Audited Financial Statements
Pointe Royal Project
Years ended December 31, 1997, 1996, and 1995
with Report of Independent Auditors
(LOGO)
Pointe Royal Project
Audited Financial Statements
Years ended December 31, 1997, 1996, and 1995
Contents
Report of Independent Auditors 1
Audited Financial Statements
Statements of Assets, Liabilities and Project Deficit 2
Statements of Revenues and Expenses and Changes in Project Deficit 3
Statements of Cash Flows 4
Notes to Financial Statements 5
[LETTERHEAD OF ERNST & YOUNG LLP]
Report of Independent Auditors
To the Partners of
FPI Royal View, Ltd., L.P.
We have audited the accompanying statements of assets, liabilities and
project deficit of the Pointe Royal Project (the Project) as of December
31, 1997 and 1996, and the related statements of revenues and expenses
and changes in project 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 Project'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, the financial statements referred to above present
fairly, in all material respects, the financial position of the
Project at 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.
Memphis, Tennessee
January 30, 1998
1
Pointe Royal Project
Statements of Assets, Liabilities and
Project Deficit
December 31
1997 1996
Assets
Property, at cost $23,970,628 $23,288,629
Less accumulated depreciation (7,869,324) (7,065,474)
16,101,304 16,223,155
Restricted funds and escrows 145,221 157,191
Cash 72,186 3,400
Total assets $16,318,711 $16,383,746
Liabilities and Project Deficit
Mortgage notes payable $23,808,000 $23,808,000
Due to FPI Royal View, Ltd., L.P.
and related entities 1,180,778 1,183,763
Accrued interest payable 6,278,092 4,235,079
Accrued real estate taxes 172,135 177,100
Security deposits 57,520 64,890
Other accrued expenses 66,527 64,043
Total liabilities 31,563,052 29,532,875
Project deficit (15,244,341) (13,149,129)
Total liabilities and project deficit $16,318,711 $16,383,746
See accompanying notes.
2
Pointe Royal Project
Statements of Revenues and Expenses and
Changes in Project Deficit
Year ended December 31
1997 1996 1995
Revenues
Rental income $ 3,734,047 $ 3,771,718 $ 3,615,886
Interest and other income 128,129 165,052 137,665
3,862,176 3,936,770 3,753,551
Expenses
Operating expenses 2,398,690 2,064,220 1,686,854
Interest 2,754,848 2,600,663 2,524,077
Depreciation 803,850 745,929 749,890
Loss on disposal of property - 43,941 354,386
5,957,388 5,454,753 5,315,207
Expenses in excess of revenues (2,095,212) (1,517,983) (1,561,656)
Project deficit at beginning of year (13,149,129) (11,631,146) (10,069,490)
Project deficit at end of year $(15,244,341) $(13,149,129) $(11,631,146)
See accompanying note.
3
Pointe Royal Project
Statements of Cash Flows
Year ended December 31
1997 1996 1995
Operating activities
Expenses in excess of revenues $ (2,095,212) $ (1,517,983) $ (1,561,656)
Adjustments to reconcile
expenses in excess of
revenues to net cash
provided by operating
activities:
Depreciation 803,850 745,929 749,890
Loss on disposal of property - 43,941 354,386
Decrease in restricted
funds and escrows 11,970 7,210 10,188
(Decrease) increase in
Due to FPI Royal View,
Ltd., L.P. and related
entities (2,985) (48,669) 13,077
Increase in accrued
interest payable 2,043,013 1,063,483 766,521
(Decrease) increase in
accrued real estate
taxes (4,965) (1,761) 35,308
Decrease in security deposits (7,370) (8,190) (20,781)
Increase (decrease) in
other accrued expenses 2,484 28,708 (92,223)
Net cash provided by
operating activities 750,785 312,668 254,710
Investing activities
Property additions (681,999) (395,525) (340,910)
Net increase (decrease) in cash 68,786 (82,857) (86,200)
Cash at beginning of year 3,400 86,257 12,457
Cash at end of year $ 72,186 $ 3,400 $ 86,257
See accompanying notes.
4
Pointe Royal Project
Notes to Financial Statements
December 31, 1997
1. Project Description
The Pointe Royal Project (the Project) is a 437
unit residential rental property on 34.74 acres in
Overland Park, Kansas. The Project, which is not a
separate legal entity, is owned by FPI Royal View,
Ltd., L.P. (the Partnership), a Kansas limited
partnership. Avron B. Fogelman and Fogelman
Enterprises, L.P. (FELP), which is directly and
indirectly owned by Avron B. Fogelman, are general
partners of the Partnership. FELP is also the sole
limited partner. Through December 24, 1992, Avron
B. Fogelman was also a general partner of Fogelman
Mortgage L.P. I (FMLP), which holds the first
mortgage note on the Project's property (see Note
4). However, as of December 24, 1992, pursuant to
settlement of certain claims brought by investors
in FMLP, Mr. Fogelman and an affiliated entity
withdrew as general partners from FMLP (see Note
4).
Units are leased under short-term operating leases
with monthly rentals due in advance. The Project,
existing and future leases, and rents have been
assigned as collateral for the related mortgage
notes (see Note 4).
2. Summary of Significant Accounting Policies
Basis of Reporting
The accompanying financial statements are prepared
on the accrual basis of accounting and represent
the cumulative operations of the Project beginning
with the inception of the FMLP loan agreement on
April 23, 1987 (see Note 4).
Use of Estimates
The preparation of financial statements in
conformity with generally accepted accounting
principles requires management to make estimates
and assumptions that affect the amounts reported in
the financial statements and accompanying notes.
Actual results could differ from those estimates.
Statements of Cash Flows
The Project made payments of $711,835, $1,537,180,
and $1,757,556, for interest during the years ended
December 31, 1997, 1996, and 1995, respectively.
5
Pointe Royal Project
Notes to Financial Statements (continued)
2. Summary of Significant Accounting Policies (continued)
Restricted Funds and Escrows
Included in restricted funds and escrows are
security deposits and real estate tax escrow
deposits.
Income Taxes
No income taxes are paid by the Project or the
Partnership since the results of operations are
allocated to the partners of the Partnership. Any
income tax liability or benefit resulting therefrom
is the responsibility of the partners rather than
the Partnership or the Project.
3. Property
Property is stated at cost. Depreciation is
provided for financial statement reporting purposes
using the straight-line method over estimated
useful lives as follows:
Useful Cost at December 31
Life 1997 1996
Land N/A $ 3,496,000 $ 3,496,000
Buildings 30 years 16,537,712 16,537,712
Land improvements 15 years 1,864,748 1,618,401
Furniture and fixtures 5-7 years 2,072,168 1,636,516
$ 23,970,628 $ 23,288,629
Construction period interest incurred during
Project development amounted to $1,347,428 and has
been capitalized as a component of property costs.
The Project follows Financial Accounting Standards
Board Statement No. 121, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of, which requires impairment
losses to be recorded on long-lived assets used in
operations when indicators of impairment are
present and the undiscounted cash flows estimated
to be generated by those assets are less than the
assets' carrying amount. Statement 121 also
addresses the accounting for long-lived assets that
are expected to be disposed of. The Project adopted
Statement 121 during 1996, with no effect on its
financial statements.
As a result of normal capital improvements at the
Project, certain property was replaced. The net
book value of this property was written off and is
reflected as a loss on disposal of property in the
accompanying financial statements.
6
Pointe Royal Project
Notes to Financial Statements (continued)
4. Mortgage Notes Payable
The Project is financed with nonrecourse mortgage
notes payable consisting of the following at
December 31, 1997 and 1996:
1997 1996
Accrued Accrued
Interest Interest
Principal Payable Principal Payable
First mortgage note
payable to FMLP $22,745,000 $5,587,575 $22,745,000 $3,717,722
Second mortgage note
payable to Avron B.
Fogelman 1,063,000 690,517 1,063,000 517,357
$23,808,000 $6,278,092 $23,808,000 $4,235,079
The first mortgage note was amended effective
January 1, 1990 pursuant to a consensual
reorganization of the business affairs of Avron B.
Fogelman and related entities. The note, as
amended, bears interest at the basic interest rate
of 9.50% per annum and is payable monthly with the
principal balance due April 23, 1999. If Property
Cash Flow, as defined, is insufficient to pay the
basic interest, then the interest paid shall be
equal to the Property Cash Flow. Such insufficiency
between basic interest at 9.50% and Property Cash
Flow is accrued and bears interest at 9.50%,
compounded monthly. If Property Cash Flow exceeds
the basic interest, then the excess shall be
applied against any unpaid accrued interest until
all such accrued interest has been paid.
Thereafter, any excess Property Cash Flow shall be
paid to FMLP to be held in escrow as additional
collateral for future interest obligations. If
Property Cash Flow exceeds the basic interest for
six consecutive months after payment of all accrued
basic interest, then cash held as additional
collateral shall be paid as contingent interest as
provided under the original terms of the first
mortgage note.
Contingent interest is payable from any Property
Cash Flow, sale or refinancing proceeds received
after January 1, 1989 as follows: (a) 75% thereof
until the total interest (basic interest plus
contingent interest) paid results in a 10.75% yield
on the note; (b) 50% of the remaining balance until
the total interest paid results in a 12.75% yield
on the note; and (c) 25% of the remaining balance
thereof.
Under the first mortgage note agreement, effective
January 1, 1994, the principal may be repaid in
whole, but not in part, upon the payment of a
prepayment penalty equal to 5% of the outstanding
principal balance. Thereafter, prepayment penalties
decline 1% annually.
7
Pointe Royal Project
Notes to Financial Statements (continued)
4. Mortgage Notes Payable (continued)
During 1992, Mr. Fogelman, FMLP and other
defendants settled litigation with certain
investors in FMLP, the holder of the Project's
first mortgage note. Pursuant thereto, funds placed
by Mr. Fogelman in trust to satisfy his guarantee
related to the mortgage note were released to FMLP
and applied as payment of accrued basic interest.
Mr. Fogelman was then released from his guarantee
on the note and Mr. Fogelman and an affiliated
entity withdrew as general partners from FMLP.
Accordingly, the first mortgage note payable to
FMLP is solely a nonrecourse note collateralized by
the Project.
In accordance with the transfer of funds to FMLP
discussed in the preceding paragraph, the Project
recorded a second mortgage note payable to Mr.
Fogelman in the amount of $1,063,000, which was the
amount of funds transferred to FMLP. The note bears
interest at the prime rate plus 2%, adjustable
monthly (10.5% and 10.25% at December 31, 1997 and
1996, respectively), and the principal and accrued
interest mature April 23, 1999. The note and
interest thereon are subordinate to the first
mortgage note and related interest payable to FMLP
discussed above. The note may be prepaid, subject
to the subordination provisions above, at any time
without penalty.
5. Related Party Transactions
Fogelman Management Co. (FMC), which is owned by
Mr. Fogelman, manages the Project and charges
management fees equal to 5% of gross operating
revenues, as defined in the management agreement.
Management fees paid by the Project were
approximately $193,000, $196,000, and $188,000 for
1997, 1996, and 1995, respectively.
FMC obtains insurance coverage for all properties
it manages and allocates the related costs
proportionately among the properties.
6. Fair Values of Financial Instruments
The following methods and assumptions were used by
the Project's management in estimating fair value
disclosures for financial instruments:
The carrying amounts reported in the balance sheet
for restricted funds and escrows, Due to FPI Royal
View, Ltd., L. P. and related entities, and other
accrued expenses approximate fair value.
The fair value of the first mortgage note and
accrued interest, when combined with the
outstanding amount of the first mortgage note and
accrued interest of FPI Chesterfield, L.P.
($29,439,179), an affiliate, approximates the
payoff amount described in Note 7.
8
Pointe Royal Project
Notes to Financial Statements (continued)
6. Fair Values of Financial Instruments (continued)
Management of the Project has determined that it is
not practicable to estimate the fair value of the
second mortgage note payable to Mr. Fogelman and
related accrued interest since these obligations
are subordinate to the first mortgage note.
7. Subsequent Event
On January 30, 1998, FELP, Avron B. Fogelman and
FMLP entered into an agreement ("Payoff Agreement")
which provides that FELP will pay (or cause to be
paid on behalf of the Partnership) to FMLP, in full
satisfaction of the first mortgage loan and related
accrued interest of the Partnership, as well as,
the first mortgage loan and related accrued
interest of FPI Chesterfield, L.P. (collectively
referred to as "Mortgage Loans"), the following:
(i) $48,000,000 and (ii) an amount, if any, by
which the aggregate amount of interest paid to FMLP
with respect to the Mortgage Loans for the period
October 1, 1997 through the closing is less than
interest on the principal amount of the Mortgage
Loans ($46,065,000) at an annual interest rate of
7.7%.
The obligation of FMLP to close under the Payoff
Agreement is subject to the approval by a majority
in interest of the unitholders of FMLP.
Additionally, FELP's obligation to close is subject
to the closing occurring on or before May 29, 1998,
unless FELP in its sole discretion agrees to the
closing on a later date.
FELP and Avron B. Fogelman have reached an
agreement in principle with (i) Connecticut General
Life Insurance Company ("CIGNA") respecting the
terms and conditions of new first mortgage
financing and (ii) General Electric Capital
Corporation ("GECC") respecting the terms of a new
equity investment. The funds from CIGNA and GECC,
together with funds provided by FELP and/or its
affiliates, would repay the Mortgage Loans.
9
Audited Financial Statements
Westmont Project
Years ended December 31, 1997, 1996, and 1995
with Report of Independent Auditors
(LOGO)
Westmont Project
Audited Financial Statements
Years ended December 31, 1997, 1996, and 1995
Contents
Report of Independent Auditors 1
Audited Financial Statements
Statements of Assets, Liabilities and Project Deficit 2
Statements of Revenues and Expenses and Changes in
Project Deficit 3
Statements of Cash Flows 4
Notes to Financial Statements 5
[LETTERHEAD OF ERNST & YOUNG LLP]
Report of Independent Auditors
To the Partners of
FPI Chesterfield, L.P.
We have audited the accompanying statements of assets,
liabilities and project deficit of the Westmont Project
(the Project) as of December 31, 1997 and 1996, and the
related statements of revenues and expenses and changes
in project 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
Project'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, the financial statements referred to
above present fairly, in all material respects, the
financial position of the Project at 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.
Memphis, Tennessee
January 30, 1998
Westmont Project
Statements of Assets, Liabilities and
Project Deficit
December 31
1997 1996
Assets
Property, at cost $23,480,010 $23,093,158
Less accumulated depreciation (8,397,855) (7,597,138)
15,082,155 15,496,020
Restricted funds and escrows 163,243 126,294
Cash 176,411 151,421
Total assets $15,421,809 $15,773,735
Liabilities and Project Deficit
Mortgage notes payable $24,409,000 $24,409,000
Due to FPI Chesterfield, L.P.
and related entities 611,413 613,701
Accrued interest payable 6,826,586 5,289,419
Security deposits 165,333 121,410
Other accrued expenses 138,698 59,008
Total liabilities 32,151,030 30,492,538
Project deficit (16,729,221) (14,718,803)
Total liabilities and project
deficit $15,421,809 $15,773,735
See accompanying notes.
2
Westmont Project
Statements of Revenues and Expenses and
Changes in Project Deficit
Year ended December 31
1997 1996 1995
Revenues
Rental income $ 3,761,133 $ 3,669,349 $ 3,547,581
Interest and other income 137,721 137,427 161,780
3,898,854 3,806,776 3,709,361
Expenses
Operating expenses 2,173,193 1,651,281 1,812,435
Interest 2,881,056 2,774,158 2,693,697
Depreciation 837,524 782,138 795,726
Loss on disposal of property 17,499 - -
5,909,272 5,207,577 5,301,858
Expenses in excess of
revenues (2,010,418) (1,400,801) (1,592,497)
Project deficit at
beginning of year (14,718,803) (13,318,002) (11,725,505)
Project deficit at end of
year $(16,729,221) $(14,718,803) $(13,318,002)
See accompanying notes.
3
Westmont Project
Statements of Cash Flows
Year ended December 31
1997 1996 1995
Operating activities
Expenses in excess of revenues $ (2,010,418) $ (1,400,801) $(1,592,497)
Adjustments to reconcile
expenses in excess of
revenues to net cash
provided by operating
activities:
Depreciation 837,524 782,138 795,726
Loss on disposal of property 17,499 - -
(Increase) decrease in
restricted funds and
escrows (36,949) 127,426 2,853
(Decrease) increase in
Due to FPI Chesterfield,
L.P. and related entities (2,288) (42,850) 5,532
Increase in accrued
interest payable 1,537,167 749,884 891,362
Increase (decrease) in
security deposits 43,923 4,500 (8,695)
Increase (decrease) in
other accrued expenses 79,690 10,041 (17,537)
Net cash provided by
operating activities 466,148 230,338 76,744
Investing activities
Property additions (441,158) (160,749) (122,556)
Net increase (decrease) in cash 24,990 69,589 (45,812)
Cash at beginning of year 151,421 81,832 127,644
Cash at end of year $ 176,411 $ 151,421 $ 81,832
See accompanying notes.
4
Westmont Project
Notes to Financial Statements
December 31, 1997
1. Project Description
The Westmont Project (the Project) is a 489 unit
residential rental property on 57.65 acres in
Chesterfield, Missouri. The Project, which is not a
separate legal entity, is owned by FPI
Chesterfield, L.P. (the Partnership), a Missouri
limited partnership. Avron B. Fogelman and Fogelman
Enterprises, L.P. (FELP), which is directly and
indirectly owned by Avron B. Fogelman, are general
partners of the Partnership. Avron B. Fogelman is
also the sole limited partner. Through December 24,
1992, Avron B. Fogelman was also a general partner
of Fogelman Mortgage L.P. I (FMLP), which holds the
first mortgage note on the Project's property (see
Note 4). However, as of December 24, 1992, pursuant
to settlement of certain claims brought by
investors in FMLP, Mr. Fogelman and an affiliated
entity withdrew as general partners from FMLP (see
Note 4).
Units are leased under short-term operating leases
with monthly rentals due in advance. The Project,
existing and future leases, and rents have been
assigned as collateral for the related mortgage
notes (see Note 4).
2. Summary of Significant Accounting Policies
Basis of Reporting
The accompanying financial statements are prepared
on the accrual basis of accounting and represent
the cumulative operations of the Project beginning
with the inception of the FMLP loan agreement on
July 8, 1987 (see Note 4).
Use of Estimates
The preparation of financial statements in
conformity with generally accepted accounting
principles requires management to make estimates
and assumptions that affect the amounts reported in
the financial statements and accompanying notes.
Actual results could differ from those estimates.
Statements of Cash Flows
The Project made payments of $1,343,889,
$2,024,274, and $1,802,335, for interest during the
years ended December 31, 1997, 1996, and 1995,
respectively.
5
Westmont Project
Notes to Financial Statements (continued)
2. Summary of Significant Accounting Policies (continued)
Restricted Funds and Escrows
Included in restricted funds and escrows are
security deposits and real estate tax escrow
deposits.
Income Taxes
No income taxes are paid by the Project or the
Partnership since the results of operations are
allocated to the partners of the Partnership. Any
income tax liability or benefit resulting therefrom
is the responsibility of the partners rather than
the Partnership or the Project.
3. Property
Property is stated at cost. Depreciation is
provided for financial statement reporting purposes
using the straight-line method over estimated
useful service lives as follows:
Useful Cost at December 31
Life 1997 1996
Land N/A $ 2,386,320 $ 2,386,320
Buildings 30 years 17,029,627 17,027,526
Land improvements 15 years 2,001,847 1,931,757
Furniture and fixtures 5-7 years 2,062,216 1,747,555
$23,480,010 $23,093,158
Construction period interest incurred during
Project development amounted to $1,358,694 and has
been capitalized as a component of property costs.
The Project follows Financial Accounting Standards
Board Statement No. 121, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of, which requires impairment
losses to be recorded on long-lived assets used in
operations when indicators of impairment are
present and the undiscounted cash flows estimated
to be generated by those assets are less than the
assets' carrying amount. Statement 121 also
addresses the accounting for long-lived assets that
are expected to be disposed of. The Project adopted
Statement 121 during 1996, with no effect on its
financial statements.
As a result of normal capital improvements at the
Project, certain property was replaced. The net
book value of this property was written off and is
reflected as a loss on disposal of property in the
accompanying financial statements.
6
Westmont Project
Notes to Financial Statements (continued)
4. Mortgage Notes Payable
The Project is financed with nonrecourse mortgage
notes payable consisting of the following at
December 31, 1997 and 1996:
1997 1996
Accrued Accrued
Interest Interest
Principal Payable Principal Payable
First mortgage
note payable
to FMLP $23,320,000 $6,119,179 $23,320,000 $4,759,407
Second mortgage
note payable
to Avron B.
Fogelman 1,089,000 707,407 1,089,000 530,012
$24,409,000 $6,826,586 $24,409,000 $5,289,419
The first mortgage note was amended effective
January 1, 1990 pursuant to a consensual
reorganization of the business affairs of Avron B.
Fogelman and related entities. The note, as
amended, bears interest at the basic interest rate
of 9.50% per annum and is payable monthly with the
principal balance due July 1, 1999. If Property
Cash Flow, as defined, is insufficient to pay the
basic interest, then the interest paid shall be
equal to the Property Cash Flow. Such insufficiency
between basic interest at 9.50% and Property Cash
Flow is accrued and bears interest at 9.50%,
compounded monthly. If Property Cash Flow exceeds
the basic interest, the excess shall be applied
against any unpaid accrued interest until all such
accrued interest has been paid. Thereafter, any
excess Property Cash Flow shall be paid to FMLP to
be held in escrow as additional collateral for
future interest obligations. If Property Cash Flow
exceeds the basic interest for six consecutive
months after payment of all accrued basic interest,
then cash held as additional collateral shall be
paid as contingent interest as provided under the
original terms of the first mortgage note.
Contingent interest is payable from any Property
Cash Flow, sale or refinancing proceeds received
after January 1, 1989 as follows: (a) 75% thereof
until the total interest (basic interest plus
contingent interest) paid results in a 10.75% yield
on the note; (b) 50% of the remaining balance until
the total interest paid results in a 12.75% yield
on the note; and (c) 25% of the remaining balance
thereof.
Under the first mortgage note agreement, effective
January 1, 1994, the principal may be repaid in
whole, but not in part, upon the payment of a
prepayment penalty equal to 5% of the outstanding
principal balance. Thereafter, prepayment penalties
decline 1% annually.
7
Westmont Project
Notes to Financial Statements (continued)
4. Mortgage Notes Payable (continued)
During 1992, Mr. Fogelman, FMLP and other
defendants settled litigation with certain
investors in FMLP, the holder of the Project's
first mortgage note. Pursuant thereto, funds placed
by Mr. Fogelman in trust to satisfy his guarantee
related to the mortgage note were released to FMLP
and applied as payment of accrued basic interest.
Mr. Fogelman was then released from his guarantee
on the note and Mr. Fogelman and an affiliated
entity withdrew as general partners from FMLP.
Accordingly, the first mortgage note payable to
FMLP is solely a nonrecourse note collateralized by
the Project.
In accordance with the transfer of funds to FMLP
discussed in the preceding paragraph, the Project
recorded a second mortgage note payable to Mr.
Fogelman in the amount of $1,089,000, which was the
amount of funds transferred to FMLP. The note bears
interest at the prime rate plus 2%, adjustable
monthly (10.5% and 10.25% at December 31, 1997 and
1996, respectively), and the principal and accrued
interest mature July 1, 1999. The note and interest
thereon are subordinate to the first mortgage note
and related interest payable to FMLP discussed
above. The note may be prepaid, subject to the
subordination provisions above, at any time without
penalty.
5. Related Party Transactions
Fogelman Management Co. (FMC), which is owned by
Mr. Fogelman, manages the Project and charges
management fees equal to 5% of gross operating
revenues, as defined in the management agreement.
Management fees paid by the Project were
approximately $195,000, $190,000, and $185,000, for
1997, 1996, and 1995, respectively.
FMC obtains insurance coverage for all properties
it manages and allocates the related costs
proportionately among the properties.
6. Fair Values of Financial Instruments
The following methods and assumptions were used by
the Project's management in estimating fair value
disclosures for financial instruments:
The carrying amounts reported in the balance sheet
for restricted funds and escrows, Due to FPI
Chesterfield, L. P. and related entities, and other
accrued expenses approximate fair value.
The fair value of the first mortgage note and
accrued interest, when combined with the
outstanding amount of the first mortgage note and
accrued interest of FPI Royal View, Ltd., L.P.
($28,332,575), an affiliate, approximates the
payoff amount described in Note 7.
8
Westmont Project
Notes to Financial Statements (continued)
6. Fair Values of Financial Instruments (continued)
Management of the Project has determined that it is
not practicable to estimate the fair value of the
second mortgage note payable to Mr. Fogelman and
related accrued interest since these obligations
are subordinate to the first mortgage note.
7. Subsequent Event
On January 30, 1998, FELP, Avron B. Fogelman and
FMLP entered into an agreement ("Payoff Agreement")
which provides that FELP will pay (or cause to be
paid on behalf of the Partnership) to FMLP, in full
satisfaction of the first mortgage loan and related
accrued interest of the Partnership, as well as,
the first mortgage loan and related accrued
interest of FPI Royal View, Ltd., L.P.
(collectively referred to as "Mortgage Loans"), the
following: (i) $48,000,000 and (ii) an amount, if
any, by which the aggregate amount of interest paid
to FMLP with respect to the Mortgage Loans for the
period October 1, 1997 through the closing is less
than interest on the principal amount of the
Mortgage Loans ($46,065,000) at an annual interest
rate of 7.7%.
The obligation of FMLP to close under the Payoff
Agreement is subject to the approval by a majority
in interest of the unitholders of FMLP.
Additionally, FELP's obligation to close is subject
to the closing occurring on or before May 29, 1998,
unless FELP in its sole discretion agrees to the
closing on a later date.
FELP and Avron B. Fogelman have reached an
agreement in principle with (i) Connecticut General
Life Insurance Company ("CIGNA") respecting the
terms and conditions of new first mortgage
financing and (ii) General Electric Capital
Corporation ("GECC") respecting the terms of a new
equity investment. The funds from CIGNA and GECC,
together with funds provided by FELP and/or its
affiliates, would repay the Mortgage Loans.
9
1997
- --------------------------------------------------------------------------------
Fogelman Mortgage L.P. I Annual
Report
FOGELMAN MORTGAGE L.P. I
LETTER TO THE UNIT HOLDERS
FOR THE YEAR ENDED DECEMBER 31, 1997
1
Price Waterhouse LLP (LOGO)
1177 Avenue of the Americas
New York, NY 10036
Telephone 212 596-7000
Facsimile 212 596-8910
Report of Independent Accountants
February 13, 1998
To the Unitholders and
General Partner of
Fogelman Mortgage L.P. I
In our opinion, the accompanying statements of financial condition and the
related statements of operations, changes in partners' capital and cash flows
present fairly, in all material respects, the financial position of Fogelman
Mortgage L.P. I at December 31, 1997 and 1996, and the results of its operations
and its cash flows for the years then ended in conformity with generally
accepted accounting principles. These financial statements are the
responsibility of the general partner; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with generally accepted auditing
standards which 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, assessing the
accounting principles used and significant estimates made by the general
partner, and evaluating the overall financial statement presentation. We believe
that our audits provide a reasonable basis for the opinion expressed above.
/s/ Price Waterhouse LLP
2
Deloitte & Touche LLP (LOGO)
Two World Financial Center
New York, New York 10281-1414
Telephone (212) 436-2000
Facsimile (212) 436-5000
Independent Auditors' Report
To the Partners of
Fogelman Mortgage L.P. I
We have audited the accompanying statements of operations, changes in partners'
capital and cash flows of Fogelman Mortgage L.P. I (a Tennessee Limited
Partnership) for the year ended December 31, 1995. These financial statements
are the responsibility of the General Partner. Our responsibility is to express
an opinion on these financial statements based on our audit.
We conducted our audit 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
misstatements. 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
the General Partner, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable
basis for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the results of operations and cash flows of Fogelman Mortgage L.P. I
for the year ended December 31, 1995 in conformity with generally accepted
accounting principles.
/s/ Deloitte & Touche LLP
February 12, 1996
2A
FOGELMAN MORTGAGE L.P. I
(a limited partnership)
STATEMENTS OF FINANCIAL CONDITION
December 31,
---------------------------
1997 1996
- --------------------------------------------------------------------------------------------------
ASSETS
Investments in mortgage loans $25,701,746 $26,123,955
Cash and cash equivalents 420,884 1,708,313
Deferred general partner's fees (net of accumulated amortization
of $2,153,435 in 1997 and $1,949,939 in 1996) 285,565 489,061
----------- -----------
Total assets $26,408,195 $28,321,329
----------- -----------
----------- -----------
LIABILITIES AND PARTNERS' CAPITAL
Liabilities
Deposits held for tax obligations of underlying properties $ 86,068 $ 88,550
Due to affiliates 73,238 71,794
Accrued expenses 177,179 45,362
----------- -----------
Total liabilities 336,485 205,706
----------- -----------
Partners' capital
Unitholders (54,200 units issued and outstanding) 26,305,236 28,328,711
General partner (233,526) (213,088)
----------- -----------
Total partners' capital 26,071,710 28,115,623
----------- -----------
Total liabilities and partners' capital $26,408,195 $28,321,329
----------- -----------
----------- -----------
- --------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these statements.
3
FOGELMAN MORTGAGE L.P. I
(a limited partnership)
STATEMENTS OF OPERATIONS
Year ended December 31,
----------------------------------------
1997 1996 1995
- ----------------------------------------------------------------------------------------------------
REVENUES
Equity income from the underlying properties $1,633,515 $2,557,797 $2,166,858
Interest income 49,251 85,190 103,340
---------- ---------- ----------
1,682,766 2,642,987 2,270,198
---------- ---------- ----------
EXPENSES
General and administrative 322,261 124,620 137,046
Amortization of deferred general partner's fees 203,496 203,496 203,496
---------- ---------- ----------
525,757 328,116 340,542
---------- ---------- ----------
Net income $1,157,009 $2,314,871 $1,929,656
---------- ---------- ----------
---------- ---------- ----------
ALLOCATION OF NET INCOME
Unitholders $ 917,417 $2,063,701 $1,682,338
---------- ---------- ----------
---------- ---------- ----------
General partner:
Special distribution $ 230,325 $ 230,325 $ 230,325
Other 9,267 20,845 16,993
---------- ---------- ----------
$ 239,592 $ 251,170 $ 247,318
---------- ---------- ----------
---------- ---------- ----------
Net income per depositary unit $ 16.93 $ 38.08 $ 31.04
---------- ---------- ----------
---------- ---------- ----------
- ----------------------------------------------------------------------------------------------------
FOGELMAN MORTGAGE L.P. I
(a limited partnership)
STATEMENTS OF CHANGES IN PARTNERS' CAPITAL
GENERAL
UNITHOLDERS PARTNER TOTAL
- ----------------------------------------------------------------------------------------------------
Partners' capital (deficit)--December 31, 1994 $31,053,609 $(185,566) $30,868,043
Net income 1,682,338 247,318 1,929,656
Distributions (3,116,500) (261,805) (3,378,305)
----------- --------- -----------
Partners' capital (deficit)--December 31, 1995 29,619,447 (200,053) 29,419,394
Net income 2,063,701 251,170 2,314,871
Distributions (3,354,437) (264,205) (3,618,642)
----------- --------- -----------
Partners' capital (deficit)--December 31, 1996 28,328,711 (213,088) 28,115,623
Net income 917,417 239,592 1,157,009
Distributions (2,940,892) (260,030) (3,200,922)
----------- --------- -----------
Partners' capital (deficit)--December 31, 1997 $26,305,236 $(233,526) $26,071,710
----------- --------- -----------
----------- --------- -----------
- ----------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these statements.
4
FOGELMAN MORTGAGE L.P. I
(a limited partnership)
STATEMENTS OF CASH FLOWS
Year ended December 31,
-------------------------------------------
1997 1996 1995
- -----------------------------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES
Interest received from mortgage loans $ 2,055,724 $ 3,561,452 $ 3,559,892
Interest received from cash equivalents 49,251 85,190 103,340
Cash received for tax obligations of underlying
properties 640,207 480,838 615,068
Cash paid for tax obligations of underlying properties (642,689) (620,853) (586,186)
General and administrative expenses paid (189,000) (143,315) (124,503)
----------- ----------- -----------
Net cash provided by operating activities 1,913,493 3,363,312 3,567,611
CASH FLOWS FROM FINANCING ACTIVITIES
Distributions to partners (3,200,922) (3,618,642) (3,378,305)
----------- ----------- -----------
Net increase (decrease) in cash and cash equivalents (1,287,429) (255,330) 189,306
Cash and cash equivalents at beginning of year 1,708,313 1,963,643 1,774,337
----------- ----------- -----------
Cash and cash equivalents at end of year $ 420,884 $ 1,708,313 $ 1,963,643
----------- ----------- -----------
----------- ----------- -----------
RECONCILIATION OF NET INCOME TO NET CASH
PROVIDED BY OPERATING ACTIVITIES
Net income $ 1,157,009 $ 2,314,871 $ 1,929,656
----------- ----------- -----------
Adjustments to reconcile net income to net cash
provided by operating activities:
Amortization of deferred general partner's fees 203,496 203,496 203,496
Equity income from the underlying properties (1,633,515) (2,557,797) (2,166,858)
Interest received from mortgage loans 2,055,724 3,561,452 3,559,892
Changes in:
Deposits held for tax obligations of underlying
properties (2,482) (140,015) 28,882
Due to affiliates 1,444 (24,161) 12,022
Accrued expenses 131,817 5,466 521
----------- ----------- -----------
Total adjustments 756,484 1,048,441 1,637,955
----------- ----------- -----------
Net cash provided by operating activities $ 1,913,493 $ 3,363,312 $ 3,567,611
----------- ----------- -----------
----------- ----------- -----------
- -----------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these statements.
5
FOGELMAN MORTGAGE L.P. I
(a limited partnership)
NOTES TO FINANCIAL STATEMENTS
A. General
Fogelman Mortgage L.P. I (the 'Partnership'), a Tennessee limited
partnership, was formed on September 4, 1986 and will terminate on December 31,
2016 unless terminated sooner under the provisions of the Amended and Restated
Certificate and Agreement of Limited Partnership, as amended ('Partnership
Agreement'). The Partnership was formed to invest in and hold loans evidenced by
notes secured by first liens on two apartment complexes developed by affiliates
of Avron B. Fogelman ('ABF'). The Partnership invested in two mortgage loans
(the 'Mortgage Loans') which provided construction and permanent financing for
the development of two multi-family residential apartment complexes.
The general partner of the Partnership is Prudential-Bache Properties, Inc.
('PBP' or the 'General Partner'), a wholly owned subsidiary of Prudential
Securities Group Inc. Prudential-Bache Investor Services II, Inc. is the
Assignor Limited Partner of the Partnership. ABF and Fogelman Mortgage Partners
I, Inc. ('FMPI') withdrew from the Partnership and transferred their interests
as general partners to PBP as of December 14, 1992.
On January 30, 1998, the Partnership entered into an amended and restated
payoff agreement (the 'Payoff Agreement') with Fogelman Enterprises, L.P., a
Delaware limited partnership ('FELP') and ABF. Through PBP, the Partnership has
advised FELP that the Partnership will accept the Payoff Amount, as hereinafter
defined, in full satisfaction of the Mortgage Loans if the Transactions, as
hereinafter defined, are approved by a majority in interest of the Unitholders
of the Partnership. PBP has received a written opinion from its advisor to the
effect that the offer to pay off the Mortgage Loans pursuant to the terms of the
Payoff Agreement (the 'Transactions') are fair to the Partnership and the
Unitholders from a financial point of view. If the Transactions are approved by
the Unitholders, the Partnership intends to consummate the Transactions,
distribute the Payoff Amount (net of expenses) and the remaining net assets of
the Partnership and liquidate the Partnership.
Pursuant to the Payoff Agreement, FELP has agreed to pay to the Partnership
the payoff amount ('Payoff Amount') of $48,000,000 and an amount, if any, by
which the aggregate amount of interest paid to the Partnership in respect of the
Mortgage Loans for the period from October 1, 1997, through the closing of the
Transactions is less than the interest on the face amount of the Mortgage Loans
during such period calculated at an annual rate of 7.7%.
The Transactions must be consummated not later than May 29, 1998.
B. Summary of Significant Accounting Policies
Basis of accounting
The books and records of the Partnership are maintained on the accrual basis
of accounting in accordance with generally accepted accounting principles.
The preparation of financial statements in conformity with generally accepted
accounting principles requires the General Partner to make estimates and
assumptions that affect the reported amounts of assets and liabilities and the
disclosure of contingent assets and liabilities at the date of the financial
statements as well as the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Deferred general partner's fees
Deferred general partner's fees are amortized on a straight-line basis over
the lives of the mortgage loans, which are twelve years.
Investments in mortgage loans
Investments in mortgage loans are accounted for on the equity method. Such
investments are adjusted for net income or loss from the underlying properties
(before the accrual of interest expense and depreciation of certain capitalized
costs not financed by the Partnership) and are decreased by interest received
from the mortgage loans.
6
Cash and cash equivalents
Cash and cash equivalents include money market funds whose cost approximates
market value.
Income taxes
The Partnership is not required to provide for, or pay, any Federal or state
income taxes. Income tax attributes that arise from its operations are passed
directly to the individual partners. The Partnership may be subject to other
state and local taxes in jurisdictions in which it operates.
Profit and loss allocation and distributions
Net profits or losses are allocated 99% to the Unitholders and 1% to the
General Partner after giving effect to the allocation of the special
distribution. As more fully described in the Partnership Agreement, PBP receives
a special distribution equal to 0.5% per annum of the mortgage loan principal
outstanding, limited to 10% of all distributions of adjusted cash from
operations, payable quarterly. In addition, distributions of cash are made based
on adjusted cash flow from operations as defined in the Partnership Agreement
after giving effect to the special distribution to the General Partner.
C. Investments in Mortgage Loans
A summary of the investments in mortgage loans is as follows:
Pointe Royal Westmont
Loan Loan Total
------------------ -------------- -----------
Balance at December 31, 1994 $ 14,386,564 $ 14,134,080 $28,520,644
Equity income from the underlying properties 1,013,501 1,153,357 2,166,858
Interest received from mortgage loans (1,757,556) (1,802,336) (3,559,892)
------------------ -------------- -----------
Balance at December 31, 1995 13,642,509 13,485,101 27,127,610
Equity income from the underlying properties 1,132,286 1,425,511 2,557,797
Interest received from mortgage loans (1,537,179) (2,024,273) (3,561,452)
------------------ -------------- -----------
Balance at December 31, 1996 13,237,616 12,886,339 26,123,955
Equity income from the underlying properties 710,719 922,796 1,633,515
Interest received from mortgage loans (711,835) (1,343,889) (2,055,724)
------------------ -------------- -----------
Balance at December 31, 1997 $ 13,236,500 $ 12,465,246 $25,701,746
------------------ -------------- -----------
------------------ -------------- -----------
The Partnership has invested in Mortgage Loans with two partnerships in which
ABF and FELP are the general partners: FPI Royal View Ltd., L.P. on April 23,
1987 for $22,745,000 (the 'Pointe Royal Loan') and FPI Chesterfield, L.P. on
July 8, 1987 for $23,320,000 (the 'Westmont Loan'). At December 31, 1997, the
accrued interest liability at the property level was approximately $5,588,000
and $6,119,000 for Pointe Royal and Westmont, respectively. This accrued
interest plus the original loan principal balances aggregate approximately
$57,772,000. The ultimate collectibility of the accrued interest as well as the
full principal balances of the mortgages will depend upon the value of the
underlying properties, which are estimated, based on the most recent third party
appraisals, to be less than the amounts due. However, the estimated property
values exceed the carrying amount of the Partnership's investment in mortgage
loans which is recorded using the equity method of accounting. The values of
Pointe Royal and Westmont estimated in the appraisal reports were $24,200,000
and $25,600,000, respectively, as of April 15, 1997. (See Note A for discussion
of the proposed payoff of the Mortgage Loans.)
A plan for the consensual reorganization of the business and affairs of ABF
and related entities closed on July 31, 1990 (the 'Plan'). The Plan provided
for, among other things, the modification of loans and credit relationships
between lenders and ABF and related affiliates, including those of the
Partnership. The two notes executed by FPI Royal View, Ltd., L.P. and FPI
Chesterfield, L.P. and the loan agreements executed in connection with such
notes and the two mortgages with respect to Westmont Apartments and Pointe Royal
Apartments securing those notes were modified, effective as of January 1, 1990.
The principal effect of such modifications was to make the indebtedness
evidenced by the notes repayable on a cash flow basis, with the difference
between the amount actually paid and the original pay rate of 9.5% per annum
being accrued
7
in a separate account on the books of FPI Royal View, Ltd., L.P. and FPI
Chesterfield, L.P., as discussed above, and bearing interest at 9.5% per annum.
For the three years ended December 31, 1997, interest received from the net
property cash flow has been less than the original pay rate of 9.5% per annum.
D. Income Taxes
The following is a reconciliation of net income for financial reporting
purposes to net income for tax reporting purposes.
Year ended December 31,
-----------------------------------------
1997 1996 1995
----------- ----------- -----------
Net income per financial statements $1,157,009 $2,314,871 $1,929,656
Equity income from the underlying properties (1,633,515 ) (2,557,797 ) (2,166,858 )
Interest received from mortgage loans 2,055,724 3,561,452 3,559,892
----------- ----------- -----------
Tax basis net income $1,579,218 $3,318,526 $3,322,690
----------- ----------- -----------
----------- ----------- -----------
The differences between the tax basis and book basis of partners' capital are
primarily attributable to the cumulative effect of the book to tax income
adjustments and the timing of distributions.
E. Related Parties
The General Partner and its affiliates perform services for the Partnership
which include, but are not limited to: accounting and financial management;
registrar, transfer and assignment functions; asset management; investor
communications; printing and other administrative services. The amount of
reimbursement from the Partnership for these services is limited by the
provisions of the Partnership Agreement. The costs and expenses were
approximately $79,000, $52,000 and $79,000 for the years ended December 31,
1997, 1996 and 1995, respectively.
An affiliate of FMPI continues to manage the properties for which it earned
approximately $388,000, $386,000 and $373,000 for the years ended December 31,
1997, 1996 and 1995, respectively.
The Partnership maintains an account with the Prudential Institutional
Liquidity Portfolio Fund, an affiliate of PBP, for investment of its available
cash in short-term instruments pursuant to the guidelines established by the
Partnership Agreement.
Prudential Securities Incorporated, an affiliate of PBP, owns 835 units at
December 31, 1997.
F. Summarized Property Financial Information
Presented below is summarized property financial information for the
properties underlying the Partnership's two mortgage loan investments.
December
December 31, 1997 December 31, 1996 31, 1995
WESTMONT POINTE ROYAL TOTAL WESTMONT POINTE ROYAL TOTAL WESTMONT
----------- ------------ ------------ ----------- ------------ ------------ -----------
Assets:
Property, net of
accumulated
depreciation $15,082,155 $ 16,101,304 $31,183,459 $15,496,020 $ 16,223,155 $31,719,175 $16,117,409
Other assets 339,654 217,407 557,061 277,715 160,591 438,306 335,552
----------- ------------ ------------ ----------- ------------ ------------ -----------
$15,421,809 $ 16,318,711 $31,740,520 $15,773,735 $ 16,383,746 $32,157,481 $16,452,961
----------- ------------ ------------ ----------- ------------ ------------ -----------
----------- ------------ ------------ ----------- ------------ ------------ -----------
Liabilities:
First mortgage note
payable to the
Partnership $23,320,000 $ 22,745,000 $46,065,000 $23,320,000 $ 22,745,000 $46,065,000 $23,320,000
Second mortgage note
payable to ABF 1,089,000 1,063,000 2,152,000 1,089,000 1,063,000 2,152,000 1,089,000
Other liabilities 7,742,030 7,755,052 15,497,082 6,083,538 5,724,875 11,808,413 5,361,963
----------- ------------ ------------ ----------- ------------ ------------ -----------
$32,151,030 $ 31,563,052 $63,714,082 $30,492,538 $ 29,532,875 $60,025,413 $29,770,963
----------- ------------ ------------ ----------- ------------ ------------ -----------
----------- ------------ ------------ ----------- ------------ ------------ -----------
POINTE ROYAL TOTAL
------------ ------------
Assets:
Property, net of
accumulated
depreciation $ 16,617,500 $32,734,909
Other assets 250,658 586,210
------------ ------------
$ 16,868,158 $33,321,119
------------ ------------
------------ ------------
Liabilities:
First mortgage note
payable to the
Partnership $ 22,745,000 $46,065,000
Second mortgage note
payable to ABF 1,063,000 2,152,000
Other liabilities 4,691,304 10,053,267
------------ ------------
$ 28,499,304 $58,270,267
------------ ------------
------------ ------------
8
Year Ended
Year Ended Year Ended December
December 31, 1997 December 31, 1996 31, 1995
----------------------------------------- ----------------------------------------- -----------
WESTMONT POINTE ROYAL TOTAL WESTMONT POINTE ROYAL TOTAL WESTMONT
----------- ------------ ------------ ----------- ------------ ------------ -----------
Revenues:
Rental income $ 3,761,133 $ 3,734,047 $ 7,495,180 $ 3,669,349 $ 3,771,718 $ 7,441,067 $ 3,547,581
Interest and other
income 137,721 128,129 265,850 137,427 165,052 302,479 161,780
----------- ------------ ------------ ----------- ------------ ------------ -----------
3,898,854 3,862,176 7,761,030 3,806,776 3,936,770 7,743,546 3,709,361
----------- ------------ ------------ ----------- ------------ ------------ -----------
Expenses:
Operating 2,173,193 2,398,690 4,571,883 1,651,281 2,064,220 3,715,501 1,812,435
Interest 2,881,056 2,754,848 5,635,904 2,774,158 2,600,663 5,374,821 2,693,697
Depreciation 837,524 803,850 1,641,374 782,138 745,929 1,528,067 795,726
Write-off of fixed
assets 17,499 -- 17,499 -- 43,941 43,941 --
----------- ------------ ------------ ----------- ------------ ------------ -----------
5,909,272 5,957,388 11,866,660 5,207,577 5,454,753 10,662,330 5,301,858
----------- ------------ ------------ ----------- ------------ ------------ -----------
Net loss $(2,010,418) $ (2,095,212) $(4,105,630 ) $(1,400,801) $ (1,517,983) $(2,918,784 ) $(1,592,497)
----------- ------------ ------------ ----------- ------------ ------------ -----------
----------- ------------ ------------ ----------- ------------ ------------ -----------
POINTE ROYAL TOTAL
------------ ------------
Revenues:
Rental income $ 3,615,886 $ 7,163,467
Interest and other
income 137,665 299,445
------------ ------------
3,753,551 7,462,912
------------ ------------
Expenses:
Operating 1,686,854 3,499,289
Interest 2,524,077 5,217,774
Depreciation 749,890 1,545,616
Write-off of fixed
assets 354,386 354,386
------------ ------------
5,315,207 10,617,065
------------ ------------
Net loss $ (1,561,656) $(3,154,153 )
------------ ------------
------------ ------------
G. Subsequent Event
On January 30, 1998, the Partnership entered into the Payoff Agreement with
FELP and ABF (see Note A).
In February 1998, distributions of approximately $623,000 were paid to the
Unitholders and distributions of approximately $6,000 were paid to the General
Partner for the quarter ended December 31, 1997.
9
FOGELMAN MORTGAGE L.P. I
(a limited partnership)
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Liquidity and Capital Resources
The Partnership provides permanent financing for two multi-family residential
apartment complexes. As of December 31, 1997, the Partnership had $421,000 of
funds available which may be used to pay distributions, unanticipated or
extraordinary expenses, real estate taxes and other costs relating to the
operation and administration of the Partnership's business. Significant amounts
of cash were expended at the properties in 1997 for improvements and repairs and
maintenance. These expenditures partially offset cash flow paid by the
properties to the Partnership in the form of interest.
The distribution for the three months ended December 31, 1997 was funded from
current and prior undistributed cash flow from operations. Because of the
increased competition in the two market areas in which the properties underlying
the Partnership's mortgage loan investments are located, there has been an
increase in the properties' capital expenditures in order to maintain their
competitiveness. As a result of these increased capital expenditures, the
General Partner has lowered the distribution to 4.6% on an annualized basis or
$11.50 per unit per quarter beginning with the distribution made for the second
quarter of 1997. The Partnership currently does not expect that quarterly cash
distributions will continue to be paid in the future subject to the approval by
the Unitholders of the proposed disposition of the Mortgage Loans. (See Note A
to the financial statements.)
Results of Operations
Net income decreased by $1,158,000 and increased by $385,000 for the years
ended December 31, 1997 and 1996, respectively, as compared to the prior years.
For financial reporting purposes, the Partnership's Mortgage Loans are
considered, in substance, to be investments in real estate and are accounted for
using the equity method. Equity income from the underlying properties (which
increases the carrying value of the original investment) decreased $924,000 and
increased $391,000 for the years ended December 31, 1997 and 1996, respectively,
as compared to the prior years. The 1997 decrease was primarily due to increased
repairs and maintenance at Pointe Royal and Westmont of $269,000 and $431,000,
respectively. In addition, depreciation expense increased at Pointe Royal and
Westmont by $58,000 and $55,000, respectively, as a result of increased capital
improvements at both properties. The 1996 increase was primarily due to higher
rental rates at both properties.
Interest received from mortgage loans for the years ended December 31, 1997
and 1996 of $2,056,000 and $3,561,000, respectively, is accounted for as
distributions and, accordingly, reduces the carrying value of the original
investment. Interest received (paid from property cash flow) decreased
$1,505,000 for the year ended December 31, 1997 as compared to the same period
in 1996 primarily due to the reasons discussed above in addition to an increase
in capital improvements at the properties. Capital improvements increased
$286,000 and $280,000 at Pointe Royal and Westmont, respectively, in 1997 as
compared to 1996.
At December 31, 1997, the accrued interest liability at the property level
was $5,588,000 and $6,119,000 for Pointe Royal and Westmont, respectively. This
accrued interest plus the original loan principal balances aggregate
$57,772,000. As of December 31, 1997, 1996 and 1995, the cumulative differences
between the original pay rate of 9.5% per annum and the cash paid were
$11,707,000, $8,477,000 and $6,975,000, respectively, including accrued interest
on the unpaid balance. The ultimate collectibility of the accrued interest as
well as the full principal balances of the mortgage loans will depend upon the
value of the underlying properties which are estimated, based on the most recent
third party appraisals, to be less than the amounts due. However, the estimated
property values exceed the Partnership's carrying amount of the investment in
mortgage loans which is recorded using the equity method of accounting. (See
Note A to the financial statements for discussion of the proposed payoff of the
Mortgage Loans.)
10
Average occupancy rates for the underlying properties were as follows:
December 31,
------------------------
1997 1996 1995
---- ---- ----
Westmont 96.7% 96.2% 96.2%
Pointe Royal 96.7 98.0 98.3
Despite the occupancy rates, competition in local markets results in rental
rates that are below what is required to pay debt service at the original pay
rate of 9.5%.
Interest income from cash equivalents decreased by $36,000 and $18,000
respectively, for 1997 and 1996 as compared to the respective prior years
primarily due to lower cash balances in 1997 compared to 1996 and lower interest
rates in 1996 compared to 1995.
General and administrative expenses increased by $198,000 in 1997 and
decreased by $12,000 in 1996. The increase in 1997 was primarily due to
professional fees incurred in connection with the Partnership preparing a
consent solicitation statement to the Unitholders in connection with the
proposed payoff of the Partnership's Mortgage Loans.
11
OTHER INFORMATION
The Partnership's Annual Report on Form 10-K as filed with the Securities and
Exchange Commission is available to Unitholders without charge upon written
request to:
Fogelman Mortgage L.P. I
P.O. Box 2016
Peck Slip Station
New York, New York 10272-2016
12
BULK RATE
Peck Slip Station
U.S. POSTAGE
P.O. Box 2016
PAID
New York, NY 10272
Automatic Mail
FMLP/170970