bases in their units. 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 General
Partner contributed $160,000 to the Partnership representing final proceeds of
its bankruptcy plan.
Distributions resulting from a liquidation of the Partnership are to 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.
(9) INCOME TAXES
The Partnership has considered statement of Financial Accounting Standard Number
109 "Accounting for Income Taxes" and, given the 1997 sale of the Partnership's
operating assets and the anticipated termination of the Partnership, has
concluded that this standard has no material impact on the Partnership's current
financial statements.
The Revenue Act of 1987 included a provision which treats publicly-traded
partnerships, such as the Partnership, as corporations for Federal income tax
purposes, beginning January 1, 1998. Internal Revenue Code Section 7704(f)
states that the statutory conversion from a publicly traded partnership to
C-corporation is treated as if the partnership contributes its assets and
liabilities to the corporation in exchange for stock and then distributes the
stock to its partners in liquidation of the partnership.
No gain or loss is recognized by the partners upon the contribution of its
assets in exchange for stock under Sec. 721. The stock takes a carryover basis
and holding period from the partnership assets. When the stock is distributed
out to the partners in liquidation of the partnership, no gain or loss is
recognized by the partners under Sec. 731(a). The partners basis in their
partnership interest becomes their basis in the stock of the corporation and the
holding period also carries over.
The effect of treating publicly-traded partnerships as corporations is to tax
the income of the partnership at the entity level and potentially reflect
distributions to partners as dividends, return of capital, and/or capital gain.
Additional costs to the Partnership for such taxes paid at the entity level will
reduce the amount available for distribution to the partners.
The net loss for 1998 as reported on the Partnership's federal corporate tax
return was $65,363. The
15
<PAGE> 16
net income for 1997 as reported on the Partnerships' federal partnership tax
return was $18,039,339. The 1997 net income reflects gain on the sale of
substantially all of the Partnerships operating assets, pursuant to the plan of
liquidation.
(10) 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, is the owner of 131,225 units of limited partnership
interest of the Partnership, which it acquired during May through September of
1997, in part through a written offer to purchase which it delivered to other
Limited Partners of the Partnership in March 1997. The complaint alleges that
the defendants breached their fiduciary duties by negotiating a "super premium"
buyout of Nuho Company's interest in the management fees paid to Doubletree and
obtained an inadequate purchase price for the Partnership's hotels. The case was
removed to the United States District Court for the District of Massachusetts. A
motion to dismiss was filed and the court granted that motion. Equity Resource
did not appeal that decision, but could refile the suit with a court having
proper jurisdiction.
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 final tax
information to the Limited Partners (Form 1099 DIV) have been delayed
indefinitely until such time as the costs of defending the complaint have been
determined.
The Partnership is retaining its remaining assets 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 above. 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.
No costs have been accrued for this at December 31, 1998. Due to the uncertainty
of the lawsuit, no estimate of a final distribution can be made at this time.
16
<PAGE> 17
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, 1998, and 1997, and the related
statements of operations, partners' equity (deficit), and cash flows for each of
the three years in the period ended December 31, 1998. 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,
1998 and 1997, and the results of its operations and its cash flows for each of
the three years in the period ended December 31, 1998 in conformity with
generally accepted accounting principles.
As discussed in Notes 2 and 10 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
January 29, 1999
17
<PAGE> 18
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 57 President/Director
Stephen C. Denz 41 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 Vice Chairman of
the real estate investment group of Banc One Capital Markets, Inc. and also
serves on the Board of Directors of Wendy's International, Inc., Metatec
Corporation, Karrington Health, Inc., and The Fishel Company.
Mr. Denz has served as Secretary and Director of PH Management Company since
1992. Mr. Denz is a Director of the real estate investment group of Banc One
Capital Markets, Inc.
ITEM 11. EXECUTIVE COMPENSATION.
The Registrant has no executive officers or other employees. The General Partner
receives no compensation for its services.
18
<PAGE> 19
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, 15 North
Fourth Street, 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
19
<PAGE> 20
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>
20
<PAGE> 21
<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>
21
<PAGE> 22
<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 24
</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.
22
<PAGE> 23
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 3/15/99
--------------------------------------------------- ------------
James V. Pickett, Chairman and President Date
/s/
By: Stephen C. Denz 3/15/99
--------------------------------------------------- ------------
Stephen C. Denz, Secretary and Controller Date
(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 3/15/99
--------------------------------------------------- ------------
James V. Pickett, Chairman of the Board of Date
Directors and President of PH Management Company
/s/
Stephen C. Denz 3/15/99
--------------------------------------------------- ------------
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.
23
<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-31-1998
<PERIOD-END> DEC-31-1998
<CASH> 1,023,996
<SECURITIES> 0
<RECEIVABLES> 6,336
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1,030,332
<PP&E> 7,695
<DEPRECIATION> 7,640
<TOTAL-ASSETS> 1,030,387
<CURRENT-LIABILITIES> 32,176
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 998,211
<TOTAL-LIABILITY-AND-EQUITY> 1,030,387
<SALES> 37,502
<TOTAL-REVENUES> 37,502
<CGS> 0
<TOTAL-COSTS> 229,500
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (65,363)
<INCOME-TAX> 0
<INCOME-CONTINUING> (65,363)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (65,363)
<EPS-PRIMARY> (0.02)
<EPS-DILUTED> (0.02)
</TABLE>
