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 June 30, 1996
(X) 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,
June 30, 1996 and December 31, 1995 3
Separate and Combined Statement of
Operations, for the six months ended
June 30, 1996 and June 30, 1995 5
Separate and Combined Statements of Partner's
Equity (Deficit) for the six months ended
June 30, 1996 and June 30, 1995 7
Separate and Combined Statement of Cash Flow,
for the six months ended June 30, 1996
and June 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 15
Item 6 Exhibits and Reports on Form 8-K 15
SIGNATURES 16
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<CAPTION>
THE CHESTNUT REAL ESTATE PARTNERSHIP -----------------June 30, 1996----------------
AND THE CHESTNUT PARTNERSHIP The
SEPARATE AND COMBINED BALANCE SHEETS The Chestnut
Chestnut Real Estate Combined
(UNAUDITED) Partnership Partnership Partnerships
------------- ------------- ------------
ASSETS
<S> <C> <C> <C>
Current assets:
Cash $ 359,452 $ -- $ 359,452
Short-term investments 0 -- 0
Accounts receivable 197,796 -- 197,796
Prepaid expenses and other 235,069 -- 235,069
Assets whose use is limited or restricted:
Under bond indenture agreements, held in escrow
by trustee 432,077 -- 432,077
Payable to Trustee 516,541 -- 516,541
Under letter of credit agreement, held in escrow 57,873 -- 57,873
------------ ----------- ----------
Total current assets 1,798,809 -- 1,798,809
Assets whose use is limited or restricted:
Under bond indenture agreements, held in escrow
by trustee 1,654,579 -- 1,654,579
Under residency agreements, held in escrow 2,106,538 -- 2,106,538
Health Center reserves 628,020 -- 628,020
Operating property, at cost, net of depreciation 399,084 46,743,280 47,142,364
Costs of acquiring intitial contracts, net of amortization 1,781,397 -- 1,781,397
Deferred bond financing costs, net of amortization 933,631 -- 933,631
------------ ------------ ----------
Total assets $ 9,302,058 $46,743,280 $56,045,338
============ =========== ==========
LIABILITIES AND PARTNERS' EQUITY (DEFICIT)
Current liabilities:
Bonds payable, current portion $ 130,000 $ -- $ 130,000
Accounts payable 177,248 -- 177,248
Accrued expenses 173,120 -- 173,120
Accrued property taxes 337,254 -- 337,254
Accrued interest payable 217,952 -- 217,952
Advances payable 261,147 -- 261,147
Refundable deposits, residency agreements 1,627,666 -- 1,627,666
------------ ----------- ----------
Total current liabilities 2,924,386 2,924,386
Construction costs payable 54,797 -- 54,797
Bonds payable, less current portion 13,740,000 -- 13,740,000
Loans from residents 37,998,930 -- 37,998,930
Advances payable to partners 0 -- 0
Deferred revenues from admission fees 2,044,057 -- 2,044,057
Equity in deficit of the Chestnut Partnership -- 47,460,112 --
Commitments and Contingencies
------------ ----------- ------------
Total liabilities 56,762,170 47,460,112 56,762,170
Partners' equity (deficit) (47,460,112) (716,832) (716,832)
------------ ----------- ------------
Total liabilities and partners' equity (deficit) $ 9,302,058 $46,743,280 $56,045,338
============ =========== ===========
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<TABLE>
<CAPTION>
THE CHESTNUT REAL ESTATE PARTNERSHIP -----------------December 31, 1995-------------
AND THE CHESTNUT PARTNERSHIP The
SEPARATE AND COMBINED BALANCE SHEETS The Chestnut
Chestnut Real Estate Combined
Partnership Partnership Partnerships
------------- ------------ ------------
ASSETS
<S> <C> <C> <C>
Current assets:
Cash $ 601,767 $ -- $ 601,767
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
Payable to Trustee 0 -- 0
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
Refundable deposits, residency agreements 744,151 -- 744,151
------------ ------------ -----------
Total current liabilities 1,712,436 1,712,436
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
Advances payable to partners 0 -- 0
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 six month period ended June 30, 1996
(UNAUDITED) The
The Chestnut
Chestnut Real Estate Combined
Partnership Partnership Partnerships
------------ ----------- ------------
<S> <C> <C> <C>
Revenues:
Amortization of nonrefundable admission fees $ 486,825 $ -- $ 486,825
Apartment service fees 2,276,259 -- 2,276,259
Health center revenues 925,316 -- 925,316
Capital reserve fees 31,713 -- 31,713
Other revenue 8,284 -- 8,284
Income in Partnership -- 107,849 --
----------- ----------- ---------
Total revenues 3,728,397 107,849 3,728,397
----------- ----------- ---------
Operating expenses:
Development fee amortization 132,061 -- 132,061
General and administrative 959,391 -- 959,391
Resident care 680,802 -- 680,802
Dietary 616,029 -- 616,029
Plant 407,889 -- 407,889
Housekeeping 159,656 -- 159,656
Depreciation and amortization 106,576 593,695 700,271
----------- ----------- ----------
3,062,404 593,695 3,656,099
----------- ----------- ----------
Income (loss) from operations 665,993 (485,845) 72,298
----------- ----------- ----------
Other income (expense)
Interest income 100,680 -- 100,680
Interest expense (658,823) -- (658,823)
----------- ----------- ----------
(558,144) -- (558,144)
----------- ----------- ----------
Net income (loss) $ 107,849 $ (485,845) $ (485,845)
=========== =========== ==========
</TABLE>
<TABLE>
<CAPTION>
THE CHESTNUT REAL ESTATE PARTNERSHIP
AND THE CHESTNUT PARTNERSHIP
SEPARATE AND COMBINED STATEMENT OF OPERATIONS
For the six month period ended June 30, 1995
(UNAUDITED) The
The Chestnut
Chestnut Real Estate Combined
Partnership Partnership Partnerships
------------ ------------ ------------
<S> <C> <C> <C>
Revenues:
Amortization of nonrefundable admission fees $ 1,085,377 $ -- $ 1,085,377
Apartment service fees 1,896,160 -- 1,896,160
Health center revenues 811,868 -- 811,868
Capital reserve fees 42,539 -- 42,539
Other revenue 9,628 -- 9,628
Income in Partnership -- (27,404) --
----------- ----------- -----------
Total revenues 3,845,572 (27,404) 3,845,572
----------- ----------- -----------
Expenses:
Development fee amortization 419,882 -- 419,882
General and administrative 894,477 -- 894,477
Resident care 623,339 -- 623,339
Dietary 572,081 -- 572,081
Plant 354,568 -- 354,568
Housekeeping 133,059 -- 133,059
Depreciation and amortization 106,576 610,430 717,006
----------- ----------- -----------
$ 3,103,982 $ 610,430 $ 3,714,412
----------- ----------- -----------
Income (loss) from operations 741,590 (637,834) 131,160
----------- ----------- -----------
Other income (expense)
Interest income 114,201 -- 114,201
Interest expense (883,195) -- (883,195)
----------- ----------- -----------
(768,994) 0 (768,994)
----------- ----------- -----------
Net income (loss) (27,404) (637,834) (637,834)
=========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
THE CHESTNUT REAL ESTATE PARTNERSHIP
AND THE CHESTNUT PARTNERSHIP
SEPARATE AND COMBINED STATEMENTS OF PARTNERS' EQUITY (DEFICIT)
For the six month period ended June 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) 107,849 (485,845) (485,845)
Transfer ownership of land preacquisition and
project development assets to The Chestnut
Real Estate Partnership (160,335) -- --
Contrbutions from partners 0 0 0
------------ ---------- -----------
Balance, June 30, 1996 $(47,460,112) $ (716,832) $ (716,832)
============ ========== ==========
</TABLE>
<TABLE>
<CAPTION>
THE CHESTNUT REAL ESTATE PARTNERSHIP
AND THE CHESTNUT PARTNERSHIP
SEPARATE AND COMBINED STATEMENT OF CASH FLOWS
For the six month period ended June 30, 1996
(UNAUDITED) The
The Chestnut
Chestnut Real Estate Combined
Partnership Partnership Partnerships
------------ ------------ ------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 107,849 $ (485,845) $ (485,845)
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation -- 593,695 593,695
Other amortization 106,576 -- 106,576
Amortization of nonrefundable admission fees (486,825) -- (486,825)
Amortization of development fees 132,061 -- 132,061
Income in Partnership -- (107,849) --
Change in operating assets and liabilities:
Accounts receivable 72,702 -- 72,702
Prepaid expenses and other 62,041 -- 62,041
Accounts payable 68,941 -- 68,941
Accrued expenses 187,577 -- 187,577
----------- ----------- -----------
Net cash provided by operating activities 250,922 -- 250,922
----------- ----------- -----------
Cash flows from investing activities:
Increase in funds escrowed under residency agreements (1,969,248) -- (1,969,248)
Additions to operating property (160,335) -- (160,335)
Increase in assets held by trustee (128,385) -- (128,385)
Increase in assets payable to trustee (516,541) -- (516,541)
Decrease in funds escrowed under letter of credit agreement 51,824 -- 51,824
----------- ----------- -----------
Net cash used in investing activities (2,722,685) -- (2,722,685)
----------- ----------- -----------
Cash flows from financing activities:
Repayment of partner advances 0 -- 0
Contributions from partners 0 -- 0
Increase in advances payable 70,994 -- 70,994
Decrease in bonds payable (65,000) -- (65,000)
Decrease in Health Center reserves 178,470 -- 178,470
Proceeds from loans from residents, deferred revenues
and refundable deposits, net 2,044,985 -- 2,044,985
----------- ----------- -----------
Net cash provided by financing activities 2,229,449 -- 2,229,449
----------- ----------- -----------
Net decrease in cash (242,315) -- (242,315)
Cash, beginning of period 601,767 -- 601,767
----------- ----------- -----------
Cash, end of period $ 359,452 $ -- $ 359,452
=========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
THE CHESTNUT REAL ESTATE PARTNERSHIP
AND THE CHESTNUT PARTNERSHIP
SEPARATE AND COMBINED STATEMENT OF CASH FLOWS
For the six month period ended June 30, 1995
(UNAUDITED) The
The Chestnut
Chestnut Real Estate Combined
Partnership Partnership Partnerships
------------ ----------- ------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss $ (27,404) $(637,834) $ (637,834)
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation -- 610,430 610,430
Other amortization 106,576 -- 106,576
Amortization of nonrefundable admission fees (1,085,377) -- (1,085,377)
Amortization of development fees 419,882 -- 419,882
Income in Partnership -- 27,404 --
Change in operating assets and liabilities:
Accounts receivable (2,548) -- (2,548)
Prepaid expenses and other (200,552) (200,552)
Accounts payable 40,721 -- 40,721
Accrued expenses 290,583 -- 290,583
----------- --------- -----------
Net cash provided by operating activities (458,119) -- (458,119)
----------- --------- -----------
Cash flows from investing activities:
Decrease in funds escrowed under residency agreements 635,885 -- 635,885
Additions to project operating property (257,897) -- (257,897)
Increase in assets held by trustee (160,550) -- (160,550)
Increase in assets payable to trustee 0 -- 0
Increase in short-term investments (417,535) -- (417,535)
Increase in funds escrowed under letter of credit agreement 0 -- 0
----------- --------- -----------
Net cash provided by investing activities (200,097) -- (200,097)
----------- --------- -----------
Cash flows from financing activities:
Repayment of partner advances (2,871,247) -- (2,871,247)
Contributions from Partners 0 -- 0
Decrease in advances payable (81,818) -- (81,818)
Decrease in Bonds Payable 0 -- 0
Increase in Health Center reserves 0 -- 0
Proceeds from loans from residents, deferred revenues
and refundable deposits 2,830,165 -- 2,830,165
----------- --------- -----------
Net cash used in financing activities (122,900) -- (122,900)
----------- --------- -----------
Net decrease in cash (781,116) -- (781,116)
Cash, beginning of period 1,035,260 -- 1,035,260
----------- --------- -----------
Cash, end of period $ 254,144 $ -- $ 254,144
=========== ========= ===========
</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 June 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.
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. 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 six months ended
June 30, 1996 and June 30, 1995, no fees were paid to LCS, to Rosedale
Care, Inc. or to Continental Care, Inc.
The Partnership also has a management agreement with LCS. During the six
months ended June 30, 1996, LCS received $161,839 for its services and
$153,060 for the six months ended June 30, 1995.
In addition LCS was reimbursed $816,666 during the six months ended June
30, 1996 and $713,544 for the six months ended June 30, 1995 for advances
it had made on behalf of the Partnership. Certain costs continue to be
advanced by LCS, and are reimbursed by the Partnership from available
funds.
The Partnership has a service agreement with West Joppa for West Joppa to
assist LCS in development and marketing of the Project. During the six
month periods ended June 30, 1996 and June 30, 1995, it did not receive a
fee for its services.
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 units, and resale of units vacated due to death
or transfer to the health center.
Subsequent to initial occupancy, 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 June 30, 1996, 169 (95%) of the residential units have been
reserved or occupied. The apartment occupancy increased three units in the
quarter, during which there were six apartment units sold and one sale was
cancelled. As of June 30, 1995, 89% of the residential units were sold or
occupied.
As of June 30, 1996, the project had 109 full-time equivalent employees, none of
whom were members of a collective bargaining agreement.
During the quarter, the Partnership 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 intrical 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 $12 million
including appropriate statutory reserves. Of this amount, it is anticipated that
approximately $2 million would be funded through some form of long term
financing. The partners are now completing development and construction
agreements and other matters related to financing. Construction will not begin
until an appropriate number of units of Phase III have been sold.
As a result of Phase I being essentially sold out (Phase II had no residential
units) and the receipt of regulatory approval, the Partnership began accepting
deposits for the Phase III units. As of June 30, 1996 a total of 17 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 June 30, 1996, 158 units (89%) were occupied and/or paying monthly service
fees. This occupancy compares to 139 (79%) of the units at June 30, 1995, and
156 units (88%) at December 31, 1995.
Amortization of non-refundable admission fees decreased because fewer residents
moved in during the 6 months ended June 30, 1996 than moved in during the 6
months ended June 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 June 30, 1995 to the
six months ended June 30, 1996, accounted for the increase in apartment service
fees.
Health center revenues increased primarily because the average occupancy in the
first six months of 1995 was 84% compared to an average occupancy of 92% 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 six months ended June 30, 1996,
than moved-in during the six months ended June 30, 1995.
Total operating expenditures declined approximately $58,000. Operating
departmental expenses increased approximately $266,000 offsetting the decline in
depreciation and amortization charges of $324,000. The average number of full
time employees was 107 in the six months ended June 30, 1996 compared to 97
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.
Interest expense declined because the advances from partners was paid off at
December 31, 1995, but was outstanding during the six months ended June 30,
1995.
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 during
the quarter.
The net loss in being funded by the Partners from admission fees.
Net cash provided by operating activities increased by approximately $709,000 in
the six months ended June 30, 1996, compared to the six months ended June 30,
1995. Increased occupancy, averaging 88% in 1996, compared to 77% in 1995
improved net income by $153,000; lower amortization of non-refundable fees by
$598,000 because of few move-ins provided the balance of the improvement.
Net cash used by investing activities was approximately $2,523,000 less in the
six months ended June 30, 1996, compared to the six months ended June 30, 1995.
Phase III deposits by prospective residents increased funds escrowed by
$434,000; and at June 30, 1996, there were more apartment units sold, but not
occupied, than at June 30, 1995, resulting in an increase in funds escrowed
under residency agreements. Cash was provided to investing activities because of
less capital expenditures for operating properties of approximately $100,000.
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 $3,424,000 better in
the six months ended June 30, 1996 compared to the six months ended June 30,
1995. Repayment of partner advances used $2,871,000 of cash in 1995, and none in
1996. Cash from Resident loans was $287,000 more in 1996 than in 1995 because of
more new residents.
Because of the level of sales, introduction of new residency agreement types,
the resident financing, and the long-term financing described above, the
Partnership believes adequate capital resources are available to successfully
complete occupancy of Phase I, even while selling Phase III units.
The long-term success of the Project is ultimately dependent, however, upon
maintaining adequate levels of occupancy and operating of the Project
efficiently.
The Partners are presently evaluating financing proposals for Phase III and are
confident that acceptable and
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: August 14, 1996 by: /s/ Stan G. Thurston
----------------------------------
Stan G. Thurston, President and
Chief Executive Officer
(Principal Executive Officer)
Date: August 14, 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: August 14, 1996 by: /s/ Thomas F. Mullan
----------------------------------
Thomas F. Mullan III, President
Date: August 14, 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: August 14, 1996 by: /s/ Stan G. Thurston
-----------------------------------
Stan G. Thurston, President and
Chief Executive Officer
(Principal Executive Officer)
Date: August 14, 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: August 14, 1996 by: /s/ Thomas F. Mullan
-----------------------------------
Thomas F. Mullan III, President
Date: August 14, 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: August 14, 1996 by: /s/ Stan G. Thurston
-----------------------------------
Stan G. Thurston, President
Date: August 14, 1996 by: /s/ Arthur V. Neis
-----------------------------------
Arthur V. Neis, Treasurer
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