<PAGE>
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 March 31, 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
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
o Separate and Combined Balance Sheets,
March 31, 1997 and December 31, 1996 3
o Separate and Combined Statement of
Operations, for the three months ended
March 31, 1997 and March 31, 1996 5
o Separate and Combined Statements of Partner's
Equity (Deficit) for the three months ended
March 31, 1997 and March 31, 1996 7
o Separate and Combined Statement of Cash Flow,
for the three months ended March 31, 1997
and March 31, 1996 8
o 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
<TABLE>
<CAPTION>
THE CHESTNUT REAL ESTATE PARTNERSHIP March 31, 1997
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 and cash equivalents $ 1,516,993 $ -- $ 1,516,993
Accounts receivable 212,978 -- 212,978
Prepaid expenses and other 232,285 -- 232,285
Assets whose use is limited or restricted:
Under bond indenture agreements, held in escrow
by trustee 692,487 -- 692,487
Under letter of credit agreement, held in escrow 57,874 -- 57,874
------------ ------------ ------------
Total current assets 2,712,617 -- 2,712,617
Assets whose use is limited or restricted:
Under bond indenture agreements, held in escrow
by trustee 1,612,431 -- 1,612,431
Under residency agreements, held in escrow 1,395,154 -- 1,395,154
Health Center reserves 773,820 -- 773,820
Phase III and IV construction funds 3,676,418 -- 3,676,418
Operating property, at cost, net of depreciation 259,784 51,191,578 51,451,362
Costs of acquiring intitial contracts, net of amortization 1,661,303 -- 1,661,303
Deferred bond financing costs, net of amortization 898,517 -- 898,517
------------ ------------ ------------
Total assets $ 12,990,044 $ 51,191,578 $ 64,181,623
============ ============ ============
LIABILITIES AND PARTNERS' EQUITY (DEFICIT)
Current liabilities:
Bonds payable, current portion $ 150,000 $ -- $ 150,000
Accounts payable 56,126 -- 56,126
Accrued expenses 171,317 -- 171,317
Accrued property taxes 229,292 -- 229,292
Accrued interest payable 448,699 -- 448,699
Advances payable 205,362 -- 205,362
Refundable deposits, residency agreements 922,840 -- 922,840
------------ ------------ ------------
Total current liabilities 2,183,637 -- 2,183,637
Construction costs payable 1,375,061 -- 1,375,061
Bonds payable, less current portion 13,655,000 -- 13,655,000
Loans from residents 40,485,570 -- 40,485,570
Advances payable to partners 7,800,000 -- 7,800,000
Refundable deposits, escrowed 744,040 -- 744,040
Deferred revenues from admission fees 2,097,088 -- 2,097,088
Equity in deficit of the Chestnut Partnership -- 55,350,351 --
Commitments and Contingencies
------------ ------------ ------------
Total liabilities 68,340,396 55,350,351 68,340,396
Partners' equity (deficit) (55,350,351) (4,158,773) (4,158,773)
------------ ------------ ------------
Total liabilities and partners' equity (deficit) $ 12,990,044 $ 51,191,578 $ 64,181,623
============ ============ ============
</TABLE>
<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
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>
<TABLE>
<CAPTION>
THE CHESTNUT REAL ESTATE PARTNERSHIP
AND THE CHESTNUT PARTNERSHIP
SEPARATE AND COMBINED STATEMENT OF OPERATIONS
For the three month period ended March 31, 1997
(UNAUDITED) The
The Chestnut
Chestnut Real Estate Combined
Partnership Partnership Partnerships
----------- ----------- -----------
<S> <C> <C> <C>
Revenues:
Amortization of nonrefundable admission fees $ 188,671 $ -- $ 188,671
Apartment service fees 1,233,434 -- 1,233,434
Health Center revenues 466,249 -- 466,249
Capital reserve fees 20,142 -- 20,142
Other revenue 4,511 -- 4,511
Income from The Chestnut Partnership -- 165,512 --
----------- ----------- -----------
Total revenues 1,913,007 165,512 1,913,007
----------- ----------- -----------
Operating expenses:
Development fee amortization 45,637 -- 45,637
General and administrative 408,048 -- 408,048
Resident care 385,974 -- 385,974
Dietary 320,369 -- 320,369
Plant 202,058 -- 202,058
Housekeeping 83,938 -- 83,938
Depreciation and amortization 53,288 307,267 360,555
----------- ----------- -----------
1,499,312 307,267 1,806,579
----------- ----------- -----------
Income (loss) from operations 413,695 (141,755) 106,428
----------- ----------- -----------
Other income (expense)
Interest income 77,732 -- 77,732
Interest expense (325,915) -- (325,915)
----------- ----------- -----------
(248,183) -- (248,183)
----------- ----------- -----------
Net income (loss) $ 165,512 $ (141,755) $ (141,755)
=========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
THE CHESTNUT REAL ESTATE PARTNERSHIP
AND THE CHESTNUT PARTNERSHIP
SEPARATE AND COMBINED STATEMENT OF OPERATIONS
For the three month period ended March 31, 1996
(UNAUDITED) The
The Chestnut
Chestnut Real Estate Combined
Partnership Partnership Partnerships
----------- ----------- -----------
<S> <C> <C> <C>
Revenues:
Amortization of nonrefundable admission fees $ 234,114 $ -- $ 234,114
Apartment service fees 1,128,835 -- 1,128,835
Health Center revenues 457,422 -- 457,422
Capital reserve fees 13,846 -- 13,846
Other revenue 3,743 -- 3,743
Income from The Chestnut Partnership -- 9,604 --
----------- ----------- -----------
Total revenues 1,837,960 9,604 1,837,960
----------- ----------- -----------
Expenses:
Development fee amortization 69,051 -- 69,051
General and administrative 492,044 -- 492,044
Resident care 343,356 -- 343,356
Dietary 313,507 -- 313,507
Plant 200,648 -- 200,648
Housekeeping 83,739 -- 83,739
Depreciation and amortization 53,288 296,997 350,285
----------- ----------- -----------
$ 1,555,633 $ 296,997 $ 1,852,630
----------- ----------- -----------
Income (loss) from operations 282,327 (287,393) (14,670)
----------- ----------- -----------
Other income (expense)
Interest income 46,347 -- 46,347
Interest expense (319,070) -- (319,070)
----------- ----------- -----------
(272,723) 0 (272,723)
----------- ----------- -----------
Net income (loss) 9,604 (287,393) (287,393)
=========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
THE CHESTNUT REAL ESTATE PARTNERSHIP
AND THE CHESTNUT PARTNERSHIP
SEPARATE AND COMBINED STATEMENTS OF PARTNERS' EQUITY (DEFICIT)
For the three month period ended March 31, 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
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) 165,512 (141,755) (141,755)
Transfer ownership of
project development assets to The Chestnut
Real Estate Partnership (2,883,641) -- --
Contributions from partners -- -- --
Distributions to partners (1,450,000) (1,450,000) (1,450,000)
------------ ------------ ------------
Balance, March 31, 1997 $(55,350,351) $ (4,158,772) $ (4,158,772)
============ ============ ============
</TABLE>
<TABLE>
<CAPTION>
THE CHESTNUT REAL ESTATE PARTNERSHIP
AND THE CHESTNUT PARTNERSHIP
SEPARATE AND COMBINED STATEMENT OF CASH FLOWS
For the three month period ended March 31, 1997
(UNAUDITED)
The
The Chestnut
Chestnut Real Estate Combined
Partnership Partnership Partnerships
----------- ----------- -----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 165,512 $ (141,755) $ (141,755)
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation -- 307,267 307,267
Other amortization 53,288 -- 53,288
Amortization of nonrefundable admission fees (188,671) -- (188,671)
Amortization of development fees 45,637 -- 45,637
Admission fees received 233,280 -- 233,280
Income in Partnership -- (165,512) --
Change in operating assets and liabilities:
Accounts receivable (15,534) -- (15,534)
Prepaid expenses and other 41,614 -- 41,614
Accounts payable (93,026) -- (93,026)
Accrued expenses 257,647 -- 257,647
----------- ----------- -----------
Net cash provided by operating activities 499,747 -- 499,747
----------- ----------- -----------
Cash flows from investing activities:
Increase in funds escrowed under residency agreements (114,377) -- (114,377)
Additions to operating property (2,883,641) -- (2,883,641)
Decrease in construction payable (328,216) -- (328,216)
Increase in Phase III and IV construction funds from partner advances (3,120,697) -- (3,120,697)
Increase in assets held by trustee (320,328) -- (320,328)
Decrease in funds escrowed under letter of credit agreement 0 -- 0
Increase in Health Center reserves (22,193) -- (22,193)
----------- ----------- -----------
Net cash used in investing activities (6,789,453) -- (6,789,453)
----------- ----------- -----------
Cash flows from financing activities:
Repayment of partner advances -- -- --
Contributions from partners -- -- --
Distributions to partners (1,450,000) -- (1,450,000)
Proceeds from partner advances 6,200,000 -- 6,200,000
Increase in advances payable 205,362 -- 205,362
Principal payments on bonds -- -- --
Proceeds from loans from residents, deferred revenues
and refundable deposits, net 1,457,110 -- 1,457,110
----------- ----------- -----------
Net cash provided by financing activities 6,412,473 -- 6,412,473
----------- ----------- -----------
Net increase in cash 122,766 -- 122,766
Cash, beginning of period 1,394,227 -- 1,394,227
----------- ----------- -----------
Cash, end of period $ 1,516,993 $ -- $ 1,516,993
=========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
THE CHESTNUT REAL ESTATE PARTNERSHIP
AND THE CHESTNUT PARTNERSHIP
SEPARATE AND COMBINED STATEMENT OF CASH FLOWS
For the three month period ended March 31, 1996
(UNAUDITED)
The
The Chestnut
Chestnut Real Estate Combined
Partnership Partnership Partnerships
----------- ----------- -----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 9,604 $ (287,393) $ (287,393)
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation -- 296,997 296,997
Other amortization 53,288 -- 53,288
Amortization of nonrefundable admission fees (234,114) -- (234,114)
Amortization of development fees 69,051 -- 69,051
Income in Partnership -- (9,604) --
Change in operating assets and liabilities:
Accounts receivable 161,369 -- 161,369
Prepaid expenses and other 46,172 46,172
Accounts payable 42,825 -- 42,825
Accrued expenses 402,220 -- 402,220
----------- ----------- -----------
Net cash used in operating activities 550,415 -- 550,415
----------- ----------- -----------
Cash flows from investing activities:
Increase in funds escrowed under residency agreements (71,970) -- (71,970)
Additions to project operating property (66,138) -- (66,138)
Increase in construction payable -- -- --
Increase in assets held by trustee (433,187) -- (433,187)
Increase in assets payable to trustee (498,674) -- (498,674)
Decrease in funds escrowed under letter of credit agreement 51,824 -- 51,824
Decrease in Health Center reserves 178,470 -- 178,470
----------- ----------- -----------
Net cash used in investing activities (839,675) -- (839,675)
----------- ----------- -----------
Cash flows from financing activities:
Repayment of partner advances -- -- --
Contributions from Partners -- -- --
Distribution to partners -- -- --
Increase in advances payable 4,816 -- 4,816
Principal payments on bonds -- -- --
Proceeds from loans from residents, deferred revenues
and refundable deposits 48,235 -- 48,235
----------- ----------- -----------
Net cash provided by financing activities 53,051 -- 53,051
----------- ----------- -----------
Net decrease in cash (236,209) -- (236,209)
Cash, beginning of period 601,767 -- 1,035,260
----------- ----------- -----------
Cash, end of period $ 365,558 $ -- $ 799,051
=========== =========== ===========
</TABLE>
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 "the 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 March 31, 1997. Construction funds advanced by the
partners are also cash equivalents as of March 31, 1997.
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 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 n 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 has been 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 have
advanced $7,600,000 and the Partnerships anticipate borrowing an
additional $1,900,000. The partners have also advanced $200,000 for
design of future phases.
E. Operating Property
As of March 31, 1997, $5,543,940 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.
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.
The partnerships has 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.
During the three months ended March 31, 1997, LCS was reimbursed
$86,837 for its services and $80,554 for the three months ended March
31, 1996. In addition, LCS was reimbursed in the three months ended
March 31, 1997, $371,524 for marketing of Phase III units.
In the three months ended March 31, 1997, LCSD was reimbursed $314,081
for development fees and had no such reimbursement in the three months
ended March 31, 1996.
In the three months ended March 31, 1997, Mullan was paid $7,774 of
construction management fees, and reimbursed $1,982,297 for
construction costs.
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, 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 March 31, 1997, 173 (97.7%) of the residential units have been
reserved or occupied. The apartment occupancy decreased 2 units in the quarter,
during which there were 8 apartment units sold and no sales cancelled. As of
March 31, 1996, 94% of the residential units were sold or occupied.
As of March 31, 1997, the project had 118 full-time equivalent employees, none
of whom were members of a collective bargaining agreement.
The Partnership is accepting deposits on Phase III units. As of March 31, 1997,
33 of 35 units (94.3%) have been reserved by receipt by the Partnerships of
deposits equal to 10% of the Admission Fee.
Results of Operations
As of March 31, 1997, 161 units (91%) were occupied and/or paying monthly
service fees. This occupancy compares to 157 (89%) of the units at March 31,
1996, and 163 units (92%) at December 31, 1996.
Amortization of non-refundable admission fees decreased because fewer residents
moved in during the 3 months ended March 31, 1996 than moved in during the 3
months ended March 31, 1995. The two-year amortization period causes the decline
to not be apparent for one year.
On January 1, 1997, a 4.8% increase in the monthly service fees became
effective. That increase together with an increase in occupancy from March 31,
1996 to the three months ended March 31, 1997, accounted for the increase in
apartment service fees.
Health center revenues increased primarily because the average occupancy in the
first three months of 1996 was 92% compared to an average occupancy of 94% in
1997.
Capital reserve fees, which are a one-time payment from new residents increased
because five more new residents moved in during the three months ended March 31,
1996 (7), than moved in during the three months ended March 31, 1996 (2).
Operating expenses were down about 2%, even though the average number of
full-time employees was 114 in the three months ended March 31, 1997, compared
to 105 average full-time equivalent employees in 1996.
A decline in amortization costs and interest income from increased cash balances
caused the net interest expense to decline.
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 three months ended March 31, 1996, an auditorium and miscellaneous
additional improvements, totaling approximately $800,000, which was funded by
the Partners, was essentially completed.
In the three months ended March 31, 1997, the Partners advanced $6,200,000 for
the construction of Phase III and the design of Phase II. In addition, a
commitment letter was executed with a financial institution for $1,900,000 of
long-term financing in conjunction with Phase III.
During the three months ended March 31, 1997, the partnership distributed
$1,450,000 of Phase I processed from closings, after providing necessary working
capital funding as required in under the bond documents.
The net loss in being funded by the Partners from admission fees.
Net cash provided by operating activities decreased by approximately $50,000 in
the three months ended March 31, 1997, compared to the three months ended March
31, 1996. The net income after depreciation/amortization provided cash of
approximately $76,000 in the three months ended March 31, 1997 compared to a
loss of cash of approximately $102,000 in the three months ended March 31, 1995.
The increase in operating assets and liabilities from third parties in 1997,
compared to 1996, was substantially less, but was offset by admission fee
receipts of approximately $233,000.
Net cash used by investing activities was approximately $5,900,000 more in the
three months ended March 31, 1997 compared to the three months ended March 31,
1996. This change was due to the construction in progress for Phase III and the
Partners advances to fund Phase III construction.
Net cash provided by financing activities was approximately $6,400,000 better in
the three months ended March 31, 1997 compared to the three months ended March
31, 1996. Cash from Resident loans was $1,400,000 more in 1997 than in 1996
because of more new residents. The partnerships distributed $1,450,000 from
Phase I closings and received $6,200,000 of advances from the Partners.
Because of the level of occupancy in Phase I and sales 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.
The long-term success of the Project is ultimately dependent 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: May 14, 1997 by: /s/ Stan G. Thurston
---------------------
Stan G. Thurston, President
and Chief Executive Officer
(Principal Executive Officer)
Date: May 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: May 14, 1997 by: /s/ T. F. Mullan
-----------------
Thomas F. Mullan III, President
Date: May 14, 1997 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: May 14, 1997 by: /s/ Stan G. Thurston
---------------------
Stan G. Thurston, President
and Chief Executive Officer
(Principal Executive Officer)
Date: May 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: May 14, 1997 by: /s/ T. F. Mullan
-----------------
Thomas F. Mullan III, President
Date: May 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: May 14, 1997 by: /s/ Stan G. Thurston
---------------------
Stan G. Thurston, President
Date: May 14, 1997 by: /s/ Arthur V. Neis
-------------------
Arthur V. Neis, Treasurer
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