SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(MARK ONE)
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL PERIOD ENDED September 30, 1996
---------------------------------------------
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM to
--------------------- ----------------------
Commission File Number: 33-44980
THE CHESTNUT REAL ESTATE PARTNERSHIP
THE CHESTNUT PARTNERSHIP
(Exact names of registrants as specified in their charters)
MARYLAND
(State or other jurisdiction of incorporation or organization)
52-1640655 42-1352739
(IRS Employer Identification No.) (IRS Employer Identification No.)
2330 West Joppa Road Lutherville, Maryland 21093
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (515) 245-7616
Former name, former address and former fiscal year, if changed since last report
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. Yes __X__ No ____
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Sections 12, 13, or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. Yes ____ No ____
APPLICABLE ONLY TO CORPORATE ISSUERS: Indicate the number of shares
outstanding of each of the issuer's classes of common stock, as of the latest
practicable date
N/A
THE CHESTNUT PARTNERSHIP
AND
THE CHESTNUT REAL ESTATE PARTNERSHIP
INDEX
PART I FINANCIAL INFORMATION Page
- ------ --------------------- ----
Item 1 Financial Statements
The Chestnut Real Estate Partnership
and The Chestnut Partnership
* Separate and Combined Balance Sheets,
September 30, 1996 and December 31, 1995 3
* Separate and Combined Statement of
Operations, for the nine months ended
September 30, 1996 and September 30, 1995 5
* Separate and Combined Statements of Partner's
Equity (Deficit) for the nine months ended
September 30, 1996 and September 30, 1995 7
* Separate and Combined Statement of Cash Flow,
for the nine months ended September 30, 1996
and September 30, 1995 8
* Notes to Financial Statements 10
Item 2 Management's Discussion and Analysis of Financial
Condition and Results of Operations 13
PART II OTHER INFORMATION
- ------- -----------------
Item 1 Legal Proceedings 16
Item 6 Exhibits and Reports on Form 8-K 16
SIGNATURES 17
<TABLE>
<CAPTION>
--------------- September 30, 1996 ---------------
THE CHESTNUT REAL ESTATE PARTNERSHIP
AND THE CHESTNUT PARTNERSHIP The
SEPARATE AND COMBINED BALANCE SHEETS The Chestnut
Chestnut Real Estate Combined
(UNAUDITED) Partnership Partnership Partnerships
ASSETS ------------ ------------ ------------
Current assets:
<S> <C> <C> <C>
Cash $ 1,107,217 $ -- $ 1,107,217
Accounts receivable 147,841 -- 147,841
Prepaid expenses and other 300,272 -- 300,272
Assets whose use is limited or restricted:
Under bond indenture agreements, held in escrow
by trustee 623,370 -- 623,370
Capital reserve fee 533,114 -- 533,114
Under letter of credit agreement, held in escrow 57,873 -- 57,873
------------ ------------ ------------
Total current assets 2,769,687 -- 2,769,687
Assets whose use is limited or restricted:
Under bond indenture agreements, held in escrow
by trustee 1,570,320 -- 1,570,320
Under residency agreements, held in escrow 1,344,019 -- 1,344,019
Health Center reserves 936,370 -- 936,370
Operating property, at cost, net of depreciation 350,541 46,735,545 47,086,086
Costs of acquiring intitial contracts, net of amortization 1,741,366 -- 1,741,366
Deferred bond financing costs, net of amortization 920,375 -- 920,375
------------ ------------ ------------
Total assets $ 9,632,678 $ 46,735,545 $ 56,368,223
============ ============ ============
LIABILITIES AND PARTNERS' EQUITY (DEFICIT)
Current liabilities:
Bonds payable, current portion $ 130,000 $ -- $ 130,000
Accounts payable 138,545 -- 138,545
Accrued expenses 141,365 -- 141,365
Accrued property taxes 55,679 -- 55,679
Accrued interest payable 509,748 -- 509,748
Advances payable 75,092 -- 75,092
------------ ------------ ------------
Total current liabilities 1,050,429 -- 1,050,429
Construction costs payable 501,389 -- 501,389
Bonds payable, less current portion 13,740,000 -- 13,740,000
Loans from residents 39,122,100 -- 39,122,100
Refundable deposits 1,617,983 -- --
Deferred revenues from admission fees 2,108,508 -- 2,108,508
Equity in deficit of the Chestnut Partnership -- 48,507,731 --
Commitments and Contingencies
------------ ------------ ------------
Total liabilities 58,140,409 48,507,731 56,522,426
Partners' equity (deficit) (48,507,731) (1,772,186) (1,772,186)
------------ ------------ ------------
Total liabilities and partners' equity (deficit) $ 9,632,678 $ 46,735,545 $ 54,750,240
============ ============ ============
</TABLE>
<TABLE>
<CAPTION>
---------------- December 31, 1995 ---------------
THE CHESTNUT REAL ESTATE PARTNERSHIP
AND THE CHESTNUT PARTNERSHIP The
SEPARATE AND COMBINED BALANCE SHEETS The Chestnut
Chestnut Real Estate Combined
Partnership Partnership Partnerships
------------ ------------ ------------
ASSETS
Current assets:
<S> <C> <C> <C>
Cash $ 116,939 $ -- $ 116,939
Accounts receivable 270,498 -- 270,498
Prepaid expenses and other 297,110 -- 297,110
Assets whose use is limited or restricted:
Under bond indenture agreements, held in escrow
by trustee 455,790 -- 455,790
Capital reserve fee 484,828 -- 484,828
Under letter of credit agreement, held in escrow 109,697 -- 109,697
------------ ------------ ------------
Total current assets 1,734,862 -- 1,734,862
Assets whose use is limited or restricted:
Under bond indenture agreements, held in escrow
by trustee 1,502,481 -- 1,502,481
Under residency agreements, held in escrow 137,290 -- 137,290
Health Center reserves 806,490 -- 806,490
Operating property, at cost, net of depreciation 531,145 47,176,639 47,707,784
Costs of acquiring intitial contracts, net of amortization 1,861,460 -- 1,861,460
Deferred bond financing costs, net of amortization 960,143 -- 960,143
------------ ------------ ------------
Total assets $ 7,533,871 $ 47,176,639 $ 54,710,510
============ ============ ============
LIABILITIES AND PARTNERS' EQUITY (DEFICIT)
Current liabilities:
Bonds payable, current portion $ 130,000 $ -- $ 130,000
Accounts payable 107,384 -- 107,384
Accrued expenses 159,891 -- 159,891
Accrued property taxes 163,641 -- 163,641
Accrued interest payable 217,216 -- 217,216
Advances payable 190,153 -- 190,153
------------ ------------ ------------
Total current liabilities 968,285 -- 968,285
Construction costs payable 55,719 -- 55,719
Bonds payable, less current portion 13,805,000 -- 13,805,000
Loans from residents 37,572,750 -- 37,572,750
Refundable deposits 744,151 -- 744,151
Deferred revenues from admission fees 1,795,592 -- 1,795,592
Equity in deficit of the Chestnut Partnership -- 47,407,626 --
Commitments and Contingencies
------------ ------------ ------------
Total liabilities 54,941,497 47,407,626 54,941,497
Partners' equity (deficit) (47,407,626) (230,987) (230,987)
------------ ------------ ------------
Total liabilities and partners' equity (deficit) $ 7,533,871 $ 47,176,639 $ 54,710,510
============ ============ ============
</TABLE>
<TABLE>
<CAPTION>
THE CHESTNUT REAL ESTATE PARTNERSHIP
AND THE CHESTNUT PARTNERSHIP
SEPARATE AND COMBINED STATEMENT OF OPERATIONS
For the nine month period ended September 30, 1996
(UNAUDITED)
The
The Chestnut
Chestnut Real Estate Combined
Partnership Partnership Partnerships
Revenues: ------------ ------------ ------------
<S> <C> <C> <C>
Amortization of nonrefundable admission fees $ 712,664 $ -- $ 712,664
Apartment service fees 3,469,623 -- 3,469,623
Health Center revenues 1,450,722 -- 1,450,722
Capital reserve fees 48,286 -- 48,286
Other revenue 12,547 -- 12,547
Income in Partnership -- 249,793 --
----------- ------------ ------------
Total revenues 5,693,841 249,793 5,693,841
----------- ------------ ------------
Operating expenses:
Development fee amortization 180,604 -- 180,604
General and administrative 1,411,174 -- 1,411,174
Resident care 1,069,014 -- 1,069,014
Dietary 953,784 -- 953,784
Plant 632,948 -- 632,948
Housekeeping 251,329 -- 251,329
Depreciation and amortization 159,864 890,992 1,050,856
----------- ------------ ------------
4,658,716 890,992 5,549,709
----------- ------------ ------------
Income (loss) from operations 1,035,125 (641,199) 144,133
----------- ------------ -----------
Other income (expense)
Interest income 168,288 -- 168,288
Interest expense (953,620) -- (953,620)
----------- ------------ ------------
(785,332) -- (785,332)
----------- ------------ ------------
Net income (loss) $ 249,793 $ (641,199) $ (641,199)
=========== ============ ============
</TABLE>
<TABLE>
<CAPTION>
THE CHESTNUT REAL ESTATE PARTNERSHIP
AND THE CHESTNUT PARTNERSHIP
SEPARATE AND COMBINED STATEMENT OF OPERATIONS
For the nine month period ended September 30, 1995
(UNAUDITED)
The
The Chestnut
Chestnut Real Estate Combined
Partnership Partnership Partnerships
Revenues: ----------- ------------ ------------
<S> <C> <C> <C>
Amortization of nonrefundable admission $ 1,601,604 $ -- $ 1,601,604
Apartment service fees 2,881,721 -- 2,881,721
Health Center revenues 1,285,115 -- 1,285,115
Capital reserve fees 67,431 -- 67,431
Other revenue 14,248 -- 14,248
Income in Partnership -- 35,475 --
----------- ------------ ------------
Total revenues 5,850,119 35,475 5,850,119
----------- ------------ ------------
Expenses:
Development fee amortization 614,526 -- 614,526
General and administrative 1,345,945 -- 1,345,945
Resident care 945,211 -- 945,211
Dietary 863,950 -- 863,950
Plant 555,626 -- 555,626
Housekeeping 212,311 -- 212,311
Depreciation and amortization 159,864 907,427 1,067,291
----------- ------------ ------------
$ 4,697,433 $ 907,427 $ 5,604,860
----------- ------------ ------------
Income (loss) from operations 1,152,686 (871,952) 245,259
----------- ------------ ------------
Other income (expense)
Interest income 160,568 -- 160,568
Interest expense (1,277,779) -- (1,277,779)
----------- ------------ ------------
(1,117,211) 0 (1,117,211)
----------- ------------ ------------
Net income (loss) 35,475 (871,952) (871,952)
=========== ============ ============
</TABLE>
<TABLE>
<CAPTION>
THE CHESTNUT REAL ESTATE PARTNERSHIP
AND THE CHESTNUT PARTNERSHIP
SEPARATE AND COMBINED STATEMENTS OF PARTNERS' EQUITY (DEFICIT)
For the nine month period ended September 30, 1996 and the twelve
month period ended December 31, 1995
(UNAUDITED) The
The Chestnut
Chestnut Real Estate Combined
Partnership Partnership Partnerships
------------ ------------ ------------
<S> <C> <C> <C>
Balance, December 31, 1994 $(47,092,819) $ 700,424 $ 700,424
Net income (loss) (70,280) (1,281,390) (1,281,390)
Transfer ownership of land preacquisition and
project development assets to The Chestnut
Real Estate Partnership (594,505) -- --
Contributions from Partners 349,978 349,978 349,978
------------ ------------ ------------
Balance, December 31, 1995 $(47,407,626) $ (230,987) $ (230,987)
============ ============ ============
Balance, December 31, 1995 $(47,407,626) $ (230,987) $ (230,987)
Net income (loss) 249,793 (641,199) (641,199)
Transfer ownership of land preacquisition andhfghfdgh)
project development assets to The Chestnut
Real Estate Partnership (449,898) -- --
Contributions from partners 600,000 600,000 600,000
Distributions to partners (1,500,000) (1,500,000) (1,500,000)
------------ ------------ ------------
Balance, June 30, 1996 $(48,507,731) $(1,772,186) $ (1,772,186)
============ ============= ============
</TABLE>
<TABLE>
<CAPTION>
THE CHESTNUT REAL ESTATE PARTNERSHIP
AND THE CHESTNUT PARTNERSHIP
SEPARATE AND COMBINED STATEMENT OF CASH FLOWS
For the nine month period ended September 30, 1996
(UNAUDITED) The
The Chestnut
Chestnut Real Estate Combined
Partnership Partnership Partnerships
----------- ----------- -----------
Cash flows from operating activities:
<S> <C> <C> <C>
Net income (loss) $ 249,793 $ (641,199) $ (641,199)
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation -- 890,992 890,992
Other amortization 159,864 -- 159,864
Amortization of nonrefundable admission fees (712,664) -- (712,664)
Amortization of development fees 180,604 -- 180,604
Income in Partnership -- (249,793) --
Change in operating assets and liabilities:
Accounts receivable 122,657 -- 122,657
Prepaid expenses and other (3,163) -- (3,163)
Accounts payable 476,830 -- 476,830
Accrued expenses 166,045 -- 166,045
----------- ----------- -----------
Net cash provided by operating activities 639,966 -- 639,966
----------- ----------- -----------
Cash flows from investing activities:
Increase in funds escrowed under residency agreements (1,206,729) -- (1,206,729)
Additions to operating property (449,898) -- (449,898)
Increase in assets held by trustee (235,418) -- (235,418)
Increase in assets payable to trustee (48,286) -- (48,286)
Decrease in funds escrowed under letter of credit agreement 51,824 -- 51,824
----------- ----------- -----------
Net cash used in investing activities (1,888,508) -- (1,888,508)
----------- ----------- -----------
Cash flows from financing activities:
Repayment of partner advances -- -- --
Contributions from partners 600,000 -- 600,000
Distributions to partners (1,500,000) -- (1,500,000)
Decrease in advances payable (115,061) -- (115,061)
Decrease in bonds payable (65,000) -- (65,000)
Decrease in Health Center reserves (129,880) -- (129,880)
Proceeds from loans from residents, deferred revenues
and refundable deposits, net 3,448,762 -- 3,448,762
----------- ----------- -----------
Net cash provided by financing activities 2,238,820 -- 2,238,820
----------- ---------- -----------
Net increase in cash 990,278 -- 990,278
Cash, beginning of period 116,939 -- 116,939
----------- ----------- -----------
Cash, end of period $ 1,107,217 $ -- $ 1,107,217
=========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
THE CHESTNUT REAL ESTATE PARTNERSHIP
AND THE CHESTNUT PARTNERSHIP
SEPARATE AND COMBINED STATEMENT OF CASH FLOWS
For the nine month period ended September 30, 1995
The
(UNAUDITED) The Chestnut
Chestnut Real Estate Combined
Partnership Partnership Partnership
----------- ----------- -----------
Cash flows from operating activities:
<S> <C> <C> <C>
Net income (loss) $ 35,475 $ (871,952) $ (871,952)
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation -- 907,427 907,427
Other amortization 159,864 -- 159,864
Amortization of nonrefundable admission fees (1,601,604) -- (1,601,604)
Amortization of development fees 614,526 -- 614,526
Income in Partnership -- (35,475) --
Change in operating assets and liabilities:
Accounts receivable 49,447 -- 49,447
Prepaid expenses and other (284,871) -- (284,871)
Accounts payable 23,656 -- 23,656
Accrued expenses 297,712 -- 297,712
----------- ----------- -----------
Net cash used in operating activities (705,795) -- (705,795)
----------- ----------- -----------
Cash flows from investing activities:
Decrease in funds escrowed under residency agreements 193,422 -- 193,422
Additions to project operating property (396,474) -- (396,474)
Increase in assets held by trustee (247,563) -- (247,563)
Increase in assets payable to trustee -- -- --
Increase in short-term investments (417,535) -- (417,535)
Increase in funds escrowed under letter of credit agreement -- -- --
----------- ----------- -----------
Net cash used in investing activities (868,150) -- (868,150)
----------- ----------- -----------
Cash flows from financing activities:
Repayment of partner advances (3,717,337) -- (3,717,337)
Contributions from Partners -- -- --
Distribution to partners 0
Decrease in advances payable (128,331) -- (128,331)
Decrease in Bonds Payable -- -- --
Increase in Health Center reserves (178,470) -- (178,470)
Proceeds from loans from residents, deferred revenues
and refundable deposits 4,765,815 -- 4,765,815
----------- ----------- -----------
Net cash provided by financing activities 741,677 -- 741,677
----------- ----------- -----------
Net decrease in cash (832,268) -- (832,268)
Cash, beginning of period 1,035,260 -- 1,035,260
----------- ----------- -----------
Cash, end of period $ 202,992 $ -- $ 202,992
=========== =========== ===========
</TABLE>
THE CHESTNUT REAL ESTATE PARTNERSHIP
AND THE CHESTNUT PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
A. Basis for Presentation
The accompanying unaudited financial statements, in the opinion of
management, reflect all adjustments (none of which were other than
normal recurring items), eliminations, and reclassification considered
necessary for a fair statement of the results of the interim periods
presented. For purposes of preparing the combined financial statements,
all material transactions between the Partnerships have been eliminated
but not displayed, including the elimination of the Real Estate
partnership's obligation to the Partnership.
The separate and combined financial statements include The Chestnut
Real Estate Partnership (the Real Estate Partnership) and its
subsidiary The Chestnut Partnership (the Partnership). Both the Real
Estate Partnership and the Partnership are general partnerships.
The Real Estate Partnership is owned 50% by Blakehurst Joint Venture
(Venture) and 50% by West Joppa Road Limited Partnership (West Joppa).
The Partnership is owned 1% by Venture, 1% by West Joppa, and 98% by
the Real Estate Partnership.
The Real Estate Partnership and the Partnership were formed to develop,
own, and operate a life care retirement community called Blakehurst
(Project) in the Towson area of Baltimore County, Maryland.
The Real Estate Partnership and the Partnership are sometimes
hereinafter referred to as the "Partnerships".
The Real Estate Partnership was organized by the Partnership solely for
the purpose of owning the property and buildings and other improvements
thereon that constitute the Project in order to minimize certain
mortgage recordation taxes, and to act as a general partner of the
Partnership. The publicly-held debt (both Series I and II) is a direct
obligation of the Partnership, and is guaranteed by the Real Estate
Partnership. The guaranty, however, is not intended to provide any
additional security for payment of the principal and interest on the
bonds than if the Partnership directly held the property and related
improvements itself. The partners of the Real Estate Partnership own no
other assets other than their interests in the Partnership. Therefore,
management believes the combining financial statements of the
Partnership and the Real Estate Partnership are the most informative,
because of the guaranty and because of the Operating and Use Agreement,
which obligates the Partnership to develop, operate and manage the
Project at its expense and which grants the Partnership use of the
property until dissolution, liquidation or other termination by mutual
agreement. The Partnerships have common, ultimate ownership and do not
have independent operating activities. Management believes this
presentation best portrays the relationship between the two entities.
B. Certain Accounting Policies
Cash
The Partnerships consider investments with maturities of three months
or less when purchased, to be cash equivalents.
Assets Where Use is Limited
Assets held by the Trustee under the escrow agreement are cash
equivalents as of September 30, 1996.
Deferred Revenues from Admission Fees
Admission fees are not advance fees in payment for future services or
for use of facility, because of the Fair Share Allocation Formula which
allocates all operating expenditures to the current residents. The
non-refundable admission fee is a payment in compensation to the
Partnership for the development risk and is non-refundable except in
isolated cases where the Partnership would cancel the Residency
Agreement. In such cases, the resident could be due a portion of the
Administration Fee if cancellation occurred within the first two years
of the contract. The refund is based on the remaining life of the
resident, actuarially determined. Accordingly, the Admission Fee and
Resident Loan (together the Entrance Payment) is amortized using the
Life Table of the U.S. Department of Health and Human Services, which
in practice results in amortization of the Admission Fee portion of the
Entrance Payment on a straight line over approximately two years. To
date, the Partnership has never cancelled a Residency Agreement and
accordingly has never had to refund any portion of the non-refundable
admission fee after occupancy. Nonetheless, the unamortized admission
fees are reported as deferred revenue.
Capitalization of Operating Expenses and Certain Revenues
Initial occupancy of the Project occurred in August of 1993, with
cessation of major construction occurring in December 1993, at which
time occupancy was 60%. Construction has continued for tenant requested
improvements and an auditorium addition.
The Partnership ceased capitalization of operating expenses and certain
revenues in August 1994, because of the extended time frame between
initial occupancy, completion of major construction, and achievement of
substantial occupancy.
Costs of Acquiring Initial Contracts
Costs of acquiring initial contracts are expected to be recovered from
the future contract revenues and are therefore capitalized. These costs
capitalized are amortized over the life expectancy of the initial
residents, which based on actuarial data, is estimated to be
approximately 13 years.
Development Fee
The development fee incurred in connection with the development of the
Project is amortized on a pro rata basis as admission fee revenue is
recognized. Admission fees are being recognized over a 24 month period
from the date of move-in for those being received from Return of
Capital Contracts. Admission Fees from Traditional contracts are
amortized over the expected life of the resident.
C. Results of Operations
Admission fees are amortized over a twenty-four month period.
At the time of initial occupancy, residents are required to make a
non-refundable payment to a capital replacement reserve. This payment
is reported as income when received by the Partnerships.
The development fee incurred in connection with the development of the
Project is amortized on a pro-rata basis and admission fee revenue is
recognized.
D. Financing
In May, 1992, the Partnership completed the issuance of $14,000,000 of
Ten Year - Put Option Mortgage Bonds, 1992 Series I. The bonds carry an
initial rate of 9.5%.
In August, 1992, the Venture and West Joppa, each of which had
purchased $3,000,000 of Series I Bonds, sold their bonds back to the
Partnership in conjunction with the Partnership sales of $6,000,000 of
Ten Year - Put Option Mortgage Bonds, 1992 Series II. These bonds carry
an initial rate of 8.75%.
In addition, $20,000,000 was provided by Venture and West Joppa. As of
December 31, 1995, all such advances from Partners had been repaid,
together with interest thereon.
An auditorium and miscellaneous additional improvements (Phase III)
totalling approximately $800,000, was financed by the Partners from
non-refundable entrance fees. This concluded Phase I financing
activities.
During the quarter ended September 30, 1996, the partners contributed
$600,000 in anticipation of Phase III. See "Overall Financial
Condition" discussion below.
E. Transactions with partners
Life Care Services Corporation (LCS), an affiliate of Chestnut Village,
Inc. (CVI), has entered into an agreement with the Partnership to
administer planning, development, financing, marketing, and accounting
functions for the Partnership during Phase I and II development
(development agreement). In anticipation of subsequent phases of
development activity, an amendment has been made where in Partners of
West Joppa and LCS are both responsible for marketing and other tasks.
This agreement was entered into in December 1994. During the nine
months ended September 30, 1996 and September 30, 1995, no fees were
paid to LCS, to Rosedale Care, Inc. or to Continental Care, Inc. Those
Agreements are now concluded.
The Partnership has entered into a development agreement with LCS for
Phase III. No fees were paid under the terms of this agreement during
the quarter ended September 30, 1996.
The Partnership also has a management agreement with LCS. During the
nine months ended September 30, 1996, LCS received $244,527 for its
services and $229,590 for the nine months ended September 30, 1995.
To reimburse it for advances made on behalf of the Partnerships, LCS
was reimbursed $1,188,641 during the nine months ended September 30,
1996 and $1,045,772 for the nine months ended September 30, 1995.
Certain costs continue to be advanced by LCS, and will be reimbursed by
the Partnership from available funds, including $446,592 which LCS has
advanced for Phase III construction expenditures.
The Partnership had a service agreement with West Joppa for West Joppa
to assist LCS in development and marketing of the Project. During the
nine month periods ended September 30, 1996 and September 30, 1995, it
did not receive a fee under this agreement, as it has expired.
The Partnership has entered into a construction agreement with Mullan
Contracting Co. (Mullan), an affiliate of one of the partners of West
Joppa. During the quarter ended September 30, 1996, Mullan received
$50,732 in conjunction with construction of Phase III.
F. Income Taxes
Income and losses of the Partnerships are included in the income tax
returns of the partners. Accordingly, the financial statements make no
provision for income taxes.
G. Contingencies
The realization of the costs of the Project in initially contingent
upon the sale of the remaining Phase I units, and resale of units
vacated due to death or transfer to the health center.
Subsequent to initial occupancy of Phase I, maintenance of and
efficient operation of the Project are also critical to the long term
success of the Project.
THE CHESTNUT PARTNERSHIP
AND
THE CHESTNUT REAL ESTATE PARTNERSHIP
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operation.
Overall Financial Condition
The Project contains a total of 177 residential units, and a 50-bed health
center. As of September 30, 1996, 167 (94%) of the residential units have been
reserved or occupied. The apartment occupancy decreased two units in the
quarter, during which there were five apartment units sold and no sales were
cancelled. As of September 30, 1995, 92% of the residential units were sold or
occupied, an increase of 3% in the quarter.
As of September 30, 1996, the project had 109 full-time equivalent employees,
none of whom were members of a collective bargaining agreement.
The Partnership has received regulatory approval for the development and sale of
Phase III. The Phase III addition will include 35 residential units, a swimming
pool with whirlpool, men's and women's locker rooms, an exercise room,
additional surface parking near the health center, carriage house, 12 surface
garages and 19 under building garages. The pool and core tower will be an
integral part of the building's infrastructure, benefiting residents in future
phases. The core tower will include an elevator that will serve as the link to
the Phase IV residential building, trash chutes, resident storage and resident
laundry rooms.
The estimated construction cost for Phase III is approximately $11.7 million
including appropriate statutory reserves. Of this amount, it is anticipated that
approximately $2 million would be funded through long term financing.
Approximately $9.7 million would be borrowed through a construction loan which
would be repaid through entrance fees and partner capital contributions.
The partners are now completing various agreements and other matters related to
financing. Construction has begun on Phase III.
As a result of Phase I being essentially sold out (Phase II had no residential
units) and the receipt of regulatory approval for Phase III, the Partnership
began accepting deposits for the Phase III units in the second quarter of 1996.
As of September 30, 1996 a total of 29 units (of the total 35 units) in Phase
III were reserved through the receipt by the Partnership of deposits equal to
10% of the entrance fees.
Results of Operations
As of September 30, 1996, 164 units (93%) were occupied and/or paying monthly
service fees. This occupancy compares to 142 (80%) of the units at September 30,
1995, and 156 units (88%) at December 31, 1995.
Amortization of non-refundable admission fees decreased because fewer residents
moved in during the nine months ended September 30, 1996 than moved in during
the nine months ended September 30, 1995. This decline more than offset
improvements from other sources of revenue.
On January 1, 1996, a 5% increase in the monthly service fees became effective.
That increase together with an increase in occupancy from September 30, 1995 to
the nine months ended September 30, 1996, accounted for the increase in
apartment service fees.
Health center revenues increased primarily because the average occupancy in the
first nine months of 1995 was 86% compared to an average occupancy of 94% in
1996, and increased billing rates.
Capital reserve fees, which are a one-time payment from new residents declined
because fewer new residents moved-in during the nine months ended September 30,
1996, than moved-in during the nine months ended September 30, 1995.
Total operating expenditures declined approximately $54,000. Operating
departmental expenses increased approximately $400,000 offsetting the decline in
depreciation and amortization charges of approximately $450,000. The average
number of full time equivalent employees was 109 in the nine months ended
September 30, 1996 compared to 100 average full time equivalent employees in
1995. This increase was consistent with the average occupancy increase year over
year from 77% to 88%. The decline in amortization in development fee occurred
because it is related to the number of apartments being occupied for the first
time.
Interest expense declined because the advances from partners was paid off at
December 31, 1995, but was outstanding during the nine months ended September
30, 1995.
The net loss for the nine months ended September 30, 1996, was approximately 25%
less than for the same period in 1995. The net loss in being funded by the
Partners from admission fees.
Liquidity and Capital Resources
As of May 28, 1992, significant Phase I financing activities were concluded.
Construction financing and long-term financing both were achieved on that date.
Construction financing in the amount of $20,000,000 from a group of lenders was
achieved and the Partnership raised $14,000,000 (before deduction of costs of
underwriting) through long-term financing.
The Partnerships issued two types of taxable bonds in May, 1992. One type was
issued in underwritten public offering of $8,000,000 principal amount of
Blakehurst 10 Year Put Option Mortgage Bond 1992, Series I. Also in May the
Partnership issued a private transaction to affiliates of the partnership, a
total of $6,000,000 principal amount of Blakehurst Retirement Community Put
Option Bonds, Private Placement Series on terms substantially identical to the
public offering except that the Private Placement Bonds provided for redemption
of such bonds from the proceeds of the sale of 1992 Series II Bonds. The
Partnership sold the 1992 Series II Bonds in the amount of $6,000,000 in August,
1992.
In 1993, the construction financing loan of $20,000,000 was repaid, and in 1995
all of the Partners' advances (which initially totaled $20,000,000) were repaid.
An auditorium and miscellaneous additional improvements (Phase II), totaling
approximately $800,000, which were funded by the Partners, were completed in
early 1996.
The Partners have funded, as of September 30, 1996, $600,000 for Phase III
owners' capital contribution.
Document preparation is in its final stages for the financing of Phase III as
described above.
The Partners authorized a distribution $1,500,000 in the quarter, following
funding of Phase II and funding all reserves and distribution funds as required
by the financing institutions for Phase I.
Net cash provided by operating activities increased by approximately $1,346,000
in the nine months ended September 30, 1996, compared to the nine months ended
September 30, 1995. Increased occupancy improved net income by $231,000; lower
amortization of non-refundable fees by approximately $890,000 because of few
move-ins was the other major contribution to the improvement.
Net cash used by investing activities was approximately $1,000,000 more in the
nine months ended September 30, 1996, compared to the nine months ended
September 30, 1995. Phase III deposits by prospective residents increased funds
escrowed by $679,000; and at September 30, 1996, there were more apartment units
sold, but not occupied, than at September 30, 1995, resulting in an increase in
funds escrowed under residency agreements. And finally, funds of approximately
$52,000 were released when a letter of credit provided for assurance of
completion of site work, was cancelled.
Net cash provided by financing activities was approximately $1,500,000 better in
the nine months ended September 30, 1996 compared to the nine months ended
September 30, 1995. Repayment of partner advances used approximately $3,700,000
of cash in 1995, and none in 1996 because the advances were totally paid by
December 31, 1995. Distributions to partners, net of contributions, used
$900,000 of cash in 1996. Cash from Resident loans was approximately $1,317,000
less in 1996 than in 1995 because of more new residents moving into the
community.
Because of the level of sales, the various residency agreement alternatives
available to prospective residents, the resident financing, and the long-term
financing described above, the Partnership believes adequate capital resources
are available to successfully complete final occupancy of Phase I, sell out
Phase II units and construct Phase III.
The long-term success of the Project is ultimately dependent, however, upon
maintaining adequate levels of occupancy and operating of the Project
efficiently.
Part II - OTHER INFORMATION
Item 1. Legal Proceedings
None
Item 6. Exhibits and Reports on Form 8-K
A. Exhibits
None
B. Reports on Form 8-K
None
SIGNATURES
THE CHESTNUT REAL ESTATE PARTNERSHIP
Pursuant to the requirements of the Securities Exchange Act of 1934, The
Chestnut Real Estate Partnership has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized.
THE CHESTNUT REAL ESTATE PARTNERSHIP
By: BLAKEHURST JOINT VENTURE, a
General Partner
By: CHESTNUT VILLAGE, INC.,
General Partner
Date: October 31, 1996 by: /s/ Stan G. Thurston
-------------------------------------
Stan G. Thurston, President and Chief
Executive Officer
(Principal Executive Officer)
Date: October 31, 1996 by: /s/ Arthur V. Neis
-------------------------------------
Arthur V. Neis, Treasurer
(Principal Financial and Accounting Officer)
And By: THE WEST JOPPA ROAD LIMITED PARTNERSHIP,
General Partner
By: ROSEDALE CARE, INC.,
General Partner
Date: October 31, 1996 by: /s/ Thomas F. Mullan
------------------------------------
Thomas F. Mullan III, President
Date: October 31, 1996 by: /s/ J. A. Luetkemeyer, Jr.
------------------------------------
John A. Luetkemeyer, Jr., President
SIGNATURES
THE CHESTNUT PARTNERSHIP
Pursuant to the requirements of the Securities Exchange Act of 1934, The
Chestnut Partnership has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
THE CHESTNUT PARTNERSHIP
By: BLAKEHURST JOINT VENTURE, a
General Partner
By: CHESTNUT VILLAGE, INC.,
General Partner
Date: October 31, 1996 by: /s/ Stan G. Thurston
-------------------------------------
Stan G. Thurston, President and Chief
Executive Officer
(Principal Executive Officer)
Date: October 31, 1996 by: /s/ Arthur V. Neis
-------------------------------------
Arthur V. Neis, Treasurer
(Principal Financial and
Accounting Officer)
And By: THE WEST JOPPA ROAD LIMITED PARTNERSHIP,
General Partner
By: ROSEDALE CARE, INC.,
General Partner
Date: October 31, 1996 by: /s/ Thomas F. Mullan
------------------------------------
Thomas F. Mullan III, President
Date: October 31, 1996 by: /s/ J. A. Luetkemeyer, Jr.
------------------------------------
John A. Luetkemeyer, Jr., President
And By: THE CHESTNUT REAL ESTATE PARTNERSHIP,
General Partner
By: BLAKEHURST JOINT VENTURE, a
General Partner
By: CHESTNUT VILLAGE, INC.,
General Partner
Date: October 31, 1996 by: /s/ Stan G. Thurston
------------------------------------
Stan G. Thurston, President
Date: October 31, 1996 by: /s/ Arthur V. Neis
------------------------------------
Arthur V. Neis, Treasurer
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