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, 1997
( ) 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
<PAGE>
THE CHESTNUT PARTNERSHIP
AND
THE CHESTNUT REAL ESTATE PARTNERSHIP
INDEX
Page
----
Part I FINANCIAL INFORMATION
- ------ ---------------------
Item 1 Financial Statements
The Chestnut Real Estate Partnership
and The Chestnut Partnership
* Separate and Combined Balance Sheets,
September 30, 1997 and December 31, 1996 3
* Separate and Combined Statement of
Operations, for the nine months ended
September 30, 1997 and September 30, 1996 5
* Separate and Combined Statements of Partner's
Equity (Deficit) for the nine months ended
September 30, 1997 and September 30, 1996 7
* Separate and Combined Statement of Cash Flow,
for the nine months ended September 30, 1997
and September 30, 1996 8
* Notes to Financial Statements 10
Item 2 Management's Discussion and Analysis of Financial
Condition and Results of Operations 14
PART II OTHER INFORMATION
Item 1 Legal Proceedings 17
Item 6 Exhibits and Reports on Form 8-K 17
SIGNATURES 18
<PAGE>
<TABLE>
<CAPTION>
THE CHESTNUT REAL ESTATE PARTNERSHIP SEPTEMBER 30, 1997
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 and cash equivalents $ 1,443,498 $ -- $ 1,443,498
Accounts receivable 207,166 -- 207,166
Prepaid expenses and other 350,052 -- 350,052
Assets whose use is limited or restricted:
Under bond indenture agreements, held in escrow
by trustee 601,213 -- 601,213
Under letter of credit agreement, held in escrow 57,874 -- 57,874
------------ ------------ ------------
Total current assets 2,659,801 -- 2,659,801
Assets whose use is limited or restricted:
Under bond indenture agreements, held in escrow
by trustee 1,656,728 -- 1,656,728
Under residency agreements, held in escrow 1,641,650 -- 1,641,650
Health Center reserves 2,095,290 -- 2,095,290
Phase III and IV construction funds 1,903,453 -- 1,903,453
Operating property, at cost, net of depreciation 743,503 54,111,542 54,855,045
Costs of acquiring intitial contracts, net of amortization 1,581,239 -- 1,581,239
Deferred bond financing costs, net of amortization 872,477 -- 872,477
------------ ------------ ------------
Total assets $ 13,154,142 $ 54,111,542 $ 67,265,683
============ ============ ============
LIABILITIES AND PARTNERS' EQUITY (DEFICIT)
Current liabilities:
Bonds payable, current portion $ 150,000 $ -- $ 150,000
Accounts payable 180,631 -- 180,631
Accrued expenses 295,842 -- 295,842
Accrued property taxes 28,540 -- 28,540
Accrued interest payable 567,094 -- 567,094
Advances payable 263,522 -- 263,522
Refundable deposits, residency agreements (234,210) -- (234,210)
------------ ------------ ------------
Total current liabilities 1,251,419 -- 1,251,419
Construction costs payable 308,697 -- 308,697
Bonds payable, less current portion 13,505,000 -- 13,505,000
Loan Payable 1,900,000 -- 1,900,000
Loans from residents 47,973,404 -- 47,973,404
Advances payable to partners 4,463,318 -- 4,463,318
Refundable deposits, escrowed 9,900 -- 9,900
Deferred revenues from admission fees 2,670,309 -- 2,670,309
Equity in deficit of the Chestnut Partnership -- 58,927,906 --
Commitments and Contingencies
------------ ------------ ------------
Total liabilities 72,082,047 58,927,906 72,082,047
Partners' equity (deficit) (58,927,906) (4,816,364) (4,816,364)
------------ ------------ ------------
Total liabilities and partners' equity (deficit) $ 13,154,142 $ 54,111,542 $ 67,265,683
============ ============ ============
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
THE CHESTNUT REAL ESTATE PARTNERSHIP December 31, 1996
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 and cash equivalents $ 1,394,227 $ -- $ 1,394,227
Accounts receivable 197,444 -- 197,444
Prepaid expenses and other 274,133 -- 274,133
Assets whose use is limited or restricted:
Under bond indenture agreements, held in escrow
by trustee 393,293 -- 393,293
Under letter of credit agreement, held in escrow 57,874 -- 57,874
------------ ------------ ------------
Total current assets 2,316,971 -- 2,316,971
Assets whose use is limited or restricted:
Under bond indenture agreements, held in escrow
by trustee 1,591,297 -- 1,591,297
Under residency agreements, held in escrow 1,280,777 -- 1,280,777
Health Center reserves 751,627 -- 751,627
Phase III and IV constuction funds 555,721 -- 555,721
Operating property, at cost, net of depreciation 305,421 48,615,205 48,920,626
Costs of acquiring intitial contracts, net of amortization 1,701,335 -- 1,701,335
Deferred bond financing costs, net of amortization 911,537 -- 911,537
------------ ------------ ------------
Total assets $ 9,414,686 $ 48,615,205 $ 58,029,891
============ ============ ============
LIABILITIES AND PARTNERS' EQUITY (DEFICIT)
Current liabilities:
Bonds payable, current portion $ 150,000 $ -- $ 150,000
Accounts payable 149,151 -- 149,151
Accrued expenses 213,581 -- 213,581
Accrued property taxes 142,485 -- 142,485
Accrued interest payable 235,595 -- 235,595
Advances payable 0 -- 0
Refundable deposits, residency agreements 743,167 -- 743,167
------------ ------------ ------------
Total current liabilities 1,633,979 1,633,979
Construction costs payable 1,703,277 -- 1,703,277
Bonds payable, less current portion 13,655,000 -- 13,655,000
Loan Payable -- -- 0
Loans from residents 39,059,790 -- 39,059,790
Advances payable to partners 1,600,000 -- 1,600,000
Refundable deposits, escrowed 892,550 -- 892,550
Deferred revenues from admission fees 2,052,312 -- 2,052,312
Equity in deficit of the Chestnut Partnership -- 51,182,222 --
Commitments and Contingencies
------------ ------------ ------------
Total liabilities 60,596,908 51,182,222 60,596,908
Partners' equity (deficit) (51,182,222) (2,567,017) (2,567,017)
------------ ------------ ------------
Total liabilities and partners' equity (deficit) $ 9,414,686 $ 48,615,205 $ 58,029,891
============ ============ ============
</TABLE>
<PAGE>
<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, 1997
(UNAUDITED) The
The Chestnut
Chestnut Real Estate Combined
Partnership Partnership Partnerships
----------- ----------- -----------
<S> <C> <C> <C>
Revenues:
Amortization of nonrefundable admission fees $ 622,340 $ -- $ 622,340
Apartment service fees 3,761,916 -- 3,761,916
Health Center revenues 1,376,724 -- 1,376,724
Capital reserve fees 100,036 -- 100,036
Other revenue 12,542 -- 12,542
Income from The Chestnut Partnership -- 693,163 --
----------- ----------- -----------
Total revenues 5,873,558 693,163 5,873,558
----------- ----------- -----------
Operating expenses:
Development fee amortization 146,918 -- 146,918
General and administrative 1,241,803 -- 1,241,803
Resident care 1,171,666 -- 1,171,666
Dietary 974,566 -- 974,566
Plant 650,918 -- 650,918
Housekeeping 263,084 -- 263,084
Depreciation and amortization 159,156 922,509 1,081,665
----------- ----------- -----------
4,608,111 922,509 5,530,620
----------- ----------- -----------
Income (loss) from operations 1,265,447 (229,346) 342,938
----------- ----------- -----------
Other income (expense)
Interest income 327,016 -- 327,016
Interest expense (899,300) -- (899,300)
----------- ----------- -----------
(572,284) -- (572,284)
----------- ----------- -----------
Net income (loss) $ 693,163 $ (229,346) $ (229,346)
=========== =========== ===========
</TABLE>
<PAGE>
<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
----------- ----------- -----------
<S> <C> <C> <C>
Revenues:
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 from The Chestnut Partnership -- 249,793 --
----------- ----------- -----------
Total revenues 5,693,841 249,793 5,693,841
----------- ----------- -----------
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) 0 (785,332)
----------- ----------- -----------
Net income (loss) 249,793 (641,199) (641,199)
=========== =========== ===========
</TABLE>
<PAGE>
<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, 1997 and the year ended December 31, 1996
(UNAUDITED)
The
The Chestnut
Chestnut Real Estate Combined
Partnership Partnership Partnerships
------------ ------------ ------------
<S> <C> <C> <C>
Balance, December 31, 1995 $(47,407,626) $ (230,988) $ (230,988)
Net income (loss) 483,601 (736,029) (736,029)
Transfer ownership of land preacquisition and
project development assets to The Chestnut
Real Estate Partnership (2,658,197) -- --
Distribution to partners (1,600,000) (1,600,000) (1,600,000)
------------ ------------ ------------
Balance, December 31, 1996 $(51,182,222) $ (2,567,017) $ (2,567,017)
============ ============ ============
Balance, December 31, 1996 $(51,182,222) $ (2,567,017) $ (2,567,017)
Net income (loss) 693,163 (229,346) (229,346)
Transfer ownership of land preacquisition and
project development assets to The Chestnut
Real Estate Partnership (6,418,845) -- --
Contributions from partners -- -- --
Distributions to partners (2,020,000) (2,020,000) (2,020,000)
------------ ------------ ------------
Balance, September 30, 1997 $(58,927,906) $ (4,816,364) $ (4,816,364)
============ ============ ============
</TABLE>
<PAGE>
<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, 1997
(UNAUDITED) The
The Chestnut
Chestnut Real Estate Combined
Partnership Partnership Partnerships
----------- ----------- -----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 693,163 $ (229,346) $ (229,346)
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation -- 922,509 922,509
Other amortization 159,156 -- 159,156
Amortization of nonrefundable admission fees (622,340) -- (622,340)
Amortization of development fees 146,918 -- 146,918
Admission fees received 866,570 -- 866,570
Income in Partnership -- (693,163) --
Change in operating assets and liabilities:
Accounts receivable (9,722) -- (9,722)
Prepaid expenses and other (75,919) -- (75,919)
Accounts payable 31,480 -- 31,480
Accrued expenses 299,815 -- 299,815
----------- ----------- -----------
Net cash provided by operating activities 1,489,121 -- 1,489,121
----------- ----------- -----------
Cash flows from investing activities:
Increase in funds escrowed under residency agreements (360,873) -- (360,873)
Additions to operating property (7,003,845) -- (7,003,845)
Decrease in construction payable (1,394,580) -- (1,394,580)
Increase in Loans Payable 1,900,000 -- 1,900,000
Increase in Phase III and IV construction funds from partner advances (1,347,732) -- (1,347,732)
Increase in assets held by trustee (273,351) -- (273,351)
Decrease in funds escrowed under letter of credit agreement 0 -- 0
Increase in Health Center reserves (1,343,663) -- (1,343,663)
----------- ----------- -----------
Net cash used in investing activities (9,824,044) -- (9,824,044)
----------- ----------- -----------
Cash flows from financing activities:
Repayment of partner advances -- -- --
Contributions from partners -- -- --
Distributions to partners (2,020,000) -- (2,020,000)
Proceeds from partner advances 2,863,318 -- 2,863,318
Increase in advances payable 263,522 -- 263,522
Principal payments on bonds (150,000) -- (150,000)
Proceeds from loans from residents, deferred revenues
and refundable deposits, net 7,427,354 -- 7,427,354
----------- ----------- -----------
Net cash provided by financing activities 8,384,194 -- 8,384,194
----------- ----------- -----------
Net increase in cash 49,271 -- 49,271
Cash, beginning of period 1,394,227 -- 1,394,227
----------- ----------- -----------
Cash, end of period $ 1,443,498 $ -- $ 1,443,498
=========== =========== ===========
</TABLE>
<PAGE>
<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
----------- ----------- -----------
<S> <C> <C> <C>
Cash flows from operating activities:
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
Admission fees received -- -- --
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 400,850 -- 400,850
Accrued expenses 166,045 -- 166,045
----------- ----------- -----------
Net cash provided by operating activities 563,986 -- 563,986
----------- ----------- -----------
Cash flows from investing activities:
Increase in funds escrowed under residency agreements (1,206,729) -- (1,206,729)
Additions to project operating property (449,898) -- (449,898)
Increase in construction payable -- -- --
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
Decrease in Health Center reserves -- -- --
----------- ----------- -----------
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
Distribution to partners (1,500,000) -- (1,500,000)
Decrease in advances payable (39,081) -- (39,081)
Principal payments on bonds (65,000) -- (65,000)
Decrease in Health Center reserves (129,880) -- (129,880)
Proceeds from loans from residents, deferred revenues
and refundable deposits 3,448,762 -- 3,448,762
----------- ----------- -----------
Net cash provided by financing activities 2,314,800 -- 2,314,800
----------- ----------- -----------
Net decrease 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>
<PAGE>
THE CHESTNUT REAL ESTATE PARTNERSHIP
AND THE CHESTNUT PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
A. Basis for Presentation
The accompanying unaudited financial statements of The Chestnut Real
Estate Partnership (the Real Estate Partnership) and its subsidiary The
Chestnut Partnership (the Partnership), 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.
Both the Real Estate Partnership and the Partnership are general
partnerships, and are sometimes referred to as Athe 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 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, 1997. Phase III and IV construction
funds advanced by the partners are also cash equivalents as of
September 30, 1997.
<PAGE>
Deferred Revenues from Admission Fees
Admission fees are not advance fees in payment for future services of
for use of facility, because of the manner in which all operating
expenditures are allocated 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 of phase I occurring in December 1993,
at which time occupancy was 60%. Construction continued for tenant
requested improvements and an auditorium addition.
The Partnership ceased capitalization of operating expenses and certain
revenues of Phase I in August 1994, because of the extended time frame
between initial occupancy, completion of major construction, and
achievement of substantial occupancy.
Occupancy of Phase III began in July 1997, and construction was still
in process as of September 30, 1997, at which time 71% of the units
were occupied. Certain operating revenues and expenses of Phase III
continued to be capitalized.
Costs of Acquiring Initial Contracts
Costs of acquiring initial contracts of Phase I 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.
Costs of acquiring initial contracts for Phase III units were still
being incurred as of September 30, 1997, and no amortization of these
costs is reflected in these financial statements.
Development Fee
The development fee incurred in connection with the development of the
Project (Phase I and III, as there was no development fee in Phase II)
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 (Phase I and Phase III) is amortized on a pro-rata basis and
admission fee revenue is recognized.
<PAGE>
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.
For the construction of Phase II, an auditorium and miscellaneous
additional improvements, the partners funded the cost of approximately
$800,000.
For construction of Phase III, a 35 unit addition, the partners
advanced $7,600,000 and the Partnerships arranged to borrow an
additional $1,900,000, for a total of $9,500,000 of available funds. As
of September 30, 1997, $3,900,400 has been repaid to the Partners,
which includes $363,718 of interest.
The partners have also advanced $400,000 for initial design of Phase
IV.
E. Operating Property
Operating property includes construction costs in progress. As of
September 30, 1997, $8,936,288 of costs had been incurred for Phase III
construction in progress and are included in operating property. As of
December 31, 1996, $2,665,333 had been incurred for construction of
Phase III.
Also, at September 30, 1997, $102,114 had been incurred for designs of
Phase IV; no such costs had been incurred at December 31, 1996.
As of September 30, 1997, development fees and costs of acquiring
initial contracts were being amortized and are reported net of such
amortization.
F. Transactions with partners
The Partnerships have agreements with Life Care Services Development
Corporation (LCSD) and Life Care Services Corporation (LCS), affiliates
through common ownership of Chestnut Village, Inc., a general partner
of Venture for development and for management of the community
respectively. LCSD administers planning, development, financing, and
marketing functions for the partnerships. LCS has been retained to
supervise the day-to-day operations of the community.
During the nine months ended September 30, 1997, LCS was reimbursed
$260,452 for its management services and $244,527 for the nine months
ended September 30, 1996. In addition, LCS was reimbursed in the nine
months ended September 30, 1997, $450,698 for marketing of Phase III
units.
In the nine months ended September 30, 1997, LCSD was reimbursed
$445,443 for development fees and had no such reimbursement in the nine
months ended September 30, 1996.
The partnerships have entered into a construction management agreement
with Mullan Contracting Company (Mullan), an affiliate through common
ownership of one partner of West Joppa for Phase III.
In the nine months ended September 30, 1997, Mullan was paid $55,520 of
construction management fees, and reimbursed $5,793,349 for
construction costs. During the nine months ended September 30, 1996,
Mullan was paid $1,400 for construction management fees and reimbursed
$49,352 for construction costs.
<PAGE>
G. 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.
H. 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 of each phase, maintenance of and
efficient operation of the Project are also critical to the long term
success of the Project.
<PAGE>
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 212 (177 in Phase I and 35 in Phase III)
residential units, and a 50-bed health center. As of September 30, 1997, 173
(98%) of the Phase I residential units have been reserved or occupied; as of
September 30, 1996, 167 (94%) of the residential units were sold or occupied.
With regard to Phase III, as of September 30, 1997, 33 of 35 units (94%) have
been reserved or occupied. Occupancy began July 21, 1997.
As of September 30, 1997, the project had 118 full-time equivalent employees,
none of whom were members of a collective bargaining agreement.
Results of Operations
As of September 30, 1997, 165 units (93%) were occupied and/or paying monthly
service fees for Phase I. This occupancy compares to 164 of the units at
September 30, 1996, and 163 units (92%) at December 31, 1996. As of September
30, 1997, 25 Phase III units (71%) were occupied and/or paying monthly service
fees.
Amortization of non-refundable admission fees decreased because of the decline
of move-ins during the 24 months beginning September 30, 1995, compared to the
move-ins during the 24 months beginning September 30, 1994. Non-refundable
admission fees are amortized over approximately 24 months from date of move-in.
On January 1, 1997, an average 4.8% increase in the monthly service fees became
effective. During the nine months ended September 30, 1997, occupancy 92.2%
compared to approximately 89% during the same period in 1996. In July occupancy
began on Phase III, increasing the total number of residents paying the monthly
service fees. These three factors accounted for the increase in monthly service
fees for the nine months ended September 30, 1997, compared to the same period
in 1996.
Health center revenues declined because of an approximately 4.7% decline in
occupancy in the period ended September 30, 1997, compared to the same period in
1996.
Capital reserve fees, which are a one-time payment from new residents related to
monthly service fees, increased because of the number of new residents from
Phase III and because of the aforementioned increase in the monthly service
fees.
Operating expenses decreased slightly in the nine months ended September 30,
1997, compared to the same period in 1996. Marketing expenditures have declined
in 1997 as Phase I units are essentially completed and sold and Phase III
marketing expenses are being capitalized. Other operating expenses directly
related to occupancy and resident services increased according to budgeted and
planned amounts.
The income from operations increased from approximately $144,000 at September
30, 1996, to approximately $343,000 in 1997.
Interest income increased because of increased cash balances, both restricted
and unrestricted. Interest expense decreased because average bond indebtedness
outstanding decreased during the nine months ended September 30, 1997, compared
to the nine months ended September 30, 1996. Interest on advances from Partners
for construction of Phase III is being capitalized as part of the cost of the
expansion.
<PAGE>
The net loss decreased from approximately $641,000 at September 30, 1996, to
approximately $229,000 at September 30, 1997.
Liquidity and Capital Resources
As of May 28, 1992, significant 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 has been repaid, and in
1995 all of the Partners= advances (which initially totaled $20,000,000) were
repaid.
During the first quarter of 1996, an auditorium and miscellaneous additional
improvements, totaling approximately $800,000, which was funded by the Partners,
was essentially completed.
In 1996 the Partners advanced $1,600,000 for the construction of Phase III.
In 1997 the Partners advanced an additional $6,000,000 for the construction of
Phase III and $200,000 for the design of Phase IV. In addition, $1,900,000 of
long-term financing in conjunction with Phase III was arranged and borrowed.
During the nine months ended September 30, 1997, the partnership distributed
$420,000 of Phase I proceeds from closings, after providing necessary working
capital funding as required under the bond documents. In addition, based upon
closings of Phase III units, $3,536,682 was repaid on the advances by partners.
The net loss in being funded by the Partners from admission fees due them.
Net cash provided by operating activities increased by approximately $925,000 in
the nine months ended September 30, 1997, compared to the nine months ended
September 30, 1996. The net income before depreciation/amortization provided
cash of approximately $377,000 in the nine months ended September 30, 1997,
compared to a loss of approximately $122,000 in the nine months ended September
30, 1996. The cash provided in nine months of 1997 from admission fees of
$867,000 compares to none in 1996; this was offset by a net decline period over
period of approximately $370,000 in payables. Changes in other operating assets
and liabilities used approximately $441,000.
Net cash used by investing activities was approximately $7,950,000 more in the
nine months ended September 30, 1997 compared to the nine months ended September
30, 1996. This change, approximately $7,400,000, was due to the construction in
progress for Phase III and the Partners advances and loans to fund Phase III
construction. Changes in balances escrowed under the Residency Agreements, net
of an increase in health center reserves, explains the rest of the change.
During the 1997 period, there was an almost 67% increase in the residents
permanently assigned to the health center, which under certain terms of the
Residency Agreement, causes their loans to be escrowed.
Net cash provided by financing activities was approximately $6,150,000 more in
the nine months ended September 30, 1997 compared to the nine months ended
September 30, 1996. Cash from Resident loans was $4,000,000 more in 1997 than in
1996 because of more Phase I and Phase III residents. The partners contributed
approximately $843,000 in 1997 compared to a net distribution of $900,000 in
1996 C $1,743,000 total change.
Because of the level of occupancy in Phase I and sales and occupancy of Phase
III, the resident financing, and the long-term financing described above, the
Partnership believes adequate capital resources are available to successfully
complete occupancy of Phase III.
<PAGE>
The long-term success of the Project is ultimately dependent upon maintaining
adequate levels of occupancy and operating of the Project efficiently.
<PAGE>
Part II - OTHER INFORMATION
Item 1. Legal Proceedings
None
Item 6. Exhibits and Reports on Form 8-K
A. Exhibits
See attached Index to Exhibits - Page 16
B. Reports on Form 8-K
None
<PAGE>
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: November 14, 1997 by: /s/ Stan Thurston
-----------------------------------------------
Stan G. Thurston, President and
Chief Executive Officer
(Principal Executive Officer)
Date: November 14, 1997 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: November 14, 1997 by: /s/ T. F. Mullan
-----------------------------------------------
Thomas F. Mullan III, President
Date: November 14, 1997 by: /s/ J. A. Luetkemeyer, Jr.
-----------------------------------------------
John A. Luetkemeyer, Jr., President
<PAGE>
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: November 14, 1997 by: /s/ Stan Thurston
------------------
Stan G. Thurston, President and
Chief Executive Officer
(Principal Executive Officer)
Date: November 14, 1997 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: November 14, 1997 by: /s/ T. F. Mullan
-----------------
Thomas F. Mullan III, President
Date: November 14, 1997 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: November 14, 1997 by: /s/ Stan Thurston
------------------
Stan G. Thurston, President
Date: November 14, 1997 by: /s/ Arthur V. Neis
-------------------
Arthur V. Neis, Treasurer
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